Communication Brief: Quality Management at Sowah Accountants & Partners

(a)(i) Why a system of quality management is necessary
A system of quality management is essential to ensure that audits and other engagements are performed consistently to a high standard, in compliance with professional standards (ISA 220 and ISOM 1) and regulatory requirements. It enhances the reliability of financial reporting, protects the public interest, and maintains the firm’s reputation. Effective quality management mitigates risks of errors, non-compliance, or negligence claims, ensuring confidence among clients, stakeholders, and regulators. It also fosters a culture of continuous improvement and accountability within the firm.

(a)(ii) Components that must be addressed by a system of quality management
Under ISOM 1, a system of quality management must address the following components:

1. Risk Assessment Process: Identifying and assessing quality risks specific to the firm’s operations and engagements.

2. Governance and Leadership: Establishing a tone at the top that prioritizes quality, with clear roles and responsibilities.

3. Relevant Ethical Requirements: Ensuring compliance with ethical standards, including independence and objectivity.

4. Acceptance and Continuance: Evaluating whether to accept or continue client relationships based on risk and resource availability.

5. Engagement Performance: Implementing policies for consistent, high-quality engagement execution, including supervision and review.

6. Resources: Ensuring adequate human, technological, and intellectual resources to support quality engagements.

7. Information and Communication: Facilitating effective communication of quality policies and procedures to staff and stakeholders.

8. Monitoring and Remediation: Regularly reviewing the system’s effectiveness and addressing deficiencies through corrective actions.

(a)(iii) Engagements for which an engagement quality review is compulsory
Engagement quality reviews are mandatory for:

1. Audits of listed entities: Due to their public interest and high risk, as per ISOM 1 and ISA 220.

2. Engagements with significant public interest: Such as financial institutions or other entities where failure could have a major impact.

3. High-risk engagements: Where the firm identifies significant risks, such as complex transactions, regulatory scrutiny, or fraud concerns.

4. Engagements required by law or regulation: Where specific standards or regulators mandate a quality review.
   These reviews ensure an independent evaluation of significant judgments and conclusions, enhancing audit quality.

(b)(i) Difference between hot review and cold review and why both are necessary
A hot review is conducted during the audit, before the audit report is issued, to address significant issues in real-time, ensuring timely resolution and quality control. A cold review is performed after the audit is completed, often as part of the firm’s quality monitoring, to evaluate compliance and identify improvements. Both are necessary: hot reviews enhance engagement quality during execution, while cold reviews provide an independent assessment to improve future audits and ensure consistency.

(b)(ii) Importance of documenting audit reasons and justifications in working papers
Documenting reasons and justifications in working papers is critical to demonstrate the auditor’s professional judgment, compliance with standards (ISA 230), and the basis for conclusions. It provides evidence of due diligence, supports audit quality, and protects against legal or regulatory challenges. Test results alone may not clarify the rationale or context, making documentation essential for transparency and review.

(b)(iii) Why audit working papers have to be standardized
Standardized working papers ensure consistency, efficiency, and compliance with professional standards across engagements. They facilitate training, review, and quality control, reducing errors and ensuring all key areas are addressed. While standardization may seem restrictive, it provides a framework that allows auditors to exercise judgment within a structured format, enhancing effectiveness without inhibiting skills.