Firm policy and audit regulatory change: best practices

Audit firms are subject to constantly changing standards and regulations. Without a systematic process in place for review, firms leave themselves open to the risk of noncompliance and inconsistencies. A lack of visibility and control over how local firms are adopting international guidance adds another layer of complexity.

Auditors are now expected to take on a broader range of financial information as investor interest continues to grow in the areas of non-accounting measures, such as cybersecurity and environmental, social and governance (ESG). This increases the importance of providing guidance to auditors and the number of times that guidance material must be reviewed and updated. Many firms are relying on manual processes that limit their ability to update material to about once per year.

Professional practice and audit quality teams should be enabled to increase the volume of updates and to implement continuous monitoring.

The International Standard for Quality Management (ISQM 1) emphasizes the continual flow of information within the firm, its engagement teams, and is driving firms to establish a robust information system.

In addition, it is important to consider how today’s auditors consume information in both their professional and personal lives with search and the ability to find quick snippets of information. Firms need to be able to deliver rich information rather than direct auditors to pages of guidance material and provide auditors with relevant and concise updates.

Why act now?

Against this backdrop, there are a number of reasons to act now, including:

  • Personal and firm risk
  • Issues for editors, including the big document problem
  • A slowdown in firms’ ability to react to the latest regulatory expectations
  • ISQM1 requirements for systematic quality control
  • Lack of utilization of partner expertise

Simultaneously, there are opportunities for firms to drive benefits such as:

  • Increasing the number of partners serving in technical roles
  • Increasing audit quality hours provided by professional practice
  • Expand the usage of audit guidance material

Seven step Framework

There are seven steps firms can implement to ensure that their policies, guidance and templates are up to date and that they are driving the quality of the expertise underpinning audits.

1. Centralize with a Purpose-Built Platform

A centralized platform enables firms to manage all global and local audit methodologies in one place. Instead of sharing multiple copies of the global version for amending and updating, firms can implement workflow tools to enable collaboration, while also reducing the duplication of its efforts and driving consistency across the organization.

2. External Monitoring

With the volume of guidance manuals, materials, templates, etc, within firms, it can be difficult to keep track and ensure that each one is updated in accordance with regulatory developments. Rather than manually tracking updates and running the risk of noncompliance, firms can implement an automated approach that mitigates the risk of certain guidance assets falling through the cracks. 

3. Change Controls

In addition to external change controls, firms need to have change controls in place for their internal material. Examples include:

  • Ability to reuse content and keep different versions in-synch
  • Linking international and local versions
  • Linking different languages
  • Linking manuals to standards

4. Enable Collaboration between Partners

One audit quality metric that is frequently used is the hours contributed by professional practice to audit quality initiatives. Having a central place where partners can contribute, collaborate and document the actions taken helps reduce delays and makes it possible to increase the number of releases.

5. Audit Trails

ISQM has increased the need to demonstrate systematic processes. Firms have been challenged in the past to collect documentation to demonstrate reviews or actions taken to address identified weaknesses. These should be captured centrally with a full audit trail of the process to reduce the risk of fines and penalties from regulators.

6. Automate the Publication and Review Process

Staff in the professional practice group are highly trained and qualified. They should be focused on creating high-quality guidance material or supporting staff. Rather than assigning staff to tasks such as manually tagging content, firms that have an automated publication and review process can direct greater focus towards higher value activities.

7. Improve Access to Guidance Material

Firms are moving towards data-driven audits and are driving efficiencies by tailoring the procedures and guidance materials based on the type of entity, the regulatory framework, the industry, and risks related to that organization. However, it is essential to have the capability in place to manage the generation of short concise guidance materials to support these activities. 

This article was originally presented as a webinar. Watch the recording for use cases implemented by Propylon experts and a see the controls in action. 

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