The Institute of Certified Public Accountants of Uganda (ICPAU) implements a quality assurance programme that is conducted in three-year cycles. The first cycle was completed in February 2010, the second cycle in March 2014, the third cycle in May 2017, and the fourth cycle was recently completed in December 2020.
Quality assurance review is a crucial regulatory function that gives effect to ICPAU’s mandate and strategy to protect the public interest by influencing practitioners to pursue consistent high quality of audit and assurance engagements that adhere to the professional standards. High quality of audit and assurance services builds trust and confidence in the users of financial information.
Results of the Fourth Cycle
There were 259 licensed accounting firms as at the end of the review cycle on 31 December 2020. Of these 244 were reviewed in the cycle, while 15 were newly licensed and not included in the review cycle. Despite the focus on firms and audits with public interest exposure in the fourth cycle, audits of non-public interest entities were not overlooked in our reviews.
Our reviews covered firm-wide procedures and individual engagements conducted by the firms. Confidential reports on the reviews were issued to the individual firms. Results are reported as either; Satisfactory (1), Acceptable (2A), Improvements required (2B) or Significant improvements required (3).
Over 50% of the firms reviewed required significant improvements (class 3) and about 39% required improvements (class 2B). It is important that we see a reduction in the number of firms which require improvements.
Findings in the Fourth Cycle
There were frequent findings of lack of consistency in the execution of audits across engagement teams, failure to record important aspects of audit work, failure to monitor the firm’s quality control/management systems and inadequate leadership and supervision of engagements. These have been recurring findings over several years.
Other findings included;
- Firms not being able to produce an audit file to support the audit opinion that was issued. This was especially common among sole practitioner firms whose client base consists majorly of Small and Medium-sized Entities (SMEs) some of whom did not maintain books of accounts.
- Failure to comply with the relevant International Standards on Auditing. We observed that compliance was lowest for the following standards: ISA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements; ISA 250 (Revised) Consideration of Laws and Regulations in an Audit of Financial Statements; ISA 520 Analytical Procedures; ISA 530 Audit sampling; ISA 550 Related Parties; ISA 560 Subsequent Events; and ISA 570 Going Concern.
- Non-compliance with International Education Standard 8 Professional Competence For Engagement Partners Responsible For Audits Of Financial Statements (Revised) (IES 8). The Standard requires engagement partners to undertake CPD that develops and maintains the professional competence required for their role. The major findings here included, that practising accountants did not maintain a record of their CPD and some practising accountants were undertaking trainings that would not be directly mapped to their roles.
The contributory factors to the above findings included: inadequate application of professional judgement and scepticism; lack of standardized audit programmes; poor quality management measures at both firm and engagement levels; inadequate planning; insufficient documentation of audit evidence; insufficient resourcing; and late timing of audit work especially in the face of tight reporting deadlines.
Audit Quality Initiatives
ICPAU has undertaken initiatives to promote improvements in audit quality through:
- Progress reporting requirement – All firms rated 2B & 3 are required to submit progress reports on the status of implementation of their action plans every six months.
- Internal monitoring reviews - Firms rated class 3 are required to conduct annual internal monitoring and inspection of engagement files to enable them identify areas where audit work should be improved on a timely basis.
- Mentorship programme – Practitioners at firms rated class 3 are required to undergo mandatory mentorship for a period of 12 months.
- Special training - Requirement to attend the Model Audit File training for practitioner at firms rated class 2B and 3.
- Audit restrictions - Firms rated class 3 may be restricted from auditing or continuing to audit public interest entities.
In the period 2018 to 2019, a number of firms were referred to the Quality Assurance Board due to poor audit quality. Disciplinary action is taken against all firms that show severe and systemic weaknesses in audit quality. In such cases, disciplinary action may include suspension or withdrawal of practicing certificates & firm licenses.
Focus Areas in the 5th Cycle
The fifth quality review cycle commenced in 2021. During this new 3-year cycle, ICPAU will continue to perform robust reviews on firms selected on a risk basis. The country is still battling the devastating COVID-19 pandemic and the audit profession must change, improve and do more in order to remain relevant. Our review methodology has been updated to reflect these new risks and disruptions.
Much of the review work in the fifth cycle is being undertaken remotely and in compliance with the Covid-19 standard operating procedures. Major areas of focus in the fifth cycle will include;
- Root cause analysis and audit quality plans. Firms will be required to:
- Perform robust root cause analysis of finding or deficiencies;
- Develop action plans to respond to the identified root causes on a timely basis; and
- Implement improvements in procedures arising from the firm’s action plans.
- Impact of the COVID-19 pandemic. The reporting climate will be very challenging for many entities and firms. We will therefore look closely at audits in industries that have experienced the most significant disruption due to COVID-19. We will also be interested in how auditors are completing and documenting procedures in the face of pandemic-related constraints.
- New and revised quality standards. The IAASB issued three Quality Management standards, ISQM 1, ISQM 2 and ISA 220 (revised) which will be effective on 15 December 2022. These standards require a proactive approach to quality management and firms need to establish quality objectives, identify and assess quality risks and to design and implement processes that will enable them comply with the new standards. The IAASB issued First-Time Implementation Guides to help in the understanding and application of the new standards.
- Our role as AML/CFT supervisor. Our strategy is to provide robust anti-money laundering supervision through a risk-based regime. We will focus our efforts on firms where the money laundering or terrorist financing risk is highest. At the same time, we shall offer help and support to our firms where appropriate.
In order to achieve high quality audits consistently, firms should ensure that they;
- Monitor the quality of audits at both a firm and engagement level and at firm-wide level on a real time basis.
- The firm’s culture support the ability to continuously improve audit quality by; driving the right values, ethics and attitudes that support high audit quality throughout the firm.
- The firm leadership advocates, communicates and rewards audit quality.
ICPAU aims to deliver developmental regulation. This implies that in addition to the quality assurance programme, ICPAU provides a range of practitioner support resources. See the “Technical Resources Section” of our Website which includes Sample Practice Manuals; Articles on Audit Quality; Illustrative financial statements; Presentations at the Practice Management Course; Other Guidance Papers; and Technical Updates in the monthly E-News.
CPA Susannie Kyamanywa, Manager Quality Assurance and Regulation