Date posted: 03/04/2024 8 min read

A focus on quality

In this issue, we consider why quality management procedures are important and how a failure to comply with the standards may result in complaints to the CA ANZ and NZICA disciplinary bodies.

Quick take

  • The quality management standards were significantly updated and strengthened in Australia and New Zealand in the last two years for both assurance and non-assurance engagements.
  • "Quality management is about designing, implementing and documenting operating policies and procedures which deal with quality and risk, both at a systems and engagement level, and reviewing and updating these on a regular basis.” says Rebecca Stickney, CA ANZ.
  • CA ANZ has toolkits that have been prepared for both assurance and general practice practitioners, and the professional standards teams are always happy to answer questions.

Rebecca Stickney and Kate Dixon, leaders of the CA ANZ professional conduct teams in New Zealand and Australia respectively, have seen a number of quality management-related complaints against CA ANZ members.

The quality management standards were significantly updated and strengthened in Australia and New Zealand in the last two years for both assurance and non-assurance engagements, moving from a system of quality control to quality management, says Stickney.

“These changes include the introduction of root-cause analysis for assurance engagements and the introduction of new elements, such as information and communication. For both assurance and non-assurance engagements, elements such as the expansion of human resources have been included to better incorporate all resources used by the firm.”

Quality management reform

Assurance practices were required to implement the new systems using a risk assessment approach by 15 December 2022. They are also required to establish a monitoring and remediation process, with the first self-evaluation occurring by 15 December 2023.

Non-assurance practices were required to update their systems for new policies and procedures, including strengthened monitoring and remediation processes required by the revised standards, by 15 December 2022 (New Zealand practices) and 1 January 2023 (Australian practices) and undertake the first self-evaluation by 15 December 2023 (NZ practices).

Regardless of the size of firm and its type of work, Dixon says quality management is a requirement for all public practices.

“Both standards also cover a range of firm management elements,” she says, “including governance and leadership, compliance with professional standards, acceptance and continuance of client relationships and specific engagements, resources, performance information and communication and monitoring and remediation.”

Vigilance is key

Dixon says establishing high-calibre quality management systems assists firms to comply with professional standards and changes in legislation, and ensures engagement outputs are consistent with these systems.

“Quality management is about designing, implementing and documenting operating policies and procedures which deal with quality and risk, both at a systems and engagement level, and reviewing and updating these on a regular basis,” says Stickney. “Such systems serve as a protection for practitioners, their staff and clients.”

Firms also need to document their quality management systems.

“It is important that the documentation is not prepared once and then ‘set and forget’. It needs to be a living document that is regularly reviewed and updated to reflect your system of quality management as it evolves with your practice and external environment over time.”

“Quality management is about designing, implementing and documenting operating policies and procedures which deal with quality and risk, both at a systems and engagement level, and reviewing and updating these on a regular basis.”
Rebecca Stickney, CA ANZ

Failure to comply complaints

Complaints which raise issues of noncompliance with quality management requirements can originate in three different ways: through CA ANZ’s own in-house monitoring, via quality and practice reviews, and through client complaints.

“Principals have an overarching responsibility to ensure that their firm’s policies and procedures are compliant, and this includes the conduct of junior staff,” says Dixon. “We’ve had complaints where the principals of the firm have claimed a junior person made a mistake or provided the wrong information. On investigation, we have found the issues have arisen due to training issues or a lack of due diligence with the technology.”

She says under these standards, firms, practitioners, and principals have an obligation to ensure that staff properly understand their obligations and that there’s sufficient commitment to ethical principles.

Be prepared

Dixon recommends principals establish whether they have sufficient staff training in place and to remind their teams of the code of ethics and other relevant professional standards, emphasising the importance of complying with the principles and obligations they contain.

Stickney says complaints can also arise from siloed practices within a firm, which can result in issues such as conflicts of interest not being identified when accepting or continuing client engagements.

“For example, we’ve had cases where conflicts have not been identified and appropriately managed, where different partners have acted for separate clients competing in sale and purchase and other business transactions. While different partners within a firm may act for different parties, there needs to be robust safeguards. All of the conflict-of-interest management processes need to be in place.

“If appropriate client acceptance and continuance policies and procedures are not implemented, practitioners within a firm don’t necessarily know if they are working in a siloed way.”

She says another issue is where a member is working in an area that might not be the mainstay of their practice. For example, practitioners often don’t realise that doing an audit as a favour for a local community organisation could result in compliance issues with both the code of ethics, and audit and assurance standards if they don’t have appropriate experience or registration.

“In these cases, members sometimes do not realise the need for a specific compliance with appropriate quality management and other assurance standards.” 

Toolkits and advice available

While Dixon acknowledges it may be challenging to keep abreast of new standards, particularly for sole or small practices, she says it is in practitioners’ own interests to set aside some time to look at their policies and procedures and make sure that they are compliant.

CA ANZ has toolkits that have been prepared for both assurance and general practice practitioners, and the professional standards teams are always happy to answer questions.

“Ensure you have a range of applicable templates, review the terminology in your engagement letters, and make sure it suits your business model,” Dixon says. “This is an opportunity to improve your processes, make your firm more efficient, identify where the risks to your business might be mitigated and get ahead of the game.” 

Take aways

See further reading below.