Root cause analysis (RCA) – improving audit quality

By Katherine Rose, Citroen Wells Chartered Accountants

RCA is a technique for identifying the underlying reason behind audit review findings, whether specific to one audit or firm wide, so that an appropriate action can be taken to prevent recurrence of negative outcomes and to promote recurrence of positive ones.

RCA is about identifying the trigger for an issue, rather than just looking at the symptom of review findings. Dealing with the symptom is a ‘sticking plaster’ approach. It may address the immediate issue, but identifying the root cause is a more effective way to reduce future recurrence of similar findings.

RCA does not have to be complicated, yet it can be very powerful if done well. In simple terms, it is a matter of asking ‘why?’, possibly several times. It is therefore important that the individual performing the RCA displays professional scepticism and strong personal skills, as well as suffcient experience and seniority to be able to ask challenging questions of the audit team.

It is likely that effective RCA exercises will involve tailoring and specificity rather than general procedures. Possible procedures might include combinations of the following:

  • Discussions with the audit team
  • Asking audit teams to complete a questionnaire
  • Review of audit work
  • Discussions with those responsible for training and methodology
  • Analysis of data collected to identify correlations across findings

Issues that have the potential to be root causes of review findings may be internal, which the firm may be able to influence, or external, which the firm is less likely to be capable of influencing. Potential root causes may include:

  • Resource issues
  • Personal, ethical and attitude issues
  • Process issues
  • Leadership issues
  • Client issues

RCA is a topical subject across the globe and has been commented on extensively by regulators and standard-setters. It is likely that the regulatory spotlight, and the call for effective RCA, will soon fall on a greater range of firms given the new challenges they will face in the future.


Katherine Rose

Katherine Rose

GGI member firm
Citroen Wells Chartered Accountants
Auditing & Accounting, Tax, Advisory, Corporate Finance, Fiduciary & Estate Planning
London, UK
T: +44 20 7304 2000
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: citroenwells.co.uk

Citroen Wells' partners include specialists with years of practical knowledge assisting their international clients, including the financial problems facing property investors, dealers, and developers. They offer a range of high-quality accounting, tax, financial, and business services.

Katherine Rose is responsible for quality control, compliance, and technical matters at Citroen Wells. She also manages a portfolio of audit clients, with 15 years’ experience working with businesses across many industries, focussing on international groups and consolidations under UK GAAP and IFRS.


Published: Auditing, Reporting & Compliance Newsletter, No. 07, Spring 2022 l Photo: kbarzycki - stock.adobe.com

 

Ggi Logo 150x109px

GGI Global Alliance AG

Sihlbruggstrasse 140
6340 Baar
Switzerland

Contact

T: +41 41 7252500
F: +41 41 7252501
This email address is being protected from spambots. You need JavaScript enabled to view it.
www.ggi.com