IRBA Newsletter Issue 54

Issue 54 | April-June 2021 16 INSPECTIONS STRONG FIRM GOVERNANCE AND LEADERSHIP INVOLVEMENT KEY ANCHORS AS THE 8 TH INSPECTIONS CYCLES KICKS OFF The Inspections Department commenced with the first year of the 8 th Inspections Cycle on the 1st of April 2021. In this cycle we continue with a risk-based focus, placing even more emphasis on the importance of strong firm governance and leadership involvement in ensuring consistent high audit quality is achieved. The 8 th Inspections Cycle kicks off with, and is supported by, our value proposition statement: Restoring stakeholder confidence through measured audit quality. As part of the IRBA’s refocused strategy, the IRBA will respond to the area of strategic focus on audit quality by, inter alia, employing and developing the relevant skills to increase the coverage of inspections. It will also be developing IT solutions that will enable it to work proactively and more efficiently in the dynamic audit environment. The 7 th Inspections Cycle is in the process of being wrapped up by the department. This will result in the communication of a detailed summary and a holistic analysis of the key deficiency themes reported over the three-year period of the 7 th Inspections Cycle. 8 th Inspections Cycle Strategy and Process The strategy and process for this cycle are aligned to the IRBA’s refocused five-year strategy that was adopted by the Board in February 2021 and approved by National Treasury and Parliament in March 2021. For this cycle, as with the previous ones, we are still committed to enhancing audit quality and promoting compliance with professional standards and rules. There are notable changes, initiatives and enhancements that have been introduced in the 8 th Inspections Cycle, as highlighted in the graphic below. a. Comprehensive Stakeholder Engagement As part of the refocused IRBA strategy, the Inspections Department will focus on increasing its stakeholder relations. This will include engaging with audit firms on a proactive basis, while maintaining independence. The department continues to engage with wider stakeholders, such as audit committee chairs of listed entities, other relevant regulators and institutions, and still assesses the need to expand the discussions to other groups, to create awareness and the possibility of collaborations as we journey towards improving audit quality. Further, the department will follow a broader stakeholder approach to audit quality improvement that requires enhanced transparency and accountability in the public interest. As such, the IRBA will maintain its engagements with the firms to coordinate the preparation of the transparency reports and reporting on audit quality indicators to promote transparency, thus, rebuilding trust in the profession. In these engagements, the audit firms are also encouraged to continue to promptly share their latest inspection decision letters, formal reports (unredacted) and remedial action plans with audit committees of listed companies and other public interest entities (PIE) to facilitate robust dialogues on matters affecting audit quality. In addition to the above engagements, the department has started discussions with the audit firms on the implementation of the ISQM quality standards, which will impact firm-wide inspections during the 8 th Inspections Cycle. Through these engagements, the Inspections Department will closely monitor the progress by the firms in ensuring firm readiness on the implementation of the quality management standards prior to their effective date. In the first year of the 8 th Inspections Cycle we are prioritising our engagements with audit firms that audit listed PIEs. In the latter part of the year we will assess these firms’ state of readiness and consider communicating the outcomes with all stakeholders. The Inspections Department will also continue to have effective engagements with the firms on other areas and topics, where necessary, to promote accountability and with an ultimate goal of improving quality. Other changes in the standards that the auditing firms need to be aware of and which we will see implemented during the 8 th Inspections Cycle include ISA 220 (Revised), ISA 315 (Revised), ISA 330, ISA 600 and related audit regulations such as Mandatory Audit Firm Rotation. b. Guided Proactive Monitoring of Remediation Initiatives Due to the concerning trend, over several inspections cycles, of recurring deficiency themes being reported to audit firms and auditors, the Inspections Department will be introducing a guided proactive monitoring process with audit firms, as part of the 8 th Inspections Cycle remediation initiatives. This proactive monitoring process will provide audit firms and auditors with