Audit Quality Maturity Model Version 1.0 - Practice Management

CA Amrita Chattopadhyay , Last updated: 04 August 2021
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Audit Quality Maturity Model (AQMM) is a tool for self-evaluation of audit firms & sole proprietor towards technological driven mechanism to increase the operational efficiency. Since the business world is fast changing, it is imperative for the audit firms to adopt new technologies like Data Analytics and Robotic processes. The recent development in the technology have significantly changed the way the audit is done these days. The focus of Audit Quality Maturity Matrix is to ensure continuous improvement of audit firms. Presently, the Audit Quality Maturity Model is recommendatory in nature.

The Audit Quality Maturity Model Version 1.0 focuses on the audit firms auditing the following:

Listed entities
Banks - other than co-operative banks
Insurance companies

Audit firms doing branch audits are however not covered

Audit Quality Maturity Model Version 1.0 - Practice Management

Criteria on which the audit firms are evaluated are:

Section 1: Practice Management - Operations
Section 2: Human Resource Management
Section 3: Practice Management - Strategic / Functional

In this article, the requirements to ensure compliance with Section 1: Practice Management - Operations is discussed.

1.1 Practice areas covering the revenue from audit and assurance services and having mission and vision statement of the firm.

1.2 Practice Manual

Sl. No.

Requirement of AQMM.V.01

Implementation methodology

Audit Manual ensuring compliance with Auditing standards & firm’s methodology for implementation

The firm should document the steps to be taken for compliance of SQC-1 Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements

Standard formats for auditing

The firm should have standard formats for auditing which covers:

Letter of Engagement
Management Representation letter
Significant working papers to ensure compliance of auditing standard
Reports and implementation thereof

1.3 Quality Review Manual / Audit Tool

Sl. No.	Requirement of AQMM.V.01	Implementation methodology
1.	Client acceptance / engagement acceptance checklist and adequate documentation thereof	A checklist to be designed which may include the following details: a. Industry knowledge of the client b. Information regarding the ownership & management of the client c. Specific legal & regulatory requirement of the client d. Financial condition with specific emphasis on going concern e. Competence of the audit firm to take up the audit f. Specific issues arising while discussion with previous auditor.
2.	Evaluation of independence of Engagement team including partners, managers, staff, trainees	The firm may have policy for Annual Independence Confirmation addressing self-interest threat, familiarity threat, intimidation threat, self -review threat, advocacy threat and conflict of interest (if any)
3.	Engagement withdrawal & rejection policy template	The template should address the conflicts with respect to the Independence, scope limitation, changes in the regulatory requirement, pressure on fees, integrity of the management & the owner in the due course.
4.	Checklist for compliance with Auditing & Accounting Standards	Standard checklist is available with ICAI which is revised from time to time
5.	Standard formats for: Business understanding Sampling basis Materiality Data analysis Control environment	Business understanding might cover the business sector in which the company operates, location, composition of the Board, Organization chart, key supplier / customer details etc Sampling method generally used by the firm like systematic random sampling, Stratified sampling, sample based on risk factors etc Materiality to include overall materiality or performance materiality

1.4 Effort Monitoring

Sl. No.	Requirement of AQMM.V.01	Implementation methodology
1.	Capacity Planning for each engagement	The composition of the audit team can be documented with the roles assigned to each personnel
2.	Budgeting and planning of efforts	Time budget consisting of budgeted days required (based on past experience) and the actual days spent on the audit can be documented using Time budget
3.	Variance analysis of Budgeted Vs. Actual	Based on the data captured in the “Time budget”, regular analysis can be done with root cause analysis
4.	Use of technology to track the efforts spent	The firm can have attendance tracker or daily sheet to track the effort spent or technology can be introduced for the same.

1.5 Quality Control for Engagement

Sl. No.	Requirement of AQMM.V.01	Implementation methodology
1.	Quality review partner for all audit assignment	The audit firm has to engage “Quality Review Partner” as per the requirements of SA 220 - Quality Control for Audit of Financial Statements
2.	Findings by ICAI, Committees of ICAI and regulators that require significant improvement	As per firm’s record
3.	Documentation as per SQC-1	Documentation regarding leadership responsibilities for quality within the firm Acceptance and continuation of client Human Resource - Competency & knowledge Engagement Performance Monitoring
4.	Accounting and Auditing Resource in the form of shared Technical Desk	Technical desk would be required for sharing of knowledge / resources

1.6 Service Delivery - Benchmarking

Sl. No.	Requirement of AQMM.V.01	Implementation methodology
1.	Standard delivery methodology	The firm need to develop policy for the delivery of the service undertaken. The details have to be documented in the Audit Manual
2.	Statutory Audit engagement reworked	The firm should have mechanism to track the statutory engagements which have been reworked
3.	Client disputes (other than fees) and mechanism to address it	It has to be part of the Audit Manual regarding the dispute redressal mechanism and documents to prove the same.
4.	Documentation of audit interactions with management	The firm needs to maintain evidence of interaction with client which can be done by maintaining separate mail id or achieving the communication with management

1.7 Client Sensitization

Sl. No.	Requirement of AQMM.V.01	Implementation methodology
1.	Awareness meeting and knowledge dissemination with the client	The firm needs to maintain documents regarding meeting with clients regarding updating them with legal changes, impact on the client. Ideally Minutes of Meeting has to be maintained in this regard Follow through of previous audit observations and updating management regarding the same.
2.	Monitoring of planned hours and actual hours	Time budget consisting of budgeted days required (based on past experience) and the actual days spent on the audit can be documented using Time budget

1.8 Adoption of Technology

Sl. No.	Requirement of AQMM.V.01	Implementation methodology
1.	Adoption of Technology for various aspects of office working including internal communication, attendance system & leave management, Time sheet management, storage of records, own email domain or email usage policy	The firm needs to demonstrate that they have adopted technology in their office. Most of the firms have domain email IDs and mechanism of storage of data. Additional steps have to be taken for attendance & leave management, time sheet management, ensure data security by adopting cyber security measures.

1.9 Revenue, Budgeting & Pricing

Sl. No.

Requirement of AQMM.V.01

Implementation methodology

Client wise revenue in compliance with Code of Ethics

The firm should maintain clientele list with the revenue earned from the client. As per the Code of Ethics of ICAI, the revenue from a single client should not exceed 40% of the total revenue.

Once the deferred clause of Part A is implemented, the percentage will be reduced to 15%

Adherence to minimum scale of fees standard recommended by ICAI

The clientele list with revenue should be in alignment with the fees consideration as prescribed by ICAI from time to time.