Why do we keep finding quality issues?
Have you ever wondered why you seem to train your audit partners and teams so diligently and yet you still find quality issues with the work done? One of the reasons is that you may not have actually understood the root cause of the problems encountered, so even the best training is likely to fail in correcting the situation.
What is Root Cause Analysis?
A root cause analysis, or RCA, is just what it says – an analysis to uncover the underlying, or root cause or causes of an issue, such as a quality problem or failure of some sort. For many of us however, RCA is rather new, and we may not feel we really understand how it works and therefore how it can be effective. This article therefore sets out a brief overview of the process and its benefits.
How does RCA work?
As part of the quality management or control systems in audit, firms will undertake (internally or externally) cold file reviews on a regular basis. These will highlight areas which have been done well, or perhaps not so well. When doing this we might find there are underlying themes, for instance audit of accounting estimates is weaker than desired, and we want to examine these further. Or we might want to undertake a root cause analysis for all audits where the cold file review indicated a poor file and a sample of those where the file was found to be good.
The first step, therefore, is to decide the scope of the RCA and how the sample will be selected. Is it on a particular issue firm-wide, or a selection of individual audit files for example? The next step is to carry out interviews with all the relevant people. Who the relevant people are, will depend on your scope – it might be an entire audit team, or a selection of different grades of staff and partners across the audit department. The person conducting an interview will then talk to each person asking a series of “why” questions, to understand what might have gone wrong. For instance:
“Why did you not carry out all the required steps in ISA (UK) 540 on the audit of accounting estimates in respect of the impairment review of goodwill?”
“I thought I had done the required work, as I ticked all the boxes.”
“But the boxes cross-refer to other work schedules, did you check that all of the items were included?”
“No, I didn’t check because we were short of time and it was going to be reviewed anyway.”
Or, “I did check, and I thought it included everything.”
The questioning continues until the interviewer feels they have got to the root cause or causes of the matter. It might be found that rather than needing more training on an area teams just haven’t been given enough time. Or, linked to this, they received information from the client too late to allow enough time, which may indicate a problem with the project management of the client or the timing of the audit. Or any number of other possible root causes.
This sounds like an inquisition!
It is very important that the RCA is seen by all involved not as a way to apportion blame, but an effective method to learn what improvements can be made. Everybody who is interviewed should feel free to give their honest answers, even if these include issues such as poor leadership, the individual’s own weaknesses, or firm-wide structural or cultural issues. It can be helpful to have an outside consultant carry out the root cause analysis, to help individuals feel comfortable in what they are saying. Alternatively, if someone within the firm is carrying out the exercise, careful consideration should be made of how information will be reported back to management and what assurances partners and staff need that comments made in the RCA will not hamper career progression, bonuses, or relationships with team members.
Root cause analysis will help identify the underlying causes of quality issues so firms will be able to focus corrective action on the relevant areas. For instance, training might be needed but it might be soft skills, rather than technical skills. Audit time budgets may need to be increased for clients with complex accounting estimates for example. Audit programmes may need different questions or have requirements at different stages of the audit to ensure an area, such as audit of accounting estimates, is properly addressed. Of course, there are many other potential outcomes and it is important not to pre-judge these, but to be open to what staff and partners in the RCA interviews are saying.
Contact us if you are interested in finding out more about JS Penny Consulting’s root cause analysis services.