Document ID: chunk:federal_register_of_legislation:F2023C01118:body:0:p64
Version: federal_register_of_legislation:F2023C01118
Segment Type: other
Provision Reference: 
Character Range: 187644–190705

* The nature of the identified deficiency: The firm's procedures to understand the root cause(s) of an identified deficiency may be more rigorous in circumstances when an engagement report related to an audit of a financial report of a listed entity was issued that was inappropriate or the identified deficiency relates to leadership's actions and behaviours regarding quality.

      * The possible severity of the identified deficiency: The firm's procedures to understand the root cause(s) of an identified deficiency may be more rigorous in circumstances when the deficiency has been identified across multiple engagements or there is an indication that policies or procedures have high rates of non-compliance.

      * Nature and circumstances of the firm:

              + In the case of a less complex firm with a single location, the firm's procedures to understand the root cause(s) of an identified deficiency may be simple, since the information to inform the understanding may be readily available and concentrated, and the root cause(s) may be more apparent.

              + In the case of a more complex firm with multiple locations, the procedures to understand the root cause(s) of an identified deficiency may include using individuals specifically trained on investigating the root cause(s) of identified deficiencies, and developing a methodology with more formalised procedures for identifying root cause(s).

A167.      In investigating the root cause(s) of identified deficiencies, the firm may consider why deficiencies did not arise in other circumstances that are of a similar nature to the matter to which the identified deficiency relates. Such information may also be useful in determining how to remediate an identified deficiency.
Example of when a deficiency did not arise in other circumstances of a similar nature, and how this information assists the firm in investigating the root cause(s) of identified deficiencies

The firm may determine that a deficiency exists because similar findings have occurred across multiple engagements. However, the findings have not occurred in several other engagements within the same population being tested. By contrasting the engagements, the firm concludes that the root cause of the identified deficiency is a lack of appropriate involvement by the engagement partners at key stages of the engagements.

A168.      Identifying a root cause(s) that is appropriately specific may support the firm's process for remediating identified deficiencies.
Example of identifying a root cause(s) that is appropriately specific

The firm may identify that engagement teams performing audits of financial reports are failing to obtain sufficient appropriate audit evidence on accounting estimates where management's assumptions have a high degree of subjectivity. While the firm notes that these engagement teams are not exercising appropriate professional scepticism, the underlying root cause of this issue may relate to another matter, such as a cultural environment that does not encourage