The BAOB applies a risk-based and network approach to its quality reviews
Registered auditors are subjected to a quality review by the BAOB at least every six years, or at least every three years for auditors and audit firms that audit one or more PIEs that individually exceed more than one criterion as referred to in Article 1:26, § 1 of the Companies and Associations Code.
The time period between two quality reviews is determined on the basis of a risk assessment. This risk assessment is based among others, but not exclusively on the following criteria:
- the sector cartography (Auditors Annual Cartography);
- any indications from third parties (press articles, complaints or other oversight authorities); and
- the results of previous quality reviews.
The BAOB conducts the risk assessment annually. Based on this, it selects the auditors and audit firms to be included in the quality review.
If a network of auditors or audit firms has common quality management procedures, the BAOB organises its quality review at the network level. The BAOB particularly emphasises the importance of accurate reporting in this regard. It has been found that auditors do not always correctly state in the Auditors Annual Cartography whether they are part of a network with or without common quality management procedures. The BAOB requests that members of a network consult with each other on this matter in advance.
The BAOB also emphasizes that audit firms within the same network should apply the common procedures in a similar manner. Where appropriate, this determination impacts the BAOB’s assessment of the scope of quality review.
The BAOB’s oversight is resolutely based on the proportionality principle
The BAOB exercises its oversight powers taking into account the scale and complexity of the auditor’s activities, on the one hand, and the scale and complexity of the business of the audited entity, on the other.
The BAOB Committee decides on how it will follow up on the findings from a quality review. These quality reviews are appropriate and proportionate to the scale and complexity of the activities of the reviewed auditor. However, this does not mean that smaller audit firms are exempt from complying with the applicable legislative and standards framework. Registered auditors are expected to apply the relevant professional standards proportionate to the scale and complexity of the activities of the entity being audited.
The proportionality principle is reflected inter alia in the BAOB’s assessment of the organisational requirements of the registered auditor. The BAOB acknowledges that for certain internal procedures, smaller audit firms are not required to provide the same amount of detail as larger firms.
However, as required by law and the ISAs, the BAOB does expect smaller firms to adequately document and timely archive their audit procedures when performing their statutory audit engagements. An audit file must be prepared in a consistent and structured manner. Based on the audit file, any experienced auditor with no previous connection with the audit should be able to understand the process of the audit procedures and how the auditor’s opinion was reached.
Adversarial debate applies to the performance of quality reviews
Another guiding principle in carrying out quality reviews is adversarial debate. During the quality review, the reviewed auditor may discuss the preliminary findings and conclusions with the inspector.
The BAOB upholds the auditor’s opinion
The BAOB respects the auditor’s opinion on the financial statements insofar as this opinion was reached in the appropriate manner and the auditor substantiated it with valid arguments. It goes without saying that the auditor takes into account all material risks.