Using Root Cause Analysis (RCA) to improve audit quality is nothing new. The ICAEW’s first significant Paper on the subject Improving audit quality using RCA will soon be 10 years old. In the decade since this paper’s publication the scrutiny on external audits has increased and ISQM (UK) 1 introduced a new requirement for firms to undertake RCA as part of their monitoring and remediation process.
What is RCA?
In short, a root cause is a high-level cause that sets a specific causal chain in motion - one that results in a positive or negative outcome. Therefore, Root Cause Analysis (RCA) is a method employed to reveal those critical causal factors. Once we uncover the root causes of a negative issue, we can apply targeted actions to break the cycle of symptom management and the frustration of short-term troubleshooting.
Although RCA owes its history to the manufacturing industry, the past 25 years have seen the principle migrate between sectors, and the method adapt because of this. In audit, accountancy and professional services RCA is now seen as a trusted way to solve problems at scale and uncover solutions for the most complex organisational challenges.
The latest on ISQM (UK) 1
In September 2024 the FRC shared observations and good practice ISQM (UK) 1 Root Cause Analysis (RCA), setting out, precisely, how a structured, customised and iterative system, deployed to identify and respond to quality objectives and risks to those objectives, and to promote that positives outcomes is required.
ISQM (UK) 1 requires firms to
- Design Monitoring process to support their system of quality management (SoQM)
- Evaluate findings from this SoQM to identify deficiencies
- Perform RCA on ALL identified deficiencies to assess severity and pervasiveness
- Implement effective remedial actions based on the RCA
- Proactively manage the quality of their engagements
Significantly, throughout ISQM (UK) 1 it is recognised that the nature, timing and extent of any RCA activity will inevitably be driven by the firm’s size and circumstances as well as the nature of the deficiencies being analysed. Notwithstanding this, RCA is critical for identifying the root causes behind audit deficiencies, which may include errors, oversight, or gaps in the audit process. It is only by fully understanding the fundamental drivers of these issues that audit firms can avoid repeating the same mistakes, enhance the quality of their audits, and meet regulatory expectations. In particular, ISQM (UK) 1 suggests that firms apply RCA not only to address deficiencies but also to manage audit quality proactively. This means RCA should be used both reactively, when problems arise, and proactively, to identify potential risks or areas for improvement before they escalate.
However, ISQM (UK) 1 does not specify exactly how RCA should be carried out, leading to a degree of uncertainty for audit firms about what constitutes best practice. To address this gap, many firms have turned to collaborative efforts to define effective approaches, with platforms like What Caused This supporting the RCA process.
Why Use Software?
While RCA is a powerful tool, its application in the audit context is not without challenges:
- Subjectivity: The process of identifying root causes can be subjective and vary between firms, especially when there is no clear guidance on what constitutes a successful RCA.
- Resource Constraints: Smaller audit firms may struggle with the time, expertise, and tools required to conduct comprehensive RCA.
- Data Complexity: Audit firms typically deal with large volumes of complex data, making it difficult to pinpoint the underlying causes of deficiencies.
- Integration: Firms need a solution to plug into existing business systems to protect efficiency and ensure effective implementation of findings.
To address these challenges, audit firms are increasingly turning to What Caused This.
What Caused This is the first and only Root Cause Analysis (RCA) platform to receive the prestigious ICAEW Technology Accreditation. What Caused This is able to understand and meet the unique requirements of audit firm, ensuring that RCA is applied in the most efficient and effective way possible.
What Caused This provides:
- Scalable RCA management: It enables firms to manage RCA activities across the entire organisation, from individual audits to firmwide assessments.
- Identification of themes and trends: It helps identify recurring issues and patterns that might indicate systemic problems.
- Effective remediation tracking: It allows firms to prioritise and monitor the progress of corrective actions.
- Integration with SoQM: The platform integrates RCA findings with the broader system of quality management, ensuring that lessons learned are embedded into future audits.
- Iterative process: The platform supports an ongoing, iterative RCA process, which aligns with the need for continuous improvement in audit quality.
The What Caused This RCA platform therefore also supports the broader strategic analysis required to address significant firmwide challenges, ethics breaches, thematic reviews and development of good practice.
Whether a problem, risk or improvement analysis is required, the What Caused This platform ensures:
- Efficiency: Automating the RCA process reduces manual effort and streamlines workflows.
- Consistency: Standardises the RCA approach across the firm, ensuring consistent and high-quality analysis.
- Regulatory Compliance: Supports compliance with ISQM (UK) 1 and other regulatory standards.
- Actionable Insights: Provides actionable insights into audit quality, enabling firms to implement targeted improvements.
RCA is no longer optional for audit firms seeking to maintain high-quality audits and meet regulatory requirements. The guidance provided by ISQM (UK) 1 and the support of innovative platforms like What Caused This offer audit firms a structured, scalable approach to RCA. By leveraging such tools, audit firms can not only address existing deficiencies but also proactively enhance their audit quality management, ensuring ongoing compliance with both regulatory standards and best practices.
Contact What Caused This via their website or by emailing contact@whatcausedthis.com