Root cause analysis (RCA) – improving audit quality

RCA is about identifying the trigger for an issue, rather than just looking at the symptom of review findings. Dealing with the symptom is a ‘sticking plaster’ approach. It may address the immediate issue, but identifying the root cause is a more effective way to reduce future recurrence of similar findings.

RCA does not have to be complicated, yet it can be very powerful if done well. In simple terms, it is a matter of asking ‘why?’, possibly several times. It is therefore important that the individual performing the RCA displays professional scepticism and strong personal skills, as well as suffcient experience and seniority to be able to ask challenging questions of the audit team.

It is likely that effective RCA exercises will involve tailoring and specificity rather than general procedures. Possible procedures might include combinations of the following:

• Discussions with the audit team
• Asking audit teams to complete a questionnaire
• Review of audit work
• Discussions with those responsible for training and methodology
• Analysis of data collected to identify correlations across findings

Issues that have the potential to be root causes of review findings may be internal, which the firm may be able to influence, or external, which the firm is less likely to be capable of influencing. Potential root causes may include:

• Resource issues
• Personal, ethical and attitude issues
• Process issues
• Leadership issues
• Client issues

RCA is a topical subject across the globe and has been commented on extensively by regulators and standard-setters. It is likely that the regulatory spotlight, and the call for effective RCA, will soon fall on a greater range of firms given the new challenges they will face in the future.

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