ICAI has made it mandatory for certain audit firms that conduct audits of listed entities, banks (other than single state co-operative banks), and insurance companies to evaluate their audit quality maturity model using AQMM (rev v1.0), w.e.f. 01/04/2023, with effect from 01/04/2023.
However, audit firms which are conducting only branch audits of these entities have been excluded from this mandatory requirement.
The Audit Quality Maturity Model (AQMM) is a combination of different Audit Quality Indicators (AQIs), which helps in cross-functional evaluation of key areas of audit engagements and backend practices at the audit firm level, including operations of the firm, like revenue budgeting and pricing, audit practice manual, budgeting of engagements, time sheet, use of technology adoption, quality control for engagements, Human Resource Management, resources planning and monitoring, performance evaluation and compensation, physical and IT infrastructure, etc. The AQMM has been developed by ICAI after detailed International Research and widespread outreach activities conducted across India on systems to enhance their audit quality.
Evaluation under AQMM is broadly categories into 3 segments, namely Practice Management (Operation), Human Resource Management and Practice Management (Strategic/ Functional) with a total score of 600 points. Based on the score(s) obtained, the concerned audit firm can find it’s level (ranging from Level 1 to 4), wherein Level 1 depicts that the firm is very nascent, Level 4 indicates that the firm has made significant adoption of standards and procedures. Accordingly, all firms must strive to improve to achieve/ upgrade to level 4 under the AQMM.
Evaluation of the Audit Quality Maturity Model (AQMM) offers certain benefits to the audit firms, like Assessing the current level of audit quality maturity, Identifying areas requiring improvement, developing a roadmap for upgrading to the higher level of audit maturity, etc.
ICAI has made the AQMM evaluation mandatory after about a year from the launch of the AQMM v1.0 by the Centre for Audit Quality (CAQ) of ICAI in July, 2021. Further, the scores and the level arrived by the firms under AQMM evaluation, also needs to be reviewed by a Peer Reviewer under Peer Review Mechanism of ICAI. Alternatively, the audit firm can also choose to get their AQMM levels reviewed even before the peer review cycle gets due, through an AQMM Reviewer. The level of the firm after being reviewed by the Peer reviewer/ AQMM reviewer shall be hosted on the website of the ICAI alongside the details of the peer review certificate.
Since inception in 2020, the ICAI’s Centre of Audit Quality has endeavored to encourage firms to carry out self-evaluation of the maturity model of their audit quality, to ascertain areas which needed to be strengthened.
Around 2000 audit firms are proposed to be covered by this mandate of ICAI. Also, for help of audit firms, ICAI has come up with implementation guide and FAQs along with a detailed announcement regarding its applicability.
The Centre for Audit Quality of ICAI is also coming out with a digitized version of the AQMM rev v1.0 shortly to help the firms take up the evaluation and also to help the reviewers for conducting the reviews remotely.
While the model is still mandatory for a certain set of firms, it would be in the interest of the other firms to take up self-evaluation using AQMM for assessing its level and identifying the strength and the concern areas for improvement.
ICAI Press Release dt. 21/09/2022: Audit Firms mandated to assess/ evaluate their current level of maturity model using Audit Quality Maturity Model- AQMM rev v1.0 w.e.f. 01/04/2023