Knowledge


Jenny Reed
Director of Quality and Professional Standards at Kreston Global

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Jenny oversees the onboarding process of prospective member firms as well as the ongoing development of training and resources. She will be working with member firms to identify priority areas for professional development and training, as well as working with Kreston’s ESG Advisory Committee.

Herb Chain on US Bank Failures
Herbert M. Chain
MBA, CPA (USA), Director, CBIZ Marks Paneth, and Shareholder, Mayer Hoffman McCann P.C.

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Herbert Chain is a highly experienced author is a financial expert with 40 years of experience in business, accounting, and audit, having served as a Senior Audit Partner at Deloitte. He holds certifications from the National Association of Corporate Directors and the Private Directors Association, with knowledge of private company governance and effective risk management. He has extensive knowledge in the financial services sector, including asset management and insurance, and experience with SPACs.


Quality without borders: Quality management in a global network of firms

November 24, 2023

Quality management is crucial to maintain and enhance a global network’s reputation, protect the public interest, ensure client satisfaction, attract and retain top talent, and build a network’s competitive edge. It is also required by regulators and professional bodies.[1] Additionally, the International Standards on Quality Management (ISQM) provide a globally recognised framework for quality management in the accounting and auditing profession. Adhering to the ISQM requirements is essential for global networks to demonstrate the commitment of their member firms to delivering high-quality services.

For global networks, dispersed across countries and regions, and composed of independent firms, maintaining consistency and excellence presents unique challenges. A commitment to quality by global and firm leadership is essential to set the standard, demonstrate a tone at the top, and encourage (and require) appropriate behavior.

Critical elements of quality management

  1. Culture, culture, culture

Leadership must emphasise the importance of quality at all levels of the network, develop a culture of quality, and communicate expectations for behavior. It must also encourage a culture of continuous improvement. This means creating an environment where staff feel comfortable identifying and reporting problems and where there is a process for addressing those problems.

It also requires those in authority within the firm to “walk the talk” (i.e., “tone from the top”) and not to ignore those who either believe themselves to be exempt from the standards that apply to others, or whose moral compass does not point to true north. Such inaction is very visible to staff and will undermine the effectiveness of a firm’s stated and/or documented policies and procedures, however good they may be.

2. Overcoming resistance to change

For most organisations, global or domestic, resistance to change can hinder the successful implementation of any initiative, including a quality management system. To overcome this, the organisation and its leadership must foster a change management culture by involving stakeholders at all levels and at all stages in the process, providing clear communication about the benefits of the new system(s), and demonstrating its positive impact on quality, firm success ad reputation, and client satisfaction.

3. Standardisation and harmonisation

One of the key factors in promoting effective quality management across a global network of independent firms is the establishment of standardisation and harmonisation protocols. Developing a set of standardised processes, methodologies, and best practices ensures uniformity in service delivery, documentation, and work performance. This can be achieved through the implementation of a global quality management system, which outlines the framework for quality objectives, procedures, and responsibilities. It should also encompass continuous improvement initiatives, regular performance reviews, and quality audits. While non-standardised methodologies and policies can still result in quality performance of services, standardisation permits effective resource sharing, scalability of operations, and consistent documentation frameworks.

In a diverse network of independent firms, there will always be aspects of quality management that need to be firm-specific for maximum effectiveness, but alignment of policies and procedures will often be beneficial and cost effective. The introduction of ISQM1 has helped accelerate this process for global firm networks.

4. Training and development

Investing in comprehensive training and development programs is vital to enhancing the capabilities and competencies of professionals within the network. Providing regular training sessions, workshops, and certifications not only strengthens technical skills but also cultivates a culture of continuous learning. Additionally, sharing knowledge and best practices among member firms through online platforms and collaborative forums fosters innovation and improvement across the network.

A focus on efficiency through these types of training and collaboration initiatives can also indirectly contribute towards audit quality. Streamlining processes and cutting out unnecessary work and/or documentation frees up staff to focus their time and effort on more important (i.e., riskier) matters.

5. Key Performance Indicators (KPI)

KPIs, sometimes known as Audit Quality Indicators (AQIs), play a vital role in measuring and monitoring quality across the network. It is important to define meaningful KPIs that align with the organisation’s overall objectives and values. These indicators should include both qualitative and quantitative metrics, such as client satisfaction ratings, adherence to industry standards, results of inspections or quality reviews, and employee training and development.

6. Client engagement and feedback

Quality management should extend beyond internal processes to include effective client engagement and feedback mechanisms. Regular communication channels should be established to capture client expectations, needs, and satisfaction levels. Implementing client feedback surveys, conducting post-engagement reviews, and actively seeking client input helps identify areas for improvement and enhances client relationships. This feedback loop is crucial for maintaining high-quality services and driving continuous improvement efforts.

7. Technology and automation

Leveraging technology and automation tools plays a vital role in streamlining processes, minimising errors, and maximising efficiency. Implementing next-generation accounting and auditing software systems (including artificial intelligence applications), data analytics tools, and workflow automation platforms can significantly improve the ability to analyze data, reduce work times, and enhance the quality of work performed. For example, dashboarding tools such as Caseware Sherlock can automatically measure and report on KPIs such as time to lock down the file, number of review points raised etc.

Regularly assessing and adopting emerging technologies ensures that the network remains at the forefront of industry advancements and accesses effective and efficient methodologies for performing engagements.

8. Monitoring and review

The network must have a system for monitoring and reviewing the quality of its work. This system should identify areas where improvement is needed and permit the network to take steps to address those areas.

Collaboration and peer review processes foster a culture of accountability and continuous improvement. These encourage cross-firm and cross-border collaboration, and allow firms to learn from one another, share best practices, and review each other’s work. Implementing robust peer review mechanisms helps identify areas for improvement, rectify errors, and ensure adherence to quality standards. The feedback received from these reviews should be used to refine processes, address gaps, and strengthen the overall quality management system.

Whilst the main objective of a global quality review program will always be to ensure that member firms can refer their clients to other member firms with confidence, the program should also aim to provide objective, constructive and friendly advice and recommendations to firms based on the reviewer’s own experience and best practices seen elsewhere within the network.

Constraints and overcoming the challenges

While pursuing quality management objectives, several constraints may arise. Identifying and overcoming these challenges is essential. Here are some common constraints and suggested approaches to overcome them:

  1. Geographical and cultural diversity

The global nature of networks may introduce variations in language, cultural practices, and legal frameworks. Overcoming this constraint requires promoting cross-cultural understanding, establishing clear communication channels, and conducting regular cultural training sessions. Adaptation to local regulatory requirements while maintaining global quality standards is also crucial.

While a baseline framework is essential, it must be flexible enough to accommodate variations arising from local regulations, industry practices, and cultural norms. Encouraging local participation in the development of quality standards ensures that the quality management system is adaptable and relevant to different contexts.

Whilst challenging, diversity within the network can also have a positive benefit, providing firms with new perspectives and insights from those firms who take a different approach. Collaborating internationally can generate ideas and ways of thinking that can unlock innovative solutions to problems and challenges.

  1. Resource allocation

Unequal distribution of resources and varying levels of expertise among member firms can hinder quality management efforts. Addressing this constraint involves developing resource-sharing mechanisms, fostering collaboration, and conducting knowledge transfers among firms, recognising that when accomplished, the network as a whole is stronger and all benefit. Centralised resource pools, mentorship programs, and secondment (i.e., outsourcing) opportunities can help balance expertise and optimise resource allocation.

  1. Compliance and regulatory challenges

Different countries may have different compliance requirements and regulatory frameworks, making it challenging to maintain consistent quality practices. Overcoming this constraint necessitates establishing an understanding for such differences and incorporating them into the design of any quality management system. Standardising core compliance processes while allowing for necessary local adaptations ensures compliance while preserving quality standards.

With a global network also comes the requirements to monitor services provided to clients across the network to minimise the risks of breaches of the independence rules on financial interests, mutuality of interest, and scope of services. This has been a significant emphasis on the part of the largest global firms and their networks, especially as related to their public clients, but it also is important for mid-sise networks and even associations. These risks can be overcome by effective communications among network member firms, awareness of services being provided by member firms, and, as often practiced by the larger global networks, the designation of a lead client relationship partner for the client whose responsibilities include monitoring and improving services to be provided by the network before engagement. Firms have also made significant investments in technology to track global services being provided by member firms.

  1. Technology maturity of firms

Unequal technological infrastructure and varying levels of technological maturity can impede effective quality management. Overcoming this constraint involves providing adequate technical support, training, and access to essential technologies, providing standardised tools and systems while allowing flexibility to accommodate local IT infrastructure and preferences. Encouraging knowledge-sharing among member firms regarding technology implementation and providing incentives for adopting new tools can drive technological advancement throughout the network.

Conclusion

Developing, implementing, and enforcing a quality management system for independent firms within a global network is a daunting, yet achievable, task. With the support of senior leadership and the board, and the support and will of the leadership of member firms, however, it is doable – and will maintain and enhance the network’s reputation, protect the public interest, ensure client satisfaction, attract and retain top talent, and build a competitive edge.


[1] Note the recent enforcement actions by the U.S. Public Company Accounting Oversight Board and Securities Exchange Commission, the UK’s Financial Reporting Council, and other regulatory bodies against public accounting firms relating to lapses in their engagement performance and firm-level quality management systems.