FAR Practice Note - Ten considerations for conducting Root Cause Analysis in auditing
Root cause analysis is an established process in a number of industries and is a developing area in the audit profession. This practice note speaks to the question of what constitutes root cause analysis specific to the auditing profession (as varying root cause analysis methods may potentially be more or less effective within the auditing context). For audit firms (large and small) wanting to apply root cause analyses as part of their quality assurance systems, the following ten considerations are discussed that are relevant for effectively and efficiently producing root cause findings and recommendations concerning the improvement of audit quality:
- Root cause analysis, when done properly, can be a powerful tool for collective team-based learning, designed to avoid blame and strengthen continuous improvement.
- Root cause analysis is about understanding human behavior and judgement and decision making: things that go wrong, often happen in the same way as things that go right.
- There is not one single root cause to “fix” in the complex organizational context of auditing: incidents may happen that are reasonably beyond management control.
- Root cause analysis findings and recommendations are not always interventions: it is up to management to weigh recommendations and decide on their “organizational fit”
- Root cause analyses should be rigorous enough to allow for “evidence-based-change” only: formulating effective actions is more difficult than finding problems.
- Strong recommendations rely less on a change in human behavior, but are practical, sensible, achievable, and actually measurable as far as what can be implemented.
- Root cause analysis is a collaborative and dialogic process requiring time, human behavior expertise, and communication skills across professional and social boundaries.
- Interviewing audit staff that depend on personal performance and professional accountability in their career development is a specifically daunting task.
- Next to audit deficiencies as ‘triggering events”, good quality analyses and analyzing ‘near misses’ result in richer and stronger root cause analyses.
- Next to engagement level root cause analysis, more holistic thematic and audit firm level analyses most likely deliver deeper insight and better results.
Authors
Olof Bik is professor of Auditing & Assurance at the University of Groningen. In his research he takes a special interest in the study of culture, leadership, and behavior in the realm of the auditing and assurance profession, firms, and teams. Since its inception in 2015 until 2022, Bik was one of two managing directors and academic member of the Board of the Foundation for Auditing Research. He worked in the audit practice of PwC for 18 years, since 2002 always in combination with a university appointment (Groningen), and joined academia in full since 2012 (Nyenrode).