RFI-72016824RFI00001_Enhancing Audit Quality in Bosnia and Herzegovina.pdf

Issue Date November 20, 2023 Closing Date and Time December 11, 2023

2:00 PM Sarajevo, BiH local time Submission must be sent to AHodzic@usaid.gov Activity Title Enhancing Audit Quality in Bosnia and Herzegovina SUBJECT Request for Information (RFI) #72016824RFI00001

To All Interested Parties:

USAID/Bosnia and Herzegovina is exploring potential partners to contribute to the development and implementation of a quality objective risk assessment tool for small and medium audit firms in Bosnia and Herzegovina. The focus is on aligning with the International Standards of Quality Management 1 (ISQM 1) and facilitating self-assessment for local audit firms. Additionally, capacity strengthening opportunities will be provided based on assessment results, including support for the Chamber of Auditors in the Federation of Bosnia and Herzegovina (CoA FBiH).

This RFI is issued solely for information and planning purposes. It is NOT a Request for Proposal (RFP) and in no way obligates the U.S. Government to issue an RFP and/or award a contract or pay for any information submitted as a result of this request.

If a solicitation is issued, all necessary information will be supplied at the time it is posted at SAM.gov.

Questions/requests for information will not be responded to until potential RFP issuance. Interested parties are advised to periodically monitor the above website and RFI number for updates concerning a potential procurement.

Submissions must be in English and submitted in Microsoft Word or Adobe PDF format, not exceeding three (3) pages in length in single-spaced.

Responses to this RFI must be submitted by email. Please submit your responses no later than December 11, 2023, 2:00PM Sarajevo, BiH local time, to Amila Hodzic, Acquisition and Assistance Specialist at ahodzic@usaid.gov with the email subject line and file name, “RFI Response: Enhancing Audit Quality in Bosnia and Herzegovina.” Responses will be held confidential unless otherwise specified, but respondents are advised to refrain from sending proprietary information.

Responses received after this deadline will not be read or considered. Submission via email is required;

phone calls or hard copy delivery will not be accepted. You may receive an electronic confirmation acknowledging receipt of your response.

USAID/Bosnia and Herzegovina values input from our potential partners, and we thank you for your interest and assistance in developing potential future programs.

Sincerely, Leona Sasinkova Supervisory Contracting Officer mailto:AHodzic@usaid.gov mailto:ahodzic@usaid.gov

I. INTRODUCTION

The United States Agency for International Development in Bosnia and Herzegovina (USAID/BiH) is exploring the landscape of local, regional, and international actors with capacity to:

● Develop a quality objective risk assessment tool for small and medium audit firms based on the eight components in the International Standards of Quality Management 1 (ISQM 1), and facilitate self-assessment for local audit firms in Bosnia and Herzegovina;

● Provide subsequent capacity strengthening opportunities based on the aforementioned assessment results; and

● Provide capacity strengthening to the Chamber of Auditors in the Federation of Bosnia and Herzegovina (CoA FBiH) to enable it to perform audit firm assessments and training to close gaps identified during assessments.

The envisaged capacity strengthening will be based on:

New Standards—

● International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements

(ISQM 1)

● International Standard on Quality Management 2, Engagement Quality Reviews (ISQM 2)

Revised Standard—

● International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements.

This research will create a repository of local, regional, and international organizations, including individual consultants, for USAID/Bosnia and Herzegovina. Individuals, non-governmental organizations, academic institutions, and private sector organizations and associations are encouraged to respond.

USAID is especially interested in hearing from organizations and individuals who have not previously worked directly with USAID, and who have experience operating in Bosnia and Herzegovina and/or the Western Balkans.

II. BACKGROUND

USAID and many other development partners have significant ongoing commitments of funding projects in Bosnia and Herzegovina and the neighboring non-EU countries. There is therefore a need to ensure that the development partners’ resources committed to Bosnia and Herzegovina are accounted for in a transparent manner and subjected to high quality independent external audits by audit firms whose systems of quality management meet international standards. Currently development partners rely on assessments of audit firm quality control under ISQC 1, the International Auditing and Assurance Standards Board’s (IAASB’s) former International Standard on Quality Control, Quality Control for Firms that Perform Audits and Reviews of Financial Statements and Other Assurance and Related Services Engagements.

The IAASB has approved new standards in an effort to modernize the previous focus on quality control and replace it with quality management. The three interrelated standards strengthen and modernize how firms approach quality management. See Annex 1 for a description of the new and revised standards - ANNEX 1 - New and Revised standards.

Audit Firms in Bosnia and Herzegovina As many audit firms, particularly Small and Medium-sized Practices (SMPs) faced challenges in implementing ISQC1 under the former quality control approach it is envisaged to face even more and greater challenges under the new quality management approach which requires a risk-based approach and much more resource commitment. With one or a few partners and limited staff members in the firm, SMPs may not have sufficient time and in-house capacity to focus on implementing the ISQM standards.

This puts forward an innovative requirement to ensure that audit firms in Bosnia and Herzegovina that are responsible for auditing entities/ institutions that receive development partner resources, are assessed, and trained in standards on quality management.

The Chamber of Auditors in the Federation of Bosnia and Herzegovina (CoA FBiH) The CoA FBiH is a professional organization of auditing companies and authorized auditors, operating in the territory of the Federation of Bosnia and Herzegovina, which has the status of a legal person and carries out the responsibilities assigned to the Chamber by the Law on Accounting and Auditing in the Federation of Bosnia and Herzegovina. The Chamber is self-sustainable and independent in its work and is subject to public oversight by the Public Oversight Board in accordance with the Law. Members of the Chamber are Audit Firms and Certified Auditors who are licensed by the Federal Ministry of Finance (hereinafter the “Ministry”).

The Chamber has jurisdiction to perform tasks in the area of auditing services and other professional areas related to auditing. Specifically, the Chamber:

● establishes membership fees and other revenues;

● guards the reputation of audit profession;

● establishes minimum methodology of the quality supervision of work performed by the Audit

Companies and authorized auditors;

● supervises the quality of work performed by the Audit Companies and authorized auditors; if necessary, it takes proceedings and conducts measures required to remove and sanction the observed irregularities which it reports to the Ministry every six-month period.

As the Chamber supervises the quality of work performed by the Audit Companies and authorized auditors in the Federation of Bosnia and Herzegovina its capacity to conduct assessments and training of audit firms in the standards on quality management is of the utmost importance to give assurance to the development partners including USAID that their resources are in all cases audited by firms that comply with the requirements of the quality management standards.

III. SPECIFIC CAPACITIES SOUGHT

USAID/Bosnia and Herzegovina seeks information on local, regional, and international actors who possess capacities including:

1. Developing audit assessment tools and conducting assessments of audit firms for compliance with the ISQM 1.

2. Providing briefings and producing reports to share assessment findings and conclusions.

3. Designing approaches to train and strengthen capacity of the assessed audit firms, including in implementation of ISQM 1.

4. Supporting Professional Accountancy Organizations (PAOs) to update/develop templates, processes, systems, and documentation to carry out audit quality monitoring to align with the new international quality management standards.

5. Providing training/capacity strengthening to PAOs to perform audit firm assessments and training on the ISQM standards.

6. Possessing language skills, including reading, writing, and speaking proficiency in English and one or more of the following languages:

a. Bosnian

b. Serbian

c. Croatian.

IV. QUESTIONS

USAID/Bosnia and Herzegovina asks that interested respondents submit short written responses to the questions outlined below. Respondents are encouraged to review the questions and respond to only those that are relevant to their experience and capabilities. Responses to all questions are not required but encouraged as applicable.

1. Point of contact name

2. Point of contact title

3. Organization name (if applicable)

4. Location where you are based or registered (City, Country)

5. Email address

6. Are you a local, regional, or international entity?

a. Local - registered in Bosnia and Herzegovina

b. Regional - registered in another Western Balkans country.

c. International - registered in a non-Western Balkans country.

7. What is your organization type?

a. Independent consultant/self-employed

b. Private sector firm/Limited Liability Company

c. Non-governmental organization/civil society organization

d. Academic institution/university professor

e. Other [please describe]

8. Indicate your ability to speak, read, and write in English using the following levels:

Level 0 No Knowledge Level I Basic Knowledge Level II Limited Knowledge Level III Good Working Knowledge Level IV Fluent Level V Professional Translator/Interpreter

9. Indicate your ability to speak, read, and write in Bosnian using the following levels:

Level 0 No Knowledge Level I Basic Knowledge Level II Limited Knowledge Level III Good Working Knowledge Level IV Fluent

Level V Professional Translator/Interpreter

10. Indicate your ability to speak, read, and write in Serbian using the following levels:

Level 0 No Knowledge Level I Basic Knowledge Level II Limited Knowledge Level III Good Working Knowledge Level IV Fluent Level V Professional Translator/Interpreter

11. Indicate your ability to speak, read, and write in Croatian using the following levels:

Level 0 No Knowledge Level I Basic Knowledge Level II Limited Knowledge Level III Good Working Knowledge Level IV Fluent Level V Professional Translator/Interpreter

12. Summarize your organization’s experience operating in Bosnia and Herzegovina and/or other countries in the Western Balkans and your knowledge of the local context.

13. Provide your organization’s past experience and technical capacities to develop audit assessment tools and conduct assessments of audit firms on compliance with ISQM1.

14. Summarize your organization’s past experience and technical capacities to provide briefings and produce reports to share assessment findings and conclusions.

15. Please speak to your (or your organization’s) past experience and technical capacities to train and strengthen the capacity of the assessed audit firms to comply with ISQM 1.

16. Please speak to your (or your organization’s) past experience and technical capacities to work with Professional Accountancy Organizations (PAOs) to update/develop templates, processes, systems and documentation to carry out audit quality monitoring to align with the new international quality management standards.

17. Please speak to your (or your organization’s) past experience and technical capacities to provide training/capacity strengthening to PAOs to perform audit firm assessments and training on the ISQM standards.

ANNEX 1 - New and Revised Standards

New Standards—

International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements (ISQM 1) - Under ISQM 1, firms are required to design a system of quality management to manage the quality of engagements performed by the firm. This shift in focus from quality control to quality management is achieved by adopting a risk-based approach, i.e., managing risks to quality.

ISQM 1 applies to all firms performing engagements under the IAASB’s standards. This includes audits or reviews of financial statements, other assurance engagements, compilations or agreed-upon procedures engagements. This covers the different types of services USAID may require from auditors on different types of engagements. ISQM 1 consists of the following eight components that operate in an iterative and integrated manner:

(a) The firm’s risk assessment process. This component introduces a risk-based approach and requires firms to;

• establish quality objectives,

• identify and assess quality risks, and

• design and implement responses that address the quality risks.

ISQM 1 includes the quality objectives that firms are required to have, which are incorporated in the other components (b) to (h) described below (in some cases additional quality objectives may be needed)

(b) Governance and leadership. This component creates the environment that supports the system of quality management. Aspects covered by this component include the firm’s commitment to quality through its culture, including reinforcing the firm’s role in serving the public interest by consistently performing quality engagements and addressing the importance of quality in the firm’s strategic decisions and actions. This component also covers the responsibilities and accountability of firm leadership for quality. Separate requirements in ISQM 1 deal with:

• assigning leadership roles,

• the qualifications of the individuals assigned the roles, and

• annual performance evaluations.

(c) Relevant ethical requirements. This component requires the firm to establish quality objectives that address the fulfillment of responsibilities in accordance with relevant ethical requirements, including those related to independence (e.g., The International Code of Ethics for Professional Accountants (Including International Independence Standards)). It also deals with others external to the firm, such as a network, network firms or service providers, and the need for the firm to address relevant ethical requirements related to the firm and the firm’s engagements that affect others external to the firm.

(d) Acceptance and continuance of client relationships and specific engagements. This component requires establishing quality objectives that address judgments by the firm about whether to accept or continue a client relationship or specific engagement. This includes that the financial (e.g., fees and firm profit) or operational (e.g. growth or strategic direction) priorities of the firm do not lead to inappropriate judgments about whether to accept or continue a client relationship or specific engagement.

(e) Engagement performance. Requires establishing quality objectives that address the performance of quality engagements. It covers the responsibilities of the engagement team and engagement partner (including with respect to exercising professional judgment and professional skepticism), direction, supervision and review, consultation, differences of opinion, and the assembly and maintenance of engagement documentation.

(f) Resources. This component requires establishing quality objectives that address appropriately obtaining, developing, using, maintaining, allocating and assigning resources in a timely manner. It covers human resources (personnel and people outside the firm who are used by the firm, such as EQR or component auditors), technological resources (e.g., IT applications, audit tools) and intellectual resources (e.g., the firm’s methodology, guidance, templates, written policies or procedures) needed to operate the system of quality management and perform engagements.

It also addresses the firm’s responsibilities when it belongs to a network, and the firm complies with network requirements or uses network services in the system of quality management or in the performance of engagements, as well as the use of resources from service providers and ensuring those resources are appropriate for what they will be used for. ISQM 1 focuses on reinforcing the firm’s responsibility for its own system of quality management.

(g) Information and communication. This component requires establishing quality objectives that address obtaining, generating or using information regarding the system of quality management and communicating information within the firm and to external parties on a timely basis. It emphasizes the continual flow of information within the firm, and with engagement teams and reinforces the need for robust two-way communication throughout the firm. It drives firms to establish an information system with processes to identify, capture and maintain information and addresses the need for firms to communicate externally.

(h) The monitoring and remediation process. Requires the firm to monitor the system as a whole to provide relevant, reliable and timely information about the design, implementation and operation of the system of quality management. This is a shift in focus from engagement-level monitoring. Monitoring activities are intended to be tailored by the firm, and are required to include inspection of completed engagements (engagement partners are still required to be selected on a cyclical basis). A new framework has been introduced for evaluating findings and identifying deficiencies, as well as evaluating the severity and pervasiveness of deficiencies, which includes investigating the root cause(s) of deficiencies. There are also enhanced requirements addressing the remediation of deficiencies.

In applying a risk-based approach, the firm is required to take into account the situation and circumstances of the firm and its engagements and exercise professional judgment in designing, implementing and operating the system of quality management. For example, the information system in a less complex firm may not need to include rigorous policies and procedures that specify how information should be identified, captured, processed and maintained because there is more direct involvement of leadership and fewer personnel. In addition, in a less complex firm ultimate responsibility and accountability for the system of quality management may be assigned to a single managing partner with sole responsibility for the oversight of the firm.

International Standard on Quality Management 2, Engagement Quality Reviews (ISQM 2) - One of the specified responses in ISQM 1 is a requirement for the firm to establish policies or procedures for engagements requiring an engagement quality review (EQR). The requirements have been enhanced from ISQC 1 by increasing the focus on selecting engagements based on quality risks. The application material provides guidance on the types of engagements, or qualities of engagements, that may give rise to quality risks where an EQR is an appropriate response to address that risk. For example, the firm can determine that an EQR is an appropriate response to quality risks associated with engagements where there is a high level of complexity or judgment or where issues have been encountered, or entities with public interest or public accountability characteristics.

ISQM 2 deals with the eligibility of the engagement quality reviewer, and the performance and documentation of the EQR. ISQM 2 is a new standard, although many of its elements were enhanced and relocated from ISQC 1 and current ISA 220. Key enhancements include a 2-year cooling-off period before an engagement partner can assume the role of engagement quality reviewer, performance of the EQR at appropriate points in time during the engagement and a “stand-back” requirement to determine whether the performance requirements in ISQM 2 have been fulfilled.

It is possible that the firm may determine that there are no engagements for which an EQR is an appropriate response to address quality risks, in which case ISQM 2 would not apply.

Revised Standard—

International Standard on Auditing 220 (Revised), Quality Management for an Audit of Financial Statements - ISA 220 (Revised) applies to audits of financial statements and addresses how quality is managed at the audit engagement level by the engagement partner. It makes clear that the engagement partner is responsible for managing and achieving quality at the engagement level, for determining that there are sufficient and appropriate resources assigned or made available on a timely basis and for determining the nature, timing and extent of direction, supervision and review. It also contains a “stand-back” provision that requires the engagement partner to determine they have done enough to take overall responsibility for managing and achieving quality on the audit and whether their involvement has been sufficient and appropriate.

Through these standards, the IAASB is addressing an evolving and increasingly complex environment, including growing stakeholder expectations and a need for quality management systems that are proactive and adaptable. The new standards’ focus on quality management will enable a proactive risk-based approach and higher quality engagements, and they are a substantial development and change for the global accountancy profession and stakeholders around the world since they include significant shifts in how firms manage quality. The standards’ requirements are complex. Firms will face challenges and will require support including monitoring in implementing them. As firms adjust their internal processes and systems, professional accountancy organizations (PAOs) will also need to adjust their training and support, as their members will need guidance to effectively and efficiently implement the new standards.

This Request for Information (RFI) seeks information on the availability, interest, and capacities of both local1 and international entities to support prospective USAID/Bosnia and Herzegovina efforts in enhancing Audit Quality in Bosnia and Herzegovina.

1 A “local entity” includes but is not limited to individuals, non-governmental organizations, academic institutions, and private sector organizations that meet all four of the following criteria:

1. Are legally organized under the laws of Bosnia and Herzegovina;

2. Have as its principal place of business or operations in Bosnia and Herzegovina;

3. Are majority owned by individuals who are citizens or lawful permanent residents of Bosnia and Herzegovina; and

4. Are managed by a governing body, the majority of who are citizens or lawful permanent residents of Bosnia and Herzegovina.