Quality Control M S M FAREEN MBA Reading

Quality Control M. S. M FAREEN MBA (Reading) UOC, BSc FAREEN Management (Special) Hons. Advanced Audit & Assur

Advanced Audit & Assur

Quality control Firm level quality control • Controls implemented by firm • Common for everyone • Eg ; EY Random INDIVIDUAL QUALITY CONTROL WEAK STUDENT : I SPENT MORE TIME INTELLIGENT STUDENT : LESS TIME ISQC – INTERNATIONAL STANDARDS ON QUALITY CONTROL FRAMEWORK ISA 220 Advanced Audit & Assur

Purpose of quality control In order for there to be confidence in the assurance process, engagements must be performed that are of satisfactory quality. Failure to do so would not only mean a loss of confidence in the profession as a whole but could lead to professional negligence claims against the assurance provider. Therefore firms must: • Perform work that complies with professional standards and regulatory and legal requirements • Issue reports that are appropriate in the circumstances. If a professional negligence claim is made, and the firm has followed suitable quality control procedures, they should be able to defend the claim. Advanced Audit & Assur

Key principles ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements identifies six key principles of quality control at the firm level: • Leadership: Strong and ethical leadership demonstrated by the managing partners. • Ethical requirements: Firms comply with ethical requirements such as the Code of Ethics. • Acceptance and continuance: Only suitable clients and engagements are accepted and retained. • Human resources: A firm and its employees have the necessary knowledge, technical competence, and experience. • Engagement performance: Engagements are performed in an effective manner. • Monitoring: Evaluating the quality control procedures to ensure they are effective. Advanced Audit & Assur

Leadership Firms must establish policies and procedures to promote an internal culture that recognises the importance of quality in performing engagements. This requires the firm's management team (i. e. managing partners) to: • Establish policies and procedures to address performance evaluation, compensation and promotion to demonstrate commitment to quality. • Ensure commercial consideration does not override quality. • Ensure resources are sufficient to support the quality control procedures. • Assign operational responsibility to those with sufficient and appropriate experience, ability and authority to implement those quality control procedures Advanced Audit & Assur

Human Resource Management Advanced Audit & Assur

The engagement partner should ensure that the engagement team collectively have the competence and capabilities to perform the audit in accordance with professional standards. This includes • • Knowledge of professional standards Knowledge of relevant industries in which the client operates The ability to apply judgment Understanding the firm's quality control policies and procedures. Advanced Audit & Assur

Engagement Performance Firms must design policies and procedures to ensure engagements are performed to a satisfactory standard. Policies and procedures should cover: • Matters relevant to promoting consistency in the quality of engagements. • Supervision responsibilities. • Review responsibilities. Consistency in quality of engagements • • • How engagement teams are briefed to obtain an understanding of the engagement and their objectives. Processes for complying with engagement standards. Processes of engagement supervision, training and coaching. Methods of reviewing work, judgments and reports issued. Documentation of work performed and the timing and extent of reviews. Processes to keep policies and procedures current. Advanced Audit & Assur

Supervision responsibilities • Tracking the progress of the audit to ensure the timetable can be met • Considering the competence of the team • Addressing significant matters arising and modifying the planned approach accordingly • Identifying matters for consultation. Consultation may be required where the firm lacks appropriate internal expertise. Advanced Audit & Assur

Review responsibilities Consideration of whether: • • • The work has been performed in accordance with professional standards Appropriate consultations have taken place The work performed supports the conclusions reached The evidence obtained is sufficient and appropriate to support the auditor's report The objectives of the engagement procedures have been achieved. The engagement partner should perform a review of critical areas of judgment, significant risks and other areas of importance throughout the audit. The extent and timing of the partner's reviews should be documented. Advanced Audit & Assur

Engagement quality control review Listed entities and other high risk clients should be subject to an engagement quality control review (EQCR). This is also referred to as a pre-issuance review or 'Hot' review. High risk clients include those which are in the public interest, those with unusual circumstances and risks, and those where laws or regulations require an EQCR. An EQCR includes: • Discussion of significant matters with the engagement partner. • Review of the financial statements and proposed auditor’s report. • Review of selected audit documentation relating to significant judgments and conclusions reached. This includes: – Significant risks and responses to those risks – Judgments with respect to materiality and significant risks – Significance of uncorrected misstatements – Matters to be communicated to management and those charged with governance, and where applicable, other parties such as regulatory bodies – Evaluation of conclusions reached in forming the audit opinion. Advanced Audit & Assur

For listed entity audits, the EQCR should also consider: • Independence of the engagement team. • Whether appropriate consultation has taken place on contentious matters or differences of opinion. • Whether documentation reflects the work performed in relation to significant judgments. Eligibility criteria The engagement quality control reviewer: • Should have the technical qualifications to perform the role, including the necessary experience and authority, and • Should be objective. To be objective the reviewer should not be selected by the engagement partner and should not participate in the engagement. Note: An engagement quality control reviewer may also be referred to as an independent review partner. Advanced Audit & Assur

Monitoring Quality control policies alone do not ensure good quality work. They must be implemented effectively. Therefore the firm must evaluate: • Adherence to professional standards and regulatory/legal requirements. • Whether quality control procedures have been implemented on a day-to-day basis. • Whether the firm’s quality control policies and procedures are effective so that reports issued by the firm are appropriate in the circumstances. Firms should carry out post-issuance or 'cold' reviews to ensure that quality control procedures are adequate, relevant and operating effectively. Advanced Audit & Assur

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