ACCAspace · • ISQC1 applies to all firms of professional accountants ... •ISA220 contains requirements in relation to: --Leadership responsibilities for quality on audits

ACCAspace

ACCA P7

Advanced Audit and Assurance (AAA)

高级审计与鉴证业务

ACCA Lecturer: Iris Nie

Provided by ACCA Research Institute ACCA课程研究学院

Copyright © ACCAspace.com ACCAspace 中国ACCA特许公认会计师教育平台 2

1

2

3

Quality control

Technical article

Past exam paper

Syllabus


Quality control

There is no simple definition of audit quality

because there is no one 'correct' way to audit. It is

often a matter of conducting an audit in line with the

spirit as well as the letter of professional guidance.

Although each stakeholder in the audit will give a

different meaning to audit quality, at its heart it is about

delivering an appropriate professional opinion

supported by the necessary evidence and judgements.


Quality control

Quality control at a firm level 1

2 Quality control on an individual audit


Quality control at a firm level

The International Standard on Quality Control (ISQC 1)

helps audit firms establish quality standards for their business.

The objective of the firm is to establish and maintain a

system of quality control to provide it with reasonable

assurance that:

(a) The firm and its personnel comply with professional

standards and applicable legal and regulatory requirements

(b) Reports issued by the firm or engagement partners are

appropriate in the circumstances


Quality control at a firm level

The firm’s system of quality control should include

policies and procedures addressing each of the following

elements:

Leadership responsibilities for quality within the firm

Ethical requirements

Acceptance and continuance of client relationship and

specific engagements

Human resource

Engagement performance

Monitoring



Firms are required to ensure that the appropriate

training is provided to ensure there is complete

understanding of the objectives and procedures

under ISQC 1.

The standard requires that the firm implements

policies such that the internal culture of the firm is

one where quality is considered to be essential.



The firm may appoint an individual or group of

individuals to oversee quality in the firm. Such

individuals must have:

--Sufficient and appropriate experience

--The ability to carry out the job

--The necessary authority to carry out the job


Ethical requirements

The firm shall establish policies and procedures

deigned to provide it with reasonable assurance that

the firm and its personnel comply with relevant

ethical requirements.

The firm shall establish policies and procedures

designed to provide it with reasonable assurance

that the firm, its personnel and, where applicable,

others subject to independence requirements.


Human resource

The firm's overriding desire for quality will necessitate

policies and procedures on ensuring excellence in its

staff, to provide the firm with 'reasonable assurance that

it has sufficient personnel with the capabilities,

competence, and commitment to ethical principles

necessary to perform its engagements in accordance

with professional standards and regulatory and legal

requirements, and to enable the firm or engagement

partners to issue reports that are appropriate in the

circumstances'.


Human resource

• Recruitment

• Performance evaluation

• Capabilities & Competence

• Career development

• Promotion

• Compensation

• The estimation of personnel needs


Human resource

•The firm is responsible for the ongoing

excellence of its staff, through continuing

professional development, education,

work experience and coaching by more

experienced staff.



• The firm should take steps to ensure that engagements

are performed correctly, that is, in accordance with

standards and guidance. Firms often produce a manual

of standard engagement procedures to give to all staff

so that they know the standards they are working

towards. These may be in an electronic format.

• Direction / Consultation / Supervision / Resolution of

disputes / Review



• ISQC 1.34

• The firm shall establish policies and procedures

designed to provide it with reasonable assurance that:

(a) Appropriate consultation takes place on difficult or

contentious matters

(b) Sufficient resources are available to enable

appropriate consultation to take place

(c) The nature and scope of, and conclusions resulting

from, such consultations are documented and are

agreed by both the individual seeking consultation and

the individual consulted

(d) Conclusions resulting from consultations are

implemented



• When there are differences of opinion on an

engagement team, a report should not be issued until

the dispute has been resolved. This may involve the

intervention of the quality control reviewer.

• A peer review is a review of an audit file carried out by

another partner in the assurance firm.

• A hot review is a peer review carried out before the

audit report is signed.

• A cold review is a peer review carried out after the audit

report is signed.


Monitoring

The standard states that firms must have policies in

place to ensure that their quality control procedures

are:

• Relevant

• Operating effectively

• Adequate

• Complied with

Monitoring activity should be reported on to the

management of the firm on an annual basis.


Monitoring

• The people monitoring the system are required to

evaluate the effect of any deficiencies found. These

deficiencies might be one-offs. Monitors will be more

concerned with systematic or repetitive deficiencies

that require corrective action. When evidence is

gathered that an inappropriate report might have been

issued, the audit firm may want to take legal advice.

•Corrective action:

--Remedial action with an individual

--Communication of findings with the training

department

--Changes in the quality control policies and

procedures

--Disciplinary action, if necessary


Technical article

• Assess whether an engagement has been planned

and performed in accordance with professional standards and whether reports issued are appropriate in

the circumstances.

• ISQC1 applies to all firms of professional accountants

in respect of audits and reviews of financial statements, and other assurance and related services engagements.

It should therefore also be applied to non-audit

engagement such as reviews of prospective financial

information and engagements to perform agreed upon

procedures.


Technical article

• ISA 220 Quality Control for an Audit of Financial

Statement is specific to audit engagement and

contains specific requirements that should be

adhered to in the performance of any audit.


Technical article

• ISA220 contains requirements in relation to:

--Leadership responsibilities for quality on audits

--Relevant ethical requirements, in particular independence

--Acceptance and continuance of client relationships and audit engagements

--Assignment of engagement teams

--Engagement performance, meaning the direction,

supervision, and review of an audit, including consultation

and engagement quality control reviews. --Monitoring and documentation


Technical article

Why is audit quality a concern ?


Technical article

• The regulatory bodies have a role to play in performing

audit quality as this will in turn increase public confidence in the audit process and in financial reporting. It is in the best

interest of audit firms to conduct a high quality audit.

• Audit firms are faced with great pressure which may lead to

them compromising audit quality. Pressure can be in the form of tight deadlines and restrictions on audit fees, issues

relating to competence, ethical dilemmas, and the extent of

judgment that is required when auditing certain balances and

transactions.


Technical article

• Tight deadlines and restrictions on audit fees----

The FRC comments in its 2011—2012 Annual Report on

Audit inspections that ‘a company’s audit should represent

value for money’. Nevertheless, substantial fee reductions

may lead the audit to reduce valuable audit work and

therefore compromise audit quality. Fee pressures are a commercial reality and audit firms will react to fee pressure

by seeking efficiencies in the audit. This can manifest in

many ways, for example, reducing sample size, and

increasing materiality levels especially in group situations.


Technical article

• Tight deadlines and restrictions on audit fees----

A particular way to make the audit more efficient is to

‘offshore’ certain audit procedures in an arrangement

whereby some of the audit work is performed by audit

personnel who are not ‘full’ members of the audit team, they

may be located in a foreign country where the labour costs are lower. This practice raises audit quality issues in that

these personnel may not have a good knowledge of the audit

client and the quality of the audit evidence produced may be

questionable.


Technical article

• competence---

If auditors are not technically competent to perform audit

work there is a clear impact on the quality of work performed.

Given that engagement quality reviews are conducted for

high risk audit engagement using inexperienced auditors to

perform such reviews can create a potentially serious hazard for the audit firm in that it is much more likely that an

inappropriate opinion could be issued.


Technical article

• Ethical delimmas---

A common example is where the audit firm provides non-

audit services to the audited entity. Audit firms should be

familiar with the concept that providing non-audit services

creates a threat to objectivity, in particular a self-review

threat, and audit firms also should be accustomed to assessing the significance of the risk and responding with

the use of appropriate safeguards or by not providing the

non-audit service.


Technical article

• Extensive use of judgment--

This is very much linked to professional skepticism.

Firms, with the assistance of audit committees, should

ensure they appropriately challenge management. Audit

firms often fail to challenge the feasibility of business

plans prepared by management, as well as assumptions relation to fair value impairment and the valuation of

tangible and intangible assets.

Documents

ACCAspace · • ISQC1 applies to all firms of professional accountants ... •ISA220 contains requirements in relation to: --Leadership responsibilities for quality on audits