Doble, Erra Kaye H.
AC516 12:00-3:00 (MW)
Focus Notes March 19, 2016
Philippine Standards on Auditing 220
(Redrafted) Quality Control for an Audit of Financial
Statements
Scope
 Deals with quality control procedures for an audit of
financial statements
 Addresses the responsibilities of engagement quality
control reviewer, where applicable
 System of Quality Control and Role of Engagement
Teams
o engagement team may rely on the firm’s
system of quality control
 Under the premise that the firm is subject to PSQC 1
(Red)
Objective
 to provide a reasonable assurance of:
o compliance with professional standards and
regulatory and legal requirements
o Appropriateness of reports issued in the
circumstances
Definitions
 Engagement partner- the partner or person in the
firm responsible for audit engagement and its
performance, and for the auditor’s report that is
issued on behalf of the firm and who, where
required, has the appropriate authority from a
professional, legal or regulatory body
 Engagement Quality Control Review- designed to
provide an objective evaluation, on or before the
date of the auditor’s report, of the significant
judgments the engagement team made and the
conclusions it reached in formulating the auditor’s
report. The engagement quality control review
process is only for audits of financial statements of
listed entities and those other audit engagements,
if any, for which the firm has determined an
engagement quality control review is required
 Engagement Quality Control Reviewer - A partner,
other person in the firm, suitably qualified external
person, or a team made up of such individuals,
none of whom is part of the engagement team,
with sufficient and appropriate experience and
authority to objectively evaluate the significant
judgments the engagement team made and the
conclusions it reached in formulating the auditor’s
report\
 Engagement Team - All partners and staff
performing the engagement, and any individuals
engaged by the firm or a network firm who perform
audit procedures on the engagement. This excludes
an auditor’s external expert engaged by the firm or
a network firm
 Firm - A sole practitioner, partnership, or other
entity of professional accountants
 Inspection - In relation to completed audit
engagements, procedures designed to provide
evidence of compliance by engagement teams with
the firm’s quality control policies and procedures
 Listed entity - Listed entity – An entity whose
shares, stock or debt are quoted or listed on a
recognized stock exchange, or are marketed under
the regulations of a recognized stock exchange or
other equivalent body
 Monitoring - A process comprising an ongoing
consideration and evaluation of the firm’s system
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of quality control, including a periodic inspection of
a selection of completed engagements, designed to
provide the firm with reasonable assurance that its
system of quality control is operating effectively\
 Network Firm - A firm or entity that belongs to a
network.
 Network - A larger structure:
o (i) That is aimed at cooperation, and
o (ii) That is clearly aimed at profit or cost-
sharing or shares common ownership,
control or management, common quality
control policies and procedures, common
business strategy, the use of a common
brand name, or a significant part of
professional resources
• Partner - Any individual with authority to bind the
firm with respect to the performance of a professional
service engagement
 Personnel - Partners and staff
 Professional standards – Philippine Standards on
Auditing (PSAs) and relevant ethical requirements
 Relevant ethical requirements – Ethical
requirements to which the engagement team and
engagement quality control reviewer are subject,
which ordinarily comprise Parts A and B of the Code
of Ethics for Professional Accountants in the
Philippines (Philippine Ethics Code) related to an
audit of financial statements together with national
requirements that are more restrictive
 Staff – Professionals, other than partners, including
any experts the firm employs.
 Suitably qualified external person – An individual
outside the firm with the competence and
capabilities to act as an engagement partner, for
example a partner of another firm, or an employee
(with appropriate experience) of either a
professional accountancy body whose members
may perform audits of historical financial
information or of an organization that provides
relevant quality control services.
Requirement
 Leadership Responsibilities for Quality on Audits
o Engagement partner – responsible for the overall
quality on each audit engagement to which he is
assigned
- His actions hall emphasize the importance to
audit quality and fact that quality is essential
in performing audit engagements
 Relevant Ethical Requirements
o Fundamental principles of professional ethics:
 Integrity
 Objectivity
 Professional Competence and Due Care
 Confidentiality
 Professional Behavior
o In cases of noncompliance by the members of
engagement team to relevant requirements,
engagement partner shall determine appropriate
action
o Independence
The engagement partner shall:
 Obtain information to identify and evaluate
circumstances that pose threats to independence
 Evaluate information on breaches of policies and
procedures relating to independence
 Take appropriate action to eliminate or reduce
threats to independence to an acceptable level:
o eliminating the activity or interest that
creates the threat
Doble, Erra Kaye H. AC516 12:00-3:00 (MW)
Focus Notes March 19, 2016
o or withdrawing from the audit
engagement, where withdrawal is legally
permitted
 Acceptance and Continuance of Client relationships and
Audit Engagements
o Information to be obtained by the engagement
partner:
 Those that would have caused the firm to
decline the audit engagement
 Integrity of client
 Competence of engagement team and the
availability of necessary time and
resources
 Compliance of the team with relevant
ethical requirements
 Significant matters
 Assignment of Engagement Teams
o The engagement team, auditor’s experts who
are not part of the engagement team should
have the competence and capabilities to:
 Perform audit engagement in
accordance with professional
standards, regulatory and legal
requirements
 Enable an auditor’s report that is
appropriate in the circumstances
 Engagement Performance
o Direction, Supervision and Performance
 It is the responsibility of the
engagement partner to:
 direct, supervise and perform
audit in accordance with
professional standards, legal
and regulatory requirements
 ensure the appropriateness
of auditor’s report
 appropriate teamwork and training
helps less experienced members
understand the objectives of work
Reviews
Shall be done in accordance with firm’s review policies and
procedures
Consultation
Can be done effectively when those consulted are given relevant
facts which will enable them to give informed advice and have
appropriate knowledge, seniority and experience
When the firm lacks appropriate internal resources, it may be
appropriate to consult outside the firm
The engagement partner shall:
 Take responsibility for engagement team undertaking
difficult matters
 Ensure that engagement team undertook consultation
within and between the team and others within or
outside the firm
 Be satisfied nature and scope of, and conclusions
resulting from, such consultations are agreed with the
party consulted
 Determine whether conclusions reached have been
implemented
Engagement Quality Control Review
Where engagement quality control review is required, duties of
the engagement partner include:
 Determination of the appointment of quality control
reviewer
 Discussion of relevant matters arising during the audit
with the engagement quality control reviewer
 Ensure that the report be dated only after the
completion of the engagement quality control review
 He need not review all audit documentation
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Responsibilities of the engagement quality control reviewer:
 Objective evaluation of significant judgments made and
conclusions reached by the auditor including:
o Discussion of significant matters with
engagement partner
o Review of financial statements and proposed
auditor’s report
o Review of selected audit documentation
o Evaluation of conclusions reached and the
appropriateness of auditor’s report
o And the following for those involving listed
entities:
 Evaluation of firm’s independence
 Appropriate consultations have taken
place
 Whether audit documentation reflects
the work performed
Differences of opinion
Firm’s policies and procedures should be followed in resolving
differences of opinion
Considerations Relevant Where a Member of the Engagement
Team with Expertise in a Specialized Area of Accounting or
Auditing Is Used
 direction, supervision and review of that engagement
team member’s work may include matters such as:
 agreeing the nature, scope and objectives of that
member’s work
 Evaluating the adequacy of that member’s work
 Monitoring
o monitoring process designed to provide the
firm with reasonable assurance that its policies
and procedures relating to the system of
quality control are relevant, adequate, and
operating effectively
 Documentation
o Auditor shall document:
 Issues concerning compliance with
relevant ethical requirements and
their resolution
 Conclusions on compliance with
independence requirements
 Conclusions regarding acceptance and
continuance of client relationships
and engagements
 Nature, scope and conclusion from
consultations made
o Engagement quality control reviewer shall
document:
 Performance of procedures required
by the firm’s policies and procedures
 Completion of review before auditor’s
report date
 That he is not aware of matters that
would cause him to believe that the
report issued is not appropriate

Considerations Specific to Public Sector Entities
- Statutory measures may provide safeguards
for the independence of public sector auditors,
provide procedures for the appointment of
auditors
- additional appropriate competence may
include skills that are necessary to discharge
the terms of the audit mandate in a particular
jurisdiction