CARMELO D.

FAZON, CPA
ACCOUNTING OFFICE

INTERNAL QUALITY REVIEW PROCEDURE

Scope of Quality Review

• Firm’s responsibility for its system of quality control
• Audits and reviews of financial statements, and other assurance and related service
engagements
• Quality control procedures for specific types of engagement are covered by other ISA
• Example: ISA 220 (Audits of financial statements)

Provide reasonable assurance that:

 Firm and Personnel comply
o Professional Standards (ISA and COE)
o Applicable legal and regulatory requirements (BOA, SEC)
 Reports issued
o By Firm or Engagement Partner
o Appropriate in the circumstances

Important reminders
• Person responsible for quality shall have an understanding of the entire text of ISQC
1.
• Firm shall comply with each requirement of ISQC 1.
• Except when the requirement is not relevant.

Responsibility of Practitioner:
 Laws and regulations require that a practitioner should implement a system of
quality control.
 Practitioner shall ensure that it has comply with the legal requirements through
compliance with ISQC 1 and other applicable standards and regulations.

Elements of the System of Quality Control:

 Leadership responsibilities for quality within the firm
 Relevant ethical requirements
 Acceptance and continuance of client relationships and specific engagements
 Human resources Engagement performance
 Monitoring

Required Documentation Policies and Procedures

 Manual (Quality Assurance Manual and Audit Manual)
  Memorandum
 Minutes of meeting with acknowledgement from all personnel
 Organizational structure

Responsibility for Quality:

“All partners and staff are, to varying degrees, responsible for implementing
the firm’s quality control policies and procedures.”

Consideration for Smaller Entities:

For Sole practitioner with no staff, ISQC 1 does not call for compliance with the
following requirements:
 Assignment of appropriate personnel to the engagement team
 Review responsibilities
 Communication of monitoring result to engagement partners
Internal Control Firm-Level QC Elements Engagemen
Elements (ISA 315) (ISQC 1) t-Level QC
Elements
(ISA 220)

Control Environment Leadership Leadership

(Tone at the Top)
Risk Assessment
(What Could Go Wrong?)
Responsibilities for Responsibilities for
Quality within the Quality on Audits
Firm Relevant Ethical Relevant Ethical Requirements
Requirements Human Assignment of Engagement
Resources Teams
Acceptance and Acceptance and Continuance of
Continuance of Client Client
Relationships and Relationships and Audit
Specific Engagements Engagements

Risks that the report might not

Information Systems
(Tracking performance)
Control Activities
(Prevent & detect/correct
controls)
be
appropriate in the
circumstances
Quality Control System Audit Documentation
Documentation
Engagement Performance Engagement Performance

Relevant Ethical Requirements:

 “The firm shall establish policies and procedures designed to provide it with
reasonable assurance that the firm and its personnel comply with relevant ethical
requirements.”

Relevant Ethical Requirements: Fundamental Principles

 Integrity;
 Independence and objectivity;
 Professional competence and due care;
 Confidentiality; and
 Professional behavior.

Relevant Ethical Requirements: Safeguards

 Education and training
 Adherence to CPD requirements
 Adherence to professional standards, monitoring and professional development
procedures
 External review of the firms quality control procedures
 Adherence to legislation

Inspection Procedures:
 One or more completed and released engagements, for each engagement partner at
each inspection
 Each partner’s files are selected on at least a cyclical basis
 Inspection cycle not more than three years
 Those involved in the engagement team or serving the EQCR function should not be
eligible to act as a monitor on the same file

Inspection Procedures: Smaller Firms

• May need to be conducted by the same personnel who designed and

implemented the firm’s quality control policies and procedures
• May use same individuals who are used to perform the EQCR function provided
that the individual was not on the engagement team and did not perform an
EQCR on the file
• May include other firms for assistance or professional member bodies

Documentation:
There should also be documented policies and procedures covering the following:
 Completion of the Assembly of Final Engagement Files
 Confidentiality, Safe Custody, Integrity, Accessibility and Retrievability of
Engagement Documentation
 Retention of Engagement Documentation
 Documentation of the System of Quality Control