Philippine Standards on Quality Control

To ensure compliance of relevant measures of quality

in the provisions of practitioner services, quality
control procedure must be implemented by the firm.

PSQC 1 – whether assurance or non-assurance

engagement, PSQC will be the reference for quality
control; firm level

PSA 220 – related standard of PSQC 1 because it

pertains to specific assurance engagement (audit);
engagement team level

Note:

 PSQC 1 is a general standard pertaining to

quality control for all firms while PSA 220 is
specific standard pertaining only to audit.
 Whatever is the content of PSA 220 was just
adopted or lifted from PSQC 1.

PSQC 1 and PSA 220 should simultaneously relate to IFAC

code of ethics and PSA 200 (objective and general principles
governing financial statements)

Are these mandatory for all the firms? Yes, whether sole
proprietor or partnership should establish quality control for
the engagement that they will give to their clients.

This topic focused on FIRM’S quality control not on the

CLIENT’S quality control

System of Quality Control (policies and procedures):

1. Firm and its personnel comply with

professional standards and regulatory and
legal requirements. (e.g. Code of
ethics/GAAS)
2. For the reports issued by the firm or
engagement partners are appropriate in the
circumstances. (i.e. Firm level  PSQC1;
engagement partners  PSA 220)

Note: These are the objectives of the firm (PSQC 1)

or auditing firm (PSA 220). And to achieve these
objectives they need to implement quality control
procedures that will serve as a foundation or entail elements of quality control.

1|Page
John Kenneth C. Pimentel, CPA
 These are the quality
control procedures:

Ethical Requirements  Code of ethics

Assurance and Non-Assurance Audit
Note: In PSA 220

 Assignment of engagement team  Audit team

Both for PSQC 1 and PSA 220, there are 6

elements to ensure that quality control
objectives will be attained

Acronym: H-A-R-L-E-M  A-A-R-L-E-M

1. Leadership Responsibility – culture inside the firm (PSQC1) or auditing firm (PSA220). It is the foundation of all
the elements.

Who has the ultimate responsibility for quality control in

an auditing firm? CEO or if appropriate, the managing
boards of partner.

Who is responsible for the overall quality in audit

team? engagement team or specific team.

2|Page
John Kenneth C. Pimentel, CPA
Note: the responsible person should recognize and reward high-quality work, because they set the tone at the top. (e.g.
memo, seminars, meetings)

Firm  can be a sole practitioner or partnership

Engagement team  all partners and staff

Engagement Partners  the partner or other person

performing the engagement

Staff  all person below engagement partners

In establishing policies and procedures regarding

leadership responsibilities, firm (PSQC1) should
consider the following.

 Sufficient resources must be for the long run.

Engagement partners should always communicate new

policies to all employees on a timely basis through
memos or meetings.

2. Relevant Ethical Requirements

Under PSQC 1, it is the requirement of ethical

standards for all the CPAs in the Philippines 
POPIC

Under PSA 220, engagement partner should

oversee all the members in case of non-
compliance with relevant ethical requirements.

Note: Independence is the corner stone of the audit or

the overriding fundamental principle.

3|Page
John Kenneth C. Pimentel, CPA
 In public practice, the most prominent threat that the
CPA will be encountered is the familiarity threat.

refers to the long association with the client.

Note: The firm should establish policies and

procedures specifically to those with long association
or close relationship with the client

Such policies and procedures shall enable the firm to:

a. Communicate its independence requirements to

its personnel  through signing written
confirmation at least annually. And this is
required.

b. Identify, evaluate and address circumstances that

will create threat  Conceptual Framework 
there must be a rotation of the key audit
engagement partner.

Note:
 these are only applicable for audit of fs in all listed
entities or stocks traded to stock market. The
predefined period is no more than seven years.
 Engagement quality control reviewer  this is
requirement for all audit of fs in listed companies

 Only publicly listed because these entities have responsibility to the public. If non-listed it is allowed to go
beyond 7 years.
 It is not required to have a rotation in non-listed companies but it is required to establish quality control.

What to do when safeguards may not be able to

eliminate or reduce threat to an acceptable level?

a. Whether private or public sector, the policies should

always include communication to those
appropriate level of management. Usually, above
one-level communication (e.g. rank and file 
managers)

4|Page
John Kenneth C. Pimentel, CPA
b. If communication did not resolve the matter, consult with regulatory bodies or professional organizations you belong.

c. If communication and consultation is still not enough, withdraw from the engagement (private sector) or
communicated but some instances withdrawal will not be permitted (public or listed entities) consider the effect of
circumstances in your report.

3. Acceptance and continuance of client

relationships and specific engagement

Note: 1st and 2nd element pertain to the quality

control policies and procedures inside the firm.
While the 3rd element pertains to the client.

Acceptance  new client

Continuance of client relationship  continue an

existing engagement or recurring clients

 Compliance  what are the regulatory

measures that must be complied by the audit
team or by the personnel inside the firm
 Competence  pertains to the personnel’s
educatio or capabilities.
 Intergrity  understanding the business of the client

Predecessors  previous practitioners to handle current client. And the

accountant that will take over is the successor auditor.

Is it allowed to communicate with the predecessor auditor? No, unless there is a

consent from the current client or if the law permits to do so. (written consent)

Note: Upon doing these you will understand if there is a resolved or unresolved
issue with regards to the business’ integrity

5|Page
John Kenneth C. Pimentel, CPA
 4.Human Resources  encompasses personnel’s firm
(PSQC1) or Engagement or Audit team (PSA220)

The objective of this element is anchored to quality

control procedures:

3 C’s  All personnel must be competent,

committed and capable.

Note:

 Performance evaluation happens after a work

has been done
 Career development, Promotion and
Compensation these are usually the 3 factors
why there is high turn-over of junior auditor in
auditing firm.

6|Page
John Kenneth C. Pimentel, CPA
 “Right person to the right job”

5. Engagement Performance
 It has something to do with execution of the
audit.

Note:
 s
u
p
e
r
v
i
s
i
on, review and consultation responsibilities of the members or
higher personnel in the firm. These are the functions of those
who have advance or more experience in the firm.

7|Page
John Kenneth C. Pimentel, CPA
 Note:

8|Page
John Kenneth C. Pimentel, CPA
  A member who has less experience can consult with more experience
partner (e.g. managing partner of the team) who has a knowledge with
such matter.
 Hot review (engagement quality control review) – it should be done
before issuance of audit report. Discussed in pp. 2

9|Page
John Kenneth C. Pimentel, CPA
  Be
for
e

the issuance of audit report in publicly listed entities, there must

be engaged quality control reviewer  it may be from the firm or
qualified external reviewer.

 Non-listed entity and/or non-financial statement of listed entity may be required to engage quality control
reviewer.

 Set out criteria are policies should be used to know if there is a need to engaged quality control review for all other
engagement. It is required.

Note: after issuing engagement audit report is usually 60 days or 2 months.

10 | P a g e
John Kenneth C. Pimentel, CPA
 How if the matter is not resolved? You take effect the
unresolved issues to the opinion that the engagement
partner will issue or consult the reviewer. (based on
professional judgement

11 | P a g e
John Kenneth C. Pimentel, CPA
Note:

 It must be documented
 There should be no unresolved matter before issuance
 Complete the final engagement files

6. Monitoring

If review is before the issuance of audit report, Monitoring

may during the audit or after the audit (evaluation)

 Relevant – useful or might affect the decisions

 Adequate – sufficient enough
 Operating effectively – the policies are taking
effect

More experienced of the team or engagement partner

 Ongoing consideration  recurring audits or

transactions
 Separate evaluation  non-recurring audits or
transact.

12 | P a g e
John Kenneth C. Pimentel, CPA
Inspection  it takes place after the engagement has been performed and it should be performed in a cyclical basis

Cyclical basis  no more than 3 years

 1 engagement for each engagement partner; inspection should not be part of the audit team member; it must be
other partner within the firm

13 | P a g e
John Kenneth C. Pimentel, CPA
14 | P a g e
John Kenneth C. Pimentel, CPA