QUALITY CONTROL FOR AUDITORS

As it was discussed in chapter 3, the sustainability of the accounting profession depends on the quality
of service rendered by the auditors, and the quality of service in turn is affected by disruptive and
preserving factors.

This presentation will discuss the preserving and enhancing factors to quality of service.

TOPICS:

1. Sources of Quality Controls for Auditors.

2. Provisions from RA9298
3. Provisions from PSQC 1 / PSA 220
4. Internal Quality Controls

As always in the practice of accountancy, we should remember to be professional, perform

effectively and efficiently, follow standards and document our work adequately and properly.

The three primary sources of quality standards for Philippine public accountants are from:

1. LEGISLATION. This is represented by RA 9298 as already mentioned in that document states in

Section 2 Declaration of Policy, that the state acknowledges does accountants have an
important role in nation-building and development. Hence, it commits itself to legislation of
this act to develop an nurture competent, virtuous, productive and well rounded professional
accountants whose standards of practice and service shall be excellent, qualitative, world class
and globally competitive. And listed among the three objectives of RA 9298 is the supervision,
control, and regulation of the practice of accountancy in the Philippines through the
professional regulatory Board of Accountancy-- the body that the law gave oversight function
too.

2. PROFESSIONAL STANDARDS ( PSQC 1 and PSA 220) as we know these are the standards that
CPA is all around the world imposed upon themselves, not by the government is agencies or any
organization. Each professional discipline almost has its own professional standard. There is one
for teachers. Another one for nurses, and there’s also for engineers, law enforcers, social
workers, and of course you also have several for accountants. The Philippine Standards for
Quality Control or PSQC and the Professional Code of Ethics for Accountants are two of these.
The PSQC deals with the firm’s responsibilities for each system of quality control for audits and
reviews of financial statements consisting of policies and procedures or processes. The policies
are designed to achieve the objective of the audit firm to establish and maintain a system of
quality control that provides reasonable assurance that:

a. The firm and its personnel comply with professional standards and regulatory and legal
requirements
b. Reports issued by the firm or engagement partners are appropriate in the
circumstances.

On the other hand, the procedures outlined in the PSQC are designed to assure
implementation and monitor compliance with those policies.
3. INTERNAL STANDARDS (governance) Usually embodied in its governance policies. Such policies
may provide for processes through which corporations objectives are set and pursued in the
context of the social regulatory and market environment. These include monitoring actions,
policies, practices and decisions of corporations their agencies, and affected stakeholders the
ensure that the high level of objectivity permits the firm’s culture. Some of the relevant
provisions of Republic Act 9298 that affect the quality control standards of the accounting
profession are set out in Slides 5 to 15. These slides contain swing copters of sections of RA
9298. Namely:

1. SECTION 9 + ANNEX B powers and functions of the Board of Accountancy and the related
Annex B of the implementing rules and regulations (IRR) are related to quality review of the
work of the audit firm. Quality Review is defined as a study, appraisal or review by the
board or its duly authorized representatives of the quality of audit of financial statements
through a review of the quality control measures instituted by an individual CPA, firm or
partnership of CPAs engaged in the public practice of accountancy to ascertain compliance
with prescribe professional, ethical and technical standards of public practices.

SEC. 9. Powers and Functions of the Board. - The Board shall exercise the following specific
powers, functions and responsibilities:
(h) To conduct an oversight into the quality of audits of financial statements through a
review of the quality control measures instituted by auditors in order to ensure compliance
with the accounting and auditing standards and practices;

The general provisions of the law states that the law grants the Board of Accountancy to
conduct an oversight into the quality of audits of financial statements.

RA 9298 Standards ANNEX "B"

IRR
RULES AND REGULATIONS IMPLEMENTING SECTION 31, ARTICLE IV OF REPUBLIC ACT NO.
9298 OTHERWISE KNOWN AS THE PHILIPPINE ACCOUNTANCY ACT OF 2004 COVERING THE
ACCREDITATION OF INDIVIDUAL CPAS, FIRMS AND PARTNERSHIPS OF CPAS ENGAGED IN
THE PRACTICE OF PUBLIC ACCOUNTANCY

3. QUALITY REVIEW

a. The Board shall require as a condition to registration or any renewal thereof for the
Individual CPAS, Firms or Partnerships of CPAs to undergo quality review in such manner as
the Board may specify, provided, however, that any such requirement shall include
reasonable provisions for compliance by a registrant showing that he/she/it has undergone
a satisfactory quality review performed for other purposes which is substantially equivalent
to quality review and shall be made applicable to all Individual CPAs, Firms or Partnerships.
 b. There is hereby created a Quality Review Committee (QRC) to conduct an oversight into
the quality of audit of financial statements through a review of the quality control measures
instituted by Individual CPAS, Firms or Partnerships in order to ensure compliance with
accounting and auditing standards and practices, pursuant to Section 9 (h), Rule II.

The IRR of RA9298 also states there as a condition to registration or any renewal to practice
public accountancy. A registrant shall undergo a quality review conducted by the Quality
Review Committee or QRC.

2. SECTION 26.
ARTICLE IV
PRACTICE OF ACCOUNTANCY

SEC. 26. Prohibition in the Practice of Accountancy - No person shall practice accountancy in
this country, or use the title "Certified Public Accountant", or use the abbreviated title "CPA"
or display or use any title, sign, card, advertisement, or other device to indicate such person
practices or offers to practice accountancy, or is a certified public accountant, unless such
person shall have received from the Board a certificate of registration/ professional license
and be issued a professional identification card or a valid temporary/special permit duly
issued to him/her by the Board and the Commission.

This provision contributes to quality control standards by ensuring that only individuals may
use the title Certified Public Accountant after they have undergone rigorous training and
screaming in the academe and pass the licensure examinations for accountants. Thus, this
provision ensures that even before one can practice public accountancy, he or she has
already acquired a vast deal of knowledge and is already highly skilled to practice their
profession.

3. SECTION 28
SEC. 28. Limitation of the Practice of Public Accountancy. - Single practitioners and
partnerships for the practice of public accountancy shall be registered certified public
accountants in the Philippines: Provided. That from the effectivity of this Act, a certificate of
accreditation shall be issued to certified public accountants in public practice only upon
showing, in accordance with rules and regulations promulgated by the Board and approved
by the Commission, that such registrant has acquired a minimum of three (3) years
meaningful experience in any of the areas of public practice including taxation: Provided
further. That this requirement shall not apply to those already granted a certificate of
accreditation prior to the effectivity of this Act. The Securities and Exchange Commission
shall not register any corporation organized for the practice of public accountancy.

This provision of RA 9298 contributes to quality control standards in that it requires the
single practitioner and partner of partnership firms organized for the practice of
accountancy acquire a minimum of three years meaningful experience in any of the areas of
public practice, including taxation.
 SECTION 28 (A)- Meaningful Experience.- A meaningful experience shall be considered
satisfactory compliance with the requirements of Section 28 of RA No. 9298 if it is earned in
as

a. commerce and industry and shall include significant involvement in general accounting.
budgeting, tax administration, internal auditing, liaison with external auditors,
representing his her employer before government agencies en tax and matters related
to accounting or any other related functions; or

b. academe education and shall include teaching for at least three (3) trimesters or two (2)
semesters subjects in either financial accounting, business law and tax, auditing problems,
auditing theory, financial management and management services. Provided. That the
accumulated teaching experience on these subjects shall not be less than three (3) school
years or

c. government and shall include significant involvement in general accounting, budgeting,

tax administration, internal auditing, liaison with the Commission on Audit or any other
related functions; and

d. public practice and shall include at least one year as audit assistant and at least two years
as auditor in charge of sadit engagement covering full audit functions of significant clients.

Provided. That if the Board finds such experience inadequate to the minimum requirements
for the public practice of accountancy in the course of its evaluation of his her application
for accreditation to practice public accountancy, the registrant shall be required to make up
such inadequacy from competent sources, Provided, Further, That such meaningful
experience shall be certified under oath by the employer where such meaningful experience
was obtained.

In Section 28(A). The law further qualify as meaningful experience in the areas of Commerce
and Industry, academe or education, Government and public practice.

4. SECTION 30 + ANNEX A
SEC. 30. Accredited Professional Organization. All registered certified public accountants whose
names appear in the roster of certified public accountants shall be united and integrated
through their membership in a one and only registered and accredited national professional
organization of registered and licensed certified public accountants, which shall be registered
with the Securities and Exchange Commission as a nonprofit corporation and recognized by the
Board, subject to the approval by the Commission. The members in the said integrated and
accredited national professional organization shall receive benefits and privileges appurtenant
thereto upon payment of required fees and dues. Membership in the integrated organization
shall not be a bar to membership in any other association of certified public accountants.
 This provision contributes to quality control standards by allowing only one integrated and
accredited national for professional organization to represent all the CPAs in the country. This
accredited professional organization, or APO is the Philippine Institute of Certified Public
Accountants or PICPA to which the Member shall receive benefits and privileges appurtenant
there though. The bylaws of PICPA further states that the organization adheres to the highest
ideals of professionalism and commitment to service and uphold such values, integrity,
professional, excellence, innovation discipline, teamwork, social responsibility and commitment.
It also provides a channel to which individual CPAs may acquire CPD or continuing professional
development units and be updated or pronouncements from the board of accountancy.
Seminars that credit CPD units are usually advertised an the organization’s website (PICPA
website). Announcement by the Board of Accountancy as well as other organizations related to
accountants in accountancy are also announced on the website.

ANNEX "A"
RULES AND REGULATIONS IMPLEMENTING SECTION 30, ARTICLE IV OF REPUBLIC ACT NO. 9298
OTHERWISE KNOWN AS THE PHILIPPINE ACCOUNTANCY ACT OF 2004 COVERING THE
ACCREDITATION OF AN ACCREDITED NATIONAL PROFESSIONAL ORGANIZATION OF CPAS,
RENEWAL OF CERTIFICATE OF ACCREDITATION AND ITS SUSPENSION/CANCELLATION.

1. STATUS OF THE PHILIPPINE INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (PICPA)- The

PICPA which was recognized by the Commission, as the APO on October 2, 1975 per
Accreditation No. 15, shall continue to enjoy its accreditation with the same number subject to
compliance with the requirements prescribed herein.

2. CONDITIONS FOR THE CONTINUITY OF THE ACCREDITATION OF PICPA. - In order to maintain

its recognition as the APO by the Commission, it must meet the following requirements.

5) Sec 31-Accreditation to Practice Public Accountancy- Individuals certified public accountants

firms and partnerships of certified public accountants engaged in the practice of public
accountancy, including the partners and staff members thereof, shall register with the
Commission and the Board, such registration to be renewed every three years. Provided, that
subject to the approval of the Commission, the Board shall promulgate rules and regulations for
the implementation of the registration and requirements including the fees and penalties for the
violation thereof.
● The law's provision for penalties for violations of the implementing rules and
regulations of RA 9298 contribute to quality control standards by ensuring that
airing accountants are sanctioned. Some of the violations that accountants may
commit and subject to penalties are those listed in annex b item 5 of the
implementing rules and regulations
○ Rules and regulations implementing section 31, article IV of RA no. 9298
otherwise known as the Philippine Accountancy Act of 2004, covering the
 accreditation of individual CPAs, Firms, and Partnership of CPAs engaged
in the practice of public accountancy
○ 5. FEES and PENALTIES
■ a) Application for initial registration, renewal and request for
reinstatement, shall be subject to the fee of One Thousand Pesos or
to such an amount as the Commission may prescribe.
■ b). Subject to review by the Commission and depending on the
gravity of the offense(s), the Board shall suspend or revoke the
CPA Certificate, Certificate of Registration and professional
identification card of an Individual CPA, sole proprietor, partner or
staff member as the case maybe who commits any act that is
violative of the Code of Ethics for Professional Accountants,
Philippine Accountancy Act of 2004, these revised implementing
rules and regulations, the circulars, rules, regulations or resolutions
of the Board, Commission, SEC or any other regulatory
agency(ies) or any act that does not comply with the professional,
ethical and technical standards required of the practice of public
accountancy, provided, that if the act or acts committed
constitute(s) a criminal offense punishable under RA No. 9298 and
its IRR, and/or other existing penal laws, the party or parties
responsible shall be proceeded against criminally, independent of
any action herein provided.
6) Section 32- Continuing Professional Education (CPE) Program. – All certified public
accountants who are considered in the practice of accountancy for the four (4) sectors as defined
in Rule I, Section 4 hereof shall abide by the requirements, rules and regulations on continuing
professional education to be promulgated by the Board, subject to the approval of the
Commission, in coordination with the accredited national professional organization of certified
public accountants and shall be offered by any duly accredited organization or educational
institution. For this purpose, a CPE Council is hereby created to implement the CPE program.
● IRR Annex C
○ Rules and regulations implementing section 32, article IV of RA no. 9298
otherwise known as the Philippine Accountancy Act of 2004, covering the
continuing professional education (CPE) programs for CPAs in the practice of
accountancy
● Continuing Professional Education or cpe now called continuing professional
development or cpd program and the related annex c of the implementing rules and
regulations. Perhaps the most important contribution of RA 9298 to the quality control
standards for accountants is its requirement that all accountants participate in the cpd
program designed to meet the requirements of voluntarily maintaining and improving the
professional standards and ethics of the profession. Thereby ensuring competence,
 integrity and global competitiveness of professionals in order to allow them to continue
the practice of their profession. Annex c of the irr details the various aspects of the cpd
program for accountants in the Philippines
● The second source of quality control standards for professional accountants in the
Philippines is the Philippine Standards for Quality Control document or the PSQC. This
quality control document is for accounting and audit firms that perform audits and
reviews of financial statements and other assurance and related services engagements.
PSQC is based on the International Standard on Quality Control or ISQC issued by the
International Auditing and Assurance Standards Board or IAASB.
○ There are no significant differences between PSQC and ISQC.
○ ISQC or the PSQC was unanimously approved for adoption on January 12 2009
by the members of the Auditing and Assurance Standards Council.
○ This PSQC applies to all firms of professional accountants in respect of audits and
reviews of financial statements and other assurance and related services
engagements.
○ Paragraph 11
■ The nature and extent of the policies and procedures developed by an individual
audit firm to comply with this PSQC will depend on various factors such as the size
and operating characteristics of the firm, and whether it is part of a network of firms

○ Paragraph 11: The objective of the firm as set forth by PSQC 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 regulatory and
legal requirements and;
■ b) reports issued by the firm or engagement partners are appropriate in the
circumstances
○ Paragraph 6 of the PSQC: The objective provides the context in which the
requirements of this PSQC are set and is intended to assist the firm in
understanding what needs to be accomplished and deciding whether more
needs to be done to achieve the objective.
■ The requirements of PSQC that firms must follow when establishing their quality
control standards is that it requires the firm to establish a system of quality control
policies and procedures that covers the following areas listed on the slide at the
list
● 1) leadership responsibilities for quality within the firm
● 2) relevant ethical requirements
● 3) acceptance and continuance of client relationships and
specific engagements
● 4) the human resources
● 5) engagement performance
 ● 6) monitoring
● 7) documentation of the SQC
○ Paragraph 17 also requires the firm to document and communicate its policies and
procedures to all firms personnel. In general, communication of quality control
policies and procedures to free impersonal includes:
■ a description of the quality control policies and procedures
■ objectives they are designed to achieve
■ message that each individual has a personal responsibility for quality, and is
expected to comply with these policies and procedures
■ encouraging firm personnel to communicate their views or concerns on quality
control matters recognizes the importance of obtaining feedback on the firm systems
of quality control
○ Requirements of PSQC
■ Element 1: Leadership responsibilities interfering system of quality control or
SQC
● 1) Responsibility for SQC on top management: It requires that
the SQC policies and procedures are required at the highest
position. The highest position in the firm, the top management
assumes the ultimate responsibility for the SQC.
● 2) Promote a quality-oriented internal culture: It requires that the
sqc be designed in a way that it requires stop management to set
an example in promoting an internal control culture of quality.
This is anchored on the need for the firm's leadership to
recognize that the firm's business strategy is subject to the:
○ a) overriding requirement for the firm to achieve quality
in all the engagements that the firm performs promoting
such an internal culture.
○ b) Manifest in performance evaluation, compensation
and promotion: Promoting such an internal culture
includes: a) establishing of policies and procedures that
address performance evaluation, compensation, and
promotion including incentive systems with regard to its
personnel in order to demonstrate the firm's overriding
commitment to quality; b) assignment of management
responsibilities so that commercial considerations do not
override the quality of work performed; and c) provision
of sufficient resources for the development
documentation and support of its quality control policies
and procedures.
● The promotion of a quality oriented internal culture depends on
a clear consistent and frequent actions and messages from all
 levels of the firms management that emphasize the firm's quality
control policies and procedures,
○ Requirements:
■ a) perform work that complies with professional
standards and regulatory and legal requirements
■ b) report that are appropriate in their
circumstances such actions and messages
encourage a culture that recognizes and rewards
high quality work
■ Element 2: requirement for on excuses policies and procedures designed to
provide it with reasonable assurance that the firm and its personnel comply with
relevant ethical requirements especially that of being independent such policies
and procedures on independence shall enable the firm to identify and evaluate
circumstances and relationships that create threats to independence and to take
appropriate action to either: 1) eliminate those threats or reduce them to an
acceptable level by applying safeguards, or if considered appropriate, 2) withdraw
from the engagement where withdrawal is permitted by law or regulation.
○ Paragraph 22: Such policies and procedures shall require:
■ a) engagement partners to provide the firm with relevant information about client
engagements including the scope of services to enable the firm to evaluate the
overall impact, if any, on independence requirements
■ b) personnel to call to promptly notify the firm of circumstances and relationships
that create a threat to independence so that appropriate action can be taken, and;
■ c) the accumulation and communication of relevant information to appropriate
personnel so that the firm in its personnel can readily 1) determine whether they
satisfy independence requirements and so that the firm can 2) maintain and update
its records relating to independence and lastly so that the firm 3) can take
appropriate action regarding identified threats to independence that are not at an
acceptable level
○ Paragraph 23: The firm shall establish policies and procedures designed to
provide it with reasonable assurance that it is notified of breaches of
independence requirements and to enable it to take actions to resolve such
situations
○ Paragraph 24: At least annually the firm shall obtain written confirmation of
compliance with its policies and procedures on independence from all firm
personnel required to be independent by relevant ethical requirements by
obtaining confirmation and taking appropriate actionable information indicating
non-compliance the firm demonstrates the importance that it attaches to
independence and makes the issue current for and visible to its personnel.
What is a familiarity threat?

The Philippine ethics code discusses the familiarity threat that may be created by using the same senior
personnel on an engagement over or long period of time in the safeguards that might be appropriate to
address such threats and they will be discussed in great detail in the following topic discussion videos.

Paragraph 25, the firm shall also set out criteria for determining the need for safeguards to reduce the
familiarity threat to an acceptable level when using the same senior personnel on an assurance
engagement over a long period of time and requiring for audits of financial statements of listed entities,
the rotation of the engagement partner and the individuals responsible for engagement quality control
review and where applicable others subject to rotation requirements after a specific period in
compliance with relevant ethical requirements set forth in the international code of ethics for
professional accountants and again that will be discuss in great detail in the next topic discussion videos.

Compliance with other ethical requirements aside from the all important element of independence, the
Philippine Ethics Code established the fundamental principles of professional ethics which include:

Integrity

Objectivity

Professional Competence and due care

Confidentiality and

Professional Behaviour

Part B of the Philippine Ethics Code illustrates how the conceptual framework is to be applied in specific
situations. It provides examples of safeguards and maybe appropriate to address threats to compliance
with the fundamental principles mentioned and also provide examples of situations where safeguards
are not available to address the threats. For example in the case of Non-Compliance to Laws and
Regulations or what is popularly known as NOCLAR.

The fundamental principles are reinforced in particular by the:

leadership of the firm

education and training

monitoring and

a process for dealing with non compliance

How does a film evaluate whether to accept a new client or continue a relationship with an existing
client?

Element 3

The third element that the firm's SQC should have is the requirement of policies and procedures for
acceptance and continuance of client relationships and specific engagement. Such policies and
procedures should be designed to provide the firm with reasonable assurance that it will only
undertake or continue relationships and engagements where the firm:
  competent to perform the engagement and has the capabilities including time and
resources to do so
 the firm can comply with relevant ethical requirements and
 where the firm has considered the integrity of the client and doesn’t have information that
would lead it to conclude that the client lacks integrity.

As to competence and resources this involves reviewing the specific requirements of the engagement
again it involves reviewing the specific requirement of the engagements and the existing partner and
staff profiles at all relevant levels and including whether the firm's personnel have knowledge of
relevant industries or subject matter and whether the firm personnel have experience with relevant
regulatory or reporting requirements or the ability to gain the necessary skills and knowledge effectively
and whether the firm has sufficient personnel with the necessary competence and capabilities whether
the film experts are available if needed, whether individuals meeting the criteria and eligibility
requirements to perform engagement quality control review are available were applicable and whether
the firm is able to complete engagement within the reporting deadline.

When evaluating the integrity of a new client the firm has to consider policies and procedures that will
take into account a lot of things about the client including:

The identity and business reputation of the client’s principal owners, key management and
those charged with governance.

The nature of the client’s operations including its business practises.

Information concerning the attitude of the client's principal owners, key management and those
charged with its governance towards such matters as aggressive interpretation of accounting
standards in the internal control environment.

Whether the client is aggressively concerned with maintaining the firm’s fees as low as possible.

Whether there are indications of an inappropriate limitation in the scope of the auditors work.

Indications that the client might be involved in doing or other criminal activities.

The reason for the proposed appointment of the firm and none reappointment of the previous
auditor.

The identity and business reputation of related parties.

As to repeat clients policies and procedures on deciding whether to continue a client relationship
includes consideration of significant matters that have arisen during the current or previous engagement
and their implications for continuing the relationship, for example a client may have started to expand
its business operations into an area where the firm does not possess the necessary expertise.

Of course there will be times when the relationship off or an engagement has to be withdrawn and this
must be when the client engagement is considered to be of very high risk policies and procedures on
withdrawal from an engagement or from both the engagement and client relationship address issue
that include the following:
Discussing with the appropriate level of guidance management and those charge with its governance.,
the appropriate action than the firm might take based on the relevant facts and circumstances. If the
firm determines if it is appropriate to be, discussed with the appropriate level of the clients
management and those charged with its governance withdrawal from the engagement or from both the
engagement and the client relationship and the reasons for the withdrawal considering whether there is
a professional regulatory or legal requirement for the firm to remain in place or for the firm to report
the withdrawal from the agent or from both that engagement and client relationship together with the
reasons for the withdrawal; two regulatory authority so this a case is ithe engagement cannot be
withdrawn unilaterally by the auditor and lastly documenting significant matters, consultations
conclusions and the basis for the conclusions.

How does the firm choose the appropriate engagement partner and the right composition of the
engagement team?

Element 4

The 4th element of PSQC requires is the area of human resources. The firm is required to stablish policies
and procedures designed to provide it with reasonable assurance that it has sufficient personnel with
the competence, capabilities and commitment to Ethical Principles necessary to perform engagements
in accordance with professional standards and regulatory and legal requirements and enable the film or
engagement partner to issue reports that are appropriate in dual circumstance. It also requires that
responsibility for each engagement be assigned to a:

 partner (Engagement Partner)

Ensuring that the identity and role of the engagement partner are communicated to key
members of client management and those charged with governance.

The engagement partner has their appropriate competence, capabilities and authority
to perform the role and

The responsibilities of the engagement partner are clearly defined and communicated
to that partner.

*Policies and procedures may include systems to monitor the workload and availability of engagement
partners so as to enable these individuals to have sufficient time to adequately discharge their
responsibilities

 Engagement team
The firm's assignment of engagement teams and the determination of the level of
supervision required include for example consideration of the engagement teams
understanding of and practical experience with engagements of a similar nature and
complexity through appropriate training and participation. The engagement teams
understanding of professional standards and regulatory and legal requirements.

The engagement teams technical knowledge and expertise including knowledge of

relevant information technology. The engagement teams knowledge of relevant
industries in which the clients operate.
 The engagements teams ability to apply professional judgement and the engagement
teams understanding of the quality control policies and procedures.

Element 5: Engagement Performance

The Fifth Element that PSCQ requires relates to how the firm can perform a quality
engagement involving matters related to supervision, review and consultation. The firm
promotes consistency in the quality of an engagement performance through its policies and
procedures. This is often accomplished through written or electronic manuals, software, tools, or
other forms of standardized documentation and industry or subject matter-specific guidance
materials. 

Matters addressed may include:

1. How engagement teams are briefed on the engagement to obtain an understanding of their
objectives of their work. 
2. Processes for complying with applicable engagement standards.
3. Processes of engagement supervision, staff training and coaching.
4. Methods of reviewing the work performed, the significant judgments made in the form of
report being issued.
5. Appropriate documentation of the work performed and of the timing and extent of the review,
and
6. Processes to keep all policies and procedures current.

SUPERVISION
Appropriate team work and training assists less experienced members of the engagement
team to clearly understand objectives of the assigned work. In the area of supervision,
engagement supervision includes the following:

1. Tracking the progress of the engagement.

2. Considering the competence and capabilities of individual members of the engagement team
whether they have sufficient time to carry out their work, whether they understand their
instructions, and whether the work is being carried out in accordance with the plan approach to
the engagement
3. Addressing significant matters, arising during the engagement, considering their significance
and modifying the plan approach appropriately.
4. Identifying matters for consultation or consideration by more experienced engagement, team
members during the engagement.

REVIEW
The function of review shall include policies and procedures that consider
 Whether the work has been performed in accordance with Professional Standards and
Regulatory and legal requirements,
 Whether significant matters have been raised for further consideration,
 Whether appropriate consultation had taken place and the resulting conclusions have been
documented and implemented,
 Whether there is a need to revise the nature, timing and extent of work performed,
 Whether the work performed supports the conclusion which is properly documented,
 Whether the evidence obtained is sufficient and appropriate to support the report and
 Whether the objectives of the engagement procedures have been achieved.

CONSULTATION
Consultation includes discussion of the appropriate professional level inside the inside the
firm or with individuals within or outside the firm who have who have specialized expertise.
Appropriate recognition of consultation in the firms, policies and procedures helps to promote a
culture in which consultation is recognized as a strength and encourages personnel to consult on
difficult or contentious matters. Effective consultation on significant technical, ethical and other
matters within the firm or where applicable outside the firm can be achieved when those
consulted are (a) given all the relevant facts that will enable them to provide informed advice,
and (b) when those consulted have appropriate knowledge, seniority and experience, and when
conclusions resulting from consultations are appropriately documented and implemented.

Element 6: Monitoring of the SQC

EVALUATION
The purpose of monitoring compliance with quality control policies and procedures is to
provide an evaluation of:
1. Adherence to professional standards and regulatory and legal requirements.
2. Whether the system of quality control has been appropriately designed and effectively
implemented.
3. Whether the firm's quality control policies and procedures have been appropriately applied so
that reports that are issued by the firm or engagement partners are appropriate in the
circumstances.

COMMUNICATION
REMEDIATION OF DEFICIENCIES
PSQC requires an audit firm to also develop policies and procedures aimed at monitoring the
SQC, providing it with reasonable assurance that the policies and procedures are relating to the
system of quality control are relevant, adequate and operating effectively. This process shall:
(a). Include an ongoing consideration & evaluation of the firm's system of quality control
including, on a cyclical basis, inspection of at least one complete engagement for each
engagement partner.
(b). Require responsibility for the monitoring process to be assigned to a partner or Partners or
other persons with sufficient and appropriate experience and authority in the fair to assume that
responsibility; and
c. Require that those performing the engagement of the engagement quality control review are
not involved in inspecting the engagements.

ENGAGEMENT INSPECTION
With regards to the inspection of engagements, inspection cycle policies and procedures may
specify a cycle that spans three years, the manner in which the inspection cycle is organized,
including the timing of selection of individual engagements depends on many factors such as the
following:
 [  ] The size of the firm.
 The number and geographical location of offices.
 The results of previous monitoring procedures.
 The degree of authority both personnel and offices have.
For example, whether individual officers are authorized to conduct their own inspections or
whether only the head office may conduct them.
 The nature and complexity of the firm's practices and organization; and
 The risks associated with the firm's clients and specific engagements.

The inspection process includes the selection of individual engagement. Some of which may
be selected without prior notification to that engagement team. In determining the scope of the
inspections, the firm take into account the scope or conclusions of an independent external
inspection program ( such as the Quality Review Committee). However, an independent external
inspection program does not act as a substitute for the firm's own internal monitoring program.
Again, an independent external inspection program does not act as a substitute for the firm's own
internal monitoring program.

When deficiencies to the quality control are discovered. There must also be policies and
procedures for evaluating, communicating and remedying the deficiencies. The evaluation
process should provide a conclusion, whether deficiency is of insignificant nature that does not
indicate that the SQC is inadequate or whether the deficiency is of significant nature that requires
prompt corrective action. When the deficiency is of a significant nature, it shall be
communicated to relevant engagement partners and other appropriate personnel along with
recommendations for appropriate remedial action which might include one or more of the
following:
A. Taking appropriate remedial action in relation to an individual engagement or member
personnel of the engagement partner.
B. The communication of the findings to those responsible for training & professional
development, so that the deficiency is also addressed during orientation & training of new hires.
C. Changes to quality control policies and procedures to prevent the same deficiency from
recurring in the future, and
D. Any disciplinary action, against those who fail to comply with the policies and procedures of
the firm,especially those who do so repeatedly.

ANNUAL MONITORING REPORT

 The firm shall communicate at least annually the results of the monitoring of its system of
quality control to engagement partners and other appropriate individuals within the firm
including the firm's chief executive officer, or if appropriate, its managing Board of Partners.
This communication, shall be sufficient to enable the firm and these individual to take prompt
and appropriate action where necessary, in accordance with their defined roles and
responsibilities.

Information communicated shall include the following:

1. A description of the monitoring procedures performed.
2. Conclusion drawn from the monitoring procedures.
3. Where relevant, a description of systematic, repetitive or other significant deficiencies & of
actions taken to resolve or amend those deficiencies.

Complaints and allegations

The firm shall establish policies and procedures designed to provide it with reasonable assurance that it
deals appropriately with complaints and allegations that the work performed by the firm fails to comply
with professional standards and regulatory and legal requirements allegations with non-compliance with
the firm system of quality control, as part of this process, the firm shall establish clearly defined
channels for firm personnel raise to any concern in a manner that enables them to come forward
without fear of reprisals complaints and allegations which do not include those that are clearly frivolous
may originate from within from or outside the fair they may be made by the firm personnel clients or
third parties, they may be received by engagement team members or firm personnel policies and
procedures established for investigation of these complaints and allegations that may include for
example that the partner supervising the investigation has sufficient and appropriate experience has
authority within the fear and is otherwise not involved in the engagement the partner supervising the
investigation may involve legal counsel as necessary if doing the investigation into complaints and
allegations deficiencies in the design or operation of the firm’s quality control policies and procedures or
non-compliance with the firm system of quality control by an individual or individuals are identified the
firm shall take appropriate actions as set out in paragraph 51.

Element 7: Documentation of the SQC

This element of documentation is not a requirement per se since it is expected and it is a given
that all quality control systems are adequately and properly documented or else how would the
personnel implement the system.

 Evidence of Operation of the Elements

Paragraph 57-59 discusses with regard to documentation psqc requires firms to establish
policies and procedures requiring that appropriate documentation to provide evidence of the
operation of each element of its system of quality control.

 Retention Policies
 Number two retention of documentation for a period of time sufficient to permit those
performing monitoring procedures to evaluate the firm’s compliance with its system of
quality control or for a longer period if required by law or regulation, and

 Complaints and Allegations and Responses

number three documentation of complaints and allegations and the responses to them the form and
content of documentation evidencing the operation of each of the elements of the system of quality
control is a matter of judgement and depends on a number of factors which includes the size of the
firms and the number of offices the nature and complexity of the first practice and organization. For
example, large firms may use electronic databases to document matters such as independence
confirmations performance evaluations and the results of monitoring inspections appropriate
documentations relating to monitoring includes for example: monitoring procedures including the
procedure for selecting completed engagements to be inspected may also include a record of the
evaluation of adherence to professional standards and regulatory and legal requirements and also
record of the evaluation of whether the system of quality control has been appropriately designed and
effectively implemented and a record and of the evaluation of whether the firm’s quality control policies
and procedures have been appropriately applied so that the reports that are issued by the firm or
engagement partners are appropriate in the circumstances, identification of the deficiencies noted an
evaluation of the effect and the basis for determining whether and what further action is necessary is
also a factor in the form determining and content of determining documentation of the SQC.

Internal Standards of Governance

Standards Voluntarily Imposed Upon Themselves

The last source of quality standards for audit firms as mentioned at the outset is the firm’s governance
policies that the firm imposes upon itself, the personnel especially those in higher positions for the
purpose of regulating their actions so that they measure up to or even exceed the quality standards
clients can expect from professional service firms, in addition to the regulation and the psqc standards
the firm does can add governance policies in various areas of the organization such as , I.T. governance
and so on and so forth that do not relate to the firm’s qualification to engagements client selection and
retention or engagement performance, of course as already pointed out these policies will be unique
and highly specific to the firm and even to each area of governance moreover governance principles are
discussed in your other general education subjects or might also be a major subject thus we will not
discuss any aspect of governance in great detail aside from what I have already mentioned.

There it is chapter five quality control for audits in summary, there are three primary sources of quality
control that the auditor or the fear may build his own quality standards whatever controls he or the fear
may adopt the firm or the auditor makes sure that it is fitting for the organization and to the client and
the engagement he takes in, he must also ensure that such quality standards are accompanied by sound
and efficient processes that incorporate the standards as well as controls that ensure that such
standards are complied with monitored and deviations to them are documented. Lastly the quality
control standards must be documented signed by appropriate authorities within the organization and
clearly communicated to all members of the organization, for common sense questions, please visit our
fb group and post a comment on the post related to this topic discussion video or you can send me a
personal message. I discourage commenting on the youtube post as I don’t normally look at the
comments to my videos also be sure to check out and watch the supplementary learning videos.

Auditing Standards ASA 220 Quality Control for an Audit of a Financial Report and
Other Historical Financial Information

Notes:
Australian standards are internationally harmonized , so if you’re an international student
and you’re using ISA, then this video will apply to you just as well. Remember that we also have
standards on quality control, so SQC or ISQC on quality control and IPES110 also has specific
requirements about quality they actually refer you back to ISA 220.
Now, why is audit quality important?
The idea of an audit and audit standards is that everybody is supposed to be doing the same
level of an audit. ISA/ASAs are meant to give us a minimum basic level of quality, so audit
should be at least at the set level. Sometimes, you might have audits that are of a slightly higher
quality. It could be industry specialists, or by using a big 4 firm quite often. ISQC or ISA210 are
here to make sure that we know, what is the minimum level of things we should be doing for
quality control aas well as following generally ISA/ASA.

The OBJECTIVE of the standard is to promote audit quality.

CONTENT:

Introduction
Scope of this Auditing Standard
1. This Australian Standard on Auditing (ASA) deals with the specific responsibilities of the
auditor regarding quality management at the engagement level for an audit of a financial report
and other historical financial information, and the related responsibilities of the engagement
partner. This ASA is to be read in conjunction with relevant ethical requirements.
(Ref: Para. A1, A38)
Aus 1.1 This ASA does not address the responsibilities for the auditor that may exist in
legislation, regulation or otherwise in connection with, for example, the independence or other
assurance related requirements of the Corporations Act 2001.
Objective
11. The objective of the auditor is to manage quality at the engagement level to obtain reasonable
assurance that quality has been achieved such that:
(a) The auditor has fulfilled the auditor’s responsibilities, and has conducted the audit, in
accordance with Australian Auditing Standards and applicable legal and regulatory requirements;
and
(b) The auditor’s report issued is appropriate in the circumstances.

NOTES:
This is because, audits are done by teams of people. Now, lots of people working together,
we need to make sure that we have good policies and procedures to make sure that everybody in
that team is doing the right thing.

Requirements
Leadership Responsibilities for Quality on Audits
8. The engagement partner shall take responsibility for the overall quality on each audit
engagement to which that partner is assigned. (Ref: Para. A3)

Notes; If something goes wrong on the audit,that partner is going to be legally responsible.

Relevant Ethical Requirements

9. Throughout the audit engagement, the engagement partner shall remain alert, through
observation and making enquiries as necessary, for evidence of non-compliance with relevant
ethical
requirements by members of the engagement team. (Ref: Para. A4-A5)
10. If matters come to the engagement partner’s attention through the firm’s system of quality
control or otherwise that indicate that members of the engagement team have not complied with
relevant ethical requirements, the engagement partner, in consultation with others in the firm,
shall determine the appropriate action.
Independence
11. The engagement partner shall form a conclusion on compliance with independence
requirements that apply to the audit engagement. In doing so, the engagement partner shall:
(Ref: Para. A5-Aus A5.1)
(a) Obtain relevant information from the firm and, where applicable, network firms, to identify
and evaluate circumstances and relationships that create threats to independence;
(b) Evaluate information on identified breaches, if any, of the firm’s independence policies and
procedures to determine whether they create a threat to independence for the audit engagement;
and
(c) Take appropriate action to eliminate such threats or reduce them to an acceptable level by
applying safeguards, or, if considered appropriate, to withdraw from the audit engagement,
where withdrawal is possible under applicable law or regulation. The engagement partner shall
promptly report to the firm any inability to resolve the matter for appropriate action. (Ref: Para.
Aus A5.1, A6-A7)

Notes; Independence is the cornerstone of an audit, so we should as the partner look at

independence and make sure that we follow the requirements in APES110. We have to check
that everybody is independent even if you’re using our other firms that if we have a breach we
know what to do. And if we have threats to independence, then we have to reduce them by
applying safeguards. Those safeguards of course, come from APES110.

Acceptance and Continuance of Client Relationships and Audit Engagements

12. The engagement partner shall be satisfied that appropriate procedures regarding the
acceptance and continuance of client relationships and audit engagements have been followed,
and shall determine that conclusions reached in this regard are appropriate. (Ref: Para. A8-A9)
13. If the engagement partner obtains information that would have caused the firm to decline the
audit engagement had that information been available earlier, the engagement partner shall
communicate that information promptly to the firm, so that the firm and the engagement partner
can take the necessary action.

Assignment of Engagement Teams

14. The engagement partner shall be satisfied that the engagement team, and any auditor’s
experts who are not part of the engagement team, collectively have the appropriate competence
and
capabilities to:
(a) Perform the audit engagement in accordance with Australian Auditing Standards, relevant
ethical requirements, and applicable legal and regulatory requirements; and
(b) Enable an auditor’s report that is appropriate in the circumstances to be issued.

Notes: It’s really important about making sure that we have the right personnel, they are
appropriately confident. They’ve got the right industry knowledge so that skill could be related
to a particular industry . They might need to have a certain amount of audit experience in general
to meet those requirements. So, we have to have the right people on the team which wouldn’t
accept a job if we can’t.

Engagement Performance
Direction, Supervision and Performance
15. The engagement partner shall take responsibility for:
(a) The direction, supervision and performance of the audit engagement in compliance with
Australian Auditing Standards, relevant ethical requirements, and applicable legal and regulatory
requirements; and (Ref: Para. A13-A15, A20)
(b) The auditor’s report being appropriate in the circumstances.

Notes; Execution of the audit means, we’re going out and we’re collecting evidence and do
specific things. Direction, Supervision and Performance: they have to make sure that the right
plan is put in place. Managers supervise supervisors. Senior auditors supervise junior auditors.

Reviews
16. The engagement partner shall take responsibility for reviews being performed in accordance
with the firm’s review policies and procedures. (Ref: Para. A16-A17, A20)
17. On or before the date of the auditor’s report, the engagement partner shall, through a review
of the audit documentation and discussion with the engagement team, be satisfied that sufficient
appropriate audit evidence has been obtained to support the conclusions reached and for the
auditor’s report to be issued. (Ref: Para. A18-A20)

Notes; this is a really important process, where someone senior checks a juniors staff member’s
work . It is important because of the teamwork aspect. That means that junior auditor’s work is
checked by the senior auditor; Seniors are checked by the manager; manager’s work might be
checked by the partner. Those reviews might be looking at specific documents and saying if
they’re doing the right thing. Or it could even be an interview, and they talk about what has been
going on in the audit.

Consultation
18. The engagement partner shall:
(a) Take responsibility for the engagement team undertaking appropriate consultation on difficult
or contentious matters;
(b) Be satisfied that members of the engagement team have undertaken appropriate consultation
during the course of the engagement, both within the engagement team and between the
engagement team and others at the appropriate level within or outside the firm;
(c) Be satisfied that the nature and scope of, and conclusions resulting from, such consultations
are agreed with the party consulted; and
(d) Determine that conclusions resulting from such consultations have been implemented.

Notes; if there is something that needs to be talked about with the team, we should be
communicating with that team. This is really important, so communication between all of the
team members about the audit. The partner just doesn’t leave them to it, they actually have to go
and set a plan , check in regularly about how things are going , what work is being done.

Engagement Quality Control Review

19. For audits of financial reports of listed entities, and those other audit engagements, if any, for
which the firm has determined that an engagement quality control review is required, the
engagement partner shall:
(a) Determine that an engagement quality control reviewer has been appointed;
(b) Discuss significant matters arising during the audit engagement, including those identified
during the engagement quality control review, with the engagement quality control reviewer; and
(c) Not date the auditor’s report until the completion of the engagement quality control
review.
20. The engagement quality control reviewer shall perform an objective evaluation of the
significant judgments made by the engagement team, and the conclusions reached in formulating
the auditor’s report. This evaluation shall involve:
(a) Discussion of significant matters with the engagement partner;
(b) Review of the financial reports and the proposed auditor’s report;
(c) Review of selected audit documentation relating to the significant judgements the
engagement team made and the conclusions it reached; and
(d) Evaluation of the conclusions reached in formulating the auditor’s report and consideration of
whether the proposed auditor’s report is appropriate.

21. [Deleted by the AUASB. Refer Aus 21.1]

Aus 21.1 For audits of financial reports of listed entities, and those other audit engagements, if
any, for which the firm has determined that an engagement quality control review is required, the
engagement quality control reviewer, on performing an engagement quality control review, shall
also consider the following:
(a) The engagement team’s evaluation of the firm’s independence in relation to the audit
engagement;
(b) Whether appropriate consultation has taken place on matters involving differences of opinion
or other difficult or contentious matters, and the conclusions arising from those consultations;
and
(c) Whether audit documentation selected for review reflects the work performed in
relation to the significant judgements made and supports the conclusions reached.

Notes:Somebody should check that there is an engagement control quality reviewer : this is a
second partner. Different partner who checks that everything has been done in accordance with
the ISA/ASA. So their job is to perform an objective evaluation of the judgments made by the
team and their conclusions to make sure that they’re appropriate. To make sure that there are no
loopholes, this is like a second check (magnifying glass).

Differences of Opinion
22. If differences of opinion arise within the engagement team, with those consulted or, where
applicable, between the engagement partner and the engagement quality control reviewer, the
engagement team shall follow the firm’s policies and procedures for dealing with and resolving
differences of opinion.
Notes: what happens if two partners disagree? Well then, they might need to follow the firm’s
policies and procedures to figure out and resolve that difference of opinion.

Monitoring
23. An effective system of quality control includes a 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. The engagement partner shall consider
the results of the firm’s monitoring process as evidenced in the latest information circulated by
the firm and, if applicable, other network firms and whether deficiencies noted in that
information may affect the audit engagement.

Notes; they need to check that their own policies and procedures are operating effectively all the
time, so that might be some form of audit firm regular inspection by some sort of quality control
unit, it could be peer review of audits by another firm, it could even be inspection by a
professional association.

Documentation
24. The auditor shall include in the audit documentation:

(a) Issues identified with respect to compliance with relevant ethical requirements and how they
were resolved.
(b) Conclusions on compliance with independence requirements that apply to the audit
engagement, and any relevant discussions with the firm that support these conclusions.
(c) Conclusions reached regarding the acceptance and continuance of client relationships and
audit engagements.
(d) The nature and scope of, and conclusions resulting from, consultations undertaken during the
course of the audit engagement. (Ref: Para. A35)

25. The engagement quality control reviewer shall document, for the audit engagement reviewed,
that:
(a) The procedures required by the firm’s policies on engagement quality control review have
been performed;
(b) The engagement quality control review has been completed on or before the date of the
auditor’s report; and
(c) The reviewer is not aware of any unresolved matters that would cause the reviewer to believe
that the significant judgments the engagement team made and the conclusions it reached were
not appropriate.

Notes; Without documentation,there is no proof that we did anything. So for the auditor,
documentation is proof of our work and supporting our decisions or our judgments.