The

Quality
Control
Standards
Quality Controls in Audit & Assurance
PSQC 1 (Redrafted) PSA 220 (Redrafted)
Quality Controls for Firms Quality control for an
that Perform Audits and audit of financial
Reviews of Financial statements
Statements, and Other
Assurance and Related
Services Engagements

2
Objective of a system to quality
control
The firm should establish a system of quality control designed to provide it with REASONABLE
ASSURANCE that:

○ The firm and its personnel comply with professional standards and
regulatory and legal requirements, and
○ That reports issued by the firm or engagement partners
are appropriate in the circumstances.

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L eadership responsibilities

E thical requirements

A cceptance and continuance

H uman resources

E ngagement performance

M onitoring

Elements 4
 SYSTEM OF QUALITY CONTROL

Elements:

POLICIES 1. Leadership
responsibilities
2. Ethical
requirements
3. Acceptance &
continuance
PROCEDURES 4. Human resources
5. Engagement
performance
6. Monitoring

DOCUMENTATION

Structure of the Standard

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“
LEADERSHIP RESPONSIBILITIES
LEADERSHIP RESPONSIBILITIES

✓ CULTURE: Quality is essential in

performing engagements.
✓ ULTIMATE RESPONSIBILITY: Firm’s
managing board of partners (or its
equivalent, e.g. CEO)
 LEADERSHIP RESPONSIBILITIES
✓ The firm’s leadership and the examples it sets
significantly influence the internal culture of the
firm.
✓ The promotion of a quality oriented culture
depends on clear, consistent, and frequent
actions and messages from all levels of the firm’s
management emphasizing the firm’s quality
control policies and procedures, and the
requirement to:
○ Perform work that complies with
professional standards and regulatory and
legal requirements; and
○ Issue reports that are appropriate in the
circumstances.
✓ Of particular importance is the need for the firm’s leadership to recognize
that the firm’s business strategy is subject to the OVERRIDING
COMMITMENT TO QUALITY.

Commercial considerations vs Quality

Performance evaluation, promotion,

compensation

Resources in support of quality

 Necessary authority

Sufficient and appropriate

experience and ability
CEO
“
ETHICAL REQUIREMENTS
Ethical requirements
✓ Emphasis is made on the fundamental
principles, which are reinforced in particular by
the leadership of the firm, education and
training, monitoring, and a process for dealing
with noncompliance.

P
O I
P C
✓ Policies and procedures ✓ Familiarity threat
established should:
○ ROTATION
○ enable the firm to PERIOD: 5
communicate its years
independence
requirements,
○ identify and evaluate
circumstances and
relationships that create
threats to independence,
and
○ to take appropriate
action, and be notified of
breaches
INDEPENDENCE
requirements
✓ Familiarity threat
○ Existing provision
● LAEP has a rotation period of 5 years, cooling
off period of 2 years
○ Exposure draft
● LAEP will have a rotation period of 7 years,
cooling off period of 3 years (N.B. IESBA has a
cooling off period of 5 years)

INDEPENDENCE
requirements
“
ACCEPTANCE and CONTINUANCE
Acceptance and continuance procedures

✓ Undertake or continue relationships and engagements where it:

○ Has considered the integrity of the client and does not have
Communication with predecessor
any information that
Client’s reputation and attitude, would lead it to conclude
auditor that the client
lacksamong others
integrity. Inquiry
Background search
○ Is competent to perform the engagement and has the
capabilities, time, and resources to do so; and
Competent and capable
○ Can comply with ethical requirements.
PICPO
Policies and procedures on auditor
withdrawal
✓ Discussing with appropriate level of client management and those charged with
governance regarding the appropriate action that the firm might take based on the
relevant facts and circumstances
✓ If the firm determines that it is appropriate to withdraw, discussing with the appropriate
level of the client’s management and those charged with governance withdrawal from
the engagement and/or the client relationship
✓ 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 engagement
and/or the client relationship together with the reasons for such to regulatory
authorities.
✓ Documenting significant issues, consultations, conclusions, and the basis for the
conclusions.
“
HUMAN RESOURCES
Issues addressed by human resources:
✓ RECRUITMENT
✓ PERFORMANCE EVALUATION
✓ CAPABILITIES
✓ COMPETENCE
✓ CAREER DEVELOPMENT
✓ PROMOTION
✓ COMPENSATION
✓ ESTIMATION OF PERSONNEL NEEDS
“
ENGAGEMENT PERFORMANCE
✓ The firm seeks to establish
CONSISTENCY in the quality of the
engagement performance. This is
accomplished through:
○ Manuals (written or electronic)
○ Software tools (or other forms of
standardized documentation)
○ Industry or subject matter specific
guidance materials`
Supervision and Review

DIRECTION
SUPERVISION

REVIEW
Consultation
Policies and procedures to provide reasonable Other matters:
assurance that:
✓ External consultants
✓ Appropriate consultation takes place. ○ Consider whether suitably
✓ Sufficient resources are available. qualified
✓ Nature and scope of consultations are✓ Documentation of consultations
documented. ○ Sufficiently complete and
✓ Conclusions are documented and detailed
implemented. ✓ Differences of opinion
○ The report should not be issued
until the matter is resolved.
ENGAGEMENT QUALITY
CONTROL REVIEW
✓ REQUIRED for all audits of financial
statements of LISTED entities.
✓ Must be completed BEFORE the report
is issued
✓ Provides an objective evaluation of
○ Significant judgments made
○ Conclusions reached

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EQCR for non audit engagements?
✓ When is a non audit engagement subject to
engagement quality control?
○ The nature of the engagement including the
extent to which it involves public interest.
○ The identification of unusual circumstances or
risks in an engagement or class of engagements.
○ Whether laws or regulations require an
engagement quality control review.
Who gets to be the EQCRer?

✓ Sufficient and appropriate

technical expertise and
experience
✓ Authority
✓ Objectivity
“Days” to remember…
Completion of the assembly of final
engagement files
- Not more than 60 days after the date of
the auditor’s report
Retention of engagement documentation
- No shorter than 5 years from the date of
the auditor’s report, or the group
auditor’s report
“
MONITORING
Monitoring

✓ An ongoing consideration and

evaluation of the firm’s system of
Engagements selected for inspection include at least
quality control, including a periodic one engagement for each engagement partner over an
inspection cycle, which ordinarily spans NO MORE
inspection of a selection of completed THAN THREE YEARS.
engagements.
✓ SCOPE: Design and effectiveness of the
operation of the system of quality
control.
 “Isolated” circumstances
Systemic or repetitive – REQUIRES PROMPT ACTION

Who can complain?

What can be complained about?
Failure to comply with standards
Noncompliance with quality controls
Quality Controls in Audit & Assurance
PSQC 1 (Redrafted) PSA 220 (Redrafted)
Quality Controls for Firms Quality control for an
that Perform Audits and audit of financial
Reviews of Financial statements
Statements, and Other
Assurance and Related
Services Engagements

31
<Leadership Responsibilities
for Quality on Audits>
✓ Who shall take ✓ Engagement
responsibility for the partner
overall quality on each
audit engagement ?

✓ Who shall implement ✓ Engagement team

quality control
procedures applicable to
individual audit
engagements ?
<Ethical Requirements >

✓ Note: Basically the same with PSQC 1.

✓ Independence: Same with PSQC 1.

<Acceptance and continuance of
client relationships>
○ Integrity of the client
✓ What is to be
considered in ○ Competence and
deciding time/resources of
whether to engagement team
accept or ○ Compliance with
continue a ethical requirements
client ?
<Assignment of Engagement Teams>

✓ What would ○ Understanding of and practical

be included in experience with audit
the engagements of similar nature
assessment of and complexity
the ○ Understanding of professional
appropriate standards and regulatory and
capabilities legal requirements
and ○ Appropriate technical knowledge
competence ○ Knowledge of relevant industries
of the ○ Professional judgment
engagement
team? ○ Understanding of firm’s QC
policies and procedures
<Engagement
Performance>
✓ Who takes ✓ Engagement
responsibility for partner
direction,
supervision, and
performance of the
audit engagement ?
 <Engagement
Performance>
✓ In directing the audit ○ Their responsibilities
team, what does the ○ Nature of entity’s business
engagement partner
inform his members of ? ○ Risk related issues
○ Problems that may arise
○ Detailed approach to the
performance of the
engagement
✓ What does ○ Tracking progress of the audit
engagement
supervision
○ Considering the capabilities and
include ? competence of individual
members (including time,
instructions, and planned
approach)
○ Addressing significant issues
○ Identify matters for consultation
✓ Who would be ○ More experienced team members
allowed to ● Work has been performed in
accordance with professional
handle review standards
responsibilities? ● Significant matters have been raised
What do they ● Appropriate consultation
consider? ● Need to revise the nature, timing,
and extent of work performed
● Work performed supports
conclusions and is documented
● Sufficient and appropriate evidence
● Audit objectives have been met
✓ How does the ○ Review of audit
engagement partner documentation,
determine that and
sufficient and ○ Discussion with
appropriate evidence engagement team
has been obtained ?
<Differences of Opinion>

✓ In cases of differences of opinion,

follow the firm’s policies and procedures
for dealing with and resolving
differences of opinion
<Engagement Quality
Control Review>
✓ What requirements ○ Determine that an
should the engagement quality control
engagement partner reviewer has been appointed
comply with with ○ Discuss significant matters
regards to with the engagement quality
engagement quality control reviewer
control review ?
○ Not issue the audit report
until completion of the
quality control review
✓ What is the ○ Significant judgments made
scope/coverage of an by the ET
engagement quality ○ Conclusions reached in
control review ? formulating the auditor’s
report
<Monitoring>

A deficiency in the firm’s system of quality

control does not indicate that a
particular audit engagement was not
performed in accordance with
professional standards and regulatory
and legal requirements, or that the
auditor’s report was not appropriate
Thank you!
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