C

Syllabus Area

FOCUS NOTES
Quality control and
Practice Management
“Assess and recommend appropriate quality control policies and
procedures in practice management and recognise the auditor’s
position in relation to the acceptance and retention of
professional appointments”

Gain the knowledge you need to pass the ACCA AAA exam
 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

What is the content of syllabus area C: Quality control and

practice management?
1. Quality control (firm wide)
Core topic – ensuring that audit work is performed to a high standard.
2. Advertising, tendering and obtaining professional work and fees
Fringe topic – how do auditors win work?
3. Professional appointments
Core topic – process for accepting a new audit client.

How is syllabus area C: Quality control and practice examined?

Section A: Case Study
Any of the syllabus area C topics could come up in the 50-mark case study question,
but are not often tested here. When they do form part of section A, its likely to be a
small sub part of the requirement (perhaps 5 marks).
The case study scenario often includes the auditor being newly appointed (as a
source of audit risk).

Section B: Extended written question

Acceptance and quality control are often tested in a section B question (typically
10-15 marks out of 25).
You may be asked to demonstrate factual knowledge around the process for
accepting a client.
Recent exams have included questions where you are asked to apply your
knowledge of quality control to comment on the standard of work that has been
performed on an audit.

What do I need to know to pass?

Understand how quality is maintained on an audit
Apply your knowledge to a scenario-based question, to critique work that has been
performed.

Memorise the process for accepting a new audit client

Accepting a new client is regularly tested, make sure that you know it.

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

1. Quality Control (firm wide)

Notes
Why is quality control needed?
Public interest. The auditor’s opinion can only add
value to a set of financial statements if the audit
work has been robust.
Protect against negligence claims. Documenting that
the audit work has been properly planned,
supervised and reviewed will help the auditor to
defend any cases of negligence.
Negligence claims can be both financially and
reputationally damaging for the auditor. KPMG were
fined £14m for audit failings over the Carillion audit,
and settled a £1.3bn lawsuit from Carillion’s
creditors out of court.

What does a good audit look like?

There’s no ‘right’ answer here…..but watch out for
the following! In exam questions, the audit will NOT
have been done well.
Direction
Audit team members should be directed towards the
need to maintain quality, and to maintain
professional scepticism throughout the audit.
The audit should start with a kick-off meeting, led by
a senior audit team member (ideally the audit
partner).
The kick off meeting will boost the team’s
understanding of:
the client (and any significant risks)
their role
any ethical requirements / safeguards in place
Plus a chance to ask questions about their role, the
procedures they will be performing, or anything else!

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

1. Quality Control (firm wide)

What does a good audit look like? (cont.)
Notes
Supervision
Tracking that the audit is progressing as planned, so
that the quality objectives of the audit and that
enough resources have been assigned to the audit.
This is typically done by the audit manager.
Effective supervision will mean that the audit
approach can be flexed if issues arise, and team
members can consult the audit manager if the audit
is complex.
Review
All audit work should be reviewed by a more senior
team member (this review must be evidenced).
The evidence on file should support conclusions
drawn.
Reviews must be timely! Early enough so that any
issues can be resolved before the audit report is
signed.

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

1. Quality Control (firm wide)

Key elements of quality control at a practice firm
1. Leadership (senior partners) Notes
Set an appropriate tone at the top. Quality should be
prioritised over profitability.
Audit leaders should establish a System of Quality
Management (SQM) that:
Establishes audit quality objectives.
Identifies and assesses quality risks for each
engagement.
Designs and implements responses to quality
risks.
An annual evaluation of the SQM is required.

2. Ethics
Ensure that key fundamental ethical principles have
been complied with.
Professional competence, confidentiality, objectivity.

3. Acceptance and Continuance

Only take on a new audit client if appropriate to do
so.
Ensure sufficient resources (people and technology)
are in place to deliver a quality audit.

4. Human resources
Recruit, train and support audit staff appropriately.
Audit team members should be appropriately
qualified and experienced for the roles they perform.

5. Engagement performance
Direction, supervision and review of the audit work
performed.

6. Monitoring
Ensure that the firm’s SQM was followed during the
audit. Learn lessons for future audits!

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

1. Quality Control (firm wide)

Key elements of quality control at a practice firm (cont.)
7. Audit Partner Notes
Must be actively involved in the audit! Must ensure
that significant judgements made, and conclusions
reached, are appropriate.
The audit partner should actively direct, supervise
and review the audit work performed.

8. Documentation
If it isn’t documented on the file……it didn’t happen!

There must be sufficient evidence on file to support

any conclusions drawn.
In particular, there must be evidence to support
consultations undertaken during the audit.

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

1. Quality control (firm wide)

The audit team Notes

Exam questions often focus on audit team members
NOT doing their job properly. These are the typical
roles you will find in an exam question…..watch out
for team members doing the wrong jobs!

Note – on a large, listed audit, you may find other

roles (e.g. senior manager) – but exam questions
don’t tend to focus here.

Audit assistant
A junior auditor (unqualified, limited experience).
Work should be limited to less judgemental areas of
the audit (e.g. cash, PPE).
Audit senior
Part qualified or newly qualified, with some
experience of auditing.
The senior should focus on more complex areas of
the audit (e.g. revenue) and would supervise the
audit junior.
Audit manager
A qualified auditor with several years of experience.
The manager may audit the most complex,
judgemental areas of the audit (e.g. provisions). They
will supervise and review the work of the assistant
and senior.
Audit partner
A qualified auditor with many years of experience.
The partner is unlikely to do any detailed audit work!
They will oversee the work of the team, review any
complex areas of the audit, and hold any challenging
conversations with the client.

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

1. Quality control (firm wide)

Notes
Post Issuance Review – a cold review
Standard quality control review, performed on a
selection of audit files.

When is the Post Issuance Review performed?

AFTER the audit report is signed.

Why perform a Post Issuance Review?

Assess whether the firm’s SQM was followed during
the audit – that all policies and procedures were
followed.
Identify any quality deficiencies – rectify these (if
possible) and understand why they happened.
Update the SQM if relevant (i.e. learn lessons for
later audits).

What does a Post Issuance Review involve?

Audit files are reviewed for the following:
Sufficient audit evidence is on file to support any
conclusions.
All outstanding matters were resolved BEFORE
the audit report was signed.
All working papers are evidenced as having been
reviewed by a more senior member of the team.

The reviewer prepares a report of their findings,

which is shared with partners at the audit firm. This
report covers:
Findings from the review.
Training needs for staff (e.g. if individual staff
have been negligent).
Changes required to the SQM as a result of the
review.
Disciplinary action required (e.g. if audit staff
have been wilfully negligent).

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

1. Quality control (firm wide)

Engagement Quality Control Review (EQR
Notes
or EQCR) – a hot review
Extra review stage for the audits of high- risk clients
(e.g. listed companies).

When is the EQR performed?

BEFORE the audit report is signed.

Why perform an EQR?

Ensure that the auditor’s opinion is appropriate in the
circumstances.
Public interest.

Who performs the EQR?

Independent partner at the practice firm.

What does an EQR involve?

A series of review activities to ensure that the audit
team have gathered sufficient evidence to support
the auditor’s opinion. Typical activities include:
Discuss subjective / judgemental matters with
the audit partner.
Review of the draft financial statements and
draft auditor’s report.
Detailed review of selected audit files to ensure
that the evidence obtained supports any
conclusions made.
Ensuring that the audit team were independent
throughout the audit.
Whether appropriate consultation has taken
place on contentious matters.

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

2. Advertising, tendering and obtaining professional work and fees

Advertising
Notes
Auditors are allowed to advertise, but must comply
with key ethical principles:
Professional competence and due care (only
advertise services that you are experienced in).
Integrity (inform rather than sell).
Professional behaviour (do not bring the
profession into disrepute).

Tendering for work

Auditors are often ‘invited’ by the client to pitch for
work, setting out:
Proposed audit approach (e.g. controls vs
substantive).
Personnel (e.g. audit partner and senior team).
Fees.

Fees
Should be based on the following factors:
Risk.
Time required for the audit.
Resources (staff and other).
Expenses (e.g. hotels, travel).
The engagement letter should clearly set out the
engagement fee and arrangements for overruns.

Lowballing
Setting a low audit fee in the hope of earning other
income from the client. This is NOT ALLOWED, as
the following ethical principles would be
compromised:
Professional competence and due care. Low fee
could encourage the auditor to cut corners,
performing less work , to make the job
commercially viable.
Self-interest. The auditor would benefit if the
client grows / performs well, as they may win
more work.

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

2. Advertising, tendering and obtaining professional work and fees

Contingent fees Notes

Contingent fees are only paid if certain milestones
being hit (e.g. the audit firm is only paid if the work is
completed by a certain date, or if a clean audit
opinion is given).
This is NOT ALLOWED due to professional
competence & self-interest threats (intimidation
threat).

Notes

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

3. Professional appointments
Pre-conditions for an audit Notes
The following factors MUST be in place for the auditor
to act:
- Acceptable financial reporting framework in
place (e.g. IFRS).
- Management accepts its responsibilities over:
1) Internal controls.
2) Preparing the accounts.
3) Providing the auditor with all required
information / explanations.
If the pre-conditions for an audit are not present, the
auditor should not accept appointment.

Should we take on the client?

Ethical considerations:
Independence / objectivity from the client.
Professional competence and due care. Is the
auditor experienced, and are sufficient resources
available?
Management integrity. Can management
representations be relied upon?
Other considerations:
Reputation. Would the auditor wish to be
associated with the client?
Commerciality. Does the audit fee reflect the level
of risk and the work required?

Professional clearance from the outgoing

auditor
Contact the previous auditor (having obtained the
client’s permission). Are there any issues that the new
auditor should be aware of? For example:
Unpaid fees.
Disagreements with management.
Poor management integrity.

Engagement letter
Signed contract that sets out relevant terms and the
responsibilities of the auditor / management.

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

Fireside Chat
Use this space to make notes as you watch Ben's fireside chat. Although it's an
informal discussion, Ben will be giving you lots of useful tips and advice in the video!

Up next.. Questions!
So, we've now covered the technical knowledge....but that is only the first small step to exam
success! AAA requires you to develop techniques so that you can apply your knowledge
effectively to exam questions.

The only way to develop exam technique is to practice exam questions! This is the
area that many students neglect... and it can really harm your chances of passing.

As you work through the exam questions in the course, use the next few pages to make notes of
key learning points (after you have worked through the question, and Ben's support resources).

Making your own notes is super helpful. You are much more likely to remember those learning
points if you have written them in your own words... and you'll be able to refer back to them
when you move into the Revision phase! Good luck!
 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

'Watch Ben' Question

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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

'Work with Ben' Question

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FOCUS NOTES
Quality control and Practice Management

'Homework' Question
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 Syllabus Area C
FOCUS NOTES
Quality control and Practice Management

'Extra' Question
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