Professional Documents
Culture Documents
Quality in Audit
It will achieve by complying with ethical requirements, professional judgement and skepticism in audit
work, audit shall be conducted in accordance with NSAs, timely report and communications.
Overall Resposibilities the engagement partner shall take reposibilities for the overall quality of each audit engagements
performing work that complies professional standards and legal and regulatory requirements
Leadership
complying with the firms quality control policies and procedures as applicable
• Identity and role of each engagement team shall be communicated to the key management team
• AEP has appropriate capabilities, competence required to perform the role
• Responsibilities of engagement partner and team members are clearly defined and communicated
to client
Engagement Performance
The firm should establish policies and procedures designed to provide designed to provide it with
reasonable assurance that engagements are performed in accordance with professional standards and
regulatory and legal requirements and to enable the firm or engagement partner to issue reports that are
appropriate in the circumstances.
✓ Through its policies and procedures, the firm seeks to establish consistency in the quality of
engagement performance, supervision responsibilities and review responsibilities.
The firm shall also establish policies and procedures for:
✓ Appropriate consultation in relevant matters
✓ Engagement quality control review
✓ Resolving the difference of opinion within the engagement team
✓ Documentation of all relevant matters.
Q. Through its policies and procedures, the firm seeks to establish consistency in the
quality of engagement performance. 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. Explain the matters to be
addressed in this context.
Ans: Through its policies and procedures, the firm seeks to establish consistency in the quality of
engagement performance, supervision responsibilities and review responsibilities. This is accomplished
through written or electronic manual software tools or other forms of standardized documentation
and industry or subject matter-specific guidance material . Matters addressed include the following:
✓ How engagement teams are briefed on the engagement to obtain an understanding of the
objectives of their work
✓ Processes for complying with applicable engagement standards
✓ Processes of engagement supervision, staff training and coaching
✓ Methods of reviewing the work performed, the significant judgement made and the form of
report being issued.
✓ Appropriate documentation of the work performed and of the timing and extent of the
review
✓ Processes to keep all policies and procedures updated.
Engagement Partner:
✓ Member of ICAN and full-time practice
✓ Is responsible for engagement and its performance and for the report
Engagement quality control review- Hot Review
✓ For audits of financial statements of listed entities, and those other audit engagements, if any, for
which the firm has determined that an engagement quality control review is required, engagement
partner shall:
• Determine that an engagement quality control reviewer has been appointed,
• Significant matters arising during the audit engagements
• Review financial statements, Auditor Report, Auditor Documentation, Consultation and
Independence.
✓ A process designed to provide an objective evaluation before the report is issued,
✓ of the significant judgements the engagement team made and the conclusion they reached in
formulating the report.
Engagement quality control reviewer
✓ A partner, other person in the firm
✓ Suitably qualified external persons or
✓ Team made up of such individuals- Head of such team shall be member of ICAN.
✓ With sufficient and appropriate experience and authority
✓ To objectively evaluate before the report is issued, the significant judgements and engagements
team made and
✓ The conclusions they reached in formulating the report.
You are appointed as manager of quality control section in one of the leading audit firm
of Nepal, the senior partner of the firm instructs you to draft objectives statement for
quality control policies & procedures. (8 Marks December 2011)
As per Nepal Standards on Quality Control (NSQC) 1, it is necessary for quality control for firm`s that
perform audits and review of historical financial information and other, accordingly, the relevance of quality
control the relevance of quality control issue in auditing services is equal importance like in other services.
If quality control could not be done in auditing work, quality services could not be provided to client which
may result negative consequences both for auditor and client including in overall all economy. Hence, every
auditor should carry out the audit work based on formal quality control policy & procedures. The objective
statement of quality control policies & procedures would be:
• Leadership Responsibilities
• Ethical requirements
• Skills and competence of Engagement Team
• Acceptance and Continuance
• Engagement Performance
• Monitoring
Requirement of auditor to complete the assembly of his final audit files as per
NSQC 1:
As per NSQC 1, the firm should establish policies and procedures for engagement teams to
complete the assembly of final engagement files on a timely basis after the engagement reports
have been finalized.
Law or regulation may prescribe the time limits by which the assembly of final engagement files
for specific types of engagement should be completed. Where no such time limits are
prescribed in law or regulation, the firm establishes time limits appropriate to the nature of
the engagements that reflect the need to complete the assembly of final engagement files on a
timely basis. In the case of an audit, for example, such a time limit is ordinarily not more than
60 days after the date of the auditor’s report.
Where two or more different reports are issued in respect of the same subject matter
information of an entity, the firm’s policies and procedures relating to time limits for the
assembly of final engagement files address each report as if it were for a separate engagement.
This may, for example, be the case when the firm issues an auditor’s report on a component’s
financial information for group consolidation purposes and, at a subsequent date, an auditor’s
report on the same financial information for statutory purposes.
Q. You are a senior audit In-charge working for the firm Ram & Associates. You are
currently carrying out the audit of Bajra Ltd., a manufacturer of plastic bags. You are
unhappy with Bajra Ltd.’s inventory valuation policy and have raised the issue several
times with the audit manager. He has dealt with the client for a number of years and does
not see what you are making an objection about. He has refused to meet you on site to
discuss those issues. As the audit manager has dealt with Bajra Ltd. for so many years, the
other partners have decided to leave the audit of Bajra Ltd. in his capable hands.
Quality Control
PQR & Associates, Chartered Accountants, is a partnership firm having 3 partners CA P,
CA Q and CA R. PQR & Associates are appointed as Statutory Auditors of ABC Limited, a
listed entity for the financial year 2078-79 and CA P is appointed as Engagement Partner
for the audit of ABC Limited. Before issuing the Audit Report of ABC Limited, CA P asked
CA R to perform Engagement Quality Control Review and is of the view that his
responsibility will be reduced after review by CA R. Whether the contention of CA P is
correct? What are the aspects that need to be considered by CA R while performing
Engagement Quality Control Review for audit of financial statements of ABC Limited?
Answer
As per NSQC 1, “Quality Control for Firms that Perform Audit and Reviews of Historical
Financial Information, and other Assurance and Related Services Engagements”, the
review does not reduce the responsibilities of the engagement partner. Hence, contention
of CA. P that after engagement quality control review by CA. R, his responsibility will be
reduced, is not correct.
However, CA. R needs to consider the following aspect while performing Engagement
Quality Control Review for audit of financial statements of a listed entity ABC Ltd.:
1. The engagement team’s evaluation of the firm’s independence in relation to the
specific engagement.
2. Significant risks identified during the engagement and the responses to those risks.
3. Judgments made, particularly with respect to materiality and significant risks.
4. 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.
5. The significance and disposition of corrected and uncorrected misstatements
identified during the engagement.
6. The matters to be communicated to management and those charged with governance
and, where applicable, other parties such as regulatory bodies.
7. Whether working papers selected for review reflect the work performed in relation to
the significant judgments and support the conclusions reached.
8. The appropriateness of the report to be issued.
Engagement quality control reviews for engagements other than audits of financial statements of listed
entities may, depending on the circumstances, include some or all of these considerations.
Q. Set out possible examples of documentary evidence which should indicate that the auditor has
adhered to NSA 220 Quality control for an audit of financial statements.
Communication of procedures
• Memoranda to all partners and staff.
• Quality control manual.
Appointment/reappointment
• Minutes of a meeting to discuss.
• File note re engagement partner’s decision with appropriate justification.
Ethics
• Staff manual containing guidance.
• Annual declarations of independence by staff such as interests in clients, personal relationships
with clients etc.
Skills and competence
• Documentation of recruitment procedures including job specification, curriculum vitaes, record
of interviews etc.
• Existence of technical library.
• Technical circulars and memoranda.
• Record of attendance at professional courses with evidence of review for which courses were
attended by which staff at which particular levels.
• Training/CPE records with evidence of review
• Staff planning schedules with consideration of:
✓ exposure to different types of audit
✓ mix of staff to give experienced staff the chance to supervise and junior staff the
opportunity to learn from their supervisors.
Consultation
• Evidence of a structured approach to file review (e.g. lead schedules signed off by senior, then
manager, then partner).
• Letters/memoranda/minutes showing discussion of technical problems or matters of judgement
at an appropriate level.
Monitoring
• Records of ‘cold’ file review by persons independent of audits being reviewed.
• Evidence of consideration of required level of competence of designated reviewers.
• Proof that recommendations for improvement are implemented (e.g. may be noted at the
planning stage of a subsequent audit).