ACCAspace
ACCA P7
Advanced Audit and Assurance (AAA)
高级审计与鉴证业务
ACCA Lecturer: Iris Nie
Provided by ACCA Research Institute ACCA课程研究学院
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Quality control
Technical article
Past exam paper
Syllabus
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Quality control
There is no simple definition of audit quality
because there is no one 'correct' way to audit. It is
often a matter of conducting an audit in line with the
spirit as well as the letter of professional guidance.
Although each stakeholder in the audit will give a
different meaning to audit quality, at its heart it is about
delivering an appropriate professional opinion
supported by the necessary evidence and judgements.
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Quality control
Quality control at a firm level 1
2 Quality control on an individual audit
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Quality control at a firm level
The International Standard on Quality Control (ISQC 1)
helps audit firms establish quality standards for their business.
The objective of the firm 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 applicable legal and regulatory requirements
(b) Reports issued by the firm or engagement partners are
appropriate in the circumstances
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Quality control at a firm level
The firm’s system of quality control should include
policies and procedures addressing each of the following
elements:
Leadership responsibilities for quality within the firm
Ethical requirements
Acceptance and continuance of client relationship and
specific engagements
Human resource
Engagement performance
Monitoring
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Leadership responsibilities for quality within the firm
Firms are required to ensure that the appropriate
training is provided to ensure there is complete
understanding of the objectives and procedures
under ISQC 1.
The standard requires that the firm implements
policies such that the internal culture of the firm is
one where quality is considered to be essential.
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Leadership responsibilities for quality within the firm
The firm may appoint an individual or group of
individuals to oversee quality in the firm. Such
individuals must have:
--Sufficient and appropriate experience
--The ability to carry out the job
--The necessary authority to carry out the job
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Ethical requirements
The firm shall establish policies and procedures
deigned to provide it with reasonable assurance that
the firm and its personnel comply with relevant
ethical requirements.
The firm shall establish policies and procedures
designed to provide it with reasonable assurance
that the firm, its personnel and, where applicable,
others subject to independence requirements.
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Human resource
The firm's overriding desire for quality will necessitate
policies and procedures on ensuring excellence in its
staff, to provide the firm with 'reasonable assurance that
it has sufficient personnel with the capabilities,
competence, and commitment to ethical principles
necessary to perform its engagements in accordance
with professional standards and regulatory and legal
requirements, and to enable the firm or engagement
partners to issue reports that are appropriate in the
circumstances'.
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Human resource
• Recruitment
• Performance evaluation
• Capabilities & Competence
• Career development
• Promotion
• Compensation
• The estimation of personnel needs
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Human resource
•The firm is responsible for the ongoing
excellence of its staff, through continuing
professional development, education,
work experience and coaching by more
experienced staff.
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Engagement performance
• The firm should take steps to ensure that engagements
are performed correctly, that is, in accordance with
standards and guidance. Firms often produce a manual
of standard engagement procedures to give to all staff
so that they know the standards they are working
towards. These may be in an electronic format.
• Direction / Consultation / Supervision / Resolution of
disputes / Review
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Engagement performance
• ISQC 1.34
• The firm shall establish policies and procedures
designed to provide it with reasonable assurance that:
(a) Appropriate consultation takes place on difficult or
contentious matters
(b) Sufficient resources are available to enable
appropriate consultation to take place
(c) The nature and scope of, and conclusions resulting
from, such consultations are documented and are
agreed by both the individual seeking consultation and
the individual consulted
(d) Conclusions resulting from consultations are
implemented
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Engagement performance
• When there are differences of opinion on an
engagement team, a report should not be issued until
the dispute has been resolved. This may involve the
intervention of the quality control reviewer.
• A peer review is a review of an audit file carried out by
another partner in the assurance firm.
• A hot review is a peer review carried out before the
audit report is signed.
• A cold review is a peer review carried out after the audit
report is signed.
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Monitoring
The standard states that firms must have policies in
place to ensure that their quality control procedures
are:
• Relevant
• Operating effectively
• Adequate
• Complied with
Monitoring activity should be reported on to the
management of the firm on an annual basis.
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Monitoring
• The people monitoring the system are required to
evaluate the effect of any deficiencies found. These
deficiencies might be one-offs. Monitors will be more
concerned with systematic or repetitive deficiencies
that require corrective action. When evidence is
gathered that an inappropriate report might have been
issued, the audit firm may want to take legal advice.
•Corrective action:
--Remedial action with an individual
--Communication of findings with the training
department
--Changes in the quality control policies and
procedures
--Disciplinary action, if necessary
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Technical article
• Assess whether an engagement has been planned
and performed in accordance with professional standards and whether reports issued are appropriate in
the circumstances.
• ISQC1 applies to all firms of professional accountants
in respect of audits and reviews of financial statements, and other assurance and related services engagements.
It should therefore also be applied to non-audit
engagement such as reviews of prospective financial
information and engagements to perform agreed upon
procedures.
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Technical article
• ISA 220 Quality Control for an Audit of Financial
Statement is specific to audit engagement and
contains specific requirements that should be
adhered to in the performance of any audit.
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Technical article
• ISA220 contains requirements in relation to:
--Leadership responsibilities for quality on audits
--Relevant ethical requirements, in particular independence
--Acceptance and continuance of client relationships and audit engagements
--Assignment of engagement teams
--Engagement performance, meaning the direction,
supervision, and review of an audit, including consultation
and engagement quality control reviews. --Monitoring and documentation
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Technical article
Why is audit quality a concern ?
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Technical article
• The regulatory bodies have a role to play in performing
audit quality as this will in turn increase public confidence in the audit process and in financial reporting. It is in the best
interest of audit firms to conduct a high quality audit.
• Audit firms are faced with great pressure which may lead to
them compromising audit quality. Pressure can be in the form of tight deadlines and restrictions on audit fees, issues
relating to competence, ethical dilemmas, and the extent of
judgment that is required when auditing certain balances and
transactions.
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Technical article
• Tight deadlines and restrictions on audit fees----
The FRC comments in its 2011—2012 Annual Report on
Audit inspections that ‘a company’s audit should represent
value for money’. Nevertheless, substantial fee reductions
may lead the audit to reduce valuable audit work and
therefore compromise audit quality. Fee pressures are a commercial reality and audit firms will react to fee pressure
by seeking efficiencies in the audit. This can manifest in
many ways, for example, reducing sample size, and
increasing materiality levels especially in group situations.
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Technical article
• Tight deadlines and restrictions on audit fees----
A particular way to make the audit more efficient is to
‘offshore’ certain audit procedures in an arrangement
whereby some of the audit work is performed by audit
personnel who are not ‘full’ members of the audit team, they
may be located in a foreign country where the labour costs are lower. This practice raises audit quality issues in that
these personnel may not have a good knowledge of the audit
client and the quality of the audit evidence produced may be
questionable.
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Technical article
• competence---
If auditors are not technically competent to perform audit
work there is a clear impact on the quality of work performed.
Given that engagement quality reviews are conducted for
high risk audit engagement using inexperienced auditors to
perform such reviews can create a potentially serious hazard for the audit firm in that it is much more likely that an
inappropriate opinion could be issued.
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Technical article
• Ethical delimmas---
A common example is where the audit firm provides non-
audit services to the audited entity. Audit firms should be
familiar with the concept that providing non-audit services
creates a threat to objectivity, in particular a self-review
threat, and audit firms also should be accustomed to assessing the significance of the risk and responding with
the use of appropriate safeguards or by not providing the
non-audit service.
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Technical article
• Extensive use of judgment--
This is very much linked to professional skepticism.
Firms, with the assistance of audit committees, should
ensure they appropriately challenge management. Audit
firms often fail to challenge the feasibility of business
plans prepared by management, as well as assumptions relation to fair value impairment and the valuation of
tangible and intangible assets.
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