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In the context of the theme of the conference – “The new Economic Model –
Value Chain Transformation” and Tack A “Professionalism” the requirements of
International Standards on Quality Control essentially translate into sensible
business risk management.
The objective is that firms who perform audits and other assurance
engagements should establish and maintain a system of quality control that
provides reasonable assurance that:
Quality Audit to Uphold Public Interest – the ISQC Way
Presentation by Bill Palmer – ICAA (The Institute of Chartered Accountants in Australia)
> The firm and its personnel comply with professional standards and
applicable legal and regulatory requirements> Reports issued by the firm or engagement partners are appropriate in the
circumstances
In the context of the theme of the conference – “The new Economic Model –
Value Chain Transformation” and Tack A “Professionalism” the requirements of
International Standards on Quality Control essentially translate into sensible
business risk management.
The objective is that firms who perform audits and other assurance
engagements should establish and maintain a system of quality control that
provides reasonable assurance that:
Quality Audit to Uphold Public Interest – the ISQC Way
Presentation by Bill Palmer – ICAA (The Institute of Chartered Accountants in Australia)
> The firm and its personnel comply with professional standards and
applicable legal and regulatory requirements> Reports issued by the firm or engagement partners are appropriate in the
circumstances
The Standard requires that these objectives be achieved by requiring the:
> Leadership responsibilities for quality within the firm> Relevant ethical requirements> Acceptance and continuance of client relationships and
specific engagements> Human resources> Engagement performance> Monitoring
> Establishment> Documentation; and> Communication to personnel
of policies and procedures which cover the elements of:
Our experience with implementing these requirements from the
perspective of:
What I propose to share with you today is…
> Practitioners; both large and small> ICAA as a professional body> Regulators
Quality Audit to Uphold Public Interest – the ISQC way
PractitionersLarge practices> Documented policies and procedures not always followed
Small practices> Lack of documentation and difficulty with application especially for one
partner practices
Professional Body - ICAA> Tools to assist members meet requirements> Quality review program
Regulators> Force of law auditing standards> Inspections
Large
Practitioners
> Concerns about force of law – Post Enron reforms> Preamble to standards> Duplication of reviews> Regulator inspections (tone at the top, partner earnings> PCAOB
Small
> One size fits all> Too complex> General practice> Application of ISQC
> Toolkits> Practice model alternatives> Reporting thresholds> Alternate services – differential audit
Response from ICAA
Tools to assist members meet requirements
> Australia adopted ISQC1 in 2006> ICAA produced Quality Control Guide> Guide incorporates pro-forma documentation which can be
downloaded and tailored to individual firms> Auditing toolkit> IFAC Guide to Quality Control for Small and Medium sized
Firms> ICAA Independence Checklist> ICAA Handbook updated online every 8 weeks> ICAA weekly technical newsletters> Using Malaysian Standards on Auditing in the Audits of small
and medium sized entities
> Covers the 5 elements of ISQC1> Are procedures and practices in place?> Are they documented?> How are they communicated?> Review manuals and work papers > Select cross section of engagement files to assess whether
quality control is being followed – Do not second guess
opinion> Reviewer is selected and contracted to ICAA but a working
practitioner > Institute review team ensure consistency> Cycle – every 3 years> Risk based approach – listed clients and results of prior
reviews> Report – findings and suggestions> Categories of report> Annual report findings
Quality Review Program
Quality Review Findings
Documentation> Insufficient audit evidence to support the audit opinion> Insufficient documentation in a particular audit area
> Terms of engagement> Planning> Understanding the Entity and Its Environment and
Assessing the risks of material misstatement> Consideration of fraud> Analytical procedures> Subsequent events> Going concern
Quality Review Findings
Independence> No or inadequate documentation when considering threats
to independence> Appropriate safeguards not applied when carrying out audit
and accounting functions for a client
Quality Control> System of control not documented > System not adequately documented> Consideration of client relationship not documented before
commencing work> No written annual confirmation of compliance on
independence
Training and Development> Minimum required hours not completed
RegulatorRegulator
Monitor audit quality by:> Registration of who can act as a registered company auditor
> Review systems of quality control to ensure compliance with law, auditing
standards and professional and ethical standards (top down approach)> Engagement file reviews, as part of a second round top down approach and also
for review of smaller firms by way of risk assessment
> 90% of registered company auditors are sole practitioners
> 65% have been registered for 20 years or more
> Big 4 equates to 46% of all listed companies
> 97% by market capitalisation of the top 300
Regulator Findings
> Categorise firms as A, B or C> Categories according to whether previously inspected> Category A generally at the smaller end of the top 15-20> Some category A firms have been found to not be taking a
sufficiently proactive approach to planning and
implementing effective policies, systems and processes to
ensure compliance with legislation and professional and
ethical standards for independence and quality> Engagement file reviews indicated in some instances a lack
of sufficient evidence to support certain audit assertions and
need to reinforce compliance with mandatory audit
standards> Failure to record all the work performed. The assumption is
that if it is not written down, it has not been done
Outcomes
> Concentration> Specialisation > Assurance framework for Climate Change opportunities > Attractiveness of the profession> Liability capping
> UK – FRC Professional Oversight Board> US – Public Company Oversight Board> Singapore – Accounting & Corporate Regulatory Authority> Extent & involvement of concurring partner> Documentation of thought process underlying significant
audit judgment> Analytical review – investigation of variances> Use of the work of specialists
Larger Firms> Implementation of systems of quality control
Smaller Firms> Comprehensiveness of system of quality control
Observations from Overseas Inspectors
MIA – CCH Quality Control Manual
Guide for Establishing and Maintaining a System of QC
for an Accounting and Auditing Practice
IFAC Guide
Guide to Quality Control for Small and Medium Sized
Practices
Audit Quality Rating Portal
UK Auditing Practices Board
Guidance on smaller Entity Audit Documentation
(Exposure Draft)
Quality ControlImplementation Assistance
Financial Reporting Supply ChainQuality Control
Public Interest
Capital MarketsCreditability
Financial Statements
Prepared in accordance with IFRS
Audit undertaken in accordance with IAS by ISQCI compliant auditor
International Standards Audits & Ethics
Toolkit WorkingPapers
International AuditStandards
Using InternationalAuditing Standards in theAudits of Small & Medium
sized Entities
Quality ControlGuide
Quality ControlISQCI
Implementation GuideIFAC
Quality Assurance programDocumentation
Quality ReviewSMO1
Independence Check List
The Code of Ethics forProfessionalAccountants
Quality Control
Requires MemberMember Body Member
ISQC 1SMO 1 Requires Member body to
Establish review process
SMO 1ISQC 1
Regulator oroversight
body
Member body
Member Inspection
> Commitment from the Top – Culture> Specific person responsible with CEO mandate> Independence> Acceptance and continuance – good risk management> Skill and competence of engagement team> Engagement performance – review of consultation
ISQC1
> Engagement quality review – listed only> Monitoring – profession body program> Documentation – not written down, not done