Quality Control for an Audit of Financial Statements
(a)
The firm and its personnel comply with professional standards and regulatory and legal requirements; and
(b)
The reports issued by the firm or engagement partners are appropriate in the circumstances1. This SA is premised on the basis that the firm is subject to SQC 1. (Ref: Para.
(a)
The audit complies with professional standards and regulatory and legal requirements; and
(b)
The auditor’s report issued is appropriate in the circumstances.
(a)
Engagement partner – the partner or other person in the firm who is a member of the Institute of Chartered Accountants of India and is in full time practice and is responsible for the engagement and its performance, and for the report that is issued on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal or regulatory body.
(b)
Engagement quality control review – a process designed to provide an objective evaluation, before the report is issued, of the significant judgments the engagement team made and the conclusions they reached in formulating the report.
(c)
Engagement quality control reviewer – a partner, other person in the firm, suitably qualified external person, or a team made up of such individuals, with sufficient and appropriate experience and authority to objectively evaluate, before the report is issued, the significant judgments the engagement team made and the conclusions they reached in formulating the report. However, in case the review is done by a team of individuals, such team should be headed by a member of the Institute.
(d)
Engagement team – all personnel performing an engagement, including any experts contracted by the firm in connection with that engagement. The term “engagement team” excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of SA 610 (Revised).3
(e)
Firm – a sole practitioner/proprietor, partnership, or any such entity of professional accountants, as may be permitted by law.
(f)
Inspection – in relation to completed engagements, procedures designed to provide evidence of compliance by engagement teams with the firm’s quality control policies and procedures. It also acknowledges that the external auditor may be prohibited by law or regulation from obtaining direct assistance from internal auditors. Therefore, the use of direct assistance is restricted to situations where it is permitted.
(g)
Listed entity – an entity whose shares, stock or debt are quoted or listed on a recognized stock exchange, or are traded under the regulations of a recognized stock exchange or other equivalent body.
(h)
Monitoring – a process comprising an ongoing consideration and evaluation of the firm’s system of quality control, including a periodic inspection of a selection of completed engagements, designed to enable the firm to obtain reasonable assurance that its system of quality control is operating effectively.
(i)
Network firm – A firm or entity that belongs to a network.
(j)
Network – A larger structure:
(i)
(ii)
That is clearly aimed at profit or cost-sharing or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand name, or a significant part of professional resources.
(k)
Partner – any individual with authority to bind the firm with respect to the performance of a professional services engagement.
(l)
Personnel – partners and staff.
(m)
Professional Standards – Engagement Standards, as defined in the “Preface to the Standards on Quality Control, Auditing, Review, Other
(n)
Relevant ethical requirements – Ethical requirements to which the engagement team and engagement quality control reviewer are subject, which ordinarily comprise the Code of Ethics of the Institute of Chartered Accountants of India related to an audit of financial statements.
(o)
Staff – professionals, other than partners, including any experts which the firm employs.
(p)
Suitably qualified external person – an individual outside the firm with the capabilities and competence to act as an engagement partner, for example a partner or an employee4 (with appropriate experience) of another firm. 4 Such employee should be a member of the Institute of Chartered Accountants of India.
(a)
Obtain relevant information from the firm and, where applicable, network firms, to identify and evaluate circumstances and relationships that create threats to independence;
(b)
Evaluate information on identified breaches, if any, of the firm’s independence policies and procedures to determine whether they create a threat to independence for the audit engagement; and
(c)
Take appropriate action to eliminate such threats or reduce them to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the audit engagement, where withdrawal is permitted by law or regulation. The engagement partner shall promptly report to the firm any inability to resolve the matter for appropriate action. (Ref: Para. A5-A7)
(a)
Perform the audit engagement in accordance with professional standards and regulatory and legal requirements; and
(b)
Enable an auditor’s report that is appropriate in the circumstances to be issued. (Ref: Para. A10-A12)
(a)
The direction, supervision and performance of the audit engagement in compliance with professional standards and regulatory and legal requirements; and (Ref: Para. A13-A15, A20)
(b)
The auditor’s report being appropriate in the circumstances.
(a)
Take responsibility for the engagement team undertaking appropriate consultation on difficult or contentious matters;
(b)
Be satisfied that members of the engagement team have undertaken appropriate consultation during the course of the engagement, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm;
(c)
Be satisfied that the nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted; and
(d)
Determine that conclusions resulting from such consultations have been implemented. (Ref: Para. A21-A22)
(a)
Determine that an engagement quality control reviewer has been appointed;
(b)
Discuss significant matters arising during the audit engagement, including those identified during the engagement quality control review, with the engagement quality control reviewer; and
(c)
Not date the auditor’s report until the completion of the engagement quality control review. (Ref: Para. A23-A25)
(a)
Discussion of significant matters with the engagement partner;
(b)
Review of the financial statements and the proposed auditor’s report;
(c)
Review of selected audit documentation relating to the significant judgments the engagement team made and the conclusions it reached; and
(d)
Evaluation of the conclusions reached in formulating the auditor’s report and consideration of whether the proposed auditor’s report is appropriate. (Ref: Para. A26-A28, A30-A32)
(a)
The engagement team’s evaluation of the firm’s independence in relation to the audit engagement;
(b)
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; and
(c)
Whether audit documentation selected for review reflects the work performed in relation to the significant judgments made and supports the conclusions reached. (Ref: Para. A29-A32)
(a)
Issues identified with respect to compliance with relevant ethical requirements and how they were resolved.
(b)
Conclusions on compliance with independence requirements that apply to the audit engagement, and any relevant discussions with the firm that support these conclusions.
(c)
Conclusions reached regarding the acceptance and continuance of client relationships and audit engagements.
(d)
The nature and scope of, and conclusions resulting from, consultations undertaken during the course of the audit engagement. (Ref: Para. A36)
(a)
The procedures required by the firm’s policies on engagement quality control review have been performed;
(b)
The engagement quality control review has been completed on or before the date of the auditor’s report; and
(c)
The reviewer is not aware of any unresolved matters that would cause the reviewer to believe that the significant judgments the engagement team made and the conclusions they reached were not appropriate.
(a)
The importance to audit quality of:
(i)
(ii)
(iii)
Issuing auditor’s reports that are appropriate in the circumstances; and
(iv)
The engagement team’s ability to raise concerns without fear of reprisals; and
(b)
The fact that quality is essential in performing audit engagements.
(a)
Integrity;
(b)
Objectivity;
(c)
Professional competence and due care;
(d)
Confidentiality; and
(e)
Professional behavior.
Notes, amendments & references (13)
2 Such other person should be a member of the Institute of Chartered Accountants of India.
3 SA 610 (Revised), Using the Work of Internal Auditors, establishes limits on the use of direct assistance.
5 SQC 1, paragraph 28.
6 SA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Standards on Auditing”, paragraph 15.
7 SQC 1, paragraph 50.
8 SA 230, “Audit Documentation”, paragraph 9(c).
9 SA 700(Revised), “Forming an Opinion and Reporting on Financial Statements”, paragraph 48.
10 SA 230, paragraphs 14-16 and A21-A24.
11 SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report.
12 SA 315, “Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment”.
13 SA 330, “The Auditor’s Responses to Assessed Risks”.
14 SA 240, “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements”.
15 SQC 1, Paragraph 86.