Leonardo J Matignas Jr

CPA, CIA, CRMA,CFA

A distinguishing mark of a profession is

acceptance of its responsibility to the

public

One way to reflect this responsibility is

for registered firms to establish

systems of quality control that ensure

conformity with the professional

standards and code of ethics relevant

to professional work

seanwes.com

Part of the Function of BOA

Conduct an oversight into the quality of audits

of financial statements:

Through a review of the quality control

measures instituted by auditors

To ensure compliance with the accounting

and auditing standards and practices,”

[Section 9 (n) of R.A.9298, Powers and Function of the Board]

www.maryblackfoundation.org

BOA Requirement

“Copy of the internal quality review

procedures being implemented to ensure

compliance with the professional, ethical

and technical standards required of the

practice of accountancy...”

(First sentence of Annex B (c) ix, Rules and Regulations

Implementing Republic Act 9298) www.expertbriefings.com

BOA Requirements

Condition to registration or any renewal Individual CPAs, Firms or Partnerships of CPAs to undergo quality review in a manner specified by the Board,

Compliance with the above requirement through a quality review performed for other purposes which is substantially equivalent to quality review of the Board and shall be made applicable to all Individual CPAs, Firms or Partnership.”

(Annex B, 3a, Rules and Regulations Implementing RA 9298)

ELEMENTS OF A SYSTEM OF QUALITY CONTROL

Design policies intended to provide the Firm with reasonable assurance, that its personnel

• Comply with applicable professional standards

• Reports issued by the firm or engagement partners are appropriate in the circumstances

Procedures necessary to implement and monitor compliance with such policies

Scope of Quality Review

•Firm’s responsibility for its system of quality

control

•Audits and reviews of financial statements, and

other assurance and related service engagements

•Quality control procedures for specific types of

engagement are covered by other ISA

•Example: ISA 220 (Audits of financial statements)

Provide reasonable assurance that:

Firm and Personnel

comply

• Professional Standards (ISA and COE)

• Applicable legal and regulatory requirements (BOA, SEC)

Reports issued

• By Firm or Engagement Partner

• Appropriate in the circumstances

Important reminders

•Person responsible for quality shall have an

understanding of the entire text of ISQC 1.

•Firm shall comply with each requirement of

ISQC 1.

•Except when the requirement is not relevant.

Document

Policies and

Procedures

Communicate to

personnel

• Laws and regulations require that a practitioner should implement a system of quality control.

• Practitioner shall ensure that it has comply with the legal requirements through compliance with ISQC 1 and other applicable standards and regulations.

Provide assistance to member practitioner in determining level of compliance with the requirement of ISQC 1.

The Quality Assurance Review Program of PICPA is intended to assist practitioner in improving the quality of their audit work.

Leadership responsibilities for quality within the firm

Relevant ethical requirements

Acceptance and continuance of client relationships and specific engagements

Human resources

Engagement performance

Monitoring

Policies and procedures for each

element of a system of quality

control.

Communication of the policies and

procedures to the firm’s personnel.

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Manual (Quality Assurance

Manual and Audit Manual) (See:

Handouts No. 12)

Memorandum

Minutes of meeting with

acknowledgement from all

personnel

Organizational structure

Memorandum

duly acknowledge

by Firm

Personnel

Meetings with

minutes of meeting

Discussions with minutes of the

discussion

Training compliance with

CPD Strategic Planning with a

completed strategic plan

Mission Statement displayed in the office

Employment Contract

signed by employees

“All partners and staff are, to

varying degrees, responsible for

implementing the firm’s quality

control policies and procedures.”

For Sole practitioner with no staff, ISQC 1 does not call for compliance with the following requirements:

Assignment of appropriate personnel to the engagement team

Review responsibilities

Communication of monitoring result to engagement partners

(A1, ISQC 1)

Internal Control Elements (ISA

315)

Firm-Level QC Elements (ISQC 1) Engagement-Level

QC Elements (ISA

220)

Control Environment

(Tone at the Top)

Leadership Responsibilities for

Quality within the Firm

Relevant Ethical Requirements

Human Resources

Leadership Responsibilities for

Quality on Audits

Relevant Ethical Requirements

Assignment of Engagement Teams

Risk Assessment

(What Could Go Wrong?)

Acceptance and Continuance of

Client Relationships and Specific

Engagements

Acceptance and Continuance of Client

Relationships and Audit Engagements

Risks that the report might not be

appropriate in the circumstances

Information Systems

(Tracking performance)

Quality Control System

Documentation

Audit Documentation

Control Activities

(Prevent & detect/correct controls)

Engagement Performance Engagement Performance

Monitoring (Are the firm’s/ engagement’s

objectives being met?)

Ongoing Monitoring of the Firm’s

Quality Control Policies and

Procedures

Applying Results of Ongoing

Monitoring to Specific Audit

Engagements

IFACs Guide to Using ISA in the Audit of Small and Medium-Sized Entities – Third Edition

Consideration for smaller entities

LEADERSHIP RESPONSIBILITY FOR QUALITY WITHIN A FIRM

ISQC 1. 18. requires:

Policies and procedures designed to

promote an internal culture recognizing

that quality is essential in performing

engagements.

Policies and procedures shall indicate that

the CEO or Board of partner shall assume

Ultimate responsibility for quality within the

Firm.

http://journyx.com/blog/ultimate-responsibility

ISQC 1, 19.

Policies and procedures shall specify that person or persons assigned operational responsibility for the firm’s system of quality control has

Sufficient and appropriate experience

Ability to identify quality control issues and develop policies and procedures

Authority to implement policies and procedures

http://entiregospel.com/tag/biblical-authority/

Manuals

Communications (emails)

Mission statement and vission

Minutes of meetings (Partners and Staff)

Strategic plan

Assignment of appropriate person (Qualification and years of experience)

Periodic meetings of BOP (Minutes of meetings)

27

Partner’s involvement in the audit at the planning stage is not evident.

Policies/procedures not reviewed , updated and/or

documented.

No evidence that the staff have read/understood the

policies/procedures

RELEVANT ETHICAL REQUIREMENTS

“The firm shall establish policies and procedures designed to

provide it with reasonable assurance that the firm and its

personnel comply with relevant ethical requirements.”

Integrity;

Independence and objectivity;

Professional competence and due care;

Confidentiality; and

Professional behavior.

Education and training

Adherence to CPD requirements

Adherence to professional standards, monitoring and professional development procedures

External review of the firms quality control procedures

Adherence to legislation

Identify

Threats

Identify

Safeguards Conclusion

Annual independence declaration from all personnel subject to indendependence.

Partner in-charge of Independence shall document review of annual independence declaration

Confidentiality Declaration (See Handouts 3: Declaration of Confidentiality)

Identified threats and evaluation of its significance, if significant any safeguards, in none actions taken by the firm.

Professional accountants should refrain from

Disclosing confidential information acquired as a result of

professional and business relationship without authority.

Using confidential information acquired as a result of

professional and business relationship to their personnal

advantage

ACCEPTANCE AND CONTINUANCE OF CLIENT RELATIONSHIPS AND

SPECIFIC ENGAGEMENTS

Prior to accepting an audit engagement the firm needs to consider

Integrity of management

Engagement team competence

Compliance with ethical requirements

Identified breaches and threats reduced to an acceptable

level by applying safeguards

Auditor shall accept an engagement only when:

Precondition for an audit is present

Confirming that there is common understanding between management, those charged with governance (TCWG) and the auditor.

HUMAN RESOURCES

Policies and Procedures shall include at a minimum

• Recruitment and retention

• Professional qualification

• Continuing professional development and training

• Work experience

• Coaching by senior staff

• Performance evaluation

• Carreer development

• Promotion

• Compensation

• The estimation of personnel needs

• Assignment of personnel

Organizational Structure

HR Manual

Performance evaluation result

Staff assignment

ENGAGEMENT Performance

Ethical

requirements Client

relationships

Assignment of

engagement

team

Engagement

performance Consultation

Engagement

quality

control review

Monitoring

Leadership

responsibilities

for quality on

audits

Elements of quality control of an individual audit engagement

Elements of quality control of an individual audit engagement

MONITORING

Monitoring consists primarily of

Understanding the control system

Determining whether, and to what extent, this control

system is designed and operating effectively.

Developing recommendations to improve the system,

especially if weaknesses are detected or if professional

standards and practices have changed.

Monitoring are informally performed by small firms through

Reliance on every partner and staff members at all levels to

informally monitor and enforce quality, ethics, and

professional and firm standards.

Feedback received from the relevant professional body’s

practice inspection.

• One or more completed and released engagements, for

each engagement partner at each inspection

• Each partner’s files are selected on at least a cyclical basis

• Inspection cycle not more than three years

• Those involved in the engagement team or serving the

EQCR function should not be eligible to act as a monitor on

the same file

Smaller Firms:

• May need to be conducted by the same personnel who

designed and implemented the firm’s quality control

policies and procedures

• May use same individuals who are used to perform the

EQCR function provided that the individual was not on the

engagement team and did not perform an EQCR on the file

• May include other firms for assistance or professional

member bodies

Evaluating, communicating and remediating any

deficiency

Complaints and allegations

Report on the result of monitoring

DOCUMENTATION

The firm shall establish policies and procedures on documentation of the engagement quality control review which require documentation that:

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 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 it reached were not appropriate.

ISQC 1.42

There should also be documented policies and procedures

covering the following:

Completion of the Assembly of Final Engagement Files

Confidentiality, Safe Custody, Integrity, Accessibility and

Retrievability of Engagement Documentation

Retention of Engagement Documentation

Documentation of the System of Quality Control