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Quality Control in Audit Webinar 7 th February, 2020 Chamber of Tax Consultants Quality Control in Audit - Webinar 7 Feb 2020 1 What are the quality standards? Auditors in India are required to maintain quality control as per the following

  1. Quality Control in Audit Webinar 7 th February, 2020 Chamber of Tax Consultants Quality Control in Audit - Webinar 7 Feb 2020 1

  2. What are the quality standards? • Auditors in India are required to maintain quality control as per the following two standards: • SQC 1 – Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information and Other Assurance and Related Services Engagements • SA 220 – Quality Control for an Audit of Financial Statements Quality Control in Audit - Webinar 7 Feb 2020 2

  3. Importance of audit quality • Why is there a misunderstanding among auditors about the importance of audit quality? • How does not doing a quality audit affect an auditor? Quality Control in Audit - Webinar 7 Feb 2020 3

  4. Audit quality wrt small firms • Can a small audit firm get away with a lower quality standard than a large firm? • Do Quality Standards apply equally to small and large firms? Quality Control in Audit - Webinar 7 Feb 2020 4

  5. Audit quality & quality audit • What is “Audit Quality”? • What are the characteristics to be possessed by an engagement team (ET) that would achieve a “Quality Audit”? • Who and what is responsible for the performance of “Quality Audits” and for “Audit Quality”? Quality Control in Audit - Webinar 7 Feb 2020 5

  6. SQC 1 - Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information and Other Assurance and Related Services Engagements Quality Control in Audit - Webinar 7 Feb 2020 6

  7. The nature of quality controls • Why is an audit firm required to design, implement and effectively operate quality controls (QCs)? • What assurance do QCs provide to an audit firm? Quality Control in Audit - Webinar 7 Feb 2020 7

  8. Elements of QC per SQC 1 • What are the six elements around which an audit firm should design its QC policies and procedures? Quality Control in Audit - Webinar 7 Feb 2020 8

  9. Documentation and communication of QC • Why does SQC 1 require that an audit firm’s QC policies and procedures must be (a) documented and (b) communicated? Quality Control in Audit - Webinar 7 Feb 2020 9

  10. Leadership responsibilities for quality within the firm • What are the responsibilities of the managing partner, CEO or proprietor (Leadership) of the firm with regard to QC within the audit firm? Quality Control in Audit - Webinar 7 Feb 2020 10

  11. Ethical requirements • What are ethical requirements? • Which components are addressed within the Code of Ethics? Quality Control in Audit - Webinar 7 Feb 2020 11

  12. Independence • What is auditor independence? • What are threats to independence? Quality Control in Audit - Webinar 7 Feb 2020 12

  13. Suggested QCs to ensure ethics and independence • What QCs could a firm install – • To ensure that its personnel (partners and professionals) adhere to ethical requirements? • To communicate independence requirements? Quality Control in Audit - Webinar 7 Feb 2020 13

  14. Suggested QCs to ensure ethics and independence • What QCs could a firm install – • To identify and evaluate possible threats to independence? • To take action if the threats to independence cannot be reduced to an acceptable level? • To obtain written confirmations from its partners and professionals? • To confirm the independence of another firm that performs part of an engagement? Quality Control in Audit - Webinar 7 Feb 2020 14

  15. In the ICAI publication: IMPLEMENTATION GUIDE TO SQC 1 a sample of “Illustrative Annual Firm Personnel Independence Confirmation” is provided. Firms that do not yet have their own documented annual confirmation format may adopt the same or use this template to tailor their own format along similar lines Quality Control in Audit - Webinar 7 Feb 2020 15

  16. In the ICAI publication: IMPLEMENTATION GUIDE TO SQC 1 a sample of “Illustrative Independence Policies” for a firm is provided. Firms that do not yet have their own documented independence policies may adopt the same or use this template to tailor their own policies along similar lines Quality Control in Audit - Webinar 7 Feb 2020 16

  17. Acceptance/ continuance of client/ engagement • Why is the process of acceptance and continuance of a client relationship or of an engagement so important for an auditor? Quality Control in Audit - Webinar 7 Feb 2020 17

  18. Acceptance/ continuance of client/ engagement • What is management integrity? • Why is management integrity critical to an auditor? • Why do managements compromise their integrity? • When does management integrity typically get compromised? Quality Control in Audit - Webinar 7 Feb 2020 18

  19. Acceptance/ continuance of client/ engagement • What kind of QCs can a firm establish for acceptance and continuance? Quality Control in Audit - Webinar 7 Feb 2020 19

  20. In the ICAI publication: IMPLEMENTATION GUIDE TO SQC 1 a sample of “Illustrative Client/ Engagement Acceptance and Continuance Form” for a firm is provided. Firms may adopt the same or use this template to tailor their own policies along similar lines Quality Control in Audit - Webinar 7 Feb 2020 20

  21. Human resources • Why is talent (or human resources) so important for an audit firm and why are QCs required for it? Quality Control in Audit - Webinar 7 Feb 2020 21

  22. Human resources • What kind of QCs may a firm establish to ensure that its partners and professionals have the required capabilities and competencies? Quality Control in Audit - Webinar 7 Feb 2020 22

  23. Engagement performance • Of the six elements of QC, why is engagement performance considered to be the most prominent? • What are the steps in the process of engagement performance from a QC viewpoint? Quality Control in Audit - Webinar 7 Feb 2020 23

  24. Engagement performance • Why is engagement planning given so much importance in the SAs? Quality Control in Audit - Webinar 7 Feb 2020 24

  25. Engagement performance • What QCs does a firm need to put in place to ensure that engagement planning meets professional, regulatory and the firm’s requirements? Quality Control in Audit - Webinar 7 Feb 2020 25

  26. In the ICAI publication: IMPLEMENTATION GUIDE TO SQC 1 a sample of “Illustrative Engagement Planning Memorandum” for a firm is provided. Firms may adopt the same or use this template to tailor their own policies along similar lines Quality Control in Audit - Webinar 7 Feb 2020 26

  27. Engagement performance • After planning, what QCs should be established by a firm for engagement performance, supervision, documentation, reporting and communication? Quality Control in Audit - Webinar 7 Feb 2020 27

  28. Engagement performance • How does the firm follow a policy of having the work performed by ETs duly reviewed? Quality Control in Audit - Webinar 7 Feb 2020 28

  29. Engagement performance • How does a firm maintain the confidentiality, safe custody, integrity, accessibility, retainability and retrievability of engagement documentation? Quality Control in Audit - Webinar 7 Feb 2020 29

  30. Engagement performance • What policy and procedures should a firm establish for consultation? Quality Control in Audit - Webinar 7 Feb 2020 30

  31. Engagement performance • What policies should a firm have for resolving differences of opinion? Quality Control in Audit - Webinar 7 Feb 2020 31

  32. Engagement performance • How does the firm meet the requirement of performing an engagement quality control review (EQCR) on its engagements? Quality Control in Audit - Webinar 7 Feb 2020 32

  33. Monitoring • Why is monitoring of a firm’s QC policies and procedures important? • How does the monitoring process generally work? Quality Control in Audit - Webinar 7 Feb 2020 33

  34. Monitoring • How does the firm deal with instances of QC deficiencies observed? Quality Control in Audit - Webinar 7 Feb 2020 34

  35. Monitoring • How does the firm deal with complaints and allegations? • What kind of documentation does the firm prepare and retain to provide evidence of its system of QC? Quality Control in Audit - Webinar 7 Feb 2020 35

  36. In the ICAI publication: IMPLEMENTATION GUIDE TO SQC 1 a sample of “Illustrative Firm Quality Control Inspection Checklist” for a firm is provided. Firms may adopt the same or use this template to tailor their own policies along similar lines Quality Control in Audit - Webinar 7 Feb 2020 36

  37. SA 220 - Quality Control for an Audit of Financial Statements Quality Control in Audit - Webinar 7 Feb 2020 37

  38. SA 220 • Why are there two QC standards – SQC 1 and SA 220? Quality Control in Audit - Webinar 7 Feb 2020 38

  39. SA 220 • Can an engagement partner (E-Partner) assume that the firm-level controls are effective when he performs an audit? • What is the objective of SA 220? • What are the elements of QC described in SA 220? Quality Control in Audit - Webinar 7 Feb 2020 39

  40. SA 220: Leadership responsibilities • Who is the leader and what should his actions and messages emphasise? Quality Control in Audit - Webinar 7 Feb 2020 40

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