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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.

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Presentation on theme: "In the context of the theme of the conference – “The new Economic Model – Value Chain Transformation” and Tack A “Professionalism” the requirements of."— Presentation transcript:

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2 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

3 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:

4 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 Practitioners Large 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

5 >Relationship with MICPA >Activities with MIA >Malaysian members group ICAA in Asia

6 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

7 >Toolkits >Practice model alternatives >Reporting thresholds >Alternate services – differential audit Response from ICAA

8 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

9 >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

10 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

11 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

12 Regulator 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

13 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

14 Outcomes >Concentration >Specialisation >Assurance framework for Climate Change opportunities >Attractiveness of the profession >Liability capping

15 >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

16 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 Control Implementation Assistance

17 Financial Reporting Supply Chain Quality Control Public Interest Capital Markets Creditability Financial Statements Prepared in accordance with IFRS Audit undertaken in accordance with IAS by ISQCI compliant auditor

18 International Standards Audits & Ethics Toolkit Working Papers International Audit Standards Using International Auditing Standards in the Audits of Small & Medium sized Entities Quality Control Guide Quality Control ISQCI Implementation Guide IFAC Quality Assurance program Documentation Quality Review SMO1 Independence Check List The Code of Ethics for Professional Accountants

19 Quality Control Requires MemberMember BodyMember ISQC 1SMO 1 Requires Member body to Establish review process SMO 1 ISQC 1 Regulator or oversight body Member body Member Inspection

20 >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


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