Chapter 6 - quality management

Question 1

components of a system of quality management (SOQM)

Answer 1

• The firms risk assessment process
• Governance and leadership
• Relevant ethical requirements
• Engagement performance
• Monitoring and remediation
• Information and communication
• Resources
• Acceptance and continuance

Question 2

The firms risk assessment process

Answer 2

• Establish qualitative objectives
• Identify risks
• Respond to risks

Question 3

engagement performance components:

Answer 3

• direction
• supervision
• review
• EQR (engagement quality review)

Question 4

list 4 items the engagement partner should ensure the assurance team are aware of prior to commencing an engagement

Answer 4

• what work they are supposed to be doing
• nature of entity business
• any risk relevant to engagement
• problems that might arise during the engagement
• the detailed approach to the engagement

Question 5

review of work

Answer 5

• work properly conducted in accordance with plan/programmes
• working papers to a standard/evidence recorded
• conclusions valid
• matters identifies for further consideration
• working papers headed, initialled, dates

Question 6

engagement quality review (hot review)

Answer 6

• discussion of significant matters with the engagement partner
• review of financial statements and proposed auditors reprot
• review of judgements
• evaluation of conclusions
• evaluation of firms independance
• consideration of whether appropiate consulation has been underatken on contentuous matters

Question 7

review as part of firms monitoring procedures (cold review)

Answer 7

• firm procedures
• ISAs
• Ethical standard
• Legislative requirements
• UK audit regulations

Question 8

attributes required of an individual who is appointed by an audit firm to undertake engagement quality reviews

Answer 8

technical competent with experience of audited entity industry and listed companies
reviewer must also process an understanding of entity and engagement
must be independent of engagement team and audited entity and have the authority to evaluate objectively
must not be intimidated

Question 9

what does IAQM 1 set out

Answer 9

sets out the requirements for quality management for firms on any assurance engagement

Question 10

what is ISA 220?

Answer 10

applies to specifically to external audits

Question 11

what does ISQM 2 cover?

Answer 11

covers engagement quality reviews for assurance engagements

Question 12

The need for quality management and the benefits

Answer 12

Assurance work is carried out to an acceptable standard

Benefits:
- the client should receive an acceptable level of service
- the firm should reduce audit risk to an acceptable level and therefore:
- reduce risk of negligence claims
- reduce the risk of disciplinary action
- maintain a strong reputation

Question 13

responsibility of accountant for quality management

Answer 13

• perform work in accoradance with professional standards
• to issue appropriate reports

Question 14

Audit quality is monitored by:

Answer 14

• the FRC’s Audit quality review team
• the ICAEW’s Practice Assurance scheme

Question 15

The FRC promotes audit quality by:

Answer 15

• issuing ISA’s, ethical standards and additional guidance on important matters
• monitoring compliance through reviews of audit firms and making their findings public
• overseeing regulatory activities of the professional accounting bodies
• investigating misconduct and taking action against firms

Question 16

What is the system of quality management? (SOQM)

Answer 16

• key part of risk based approach
• provides reasonable assurance that the firm is meeting its quality objectives
• shows the way a firm should be structures to be able to perform work at the requires standard of quality

Question 17

Who is responsible for the SOQM?

Answer 17

A firms managing partner however responsibility for the operational side can be delegated
- the firm needs to assign the responsibilities within the firm

Question 18

the risk firms assessment process

Answer 18

• Establish quality objectives (using SOQM)
• Identify risks
• Respond to risks

Question 19

Responsibilities of auditor

Answer 19

• perform work in accordance with professional standards
• Issue appropriate reports