Quality Control Standards (SQCS) Flashcards
he purpose of AU 220, Quality Control for an Engagement Conducted in Accordance with [GAAS], is
to assist the auditor in implementing the firm’s quality control procedures specifically at the engagement level. This pronouncement states that the auditor’s objective is to implement quality control procedures at the engagement level that provide reasonable assurance that (a) the audit complies with professional standards and applicable legal and regulatory requirements and (b) the auditor issues an appropriate report.
Focus of the System of Quality Control
A CPA firm is required to have a “system of quality control” for its accounting and auditing services (covering audit, attestation, compilation, and review services; note that the SQCS are not applicable to tax or consulting services) to provide reasonable assurance that engagements are performed in accordance with professional standards and applicable regulatory and legal requirements, and that the issuance of reports are appropriate in the circumstances.
Six Elements of a Quality Control System
1) Leadership Responsibilities for Quality
2) Relevant Ethical Requirements
3) Acceptance and Continuance of Client-Relationships and Engagements
4) Human Resources
5) Engagement Performance
6) Monitoring
Leadership Responsibilities for Quality
Policies and procedures should promote an internal culture that emphasizes a commitment to quality (sometimes called the “tone at the top”). For an individual audit engagement, the engagement partner should take responsibility for overall audit quality, although performance of certain procedures may, of course, be delegated to other members of the engagement team.
Relevant ethical requirements
Policies and procedures should address the independence of personnel as necessary (should obtain written confirmation of compliance with independence requirements from all appropriate personnel at least annually).
Acceptance and Continuance of Client-Relationships and Engagements
Policies and procedures should carefully assess the risks associated with each engagement (including issues related to management integrity) and the firm should only undertake engagements that can be completed with professional competence.
Human Resource
Policies and procedures should address important personnel issues (including initial hiring, assignments to engagements, professional development and continuing professional education, and promotion decisions).
Engagement Performance
Policies and procedures should focus on compliance with all applicable firm and professional standards and applicable regulatory requirements, and encourage personnel to consult as necessary with professional (or other) literature or other human resources within or outside of the firm for appropriate guidance.
Monitoring
Policies and procedures should provide an ongoing assessment of the adequacy of the design and the operating effectiveness of the system of quality control. Controls that are effective at one point in time, may deteriorate over time owing to neglect or changed circumstances. It is important that the controls are properly monitored so that timely adjustments can be made as necessary to keep the quality control policies and procedures working effectively over time.
Documentation of the Operation of Quality Control Policies and Procedures
The firm should establish policies and procedures requiring appropriate documentation of the operation of each element of the system of quality control.
Engagement Partner
The person in the firm who is responsible for the audit engagement and its performance and for the auditor’s report.
Engagement Quality Control Review
A process designed to provide an objective evaluation, before the report is released, of the significant judgments the engagement team made and the conclusions it reached in formulating the auditor’s report. (The engagement quality control review process is only for those audit engagements, if any, for which the firm has determined that an engagement quality control review is required, in accordance with its policies and procedures.)
A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by
A firm is required to establish an appropriate system of quality control to provide reasonable assurance of conforming with professional standards.
How should differences of opinion between the engagement partner and the quality control reviewer be resolved?
Differences of opinion between the engagement partner and the quality control reviewer should be resolved using the firm’s established policies and procedures.
