quality management

Question 1

new team
no kick off meeting
partner 9 yrs same client

significant govt contract
revenue high risk
revenue procedures performed by associate

partner reviewed on last day
no significant review points

no further reviews

Answer 1

no kick off meeting + new team, they will not be aware of issues and risks, tests performed may not have been accurate

associate may not be experienced enough to do a high risk area - misstatements may be overlooked

only 1 day is not enough, lack of professional competence and due care-

no further review:
9 yrs partner - familarity threat - safeguard lacking - independent partner review
cold review must be done to improve audit quality

Question 2

what are ISQM 1 and 2

Answer 2

quality standards issued by IAASB to support firms to achieve the aim of effective audits that maintain public trust

Question 3

key principles of quality standards ISQMs

Answer 3

-public interest (addressing past audit failures)
-professional skepticism is emphasized (critical evaluation of client judgement and estimates)
-competent and supported auditors so they can perform effectively without fear of repercussions
-proactive rather than tick box approach (scalable)
-adaptable to technological and business advancements for continuous improvement.
-enhanced monitoring and communication with stakeholders like reg bodies and govt

Question 4

ISQM 1 name and what it says

Answer 4

it tells firms to establish a tailored SOQM
principles driven
scalable so firms can address their unique circumstancesand risks effectively

Question 5

purpose of quality management

Answer 5

-reliability and accuracy of audit info
-compliance with standards
-stakeholder trust
-risk management, helps reduce errors
-continuous improvement for firms

Question 6

SOQM full form

Answer 6

System of quality management

Question 7

Elements of a SOQM

Answer 7

1- risk assessment process
2- governance and leadership
3- relevant ethical requirements
4- acceptance and continuance of client relationships
5- engagement performance
6- resources
7- information and communication
8- monitoring and remediation

Question 8

risk assessment process

Answer 8

firm must establish a risk assessment process - considering the firm size, client types, technology, network, external service providers, etc.
-ongoing monitoring process
-this ensures the right engagement and audit report decisions (cuz competent ppl, audit partner more empowered to iissue modified report)

Question 9

governance and leadership

Answer 9

-establish a firmwide culture of commitment to quality and ethics
-managing partner shud be resp for SOQM
-tone at the top
-recognition of responsibility of serving public interest
-this ensures leadership accountability for SoQM and prioritizing quality over client retention and profit

-audit partners can challenge client judgements without fear of losing revenue

Question 10

relevant ethical requirements for

Answer 10

firms should make policies to ensure compliance with ethical standards
tailor to firm size and client portfolio
train staff plus ensure component auditors are also compliant
go beyond minimum requirements to mitigate ethical risks effectively.

there may be legal requirements other than the code

Question 11

acceptance and continuance of client relationships

Answer 11

-client integrity and ethical values
-firms ability to perform engagements, ensuring decisions prioritize audit quality

reassess business relationships each year before appointment as auditor
-fresh identity checks
-reperform independence clearance
recheck conflict of interests
competence
also assess new info of existing client, eg. regulation breach doesn’t align with firm’s values

Question 12

engagement performance

Answer 12

-quality audit
-supervise newbies
-involve partner sufficiently and apptly
-skepticism
-disagreements in team and points raised by eqcr must be addressed

Question 13

resources

Answer 13

ensure appt resources are available
employees with required competence, training, experience
-independent experts consideration

Question 14

information and communicatin

Answer 14

ensure effective communication of policies and audit information within the firm and externally with stakeholders like TCWG and regulators, integral to SoQM operation.

Question 15

monitoring and remediation

Answer 15

-establish process to ensure SOQM effectiveness, ensure deficiencies r identifeid timely

Question 16

what is ISQM 2

Answer 16

engagement quality reviews
-eqr is integral to audit process of many audits

-always specify which engagement
-avoid hot review /partner review etc. say EQR.

ISQM aims to ensure right person is appointed for review. it also clarifies the responsibilities

Question 17

who requires EQRs?

Answer 17

ISQM requires:

-listed companies
-if required by law
or if firm thinks there is a quality risk
for eg:
-high level of complexity or judgement eg. banks, oil exploration

-audits where significant issues have been encountered eg. last yr’s FS are found to be materially misstated

-unusual circumstances like disagreement with last year’s auditor

-high degree of judgement for regulatory finding

-new client, no prior experience

-use of EQCR to mitigate ethical threats

Question 18

who should be appointed as a Engagement quality reviewer

Answer 18

-not a member of audit team so they r objective
-2 yr cooling off period if reviewer was audit partner before

-reviewer must be competent
-understand the policies of firm of EQR
-experience of performing and documenting EQR

-appropriate authority to challenge audit partner - culture of respect- no pressure from audit partner

-may be internal or external from firm
-ethical requirements must be fulfilled, no intimidation from client or partner

Question 19

responsibilities of the engagement control reviewer

Answer 19

-perform procedures at diff times during engagement so reviewer is present in planning stage as well

-review and understand significant judgements. assess documents to see if the assumptions are appropriate, confirm that team has used professional skepticism

also evaluate:
-engagement partner’s independence requirement has been fulfilled
-has appropriate consultation take place
-is partner sufficiently involved

also a stand back requirement
- requires the reviewer to step back and ensure all EQR requirements are met and the review is finished. The audit report can only be dated after confirming the review process is complete.

Question 20

documentation of EQR

Answer 20

-reviewer is responsible to document EQR
-It must be sufficient to allow an experienced practitioner to understand the EQR procedures
-firms may have their own EQR policies

Question 21

importance of EQR

Answer 21

-firm level responsibility
-improve audit quality
-assess skepticism
-assess whether audit evidence confirms conclusions

Question 22

difference between ISQM and ISA220

Answer 22

-ISA has limited scope, ISQM is firm wide
-engagement team and partner r responsible to follow ISA

ISA 220 says audit team is responsible for:
-implementing firm’s policies in response to quality risks
-determine whether additional policies should be applied
-communicate to firm any info that is required by firm policies eg. timesheets, independence confirmation

Question 23

what does ISA220 say about engagement resources?

Answer 23

-Partner is responsible for ensuring sufficient and appropriate resources are available to the engagement team in a timely manner and in line with the firms policies and procedures.
-This includes changes to resources required as circumstances change during the audit.
-The partner is also responsible for ensuring the engagement team and any external expert and internal auditors providing direct assistance to the team have appropriate COMPETENCE to perform their assigned roles.

Question 24

Situation: audit supervisor was off work for health reasons and the audit engagement manager was too busy to help out the team performing the audit fieldwork. As a result, the audit juniors have been left to perform all the audit procedures on their own including the impairment of properties which were identified as high-risk during planning.

Answer 24

-high level of judgement required when assessing management estimates
-subjective
-junior may not have technical knowledge
-too scared to challenge management
-junior wont be able to consult on difficulties
-lack of supervision means problems may not be identified in a timely manner
-risk that insufficient or inappropriate evidence is obtained

Question 25

what guidance does ISA 220 give us on engagement performance?

Answer 25

Responsibilities of the Audit Engagement Partner:
- Direct and supervise the engagement team’s work.
- Ensure the audit is planned and performed according to:
- Firm’s policies and procedures,
- Professional standards,
- Applicable legal and regulatory requirements.
- Adjust resources as needed based on changing circumstances.

Review Responsibilities:
- Review audit documentation on:
- Significant matters and judgments,
- Contentious issues,
- Conclusions reached by the team.
- Conduct reviews at appropriate stages of the audit.

Materiality Determination:
- Review determination of materiality during the planning stage.
- Reassess materiality if circumstances change during the audit.

• Evidence Collection:
  
  • Ensure sufficient appropriate evidence is obtained before issuing the audit report.
• Consultation Requirement:
  
  • Facilitate consultation on difficult and contentious matters:
    
    • Within the audit team,
    • Within the firm (with experts and specialists),
    • External to the firm as necessary.
• Engagement Quality Review (EQR):
  
  • Ensure appointment of an EQR where necessary.
  • Ensure cooperation of the engagement team with the EQR.
  • Discuss all significant matters and judgments with the EQR.
  • Do not date the audit report until EQR is complete and any differences of opinion are resolved.