Quality Management - Chapter 6 Flashcards
ISQM1?
sets out the requirements for quality management for firms on any engagement
what is the need for quality management?
to ensure that assurance work is carried out to an acceptable standard
the benefits of quality management?
- the client receives an acceptable level of service
- the firm reduces audit risk to an acceptable level
what does reducing audit risk to an acceptable level constitute?
- reduced risk of negligence claims
- reduced risk of disciplinary action
- maintain strong reputation
who monitors / promotes audit quality?
monitored by FRC via FRC’s audit quality team and ICAEW’s practice assurance scheme
promotes by the FRC by issuing ISAs, monitoring compliance & overseeing regulatory activities & investigating misconduct
what are the quality objectives?
- the firm & its personnel fulfil their responsibilities
- engagement reports issued by the firm are appropriate
what are the 8 components of a system of quality management?
- risk assessment process
- governance & leadership
- ethical requirements
- acceptance & continuance
- engagement performance
- resources
- info & communication
- monitoring & remediation
what is the risk assessment process of a firm?
- establish quality objectives
- identify risks
- respond to risks
what does establishing quality objectives constitute?
quality objectives relate to the 8 components of a system of quality management
quality objectives for governance & leadership?
- culture of the firm should reinforce serving public interest, the importance of ethics, all staff enforcing quality
- leadership is responsible & accountable for quality
- leadership demonstrates a commitment to quality
- the organisational structure supports the SOQM
quality objective in relation to ethical requirements?
fully understand and fulfil their ethical responsibility
sub-objectives to support the relevant ethical requirements?
- staff training to ensure ethical adherence
- establish policies/procedures
quality objectives in relation to acceptance and continuance?
- judge acceptance decisions on whether the client has ethical values and integrity and if the firm has the ability to perform the engagement to the required standard
- the firm’s financial priorities don’t lead to accepting engagements
quality objectives in relation to engagement performance?
- engagement teams need to understand and fulfil their responsibilities
- consultation is undertaken on contentious matters
- pro scepticism is exercised
- direction & supervision of audit team must be appropriate
direction - engagement performance?
the responsibility of the EP or other senior member
must direct:
- monitor progress
- instructions
- work aligns with plans
- matters which require consultation
supervision - engagement performance?
should be carried out closely to avoid mistakes throughout the engagement
review - engagement performance?
consideration of:
- the work being performed in line with pro standards/law
- appropriate consultations taking place
- need to revise planned work
- work performed supports conclusions reached
- if objectives have been achieved
who requires an EQR?
listed entities and other high risk clients should be subject to an EQR
AKA a hot review or pre-issuance review
high risk clients?
include public interest entities and entities with unusual circumstances/risks
what does the work of an engagement quality reviewer constitute?
- understanding the nature of the engagement
- discussing significant matters
- evaluating partner’s independence
- evaluating consultation on contentious matters
what should be considered in an EQR of an audit?
- the firm’s independence
- significant risks
- judgements
- work of experts
- scope of misstatements
- subjects discussed w/ audit committee
eligibility criteria for an engagement quality reviewer?
- cannot be a member of the engagement team
- must comply with ethical requirements
- must have competence & capabilities
- must comply with laws/regs
can partners who were previously responsible for the engagement be engagement quality reviewers?
yes, after a 2 year cooling off period
resources consist of…?
human, technological and intellectual
human resources?
technological resources?
intellectual resources?
human = competent & capable personnel
technological = resources must be available
intellectual = info used to enable the operation of the SOQM
quality objectives for information & communication?
- culture recognises the responsibility of personnel to exchange info with each other & the firm
- relevant & reliable info exchanged throughout the firm and external parties
what does monitoring and remediation constitute?
- monitor
- evaluate deficiencies
- remediate
- annual review
must the firm design & perform monitoring activities?
yes
this is essential to adhere to quality management standards
must the firm evaluate the severity of deficiencies?
yes
deficiencies must be investigated to identify the root cause and subsequently remediate them
why are annual reviews necessary?
for feedback purposes
results are then relayed to the individual responsible for the SOQM
post-issuance / cold review?
to assess whether the firm’s policies & procedures were implemented during an engagement
also to identify deficiencies for feedback purposes
when is a cold review conducted?
after the auditor’s report has been signed
which files are cold reviews performed on?
a selection of completed audit files
who conducts a cold review?
conducted by a dedicated compliance/quality department or an external consultant or an independent partner
what matters are considered in an audit report?
working papers should demonstrate sufficient/appropriate evidence has been obtained and all matters were resolved before report issuance
working papers must be:
- on file
- completed
- signed as completed
- evidenced as reviewed
outcome of a cold review?
report of results will be provided to partners flagging deficiencies that require corrective action
e.g., training, disciplinary action, change to policies/procedures etc
who evaluates the SOQM?
the individual responsible for the SOQM must evaluate it at least annually
examples of conclusions documented regarding the effectiveness of the SOQM?
‘SOQM provides the firm with reasonable assurance that its objectives are achieved’
‘the SOQM provides the firm with reasonable assurance that its objectives are achieved, except for…’
‘the SOQM doesn’t provide the firm with reasonable assurance that its objectives are achieved’
UK corporate governance code requirement?
requires audit committees of listed companies to review and monitor the external auditor’s effectiveness & objectivity
who holds responsibility for managing quality on an engagement and creating a culture supporting the SOQM?
the engagement partner
they must be involved in the audit including direction, supervision and regular communication
they must demonstrate professional ethics and scepticism throughout
who is responsible for understanding and addressing relevant ethical requirements throughout the audit?
the engagement partner
this includes identifying, evaluating and addressing ethical threats
EP must monitor compliance with ethical requirements
how does the EP ensure compliance with ethical requirements as part of the SOQM?
through implementing policies & procedures which promote this
EP responsibilities around acceptance and continuance?
EP needs to determine the policies & procedures and auditing standards for planning/performing the audit have been followed
engagement partner responsibilities for quality management?
- allocate sufficient/appropriate resources
- direct/supervise the team & review their work
- check EQR undertaken
- address & resolve differing opinions within the team
- check team consulted on difficult matters
other responsibilities of the EP?
- give feedback on the monitoring & remediation process
- take overall responsibility for the audit
- ensure documentation is complete
