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BUS273 - Audit & Assurance Services > Quality Management - Chapter 6 > Flashcards

Quality Management - Chapter 6 Flashcards

1
Q

ISQM1?

A

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

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2
Q

what is the need for quality management?

A

to ensure that assurance work is carried out to an acceptable standard

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3
Q

the benefits of quality management?

A
  • the client receives an acceptable level of service
  • the firm reduces audit risk to an acceptable level
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4
Q

what does reducing audit risk to an acceptable level constitute?

A
  • reduced risk of negligence claims
  • reduced risk of disciplinary action
  • maintain strong reputation
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5
Q

who monitors / promotes audit quality?

A

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

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6
Q

what are the quality objectives?

A
  • the firm & its personnel fulfil their responsibilities
  • engagement reports issued by the firm are appropriate
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7
Q

what are the 8 components of a system of quality management?

A
  • risk assessment process
  • governance & leadership
  • ethical requirements
  • acceptance & continuance
  • engagement performance
  • resources
  • info & communication
  • monitoring & remediation
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8
Q

what is the risk assessment process of a firm?

A
  • establish quality objectives
  • identify risks
  • respond to risks
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9
Q

what does establishing quality objectives constitute?

A

quality objectives relate to the 8 components of a system of quality management

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10
Q

quality objectives for governance & leadership?

A
  • 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
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11
Q

quality objective in relation to ethical requirements?

A

fully understand and fulfil their ethical responsibility

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12
Q

sub-objectives to support the relevant ethical requirements?

A
  • staff training to ensure ethical adherence
  • establish policies/procedures
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13
Q

quality objectives in relation to acceptance and continuance?

A
  • 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
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14
Q

quality objectives in relation to engagement performance?

A
  • 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
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15
Q

direction - engagement performance?

A

the responsibility of the EP or other senior member

must direct:
- monitor progress
- instructions
- work aligns with plans
- matters which require consultation

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16
Q

supervision - engagement performance?

A

should be carried out closely to avoid mistakes throughout the engagement

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17
Q

review - engagement performance?

A

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

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18
Q

who requires an EQR?

A

listed entities and other high risk clients should be subject to an EQR

AKA a hot review or pre-issuance review

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19
Q

high risk clients?

A

include public interest entities and entities with unusual circumstances/risks

20
Q

what does the work of an engagement quality reviewer constitute?

A
  • understanding the nature of the engagement
  • discussing significant matters
  • evaluating partner’s independence
  • evaluating consultation on contentious matters
21
Q

what should be considered in an EQR of an audit?

A
  • the firm’s independence
  • significant risks
  • judgements
  • work of experts
  • scope of misstatements
  • subjects discussed w/ audit committee
22
Q

eligibility criteria for an engagement quality reviewer?

A
  • cannot be a member of the engagement team
  • must comply with ethical requirements
  • must have competence & capabilities
  • must comply with laws/regs
23
Q

can partners who were previously responsible for the engagement be engagement quality reviewers?

A

yes, after a 2 year cooling off period

24
Q

resources consist of…?

A

human, technological and intellectual

25
Q

human resources?
technological resources?
intellectual resources?

A

human = competent & capable personnel

technological = resources must be available

intellectual = info used to enable the operation of the SOQM

26
Q

quality objectives for information & communication?

A
  • culture recognises the responsibility of personnel to exchange info with each other & the firm
  • relevant & reliable info exchanged throughout the firm and external parties
27
Q

what does monitoring and remediation constitute?

A
  • monitor
  • evaluate deficiencies
  • remediate
  • annual review
28
Q

must the firm design & perform monitoring activities?

A

yes

this is essential to adhere to quality management standards

29
Q

must the firm evaluate the severity of deficiencies?

A

yes

deficiencies must be investigated to identify the root cause and subsequently remediate them

30
Q

why are annual reviews necessary?

A

for feedback purposes

results are then relayed to the individual responsible for the SOQM

31
Q

post-issuance / cold review?

A

to assess whether the firm’s policies & procedures were implemented during an engagement

also to identify deficiencies for feedback purposes

32
Q

when is a cold review conducted?

A

after the auditor’s report has been signed

33
Q

which files are cold reviews performed on?

A

a selection of completed audit files

34
Q

who conducts a cold review?

A

conducted by a dedicated compliance/quality department or an external consultant or an independent partner

35
Q

what matters are considered in an audit report?

A

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

36
Q

outcome of a cold review?

A

report of results will be provided to partners flagging deficiencies that require corrective action

e.g., training, disciplinary action, change to policies/procedures etc

37
Q

who evaluates the SOQM?

A

the individual responsible for the SOQM must evaluate it at least annually

38
Q

examples of conclusions documented regarding the effectiveness of the SOQM?

A

‘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’

39
Q

UK corporate governance code requirement?

A

requires audit committees of listed companies to review and monitor the external auditor’s effectiveness & objectivity

40
Q

who holds responsibility for managing quality on an engagement and creating a culture supporting the SOQM?

A

the engagement partner

they must be involved in the audit including direction, supervision and regular communication

they must demonstrate professional ethics and scepticism throughout

41
Q

who is responsible for understanding and addressing relevant ethical requirements throughout the audit?

A

the engagement partner

this includes identifying, evaluating and addressing ethical threats

EP must monitor compliance with ethical requirements

42
Q

how does the EP ensure compliance with ethical requirements as part of the SOQM?

A

through implementing policies & procedures which promote this

43
Q

EP responsibilities around acceptance and continuance?

A

EP needs to determine the policies & procedures and auditing standards for planning/performing the audit have been followed

44
Q

engagement partner responsibilities for quality management?

A
  • 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
45
Q

other responsibilities of the EP?

A
  • give feedback on the monitoring & remediation process
  • take overall responsibility for the audit
  • ensure documentation is complete

BUS273 - Audit & Assurance Services (24 decks)

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