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BUS273 - Audit & Assurance Services > Week 4 - Quality Management > Flashcards

Week 4 - Quality Management Flashcards

1
Q

ISQM1 & ISQM2?

A

set out the requirements for quality management for assurance engagements

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2
Q

what is the need for quality management?

A

to ensure that audit work is completed to an acceptable standard

to ensure audit risk is reduced to an acceptable level
- this reduces the risk of negligence claims, disciplinary action and maintains a strong reputation

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3
Q

who monitors audit quality?

A
  • the FRC’s audit quality team
  • the ICAEW’s practice assurance scheme
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4
Q

how do the FRC promote audit quality?

A
  • issuing ISAs, ethical standards and briefing papers on important matters
  • monitoring compliance through
  • investigate misconduct
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5
Q

quality standards require the firm to have what type of approach?

A

a risk-based approach to quality management

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6
Q

difference between ISQM1 & ISQM2?

A

ISQM1 = general guidance on quality management systems

ISQM2 = specific requirement for an independent partner to enforce quality management

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7
Q

quality objectives of an audit firm?

A
  • to ensure the firm and its personnel fulfil their responsibilities
  • to ensure engagement reports issued are appropriate
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8
Q

who is usually responsible for the SOQM?

A

the firm’s managing partner

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9
Q

what does the risk assessment process part of quality management consist of?

A
  • establish quality objectives
  • identify risks
  • respond to risks
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10
Q

which objectives relate to the establishment of quality objectives?

A
  • governance and leadership
  • relevant ethical requirements
  • acceptance & continuance
  • engagement performance
  • resources
  • information & communication
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11
Q

‘identifying & responding to risks’ part of the risk assessment process?

A

considering the risks or threats to quality objectives

the firm will then respond to the risks within each area of the SOQM

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12
Q

examples of responses to risks to quality management?

A
  • policies/procedures for ethical threats & reporting of ethical breaches
  • documentation of compliance w/ ethical requirements
  • policies/procedures for complaints
  • policies/procedures to deal with complex situations
  • policies/procedures for communication w/ clients regarding the SOQM
  • policies/procedures for EQRs
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13
Q

what does the ‘governance & leadership’ part of quality management consist of?

A
  • culture of the firm must serve public interest, emphasise the importance of ethics, emphasise quality being the responsibility of all staff and the importance of quality in strategic decisions
  • leadership is responsible and accountable for quality
  • leadership demonstrates commitment to quality through actions
  • the organisational structure supports the SOQM
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14
Q

what does the ‘relevant ethical requirements’ part of quality management entail?

A
  • the quality objective of the firm is to understand and fulfil their ethical responsibilities
  • may include staff training and establishing policies/procedures
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15
Q

what does the ‘acceptance and continuance’ part of quality management entail?

A
  • judge acceptance decisions on the client’s ethics and integrity
  • judge acceptance on whether the firm has the ability to perform the engagement
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16
Q

what are the quality objectives for the ‘engagement performance’ part of quality management entail?

A
  • engagement teams must understand their responsibilities
  • direction & supervision of the team must be reviewed
  • pro scepticism must be exercised
  • consultation must be undertaken on contentious matters
  • differences of opinion are resolved
  • documentation is assembled on a timely basis
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17
Q

what 4 pillars does engagement performance consist of?

A
  • direction
  • supervision
  • review
  • EQR
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18
Q

what do the 4 pillars of engagement performance mean?

A

direction = staff must be directed

supervision = staff must be supervised

review = staff work must be reviewed

EQR = pre-issuance/hot review of engagement performance

19
Q

examples of what a ‘review’ constitutes?

A

consideration of whether:
- the work has been performed in accordance with pro standards/law/firm policies
- appropriate consultations have taken place
- there’s a need to revise planned work
- the work performed supports the conclusions reached
- evidence obtained is sufficient and appropriate
- engagement objectives have been achieved
- EP should review critical areas of judgement
- extent & timing of partner’s reviews should be documented

20
Q

who requires an EQR?

A

listed entities and other high risk clients

high risk clients include public interest entities and clients with unusual circumstances/risks

21
Q

what does the work of an engagement quality reviewer include?

A
  • understanding the nature/circumstances of the engagement
  • discussing significant matters
22
Q

what should be considered in an EQR of an audit?

A
  • independence of the firm
  • significant risks and responses to them
  • advice provided by experts
  • evaluate whether partner has been involved throughout the audit
23
Q

eligibility criteria for an engagement quality reviewer?

A
  • can’t be a member of the audit team
  • must be competent
  • must comply with ethical requirements
  • must comply with laws/regs
24
Q

can partners previously responsible for an engagement be an engagement quality reviewer?

A

after a 2 year cooling off period, yes

25
Q

types of resources?

A

human, technological and intellectual resources

26
Q

what does the ‘resources’ part of quality management entail?

A

quality management standards require a firm to have adequate resources to ensure quality is kept to a high standard

27
Q

human resources?
technological resources?
intellectual resources?

A

HR = personnel must be capable
TR = tech aids audit efficiency
IR = info the firm uses to enable the SOQM

28
Q

what are the quality objectives for the ‘info & communication’ part of quality management?

A
  • info system identifies and maintains relevant info
  • culture reinforces the importance of the exchange of information with the firm and one another
  • relevant & reliable info is exchanged throughout the firm, audit teams and 3rd parties
29
Q

risks to information and communication?

A

technical and human risks

30
Q

what does the ‘monitoring and remediation’ part of quality management consist of?

A
  • monitor
  • evaluate deficiencies
  • remediate
  • annual review
31
Q

cold review / post-issuance review purpose?

A

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

also to identify any deficiencies

32
Q

when is a cold review conducted?

A

after the audit report has been issued

33
Q

which files are cold reviews conducted on?

A

a selection of completed audit files

34
Q

who conducts a cold review?

A
  • a dedicated compliance/quality department
  • an external consultant
  • an independent partner
35
Q

which matters are considered in a cold review?

A
  • working paper must demonstrate that sufficient/appropriate evidence has been obtained
  • all matters were resolved
  • all working papers must be on file, completed and signed off
36
Q

what is the outcome of a cold review?

A
  • a report of the results are relayed to the firm flagging deficiencies that require corrective action

e.g., training, disciplinary action, changes to the firm’s policies/procedures

37
Q

how often does a firm evaluate their SOQM?

A

at least annually

38
Q

three types of conclusions when evaluating the SOQM?

A
  • SOQM provides reasonable assurance that objectives are achieved
  • SOQM provides reasonable assurance, except for on certain matters
  • SOQM doesn’t provide reasonable assurance that objectives are achieved
39
Q

what does the UK corporate governance code require companies to do?

A

the audit committees must review and monitor the external auditor’s:
- independence & objectivity
- effectiveness

40
Q

who needs to follow the UK corporate governance code?

A

PLCs

41
Q

which factors may an audit committee use to evaluate external auditors?

A
  • communication
  • quality of reports
  • expertise
  • value for money
42
Q

ISA220?

A

sets out the requirements for quality management

objective is to
- ensure responsibilities have been fulfilled
- ensure an appropriate audit opinion has been issued

43
Q

responsibilities of the audit partner?

A
  • allocate sufficient resources
  • direct/supervise the team & review their work
  • check EQR undertaken
  • address/resolve differing opinions
  • check team consulted on difficult matters

BUS273 - Audit & Assurance Services (12 decks)

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