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SA 220 & SQC 1: Quality Control for an Audit of Financial Statements -…
SA 220 & SQC 1: Quality Control for an Audit of Financial Statements
Definitions
Engagement Partners (EP)
The partner or other person in a firm, who is
Member of ICAI
In full time practice
Responsible for engagement & its performance and for report that is issued on behalf of the firm
Has appropriate authority from legal or professional body
Firm
A sole practitioner/proprietor, partnership, or any such entity of professional accountants as may be permitted by law.
Network Firm
As per ICAI — Networking amongst two or more firms under common control, ownership or management with the firm or having an affiliation with an accounting entity.
Network — a larger structure
that is aimed at cooperation, and
that is clearly aimed at profit or cost sharing or common ownership/control
Relevant Ethical Requirements
To which the ET and Engagement Quality Control Reviewer are subject to
Which ordinarily comprise of COE of ICAI related to an audit of FS
Engagement Quality Control Review
A process designed to
provide an evaluation, before the report is issued
of the
significant judgements
the ET made and the
conclusions they reached
in formulating the report.
Inspection
In relation to completed engagements, the
procedure designed to provide evidence of compliance by ET with
the firm's quality control policy & procedure
(QCPP)
.
Engagement Quality Control Reviewer
A partner, other person in the firm, suitable qualified external person, or a team made up of such individuals
with sufficient & appropriate experience and authority to objectively evaluate
.
Monitoring
A process comprising
an ongoing consideration and evaluation of firm's QC
incl. a periodic inspection of a selection of completed engagements, designed to enable the firm
to obtain reasonable assurance (RA) that its system is operating effectively
.
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Objective
The auditor's objective is to implement QCPP at engagement level which provides him the RA so that:
All professional standards, legal and regulatory requirements, and
Report of Auditor issued, is appropriate in circumstances.
Role of ET wrt QCPP
Responsibility to implement QCPP, and
Provide the firm with relevant info. to enable functioning.
Unless otherwise provided,
ET are entitled to rely on the firm's QCPP
.
Leadership Responsibilities for Quality on Audit
Engagement Partner shall take responsibility,
for overall quality on each audit engagement to which that partner is assigned.
Relevant Ethical Requirements
EP to remain alert
through observations and making enquiries as necessary for evidence of non-compliance by management of ET.
If matters come to EP's attention
, the EP, in consultation with others in the firm, shall determine the appropriate action.
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Independence
EP to conclude on compliance with Independence by:
Obtaining relevant info. from the firm/network firm/ET to identify & evaluate circumstances and relationships that create threats to independence.
Evaluate info. on identified breaches.
Take appropriate actions.
Acceptance & Continuance of Client Relationships & Audit Engagements
Acceptance and Retention of a client to be after assessment of its
Integrity of MGT
Availability of time & resources
Independence
Past Experience
If EP subsequently obtains info. leading to declining the audit, firm & partner to take a joint decision.
Sources of info. on MGT integrity
Identity and biz. rep
Nature of operations incl. biz. practice
Indications of inappropriate limitations
Indications that client might be involved in money laundering
Reasons for proposed appointment of firm and non-reappointment of previous firm
Monitoring
An effective system of quality control includes process designed to
provide the firm with RA
that its policies & procedures relating to the system of quality control are
relevant, adequate, and operating effectively
.
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Direction
Includes informing the members of ET matters such as:
Comply with relevant ethical req. & apply professional skepticism
Responsibilities of resp. partners
Detailed approach to performance of engagement
Problems that may arise
Risk related issues
Objective of work to perform
Nature of entity's business
Assignment of ET
Team with
competence and capability
to
perform engagement as per professional standard
and L&R +
enable an AR that is appropriate
in the circumstances to be issued.
Engagement Performance
Direction, supervision & review
Consultation
EQRC
Difference of Opinion
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Supervision
Tracking the progress of audit
Consider competences, capabilities of individual members
Identify matters for consultations for consideration by more experienced members
Significant areas or observations
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Review
It is the resp. of the EP to check if audit is as per firm's policy procedure
Near to the end of audit, EP should do a thorough review
Be satisfied that SAAE has been obtained to draw conclusions
It consists of consideration whether
Objective of engagement procedure achieved
Work has been performed in accordance with PS, L&R
Work performed supports conclusions drawn
SAAE obtained to support report
Sig. matters raised for consideration
Appropriate consultations taken
Assess need to revise NTE
Engagement Quality Control Review
For audit of FS of listed cos. and other engagements, if decided by the firm, the EP shall
Determine EQCR appointed
Discuss significant matters
Not date the AR until completion
Evaluation shall involve:
Discussion of sig. matters
Review of FS and proposed AR
Review of selected audit documentation
Evaluation of conclusion
For audit of FS of listed cos., EQCR shall also consider
Firm's independence
Appropriate consultation
Audit documentation
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Consultation
It refers to seeking advice on technical, ethical, or other matters from within or outside the firm.
EP to take responsibility
Be satisfied that the team has sought consultation
Be satisfied that the nature & scope of AP and conclusions are agreed with third party
Determine that conclusions have been implemented
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Difference of Opinion
If differences arise within the ET, with those consulted, or where applicable, between EP & EQCR, the
ET shall follow the firm's policies & procedures for dealing with and resolving
the differences of opinion.
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EP's review of work performed includes
Critical areas of judgement — specifically those relating to difficult/contentious matters
Significant risks, and
Other areas the EP considers important