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AA > 3. Quality Management > Flashcards

3. Quality Management Flashcards

1
Q

What is audit quality monitored by?

A
  1. FRC’s audit quality review team
    Only fr public interest entities and certain other entities
  2. ICAEW’s practice assurance scheme
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2
Q

How does the FRC promote audit quality?

A
  1. Issuing ISAs, ethical standards and occasional briefing papers
  2. Monitoring compliance through reviews of audit firms. And making findings public
  3. Overseeing regulatory activities of professional accounting bodies
  4. Investigating misconduct. And taking action against firms
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3
Q

Type of approach for quality management?

A

Risk-based

(Separate for the firm and for specific engagements)

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4
Q

What system provides reasonable assurance that a firm is meeting its quality objectives?

A

The SOQM

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5
Q

SOQM =

A

System Of Quality Management

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6
Q

What does a SOQM do?

A

Shows the way the firm should be structured
So it can perform its work at enough quality

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7
Q

Who is usually responsible for the firm’s SOQM?

A

Managing Partner

(Though can be delegated)

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8
Q

SOQM: What is the risk-assessment process?

A
  1. Establish quality objectives
  2. Identify risks
  3. Respond to risks
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9
Q

SOQM: Establishing quality objectives: What areas need to be considered?

A
  1. Governance and leadership
  2. Ethics
  3. Acceptance and continuance
  4. Engagement performance
  5. Resources
  6. Information and communication
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10
Q

SOQM: What are the mandatory responses?

A
  1. Ethical threats and reporting ethical breaches
  2. Documentation of compliance with ethical requirements
    (obtained at least annually)
  3. Complaints
    (regarding failure to comply with standards/regulation and/or SOQM)
  4. Complex client situations
  5. Communication with audit clients about SOQM
  6. Engagement quality reviewers’ conduct and ISQM compliance
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11
Q

SOQM: What are the quality objectives for governance and leadership

A

OBT

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12
Q

SOQM: What is the quality objective for ethical considerations?

A

Fully understand and fulfill their ethical responsibilities (OBT)

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13
Q

SOQM: What is considered in terms of acceptance and continuance?

A

Ensure it doesn’t sacrifice quality or ethics (more in OBT)

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14
Q

SOQM: What needs to be considered in terms of engagement performance?

A

OBT: Engagement teams need to understand and fulfill their responsibilities (including the partner’s overall responsibility for the
work)the nature, timing and extent of direction, supervision and review must be appropriate . Engagement teams exercise appropriate professional judgement/scepticism. Consultation is undertaken on difficult or contentious issues. Differences of opinion (from the engagement team) are brought to the attention of the firm and resolved. Documentation is assembled on a timely basis and retained to comply with relevant standards/laws

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15
Q

SOQM: Who has responsibility for engagement performance?

A

Engagement partner

But can be passed to most senior team member at engagement location

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16
Q

SOQM: How should supervision be carried out?

A

Enough mistakes avoided
While allowing staff to show initiative

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17
Q

EQR: who are subject to an EQR? (Aka pre-issuance review or hot review)

A

Listed entities

Other high-risk clients (Public interest, unusual circumstances risks, laws/regulations require EQR)

18
Q

EQR: When must it be completed before?

A

Audit report signed

19
Q

SOQM: What if the focus of the quality objective: resources

A

That sufficient resources are available

  1. Human
  2. Tech
  3. Intellectual

(Can be obtained from external service provider)

20
Q

SOQM: Resources: Human

A

Must have enough time to create enough quality

21
Q

SOQM: Resources: Intellectual

A

Used to enable SOQM (OBT)

e.g. audit programmes
firm methodologies
substripts to guides

22
Q

SOQM: Information and communication: What factors need to be considered?

A
  1. Technical
  2. Human
23
Q

SOQM: Monitoring and remediation: Process

A
  1. Monitor
  2. Evaluate deficiencies
  3. Remediate
  4. Annual review
24
Q

Post-issuance (cold) review: Purpose

A

Ensure procedures implemented

Identify their deficiencies

25
Q

Post-issuance (cold) review: When?

A

After auditor’s report signed

26
Q

Post-issuance (cold) review: For which files?

A

Selection of completed audit files

27
Q

Post-issuance (cold) review: Who done by?

A

Dedicated compliance/quality dept
or
Qualified external consultant
or
Independent partner

28
Q

Post-issuance (cold) review: Matters considered

A
  1. WPs should show sufficient appropriate evidence and resolved before issuing auditor’s report
  2. WPs on file completed, signed and reviewed
29
Q

Post-issuance (cold) review: Outcomes

A

Report of results to partners
Flag deficiencies needing action

e.g.
Additional QRs
Training
Changes to policies/procedures
Disciplinary actions

30
Q

SOQM: What does the UK CGC require?

A

Audit committees of listed companies

Review and monitor external auditor’s:

  1. Independence and objectivity
  2. Effectiveness
31
Q

How do audit committees of listed companies review the external auditors?

A

Questionnaires

Ext Aud rated on e.g. communication, quality of reports. expertise, business understanding and value for money

32
Q

Is there a criminal offence is an audit report is wrong?

A

Yes

knowingly or recklessly causing an
auditor’s report on company
accounts to include any matter that
is misleading, false or deceptive

33
Q

CA misleading audit report penalty

A

Fine

34
Q

How do audit firms limit liability?

A
  1. Professional indemnity insurance
  2. LLPs
  3. Liability caps
35
Q

Professional indemnity insurance: is it mandatory?

A

Yes

36
Q

Professional indemnity insurance: What does it do?

A

Pay out for settlements in negligence cases

(The firm may still bear significant costs in terms of legal fees, partner time, and the less measurable impact on reputation.)

37
Q

Liability caps: Who enforces?

A

CA

38
Q

Liability caps: When valid?

A
  1. Only covers one financial year
  2. Approved by shareholders
  3. ‘fair and reasonable’
39
Q

Liability caps: Can the firm and client agree how to set up?

A

Yes

E.g.
Based on the auditor’s proportionate share of the responsibility for any loss
Using a monetary amount or agreed formula
By reference to the ‘fair and reasonable’ test

40
Q

Liability caps: Can an auditor impose unilaterally?

A

No

Shareholders have to approve it

41
Q

Liability caps: Is it always possible shareholders can approve?

A

No

42
Q

Liability caps: Issue?

A

Mid-tier firms won’t be able to win large companies because they don’t have enough resources to negotiate a liability cap shareholders will accept

AA (16 decks)

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