A2: Quality Control Flashcards
HELP ME NET Q.C non issuers Q.C Issuers (15 cards)
AICPA code of professional conduct requires firms providing auditing, attestation, and accounting and review services to:
Adopt a system of quality control
The 6 elements of quality control:
“HELP ME” Maintain good quality in my accounting and auditing practice
(H) Human Resources
(E) Engagement/Client acceptance and continuance
(L) Leadership responsibilities
(P) Performance of the Engagement
(M) Monitoring
(E) Ethical requirements
(H) Human Resources
1) . Recruitment and hiring, capabilities and competencies, assigning personnel, professional development, and performance evaluation, compensation, and advancement
2) . examples include: timely identification of staffing requirements, planning for total personnel needs, background checks, performance evaluations, training, continuity and periodic rotation of personnel, on-the-job training
(E) Engagement/client acceptance and continuance
1) . Deciding whether to accept or continue a client relationship
2) . Look for management integrity, evaluate audit firms capability of completing engagement, consider conflicts of interest, can comply with legal and ethical requirements
3) . examples include: review F.S and credit statements of proposed client, inquire of third parties as to reputation of proposed client, evaluate firms ability to service the client, periodic revaluation of clients for continuance
(L) Leadership responsibilities
1) . Firm’s leadership bears ultimate responsibility for the firms quality control system
2) . “Tone at the Top” influences attitude throughout the firm
3) . “CRIME”
(P) Performance
1) . Policies and procedures should be established to ensure a high level of performance, maintain appropriate supervision, establish guidelines for performance of engagement quality control reviews
2) . Examples include: designate individuals in matters related to SEC, refer questions to appropriate group (AICPA or state society), develop and use standard audit forms checklists and questionnaires, procedures for reviewing engagement documentation and reports, passwords or other ways of restricting access
(M) Monitoring
1) . Second partner review or Peer review (every 3 years)
2) . quality control system is relevant, adequate, operating effectively, and complied within practice
3) . ongoing consideration and evaluation of design and effectiveness of quality control system
4) . Partner should bear responsibility
5) . “Wrap up” or second partner “pre issuance” review. Required by SOX for every public company audit report
(E) Ethical Requirements
1) . independence, integrity, and objectivity
2) . To maintain public confidence in the profession
3) . Examples include: maintaining records showing which personnel were previously employed by clients, notifying personnel the names of audit clients publicly held, confirming with staff that prohibited relationships don’t exist, emphasizing independence of mental attitude in training and supervision
Nature and Extent of Quality Control Policies and procedure depend on:
1) . Firms size
2) . Organizational structure
3) . Nature and complexity of its practice
4) . Degree of operating autonomy
5) . Cost-benefit considerations
Communication of quality control policies and procedures
1) . Communicated to firm personnel
2) . include procedures and objectives, and emphasize personal responsibility and importance of feedback
GAAS vs quality control standards:
Quality control standards of a firm affect both the performance of each audit and performance of audit practice as a whole
GAAS= relates to conduct of each individual audit engagement
Quality control= relate to conduct of all professional activities of firms practice as a whole
Quality control deficiencies:
1) . Failed quality control does not equal failed GAAP or GAAS
2) . Deficiency in quality control for individual engagement does not mean the firms overall quality control system is insufficient
Review work of others:
All work should be review by partner or have some review responsibility delegated to other members of audit team with the partner having the final responsibility for the audit
1). review consists of considerations of whether:
work was performed in accordance with professional standards, significant findings or issues need further consideration, consultations have taken place, NET of work performed, work performed supports conclusions, sufficient evidence, objectives of engagement have been achieved.
2). Engagement partner should review:
critical areas of judgment, significant risks (revenue recognition/management override).
3). Documentation requirements:
1). who performed the work and the date it was completed
2). who reviewed documentation and date of review
Quality control standards for non issuers
1). Objective: provide reasonable assurance that
1). Audit complies with professional standards
2). auditor issues a report that is appropriate
2). Engagement partner responsibilities: responsible for overall quality of engagement but may delegate responsibilities. During each engagement the engagement partner should:
1). be alert for evidence of noncompliance
2). Form a conclusion on compliance with independent requirements
3). procedures regarding client acceptance and continuance have been followed
4). engagement team and external specialists have competence and capabilities
5). Take responsibility for direction, supervision, and performance
6). take responsibility for reviews
7). sufficient evidence obtained
8). take responsibility for engagement team undertaking appropriate consultation on difficult matters
3). Engagement quality control review: performed only when required by firms policies and procedures.
Review should be completed before engagement partner releases the audit report
Quality control standards for Issuer engagements
1). PCAOB standards require an engagement quality review for all audits of issuers and for each engagement to review the interim F.S of an issuer.
