Practice Management

- Quality Control

- Advertising/ Publicity/ Fees/ Tendering

- Terms of Engagement

Quality Control

Why ? (Importance)

- To minimize audit risk and its adverse consequences

- To comply with SLAuS/ISAs and other ICASL requirements

Quality Control

Implemented at Two Levels

1. Overall Audit Firm Level

2. Individual Audit Level

Quality Control

Quality Control at Overall Firm Level

Is implemented to achieve following objectives;

- Professional Requirements

- Skills and Competence

- Assignment

- Delegation

- Consultation

- Acceptance and Retention of Clients

- Monitoring

The Concept and Examples

(a) Professional Requirements:Personnel in the firm are to adhere to the principles of Independence, Integrity, Objectivity, Confidentiality and Professional Behavior.

(b) Skills and Competence:The firm is to be staffed by personnel who have attained and maintain the Technical Standards and Professional Competence required to enable them to fulfill their responsibilities with Due Care.

(c) Assignment:Audit work is to be assigned to personnel who have the degree of technical training and proficiency required in the circumstances.

(d) Delegation:There is to be sufficient direction, supervision and review of work at all levels to provide reasonable assurance that the work performed meets appropriate standards of quality.

(e) Consultation:Whenever necessary, consultation within or outside the firm is to occur with those who have appropriate expertise.

(f) Acceptance and Retention of Clients:An evaluation of prospective clients and a review, on an ongoing basis, of existing clients is to be conducted. In making a decision to accept or retain a client, the

firm's independence and ability to serve the client properly and the integrity of the client's management are to be considered.

(g) Monitoring:

The continued adequacy and operational effectiveness of quality control policies and procedures are to be monitored.

Examples of QC Procedures – Professional Requirements

• Assign an individual or group to provide guidance and to resolve questions on matters of integrity, objectivity, independence and confidentiality.

• Communicate policies and procedures regarding professional requirements to personnel at all levels within the firm.

(i) Prepare and maintain for independence purposes a list of the firm's clients and of other entities

(ii) Make the list available to personnel (iii)Establish procedures to notify personnel of changes

• Monitor compliance with policies and procedures relating to independence, integrity, objectivity, confidentiality and professional behavior.

E.g. ACCEPTANCE AND RETENTION OF CLIENTS

Establish procedures for evaluation of prospective clients

(i) Obtain and review available financial statements regarding the prospective client, such as annual reports, interim financial statements and tax returns.

(ii) Inquire of third parties as to any information regarding the prospective client and its management. Inquiries may be directed to the prospective client's bankers, legal advisers etc.

ACCEPTANCE AND RETENTION OF CLIENTS

Establish procedures for evaluation of prospective clients (Contd..)

(iii) Communicate with the predecessor auditor. Inquiries would include questions regarding the facts that might bear on the integrity of management, on disagreements with management as to accounting policies, audit procedures, or other similarly significant matters, and on the predecessor's understanding as to the reasons for the change in auditors.

(iv) Consider circumstances which would cause the firm to regard the engagement as one requiring special attention or presenting unusual risks.

ACCEPTANCE AND RETENTION OF CLIENTS

Establish procedures for evaluation of prospective clients (Contd..)

(v) Evaluate the firm's independence and ability to serve the prospective client. In evaluating the firm's ability, consider needs for technical skills, knowledge of the industry and personnel.

(vi) Determine that acceptance of the client would not violate the ICASL's Code of Professional Conduct & Ethics.

Individual Audit Level

The auditor should implement those quality control procedures which are, in the context of the policies and procedures of the firm, appropriate to the individual audit.

Quality Control

Quality Control at Individual Audits

Involves

- Direction of Assistants

- Supervision

- Review (Hot Review, Post Audit Review, Second Partner Review, Peer Review)

Quality Control

Review (Hot Review, Post Audit Review, Second Partner Review, Peer Review)

1. Hot Review: Working Papers are checked by more experienced member during the audit

2. Post-audit Review: Review at the end of the audit, but prior to issuing the audit report

3. Second Partner Review: For large and complex audits an another partner reviews

4. Peer Review: One firm review another firm

Direction

Assistants to whom work is delegated need appropriate direction.

Direction involves informing assistants of their responsibilities and the objectives of the procedures they are to perform.

It also involves informing them of matters, such as the nature of the entity's business and possible accounting or auditing problems that may affect the nature, timing and extent of audit procedures with which they are involved.

Supervision

(a) Monitor the progress of the audit to consider whether:(i) Assistants have the necessary skills and

competence to carry out their assigned tasks;

(ii) Assistants understand the audit directions; and

(iii) The work is being carried out in accordance with the overall audit plan and the audit program;

Supervision

(b) Become informed of and address significant accounting and auditing questions raised during the audit.

(c) Resolve any differences of professional judgment between personnel and consider the level of consultation that is appropriate.

Review

The work performed by each assistant needs to be reviewed by personnel of at least equal competence to consider whether:

(a) The work has been performed in accordance with the audit program;(b) The work performed and the results obtained have been adequately documented;(c) All significant audit matters have been resolved or are reflected in audit conclusions;(d) The objectives of the audit procedures have been achieved; and(e) The conclusions expressed are consistent with the results of the work performed and support the audit opinion.

Quality Control

Quality Control and Working Papers

Working Papers Should be;

- Sufficiently Detailed

- Up to date

- Should support the conclusion - opinion

Quality Control

Small & Large Audit Firms

All firms have to comply with Quality Control policies and procedures

Small firms can ensure Quality by way of;

- Consultation Networks

- Outsourcing Training Facilities

- Use of Checklists + Standard Audit Programs

- Client Acceptance & Retention Policies

Advertising/ Publicity/ Securing Professional Work/ Fees (ACCA Rules)

- Advertising: Not be misleading, discredit to the profession – advertisee- third party.

- Practice Descriptions: Can use ACCA/FCCA with their names.

- Fees: Mentioned in the letter of engagement, based on professional time –experience – risk & responsibility, No contingent fees

Tendering

- Is due to competition among audit firms

- Has reduced audit fees

- The proposal should contain;

* Fee and basis

* Nature/Purpose/Legal Req of an audit

* Client Req

* Audit Strategy

* Description of audit firm

* Other Services Offered

Lowballing and Tenders

Is the process where the auditor quotes a fee which is low and not reasonable in order to attract clients. A prohibited act.

Terms of Engagement and Letter of Engagement

Is the letter sent by the auditor to the client at the commencement of a new engagement. Also, in a recurring engagement if terms have changed this letter is sent.

It is important as it avoids misunderstanding among client and the auditor regarding responsibility, scope, objective and form of any reports.

Should Contain

1. The Objective of the audit

2. Management Responsibility

3. Scope of the Audit

4. Form of any Other Reports

5. Inherent limitations of an audit/Ics

6. Unrestricted access

May Contain

1. Planning Info

2. Basis of fees

3. Relationship with Other Auditors

Risks Involved in the Tender-Professional Risks: Consultation of prior auditors

-Commercial Risks: Is it realistic and can it attract economic returns

-Problems with Management:

-Reference from Credit Agencies

-Review the Solvency of the Company and Directors

-Review Industry Specific Problems

-Knowledge of the Business ?

-Need to Use Experts

-Media Comments

-If not accepted the wasted time