Quality Control - Completed

  • Quality Control - Completed

    Project Status

    Project completed - February 2004

    Staff

    Ken Siong

    Objective(s) of project

    The objectives of this project were to:

    • Establish basic principles and essential procedures and to provide guidance regarding a firm's responsibilities for its system of quality control for audits and reviews of historical financial information, and other assurance and related services engagements; and
    • Revise the existing ISA 220, Quality Control for Audit Work, relating to the responsibilities of firm personnel with regard to the quality control policies and procedures applicable to audit engagements.


    This project resulted in the issue of the following two Standards:


    ISA 220, Quality Control for Audit Workwill be withdrawn when ISA 220 (Revised) becomes effective.

     

    Scope

    The existing ISA 220 establishes basic principles and essential procedures, and provides guidance relating to quality control for both an audit firm and an individual audit engagement. It was originally envisaged that the revised ISA 220 would be similarly structured with a similar scope. However, after careful consideration, the IAASB agreed to:

    • Broaden the scope of quality control responsibilities for the firm not only in respect of audit engagements, but also with regards to review and other assurance and related services engagements; and
    • Address separately (a) the responsibilities of the firm for its system of quality control, and (b) the specific responsibilities of firm personnel regarding quality control procedures for audits of historical financial information, including audits of financial statements.


    Elements of a firm's system of quality control addressed in ISQC 1 comprise:

    • Leadership responsibilities for quality within the firm;
    • Ethical requirements (including independence);
    • Acceptance and continuance of client relationships and specific engagements;
    • Human resources (including assignment of engagement teams);
    • Engagement performance (including consultation, resolution of differences of opinion and engagement quality control review); and
    • Monitoring (including dealing with complaints and allegations).


    Elements of quality control with respect to an audit engagement addressed in ISA 220 (Revised) comprise:

    • Leadership responsibilities for quality on audits;
    • Ethical requirements (including independence);
    • Acceptance and continuance of client relationships and specific audit engagements;
    • Assignment of engagement teams;
    • Engagement performance (including consultation, resolution of differences of opinion and engagement quality control review); and
    • Monitoring.

     

    Background

    The background to this project was explained in the Explanatory Memorandum to the exposure draft.

    Issues

    Significant issues that were addressed during the project included:

    • The interaction of the proposed Quality Control Standards with the IFAC Code of Ethics for Professional Accountants (the "IFAC Code");
    • Whether to provide definitions for quality/quality control and reasonable assurance;
    • Re-considering rotation of engagement partner for engagements other than audits of listed entities, and rotation of senior personnel for audits of listed entities;
    • Considering rotation of the engagement quality control reviewer and requiring a cooling-off period before the reviewer could act as engagement partner for the same client;
    • Clarifying the leadership responsibilities for quality within the firm;
    • How to address and resolve differences of opinion;
    • To what extent a firm could rely on an independent external inspection program to determine the scope of its own internal monitoring program;
    • Whether the proposed Quality Control Standards sufficiently addressed the needs of small- and medium-sized practices; and
    • What the effective dates for the proposed Quality Control Standards should be.

    Task Force progress / Board discussions to date

    The exposure period for comments closed on August 31, 2003. In all, 39 comment letters were received.

    The proposed Quality Control Standards were approved at the February 2004 IAASB meeting.

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