Psa 220 Focus Notes

Doble, Erra Kaye H. Focus Notes

AC516 12:00-3:00 (MW) March 19, 2016

Philippine Standards on Auditing 220 (Redrafted) Quality Control for an Audit of Financial Statements Scope   

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Deals with quality control procedures for an audit of financial statements Addresses the responsibilities of engagement quality control reviewer, where applicable System of Quality Control and Role of Engagement Teams o engagement team may rely on the firm’s system of quality control Under the premise that the firm is subject to PSQC 1 (Red)

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to provide a reasonable assurance of: o compliance with professional standards and regulatory and legal requirements o Appropriateness of reports issued in the circumstances

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Engagement partner- the partner or person in the firm responsible for audit engagement and its performance, and for the auditor’s report that is issued on behalf of the firm and who, where required, has the appropriate authority from a professional, legal or regulatory body Engagement Quality Control Review- designed to provide an objective evaluation, on or before the date of the auditor’s report, of the significant judgments the engagement team made and the conclusions it reached in formulating the auditor’s report. The engagement quality control review process is only for audits of financial statements of listed entities and those other audit engagements, if any, for which the firm has determined an engagement quality control review is required Engagement Quality Control Reviewer - A partner, other person in the firm, suitably qualified external person, or a team made up of such individuals, none of whom is part of the engagement team, with sufficient and appropriate experience and authority to objectively evaluate the significant judgments the engagement team made and the conclusions it reached in formulating the auditor’s report\ Engagement Team - All partners and staff performing the engagement, and any individuals engaged by the firm or a network firm who perform audit procedures on the engagement. This excludes an auditor’s external expert engaged by the firm or a network firm Firm - A sole practitioner, partnership, or other entity of professional accountants Inspection - In relation to completed audit engagements, procedures designed to provide evidence of compliance by engagement teams with the firm’s quality control policies and procedures Listed entity - Listed entity – An entity whose shares, stock or debt are quoted or listed on a recognized stock exchange, or are marketed under the regulations of a recognized stock exchange or other equivalent body Monitoring - A process comprising an ongoing consideration and evaluation of the firm’s system

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of quality control, including a periodic inspection of a selection of completed engagements, designed to provide the firm with reasonable assurance that its system of quality control is operating effectively\  Network Firm - A firm or entity that belongs to a network.  Network - A larger structure: o (i) That is aimed at cooperation, and o (ii) That is clearly aimed at profit or costsharing or shares common ownership, control or management, common quality control policies and procedures, common business strategy, the use of a common brand name, or a significant part of professional resources • Partner - Any individual with authority to bind the firm with respect to the performance of a professional service engagement  Personnel - Partners and staff  Professional standards – Philippine Standards on Auditing (PSAs) and relevant ethical requirements  Relevant ethical requirements – Ethical requirements to which the engagement team and engagement quality control reviewer are subject, which ordinarily comprise Parts A and B of the Code of Ethics for Professional Accountants in the Philippines (Philippine Ethics Code) related to an audit of financial statements together with national requirements that are more restrictive  Staff – Professionals, other than partners, including any experts the firm employs.  Suitably qualified external person – An individual outside the firm with the competence and capabilities to act as an engagement partner, for example a partner of another firm, or an employee (with appropriate experience) of either a professional accountancy body whose members may perform audits of historical financial information or of an organization that provides relevant quality control services. Requirement  Leadership Responsibilities for Quality on Audits o Engagement partner – responsible for the overall quality on each audit engagement to which he is assigned - His actions hall emphasize the importance to audit quality and fact that quality is essential in performing audit engagements  Relevant Ethical Requirements o Fundamental principles of professional ethics:  Integrity  Objectivity  Professional Competence and Due Care  Confidentiality  Professional Behavior o In cases of noncompliance by the members of engagement team to relevant requirements, engagement partner shall determine appropriate action o Independence The engagement partner shall:  Obtain information to identify and evaluate circumstances that pose threats to independence  Evaluate information on breaches of policies and procedures relating to independence  Take appropriate action to eliminate or reduce threats to independence to an acceptable level: o eliminating the activity or interest that creates the threat

Doble, Erra Kaye H. Focus Notes

AC516 12:00-3:00 (MW) March 19, 2016

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or withdrawing from the audit engagement, where withdrawal is legally permitted Acceptance and Continuance of Client relationships and Audit Engagements o Information to be obtained by the engagement partner:  Those that would have caused the firm to decline the audit engagement  Integrity of client  Competence of engagement team and the availability of necessary time and resources  Compliance of the team with relevant ethical requirements  Significant matters Assignment of Engagement Teams o The engagement team, auditor’s experts who are not part of the engagement team should have the competence and capabilities to:  Perform audit engagement in accordance with professional standards, regulatory and legal requirements  Enable an auditor’s report that is appropriate in the circumstances Engagement Performance o Direction, Supervision and Performance  It is the responsibility of the engagement partner to:  direct, supervise and perform audit in accordance with professional standards, legal and regulatory requirements  ensure the appropriateness of auditor’s report  appropriate teamwork and training helps less experienced members understand the objectives of work

Reviews Shall be done in accordance with firm’s review policies and procedures Consultation Can be done effectively when those consulted are given relevant facts which will enable them to give informed advice and have appropriate knowledge, seniority and experience When the firm lacks appropriate internal resources, it may be appropriate to consult outside the firm The engagement partner shall:  Take responsibility for engagement team undertaking difficult matters  Ensure that engagement team undertook consultation within and between the team and others within or outside the firm  Be satisfied nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted  Determine whether conclusions reached have been implemented Engagement Quality Control Review Where engagement quality control review is required, duties of the engagement partner include:  Determination of the appointment of quality control reviewer  Discussion of relevant matters arising during the audit with the engagement quality control reviewer  Ensure that the report be dated only after the completion of the engagement quality control review  He need not review all audit documentation

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Responsibilities of the engagement quality control reviewer:  Objective evaluation of significant judgments made and conclusions reached by the auditor including: o Discussion of significant matters with engagement partner o Review of financial statements and proposed auditor’s report o Review of selected audit documentation o Evaluation of conclusions reached and the appropriateness of auditor’s report o And the following for those involving listed entities:  Evaluation of firm’s independence  Appropriate consultations have taken place  Whether audit documentation reflects the work performed Differences of opinion Firm’s policies and procedures should be followed in resolving differences of opinion Considerations Relevant Where a Member of the Engagement Team with Expertise in a Specialized Area of Accounting or Auditing Is Used  direction, supervision and review of that engagement team member’s work may include matters such as:  agreeing the nature, scope and objectives of that member’s work  Evaluating the adequacy of that member’s work 

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Monitoring o monitoring process designed to provide the firm with reasonable assurance that its policies and procedures relating to the system of quality control are relevant, adequate, and operating effectively Documentation o Auditor shall document:  Issues concerning compliance with relevant ethical requirements and their resolution  Conclusions on compliance with independence requirements  Conclusions regarding acceptance and continuance of client relationships and engagements  Nature, scope and conclusion from consultations made o Engagement quality control reviewer shall document:  Performance of procedures required by the firm’s policies and procedures  Completion of review before auditor’s report date  That he is not aware of matters that would cause him to believe that the report issued is not appropriate  Considerations Specific to Public Sector Entities - Statutory measures may provide safeguards for the independence of public sector auditors, provide procedures for the appointment of auditors - additional appropriate competence may include skills that are necessary to discharge the terms of the audit mandate in a particular jurisdiction