Question

‘The objective of the auditor is to implement quality control procedures at the engagement level that provide the auditor with reasonable assurance that: – The audit complies with professional standards and applicable legal and regulatory requirements; and – The auditor's report issued is appropriate in the circumstances.' (ISA 220 Quality Control for an Audit of Financial Statements).

Required: Describe the nature, and explain the purpose of quality control procedures appropriate to the individual audit.

Answer 1

Answer:

Nature: ISA 220 deals with the specific responsibilities of the auditor regarding quality control procedures for an audit of financial statements. It also addresses, where applicable, the responsibilities of the engagement quality control reviewer. This ISA is to be read in conjunction with relevant ethical requirements.

Quality control systems, policies and procedures are the responsibility of the audit firm. Under ISQC 1, the firm has an obligation to establish and maintain a system of quality control to provide it with reasonable assurance that:

• The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and
• Reports issued by the firm or engagement partners are appropriate in the circumstances.

ISA 220 is premised on the basis that the firm is subject to ISQC 1 or to national requirements that are at least as demanding.

Within the context of the firm’s system of quality control, engagement teams have a responsibility to implement quality control procedures that are applicable to the audit engagement and provide the firm with relevant information to enable the functioning of that part of the firm’s system of quality control relating to independence.

Engagement teams are entitled to rely on the firm’s system of quality control, unless information provided by the firm or other parties suggests otherwise.

Purpose:

The Purpose of the auditor is to implement quality control procedures at the engagement level that provide the auditor with reasonable assurance that:

• The audit complies with professional standards and applicable legal and regulatory requirements; and
• The auditor’s report issued is appropriate in the circumstances.

Leadership Responsibilities for Quality on Audits

The engagement partner shall take responsibility for the overall quality on each audit engagement to which that partner is assigned.

Throughout the audit engagement, the engagement partner shall remain alert, through observation and making inquiries as necessary, for evidence of non-compliance with relevant ethical requirements by members of the engagement team.

If matters come to the engagement partner’s attention through the firm’s system of quality control or otherwise that indicate that members of the engagement team have not complied with relevant ethical requirements, the
engagement partner, in consultation with others in the firm, shall determine the appropriate action.

Independence

The engagement partner shall form a conclusion on compliance with independence requirements that apply to the audit engagement. In doing so,the engagement partner shall:

• Obtain relevant information from the firm and, where applicable,network firms, to identify and evaluate circumstances and relationships that create threats to independence;
• Evaluate information on identified breaches, if any, of the firm’s independence policies and procedures to determine whether they create a threat to independence for the audit engagement; and
• Take appropriate action to eliminate such threats or reduce them to an acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the audit engagement, where withdrawal is possible
  under applicable law or regulation. The engagement partner shall promptly report to the firm any inability to resolve the matter for appropriate action.