AAF8
Syllabus B: Planning And Risk AssessmentB1. Obtaining and accepting audit engagements

B1e. Individual level of Quality Control

Syllabus B1e)

Explain the quality control procedures that should be in place over engagement performance, monitoring quality and compliance with ethical requirements

Individual Level Quality Control

ISA 220 Quality Control for Audits of Historical Financial Information specifies the following quality control procedures that should be applied by the engagement team in individual audit assignments.

Client acceptance procedures

There should be full documentation, and conclusion on, ethical and client acceptance issues in each audit assignment. 

The engagement partner should consider whether members of the audit team have complied with ethical requirements, for example, whether all members of the team are independent of the client.

 Additionally, the engagement partner should conclude whether all acceptance procedures have been followed, for example, that the audit firm has considered the integrity of the principal owners and key management of the client. 

Other procedures on client acceptance should include:

  1. Obtaining professional clearance from previous auditors

  2. Consideration of any conflict of interest

  3. Money laundering (client identification) procedures.

    ➢ Establish the identity of the entity and its business activity e.g. by obtaining a certificate of incorporation

    ➢ If the client is an individual, obtain official documentation including a name and address, e.g. by looking at
    photographic identification such as passports and driving licences

    ➢ Consider whether the commercial activity makes business sense (i.e. it is not just a ‘front’ for illegal activities)

    ➢ Obtain evidence of the company’s registered address e.g. by obtaining headed letter paper

    ➢ Establish the current list of principal shareholders and directors.

Engagement team

Procedures should be followed to ensure that the engagement team collectively has the skills, competence and time to perform the audit engagement. 

The engagement partner should assess that the audit team, for example:

  1. Has the appropriate level of technical knowledge

  2. Has experience of audit engagements of a similar nature and complexity

  3. Has the ability to apply professional judgement

  4. Understands professional standards, and regulatory and legal requirements.

Direction

The engagement team should be directed by the engagement partner. 

The planning meeting should be led by the partner and should include all people involved with the audit. 

There should be a discussion of the key issues identified at the planning stage.

Procedures such as an engagement planning meeting should be undertaken to ensure that the team understands:

  1. Their responsibilities

  2. The objectives of the work they are to perform

  3. The nature of the client’s business

  4. Risk related issues

  5. How to deal with any problems that may arise; and

Supervision

Supervision should be continuous during the engagement. 

Any problems that arise during the audit should be rectified as soon as possible. 

Attention should be focused on ensuring that members of the audit team are carrying out their work in accordance with the planned approach to the engagement. 

Significant matters should be brought to the attention of senior members of the audit team.

Review

The review process is one of the key quality control procedures. 

All work performed must be reviewed by a more senior member of the audit team.

Reviewers should consider for example whether:

  1. Work has been performed in accordance with professional standards

  2. The objectives of the procedures performed have been achieved

  3. Work supports conclusions drawn and is appropriately documented.

Consultation

Finally the engagement partner should arrange consultation on difficult or contentious matters. 

This is a procedure whereby the matter is discussed with a professional outside the engagement team, and sometimes outside the audit firm. 

Consultations must be documented to show:

  1. The issue on which the consultation was sought; and

  2. The results of the consultation.