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© Copyright FocusROI Inc. 2012 www.focusroi.com

A Guide to the QAM update #4

Stuart Hartley FCA

[email protected]


Agenda An overview of QAM #4

New features in the manual and sample policy manuals.

A comparison between new sample policies and previous ones.

Guidance on QC requirements for:

Firm monitoring,

Ongoing compliance documentation, and

Engagement quality control reviews.

Common QC system deficiencies.


QC Stakeholders

AuditCommittees

ExternalAuditors

Management

Regulators

Users


The Perceived Conflict

Slide M1- 5

The auditor is hired and fired by management not investors!!!

Man

agem

ent

Users

Ban

kers, Investo

rs &

Public

The Auditor

Dem

and

for Ser

vice

Dem

and for Protection


Recent Criticisms of Auditors

PCAOB in USA (2008 banking crisis)

FRC in UK (2008 banking crisis)

European Commission (2008 banking crisis)

Lack of

Professional Skepticism being used by partners and staff

Whatever the client says must be right!!!


An essential ATTITUDE to enhance ability to:

Identify/respond to conditions that indicate possible misstatement.

Critically assess

audit evidence.

Remain

for:alert Contradictory

audit evidence or evidence that

questions reliability ofinformation from

management/TCWG

Draw appropriate conclusions.

Professional Skepticism


CICA Bulletin


Canadian

QC Standards Quality control

for other engagements Engagement

level Policies& Procedure

The Firms Quality Control System(CSQC 1)

Firm level policies &Procedures

Quality control foran audit of financial statements

(CAS 220)

Quality control fora review engagement


Objective of CSQC 1

11. The objective of the firm is to:

establish and maintain a system of

quality control to provide it with

reasonable assurance that:

1. The firm and its personnel comply with

professional standards and regulatory and

legal requirements; and

2. Reports issued by the firm or engagement

partners are appropriate in the

circumstances.


CSQC1 has 47 “SHALLS”

CANADIAN STANDARD ON QUALITY CONTROL CSQC1

Subject matter "Shalls"

Applying, and Complying with, Relevant Requirements 3

Elements of a System of Quality Control 2

Leadership Responsibilities for Quality within the Firm 2

Relevant Ethical Requirements 6

Acceptance/ Continuance of Client Relationships 3

Human Resources 3

Engagement Performance 16

Monitoring 9

Documentation of the System of Quality Control 3

Totals 47


Engagement Level Objectives - CAS 220

Implement QC procedures at the engagement

level to provide reasonable assurance that:

(a) The audit complies with professional standards

and applicable legal and regulatory

requirements; and

(b) The auditor's report issued is appropriate in

the circumstances.

Mirrors firm level objectives


CAS 220 has 18 “SHALLS”

Quality Control for an Audit of Financial Statements CAS 220

Subject matter "Shalls"

Leadership Responsibilities for Quality within the Firm 1

Relevant Ethical Requirements 3

Acceptance/ Continuance of Client Relationships 2

Assignment of Engagement Teams 1

Engagement Performance 8

Monitoring 1

Documentation 2

Totals 18


Elements of a QC system

Firm level QC (CSQC1)

1. Leadership

2. Ethics

3. Acceptance /continuance

4. Human resource management

5. Engagement performance

6. Monitoring

7. Documentation (QAM)

Engagement level QC (CAS 220)

1. Leadership

2. Ethics

3. Acceptance/continuance

4. Engagement team

5. Engagement performance

6. Monitoring

QAM = Quality Assurance Manual

.16 The firm shall establish and maintain a system of quality control

that includes policies and procedures that address each of the

following elements:


QAM Update #4

Author

Stuart Hartley, FCA


Overview of

Substantially rewritten and expanded for changes

in clarified CSQC 1 & CAS 220

Key features:

Four updated sample Quality Assurance Manuals

Closely follow the QC standards

More guidance for firms to customize sample manuals

Optional best practice text shaded in sample policies

Chapters provide commentary on each sample policy


Structure of

Part Description

A Requirements and Responsive Solutions

B Sample Quality Control Manuals and Appendices

C Practice Aids

D Other Reference Materials


Guide to designing/implementing Firm QAM

AdditionalGuidance on

Tracking updates

Documenting compliance

Listed entities

Monitoring

Focus onFirm

LeadershipOrg charts

Job descriptionsreporting

Closely Follows

Clarified

Standards

Updated

Practical AidsReview checklistsReport formats

Risk assessmentsLetters

QAM update 4


Part A

Standards CSQC 1 Chapter QAM

Objectives 11 1 A system of Quality Control

Applying, and Complying with,

Relevant Requirements

13-15 2 Commitment to Quality Work

Elements of a System of Quality

Control 16-17 2 A system of Quality Control

Leadership Responsibilities for

Quality within the Firm 18-19 3 Leadership

Relevant ethical requirements 20-25 4 Relevant Ethical Requirements

Acceptance and Continuance of

Client Relationships and Specific

Engagements

26-28 5 Client Acceptance/Continuance


Standards CSQC 1 Chapter QAM

Human resources 29-31 6 Human Resources

Engagement performance

Consultation

Engagement Quality Control

Reviews

Differences Of Opinion

Engagement Documentation

32-33

34

35-42

43-44

45-47

7

8

9

10

11

Engagement performance

Consultation

Engagement Quality Control

Reviews

Differences Of Opinion

Engagement Documentation

Monitoring

Monitoring the Firm's Quality

Control Policies and Procedures

Evaluating, Communicating and

Remedying Identified

Deficiencies

Complaints and Allegations

48

49-54

55-56

12

13

Monitoring The Firm’s System

Of Quality Control

Complaints and Allegations

Documentation of the System of

Quality Control 57-59 2-13 Suggested documentation

provided throughout manual

Part A


Part B: Sample Manuals

1. Sole Practitioner with No Staff

2. Sole Practitioner with Staff

3. Small or Medium-Sized Partnership

4. Partnerships including Audits of

Listed Entities/Reporting Issuers


Implementing QC in your firm Activity Purpose Documentation

Read “engagement level” QC

standards (i.e., CAS 220)

QAM, CSQC 1 and

Design an appropriate system of quality control for firm

Implement the system of quality

control within firm

Assign firm leaders (internal and external)

with operational responsibilities for QC

A set of P&P (firm’s own QAM) that complies with CSQC 1

Build a culture of quality within the Firm

of CSQC 1 are consistently achieved

Ensure the objectives

Gett

ing S

tart

ed

Evidence of understandingby those responsible forQC in firm

A manual (QAM) for firm Evidence of QAM approval

(by partners)

Evidence of:- regular communication with firm personnel.- staff training provided- ongoing compliance

A current list of firm leadersSpecific job descriptionsEvidence of actions takenby the leaders


Monitoring QC

Ensure system is operating effectively and deficiencies are corrected on a timely basis

Annually monitor compliance

with firms QAM

Annually assess need for

changes in firm’s QAM

Annual confirmation (by all personnel)

of compliance with firm’s QAM

Annually communicate results of QC monitoring

to firm personnel

Ensure firm’s QAM is relevant and up to date

Ensure personnel understand and comply with firm’s QAM

Correct deficiencies and e

nsure continual improvement in quality of work performed

M a i n

t a i n

i n g t

h e

S y s t

e m

Reports from firm leaders Reports from firm monitors Action plans to address weaknesses

Details of the QAM review and the changes (if any) made as a result

Signed confirmations by all partners and staff Details on how any issues arising were resolved

Annual communication to personnel with action plans for remediation and improvement

Activity Purpose Documentation


Monitoring Question Response

Who? Persons with sufficient and appropriate

experience, technical ability and authority.

What is scope of

Ongoing Policy

Monitoring (annual)?

Evaluation of the firm's system of quality control. Firms can self monitor.

What is scope of

Completed File

Monitoring?

Inspection of at least one completed engagement file for each engagement partner every three years. Inspector has to be Independent. No involvement in performing the engagement or the EQCR.


The EQCR

Question Response

What is the role? An objective evaluation of

judgments and conclusions.

Extent of

involvement?

• Attend planning meeting as observer

• Review/comment on planning decisions

• Provide consultation as needed

• Perform review of completed file

When? Audits of ALL listed entities.

When firm criteria for EQCR is met.

Who? Partner equivalent.


EQCR vs. Completed File Monitoring

EQCR Completed File Monitoring

TASK Agree that audit report can be dated and release d

R eport on file deficiencies to MP

WHO Qualified Partner (or equivalent) not involved in engagement

Qualified person not involved in engagement or the E Q C R

PURPOSE Objective evaluation of significant judgments and conclusions reached

E valuation of the firm's QC system

SCOPE Specific Engagement file S a mple files selected

TIMING BEFORE audit report dated AFTER report issued


Sample Manuals - Inclusion of Objectives


Sample Manuals – new features


Sample Quality Assurance Manuals – new features


Sample Policies & Best Practice


Insert Your Compliance Documentation


Appendices to Sample Manuals

A. ANNUAL CONFIRMATION OF COMPLIANCE

B. SUGGESTED RESPONSIBILITIES FOR THE FIRM’S LEADERS

C. CONFIDENTIALITY AGREEMENT

D. ENGAGEMENT RISK ASSESSMENT - WORKSHEET

E. HIRING AN EXTERNAL CONSULTANT

F. WHEN TO CONSULT - WORKSHEET

G. USE OF CONSULTANTS - WORKSHEET

H. CRITERIA FOR WHEN AN EQCR IS REQUIRED

I. HIRING AN EXTERNAL PERSON TO PERFORM AN EQCR

J. EQCR WORKSHEET

K. HIRING AN EXTERNAL MONITOR

L. ONGOING POLICY MONITOR’S REPORT

M. COMPLETED FILE MONITOR’S WORKSHEET – AUDIT FILE


Comparison between Old and

New Sample Manuals – App A


Practical Aids


Common QC Deficiencies

Ongoing (annual) monitoring reports not being prepared

Evaluation of whether EQCR is required on entities

other than listed

Auditor’s report not in compliance with CAS 700

Communications with those charged with governance

Determining whether design of internal controls effective

Assessment of RMM at the F/S and assertion levels

Documentation deficiencies:

Discussions with management and TCWG.

Substantive audit procedures.

Results of monitoring procedures performed and action plans.


Summary of Benefits - QAM Update #4

Apply/comply with CSQC 1 and CAS 220

Develop/update your firm’s customized QA Manual

Assign leadership roles and document work performed

Practical Guidance

Continually improve your firm’s system of quality control

Staff appraisals

Annual confirmations, etc.

Sample engagement letters for external monitors

Organize, perform and prepare monitors’ reports for:

Ongoing policy monitoring (OPM)

Completed file monitoring (CFM)


Questions Please…

Contact us at

www.focusroi.com

We welcome your feedback (good and

bad) plus any ideas for improvement.

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