In the context of the theme of the conference – “The new Economic Model –

Value Chain Transformation” and Tack A “Professionalism” the requirements of

International Standards on Quality Control essentially translate into sensible

business risk management.

The objective is that firms who perform audits and other assurance

engagements should establish and maintain a system of quality control that

provides reasonable assurance that:

Quality Audit to Uphold Public Interest – the ISQC Way

Presentation by Bill Palmer – ICAA (The Institute of Chartered Accountants in Australia)

> The firm and its personnel comply with professional standards and

applicable legal and regulatory requirements> Reports issued by the firm or engagement partners are appropriate in the

circumstances

In the context of the theme of the conference – “The new Economic Model –

Value Chain Transformation” and Tack A “Professionalism” the requirements of

International Standards on Quality Control essentially translate into sensible

business risk management.

The objective is that firms who perform audits and other assurance

engagements should establish and maintain a system of quality control that

provides reasonable assurance that:

Quality Audit to Uphold Public Interest – the ISQC Way

Presentation by Bill Palmer – ICAA (The Institute of Chartered Accountants in Australia)

> The firm and its personnel comply with professional standards and

applicable legal and regulatory requirements> Reports issued by the firm or engagement partners are appropriate in the

circumstances

The Standard requires that these objectives be achieved by requiring the:

> Leadership responsibilities for quality within the firm> Relevant ethical requirements> Acceptance and continuance of client relationships and

specific engagements> Human resources> Engagement performance> Monitoring

> Establishment> Documentation; and> Communication to personnel

of policies and procedures which cover the elements of:

Our experience with implementing these requirements from the

perspective of:

What I propose to share with you today is…

> Practitioners; both large and small> ICAA as a professional body> Regulators

Quality Audit to Uphold Public Interest – the ISQC way

PractitionersLarge practices> Documented policies and procedures not always followed

Small practices> Lack of documentation and difficulty with application especially for one

partner practices

Professional Body - ICAA> Tools to assist members meet requirements> Quality review program

Regulators> Force of law auditing standards> Inspections

> Relationship with MICPA> Activities with MIA> Malaysian members group

ICAA in Asia

Large

Practitioners

> Concerns about force of law – Post Enron reforms> Preamble to standards> Duplication of reviews> Regulator inspections (tone at the top, partner earnings> PCAOB

Small

> One size fits all> Too complex> General practice> Application of ISQC

> Toolkits> Practice model alternatives> Reporting thresholds> Alternate services – differential audit

Response from ICAA

Tools to assist members meet requirements

> Australia adopted ISQC1 in 2006> ICAA produced Quality Control Guide> Guide incorporates pro-forma documentation which can be

downloaded and tailored to individual firms> Auditing toolkit> IFAC Guide to Quality Control for Small and Medium sized

Firms> ICAA Independence Checklist> ICAA Handbook updated online every 8 weeks> ICAA weekly technical newsletters> Using Malaysian Standards on Auditing in the Audits of small

and medium sized entities

> Covers the 5 elements of ISQC1> Are procedures and practices in place?> Are they documented?> How are they communicated?> Review manuals and work papers > Select cross section of engagement files to assess whether

quality control is being followed – Do not second guess

opinion> Reviewer is selected and contracted to ICAA but a working

practitioner > Institute review team ensure consistency> Cycle – every 3 years> Risk based approach – listed clients and results of prior

reviews> Report – findings and suggestions> Categories of report> Annual report findings

Quality Review Program

Quality Review Findings

Documentation> Insufficient audit evidence to support the audit opinion> Insufficient documentation in a particular audit area

> Terms of engagement> Planning> Understanding the Entity and Its Environment and

Assessing the risks of material misstatement> Consideration of fraud> Analytical procedures> Subsequent events> Going concern

Quality Review Findings

Independence> No or inadequate documentation when considering threats

to independence> Appropriate safeguards not applied when carrying out audit

and accounting functions for a client

Quality Control> System of control not documented > System not adequately documented> Consideration of client relationship not documented before

commencing work> No written annual confirmation of compliance on

independence

Training and Development> Minimum required hours not completed

RegulatorRegulator

Monitor audit quality by:> Registration of who can act as a registered company auditor

> Review systems of quality control to ensure compliance with law, auditing

standards and professional and ethical standards (top down approach)> Engagement file reviews, as part of a second round top down approach and also

for review of smaller firms by way of risk assessment

> 90% of registered company auditors are sole practitioners

> 65% have been registered for 20 years or more

> Big 4 equates to 46% of all listed companies

> 97% by market capitalisation of the top 300

Regulator Findings

> Categorise firms as A, B or C> Categories according to whether previously inspected> Category A generally at the smaller end of the top 15-20> Some category A firms have been found to not be taking a

sufficiently proactive approach to planning and

implementing effective policies, systems and processes to

ensure compliance with legislation and professional and

ethical standards for independence and quality> Engagement file reviews indicated in some instances a lack

of sufficient evidence to support certain audit assertions and

need to reinforce compliance with mandatory audit

standards> Failure to record all the work performed. The assumption is

that if it is not written down, it has not been done

Outcomes

> Concentration> Specialisation > Assurance framework for Climate Change opportunities > Attractiveness of the profession> Liability capping

> UK – FRC Professional Oversight Board> US – Public Company Oversight Board> Singapore – Accounting & Corporate Regulatory Authority> Extent & involvement of concurring partner> Documentation of thought process underlying significant

audit judgment> Analytical review – investigation of variances> Use of the work of specialists

Larger Firms> Implementation of systems of quality control

Smaller Firms> Comprehensiveness of system of quality control

Observations from Overseas Inspectors

MIA – CCH Quality Control Manual

Guide for Establishing and Maintaining a System of QC

for an Accounting and Auditing Practice

IFAC Guide

Guide to Quality Control for Small and Medium Sized

Practices

Audit Quality Rating Portal

UK Auditing Practices Board

Guidance on smaller Entity Audit Documentation

(Exposure Draft)

Quality ControlImplementation Assistance

Financial Reporting Supply ChainQuality Control

Public Interest

Capital MarketsCreditability

Financial Statements

Prepared in accordance with IFRS

Audit undertaken in accordance with IAS by ISQCI compliant auditor

International Standards Audits & Ethics

Toolkit WorkingPapers

International AuditStandards

Using InternationalAuditing Standards in theAudits of Small & Medium

sized Entities

Quality ControlGuide

Quality ControlISQCI

Implementation GuideIFAC

Quality Assurance programDocumentation

Quality ReviewSMO1

Independence Check List

The Code of Ethics forProfessionalAccountants

Quality Control

Requires MemberMember Body Member

ISQC 1SMO 1 Requires Member body to

Establish review process

SMO 1ISQC 1

Regulator oroversight

body

Member body

Member Inspection

> Commitment from the Top – Culture> Specific person responsible with CEO mandate> Independence> Acceptance and continuance – good risk management> Skill and competence of engagement team> Engagement performance – review of consultation

ISQC1

> Engagement quality review – listed only> Monitoring – profession body program> Documentation – not written down, not done