AQuR SYSTEM

1. AQuR SYSTEM Researchers: Zuraidah Mohd Sanusi, Aida Hazlin Ismail, Yusarina Mat Isa, Roszana Tapsir, Syazliana Kasim, Kamaruzzaman Muhammad, Nor’Azam Mastuki and Normah Omar SEMNAR ON AUDIT QUALITY SECURITIES COMMISSIONS, 13 MAY 2009

2. Overview of Audit Quality • Audit quality is viewed as one of the important factors that affect the credibility of financial statements (Arrunada, 2004) • Audit quality has been further extended to cover firm level rather than engagement only: quality control system, quality assurance and institutional management such as managing human resource, institutional risk and external relations (Mazur et. al., 2005)

3. Background • IFAC has issued International Standards on Quality Control 1 (ISQC 1) for the purpose of quality control for firms that perform audits and reviews of historical financial information, and other assurance and related services engagements • Adoption of ISQC 1 in Malaysia by Malaysian Institute of Accountants (MIA) as part of approved auditing standards w.e.f July 2006. • Purpose of ISQC 1: • To establish a system of quality control (policies and procedures); • To provide firm with reasonable assurance that the firm and members of the firm comply with professional standards and regulatory and legal requirements; and • To ensure that reports issued by the firm is appropriate in the circumstances

4. Background • Although accounting bodies in many countries, such as Malaysia, Australia and Pakistan, have supplemented ISQC 1 with audit manual and guidelines, it is difficult to ascertain to what extent the compliance with ISQC 1 has been achieved. • To develop ISQC 1 Self-Assessment Checklist to assist audit firms in complying with ISQC 1 • By adopting the framework of ISQC 1 questionnaires which have been developed by the accounting bodies in Australia and Pakistan, this study has further extended the questionnaires into ISQC 1 Self-Assessment Checklist to cover two parts i.e. Policies & Procedures and Practices as well as the score assessment.

5. Elements of the Quality Control in ISQC 1

6. Elements of the Quality Control in ISQC 1

7. DEVELOPMENT OF AQuR SYSTEM • Preliminary study on the ISQC 1 implementation issues - Questionnaires sent to audit firms • Brainstorming session among the researchers to form common themes of ISQC 1 Self-Assessment Checklist based on several sources: ISQC 1, MIA Quality Control Manual etc. • Review of ISQC 1 Self-Assessment Checklist with two representatives from MIA • Review of ISQC 1 Self-Assessment Checklist with ten audit practitioners from medium and small size firms • Funded and supported by MAREF

8. Documentation Monitoring Leadership ISQC 1 Dimensions Engagement Performance Ethical Requirement Human Resources Client Relationships Development of the ISQC 1 Self-Assessment Checklist

9. Organization of ISQC 1 Self-Assessment Checklist

10. A Glance at the Checklist 1. LEADERSHIP RESPONSIBILITIES FOR QUALITY WITHIN THE FIRM (ED) ISQC 1.19: “The firm shall establish policies and procedures designed to promote an internal culture based on the recognition that quality is essential in performing engagements. Such policies and procedures shall require the firm’s chief executive officer (or equivalent) or, if appropriate, the firm’s managing board of partners (or equivalent), to assume ultimate responsibility for the firm’s system of quality control.” Definitions of Indicators Not evident : No evidence that such practice exists/action taken Emerging : Evidence indicates early or preliminary stages of implementation of practices Operational : Evidence indicates active implementation of practices Highly functional : Evidence indicates effective and consistent implementation of practices

11. Score Assessment

12. Score Assessment