Compliance with Quality Control Framework: General & Specific Controls

1. Compliance with Framework of Quality Control - General & Specific ControlsCA Vimal Chopra,Ex Chairman of CIRC of ICAI

2. Peer Review • It is automatic route of benchmarking. • It is an opportunity and not a burden. • It is for sharing the best practices. • It is a platform to review attest functions in contemporary sense.

3. Scope of Peer Review • Assurance Services • Assurance Engagement Records for three completed financial years • Focus • Compliance with Technical, Professional and Ethical Standards • Quality of Reporting • Office Systems and Procedures • Training Programme for Staff

4. Technical and Professional Standards • Accounting Standards • Auditing and Assurance Standards • Framework for the Accounting, Auditing and Related Standards • Ethical Standards • Professional Standards • Statements • Guidance Notes • Notifications/Directions, including those of a self-regulatory nature • Relevant Statutes and Regulations • Framework for the Preparation and presentation of financial statements, Standard on Assurance Engagements, Standards on Quality Control and Guidance Notes on related services issued and framework for assurance engagements

5. General Controls • Independence • Maintenance of Skills • Outside consultation • Staff supervision and Development • Office Administration

6. Specific Controls • Audit Record Administration • Review and Evaluation of System of Internal Controls • Substantive Tests • Financial Statement Presentation • Audit Conclusion and • Audit Report

7. Question 1 Task Does the PU have a system of quality controlfor attestation services? Assess based on completed questionnaire developed by the Peer Review Board and initial meeting with PU

8. Question 2 Tasks Is it designed to ensure compliance with Technical Standards and maintenance of quality attestation work? Review of general controls:IndependenceMaintenance of Professional skills and Outside consultationStaff supervision and developmentOffice administration

9. Question 3 Task Was it effective during the review period? Review of records:Compliance approachSubstantive approach • SIX KEY CONTROLS • Audit Record Administration • Review & Evaluation of System of Internal Controls • Substantive Tests • Financial Statement Presentation • Audit Conclusion and • Audit Report

10. Compliance Review of General Controls

11. Independence • Independence policies and procedures • Communication thereof • Designation of Independence Officer • Monitoring independence

12. Maintenance of Professional Skills & Standards • Guidelines and requirements for CPE • In-house mechanism for CPE • Monitoring CPE

13. Consultation • Access to reference libraries and other authoritative sources • Literature • Consulting firms/individuals • Availability of expertise for consultation • Maintenance of records • Documenting resolution of differences of opinion

14. Staff Supervision & Development • Orientation for new hires • System of scheduling and staffing • Monitoring personnel training and development

15. Office Administration • Scheduling related to skill and competence • Review of work and guidance • Monitoring progress of engagement

16. Evaluation and Purpose • Reviewer may ask other questions • Size of PU to be considered • Review to be mainly by Interview • Gives overall assessment – for engagement sample selection • Reviewer to identify controls on which he may rely

17. Procedure Selection of Engagements for Review Review of Records Which Approach ? Compliance Approach Substantive Approach Do reliable controls exist ? No Do not rely on controls and do an intermediate level of substantive testing Yes Rely on controls and do basic level of substantive testing Reporting

18. Controls Testing - Areas Records of following key controls to be reviewed to ensure compliance with technical standards: • Audit record administration • Financial statement presentation • Review and evaluation of system of internal controls • Substantive tests • Audit conclusion • Audit report

19. Controls Testing and Evaluation • Documentation is of critical importance • Smaller PUs may have a lower level of documentation – tailored to their clients, provided circumstances therefore are justified to reviewer

20. Substantive Testing - 1 • Appointment of auditor • Terms of engagement • Accounting records available • Composition of management • Book-keepers & authorized signatories • Memorandum/Articles, Prospectus, Partnership Deed

21. Substantive Testing - 2 • Understand the client’s business • Understand the controls environment • Understand the accounting systems • Past financial statements & reports of internal/statutory auditors • Evaluate audit risk using professional judgment • Design procedures to mitigate risk

22. Substantive Testing - 3 • Perform preliminary analytical procedures to: • Identify key account balances • Highlight unusual/unexpected amounts and relationships • Design appropriate testing procedures • Obtain sufficient audit assurance for reducing/eliminating detail testing

23. Substantive Testing - 4 • Determine materiality estimate for the audit engagement • Plan for account balances to be tested and sampling methodology • Selection of samples • Perform controls testing and conclude on controls reliability • Communicate control weaknesses to management

24. Substantive Testing - 5 • Perform substantive analytical testing • Perform substantive tests of detail • Ensure prevalence of fundamental accounting assumptions – consistency, going concern, accrual accounting • Examine and report changes in accounting policies and their impact • Branch audit reports – qualifications, scope limit reservations

25. Substantive Testing - 6 • Working papers (WPs) to have adequate audit evidence for assertions made in financial statements • WPs to agree with books of account, financials and are cross-referenced • Perform financial statements review • Complete lead schedules • Prepare audit summary memorandum • Review assistants’ work

26. Substantive Testing - 7 • Ensure updation of Audit documentation file • Review individual and aggregate effect of unadjusted errors • Check compliance with legal and regulatory requirements • Check compliance with ICAI Accounting Standards • Subsequent Events Review

27. Substantive Testing - 8 • Final discussion points • Draft audit opinion • Prepare Management Letter • Compare budgeted hours to actuals and analyze variances • Debriefing meetings with client/staff • Complete staff evaluation • Start next year’s planning

28. Reviewer’s Procedure • Analysis of completed questionnaire followed by on-site visit; and • Compliance review of general controls, namely, • Independence • Maintenance of Professional Skills and Standards • Outside Consultation • Staff Supervision & Development • Office Administration • Selection of Engagements for Review • Review of Records • Compliance Approach - Attestation Services Engagements • Substantive Approach - Attestation Services Engagements • Reporting

29. Concluding Observations

30. Some Issues • Confidentiality • Level of Firms • Level of Technical Standards • Reviewers’ Qualification • Selection of Reviewer by PU • Cost Aspect • Action on the Report of Reviewer

31. The Goal • Quality in the performance of attestation engagements by members Whereby Everybody Wins

32. Thanks