1 / 40

Engagement Quality Reviews: Proposed ISQC 2

Discover updates & feedback on proposed ISQC.2 at the IAASB meeting in New York. Learn about outreach efforts, CAG and SMPC feedback, and key details of the task force. Understand the importance of engagement quality control measures and the coordination efforts among stakeholders.

vanwyk
Download Presentation

Engagement Quality Reviews: Proposed ISQC 2

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Engagement Quality Reviews: Proposed ISQC 2 September 18, 2018 IAASB Meeting, New York, USA Imran Vanker, ISQC 2 Task Force Chair

  2. Overview • Background • Outreach and Coordination • Feedback from CAG • Feedback from SMPC (including scalability) • Walk through of proposed ISQC 2 and extracts of proposed ISQC 1 (Revised)

  3. Background • December 2015 • Invitation to Comment (ITC), Enhancing Audit Quality in the Public Interest • June 2016 • Audit Quality Enhancements Coordination Working Group reported ongoing support for importance of engagement quality control reviews as a key quality control measure • September 2017 • First read of proposed ISQC 2 and relevant extracts from ISQC 1 reviewed • First meeting of Joint Working Group (JWG)

  4. Background • June 2018 • Task Force reconstituted • September 2018 • IAASB discussion of revised draft EDs of proposed ISQC 2 and proposed ISQC 1 (Revised)

  5. ISQC 2 Task Force Meeting

  6. Outreach and Coordination • This project is closely linked to the projects to revise ISQC 1 and ISA 220 • Coordination efforts among Task Forces will be enhanced during Q4 • IESBA coordination on cooling-off period for EQ reviewer and other matters of mutual interest • One JWG meeting held during August 2018; another planned in October 2018 • IAASB QC Task Force Chairs and staff met with IESBA Liaison and staff • Outreach to stakeholders • CAG – September 11, 2018 • SMPC webinar – September 14, 2018 • Forum of Firms – October 2, 2018 • Additional outreach planned before the December 2018 IAASB meeting

  7. CAG Views – Highlights • CAG Representatives expressed mixed views on entities of “significant public interest” • CAG Representatives wanted further emphasis of authority of the EQR • Some CAG Representatives reiterated the need for a specific requirement that an audit report cannot be issued until the EQ reviewer has “signed off” • CAG Representatives raised questions about documentation

  8. SMPC Views – Highlights • Questions were raised about: • The potential impact of using the term “significant public interest” on SMEs (e.g., small local hospitals) • The detail of the EQ reviewer’s procedures • In paragraph 24 of proposed ISQC 2, who determines which information is relevant • In paragraph A106 of proposed ISQC 1 (Revised), the phrase “in exceptional cases” is not appropriate for SMPs • It would be the norm, rather than the exception, that a member of the engagement team would appoint the EQ reviewer • One participant noted that PIEs should not be one of the criteria for determining engagements subject to EQ review

  9. Proposed ED ISQC 1 – EQR/ Proposed ED ISQC 2 is scalable! Proposed ED - ISQC 2 Proposed ED - ISQC 1 (Revised) 2. 5. R18. 4. R19. R20. (b) R43. (e)(i) A100. A100A. A1. • A4. • •• A5. R24. (e) R22. A102. A101. A105. A14. A9. A20. A22. A7. • A106C. A105A. A106. A6. A26. A30. A31. A108A. A108. A25. A24. A33. A32.

  10. Walk Through of Proposed ISQC 2 and Extract of Proposed ISQC 1 (Revised) • Linkages to Proposed ISQC 1 (Revised) • Objectives (and scope) of proposed ISQC 2 • Authority of proposed ISQC 2 • Definitions • Scope of engagements subject to an engagement quality review • Eligibility of the engagement quality reviewer (including cooling-off period) • Performance of an engagement quality review • Consultation between the engagement team and the engagement quality reviewer • The EQ reviewer’s overall conclusion • Documentation

  11. Section Title 14pt Arial Regular Linkages Between Proposed ISQC 1 (Revised) and Proposed ISQC 2

  12. Scope and objectives of Proposed ISQC 2 • Paragraph 15 includes objectives pertaining to the: • Firm’s appointment of the EQ reviewer, including eligibility criteria for the EQ reviewer • The EQ reviewer’s responsibilities to perform and document the review

  13. Matter for IAASB Consideration Question 1: (Para. 1-7, A1-A2, and Para. 15) The IAASB is asked whether it supports the revised objective in the ED of proposed ISQC 2 to include the objectives of both the firm and the engagement quality reviewer. (Paragraph 15)

  14. Authority of Proposed ISQC 2 • Authority of proposed ISQC 1 (Revised) • Authority addresses firm only • Not an “umbrella” like ISAE 3000 suite • Task Force concluded ISQC 2 is a stand-alone ISQC • Authority needs to address: • Firm responsibilities for determining the eligibility of, and appointing, engagement quality reviewers • EQ reviewer’s responsibilities to perform and document the EQ review • Authority supports the two-part objective of proposed ISQC 2

  15. Matter for IAASB Consideration Question 2: Does the IAASB agree with the Task Force’s view that a separate Authority section is needed for the draft ED of proposed ISQC 2? (Paragraphs 8 -13 and A3)

  16. Definitions • Change in terminology to align with spirit of ISQC 1 • Engagement quality control review/reviewer to engagement quality (EQ) review/reviewer • Definitions of EQ review and EQ reviewer streamlined • Definition of relevant ethical requirements updated • Consistent with revised IESBA Code, proposed ISQC 1 (Revised) and proposed ISA 220 (Revised) • Addresses only RER applicable to the EQ reviewer

  17. Matter for IAASB Consideration Question 3: Does the IAASB support: (Paragraph 16, A4-A5) • The change in terminology from “engagement quality control review/reviewer” to “engagement quality review/reviewer”? • The other definitions in the draft ED of proposed ISQC 2?

  18. Scope of Engagements Subject to EQ Review All engagements Proposed Scope Extant Scope More stringent More flexible Fewer selected More selected

  19. Extant scope (Para. 35) Revised scope (Para. 43 (e) (i) Entities that have significant public interest Required by law or regulation Determined by firm’s SoQM Criteria based selection of engagements Audits of financial Statements of Listed entities

  20. Entities that are of Significant Public Interest • This term is used in paragraph A32 of ISA 260 (Revised) and paragraph A41 of ISA 700 (Revised) and in proposed ISQC 1 (Revised) • Large number and wide range of stakeholders and considering the nature and size of the business • Examples may include financial institutions (such as banks, insurance companies and pension funds) and other entities such as charities

  21. Scalability of Scope Requirement • Scope of EQ reviews is scalable as: • EQ review is one possible response among others • Type of engagements in a firm’s portfolio (e.g., audits of listed entities) • Firm’s determination of other engagements or classes of engagements to be subject to EQ review

  22. Matter for IAASB Consideration Question 4: The IAASB is asked for its views on whether: (Paragraph 43(e)(i) and A100-A102) • The intended scope of the engagements subject to EQ reviews is clear and sufficiently robust in the public interest; • The changes made in the draft ED of proposed ISQC 1 (Revised), paragraph 43(e) and related application material address the issues identified at the September 2017 IAASB meeting; and • The approach taken to require EQ reviews for audits of entities of significant public interest is appropriate, or whether it would be sufficient to rely on the firm’s risk assessment process to capture entities of significant public interest.

  23. Eligibility Criteria for Engagement Quality Reviewers (Proposed ISQC 2) Competence (para. 20(b)) Capabilities (para. 20(b)) Appropriate Authority (para. 20(b)) Objectivity (including “cooling-off period”) (para. 20(c)) Compliance with relevant ethical requirements (para. 20(d)(i)) Compliance with relevant law or regulation (para. 20(d)(ii)) Page 25 Page 25

  24. Eligibility Matters • External party may serve as EQ reviewer, e.g. if no eligible person within firm (subject to eligibility requirements) • EQ reviewer may use assistants • Engagement team is required to cooperate with EQ reviewer under proposed ISA 220 (Revised) • Examples provided of how SMPs apply the eligibility criteria • Proposed ISQC 2 (paras. A105A and A106 of proposed ISQC 1 (Revised))

  25. “Cooling-off” Period • Objectivity is one of the eligibility criteria for the EQ reviewer • Individuals who recently served as engagement partner on an engagement may face threats to their objectivity as an EQ reviewer • The material in paragraphs 20(c) of proposed ISQC 2 and 43(e)(ii)(b) of proposed ISQC 1 (Revised) reflects the JWG’s initial thinking on this issue

  26. Matter for IAASB Consideration Question 5: (Para. 20-22, A6-A23), JWG paper The IAASB is asked for its views on the eligibility criteria for EQ reviewers and for individuals who assist the EQ reviewer. - The IAASB is also asked to share its views in relation to the current thinking captured in the Supplement to Agenda Item 6 – the proposal of the EQ Joint Working Group

  27. Performance of an EQ Review Redo all the work of the EP Extant Requirements Proposed Requirements More specific Less specific Less work More work

  28. Performance of an EQ Review • EQ review: (Para 23) • Procedures are to provide an appropriate basis for an objective evaluation of the significant judgments made by the engagement team and the conclusions reached • Required procedures: (Para 24) • Reading and understanding relevant information • Discussing significant matters with the engagement partner/team • Identifying significant judgments made • Reviewing selected documentation of the significant judgments made, including significant judgments made in relation to significant matters • For audits of financial statements: reviewing whether the EP has taken overall responsibility for managing and achieving quality on the audit • Reviewing the draft engagement report • Evaluating whether objective is fulfilled or whether there are any unresolved matters

  29. Significant Judgments • The Task Force has not reached a consensus on whether the EQ reviewer’s review of selected documentation of significant judgments should be over all significant judgements or a subset thereof • Some support retaining the extant ISA 220 requirement for the EQ reviewer to “perform an objective evaluation of the significant judgments made by the engagement team” • Another view is that the EQ review should be over a subset of significant judgments (i.e., those made in relation to significant matters)

  30. Matter for IAASB Consideration Question 6: (Paragraphs 23-25, and A24-A30) IAASB views are sought on whether paragraphs 23-25 of proposed ISQC 2 provide sufficient clarity on the EQ reviewer’s responsibilities. Input is also sought on whether focusing the EQ review on significant judgements made by the engagement team is appropriate, or whether more explanation is needed about the relationship between significant judgements and significant matters.

  31. Consultation between the Engagement Team and the EQ Reviewer • The Task Force was asked at the September 2017 IAASB meeting to reconsider how the standard addresses engagement team consultation with the EQ reviewer • A potential threat to the EQ reviewer’s objectivity may arise • Distinction between need to encourage open discussions between the engagement team and the EQ reviewer and formal “consultations” that the engagement team may be required to make

  32. Matter for IAASB Consideration Question 7: (Paragraph 43(e)(v) and A109 of ISQC1, A17 of ISQC2) Does the IAASB agree with how the Task Force has dealt with the risk of consultations impairing the objectivity of the EQ reviewer?

  33. The EQ Reviewer’s Overall Conclusion • The Task Force was asked at the September 2017 IAASB meeting to: • Strengthen the requirement that the EQ reviewer evaluate the sufficiency and appropriateness of the procedures • Require the EQ reviewer to conclude overall (similar to PCAOB standard, AS 1220) • The Task Force added a requirement (see paragraph 25(a) of proposed ISQC 2) that: • The EQ reviewer evaluate whether, on or before the date of the report that the requirements in proposed ISQC 2 were fulfilled

  34. Matter for IAASB Consideration Question 8: The IAASB is asked whether it agrees with the Task Force’s proposals in paragraph 25(a) of proposed ISQC 2.

  35. Documentation – Firm-Level • At its September 2017 meeting, the IAASB broadly supported the documentation proposals presented • The Task Force proposes not including specific documentation requirements related to EQ reviews in ISQC 1 because: • EQ reviews are one type of response to quality risks • It would be inconsistent with the nature and extent of the other documentation requirements in proposed ISQC 1 (Revised) • Relevant documentation specific to the EQ review is included in proposed ISQC 2

  36. Documentation – Engagement-Level • The Task Force updated the requirements for an EQ review to document: • The nature, timing and extent of the EQ reviewer’s procedures • The engagement documentation reviewed • The EQ reviewer’s conclusions reached in accordance with paragraph 25

  37. Matter for IAASB Consideration Question 9: IAASB is asked whether: • It agrees that the documentation requirements in the draft ED of proposed ISQC 1 (Revised) should not specifically address EQ reviews. • It agrees with the documentation requirements in paragraph 26 of proposed ISQC 2. General Question: IAASB is asked to share any further comments, and raise any remaining issues, on proposed ISQC2 and extracts of ISQC1.

  38. Next Steps • Address feedback provided • Written and plenary session feedback • CAG, SMPC • JWG and IESBA • Turnaround on Friday of selected matters • Plan - Exposure draft • Task Force meetings and other activities • Outreach

More Related