Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

a) Mr. Shah has recently joined as Audit Partner of SSS & Co., Chartered Accountants. On assuming the responsibility, he discovered that the firm does not have comprehensive guidelines for “Engagement Quality Control Review”. He wants to bring this issue to the notice of Managing Partner.
You are required to prepare discussion points for Mr. Shah explaining the followings:
i) The basis of selecting engagements for review;
ii) Nature and timing of review; and
iii) Criteria for eligibility of engagement quality control reviewer.

Answer

Discussion points with respect to the issues asked in the questions are based on the provisions of Nepal Standards on Quality Control 1: Quality Control For Firms That Perform Audits And Reviews Of Historical Financial Information, And Other Assurance And Related Services Engagements which requires that the firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and regulatory and legal requirements, and that reports issued the firm or engagement partners are appropriate in the circumstances.

i) With respect to the basis of selecting engagements for review

The firm shall have established policies and procedures requiring, for appropriate engagements, an engagement quality control review that provides an objective evaluation of the significant judgements made the engagement team and the conclusions reached in formulating the report. Such policies and procedures shall:

 Require an engagement quality control review for all audits of financial statements of listed entities;
 Set out criteria against which all other audits and reviews of historical financial information, and other assurance and related services engagements should be evaluated to determine whether an engagement quality control review should be performed; and
 Require an engagement quality control review for all engagements meeting the criteria established in compliance with subparagraph (b).

Criteria that a firm considers when determining which engagements other than audits of financial statements of listed entities are to be subject to an engagement quality control review include the following:

 The nature of the engagement, including the extent to which it involves a matter of public interest.

 The identification of unusual circumstances or risks in an engagement or class of engagements.

 Whether laws or regulations require an engagement quality control review.

ii) With respect to nature and timing of review
An engagement quality control review ordinarily involves discussion with the engagement partner, a review of the financial statements or other subject matter information and the report, and, in particular, consideration of whether the report is appropriate. It also involves a review of selected working papers relating to the significant judgements the engagement team made and the conclusions they reached. The extent of the review depends on the complexity of the engagement and the risk that the report might not be appropriate in the circumstances. The review does not reduce the responsibilities of the engagement partner.
An engagement quality control review for audits of financial statements of listed entities includes considering the following:
 The engagement team‟s evaluation of the firm‟s independence in relation to the specific engagement.

 Significant risks identified during the engagement and the responses to those risks.

 Judgements made, particularly with respect to materiality and significant risks.

 Whether appropriate consultation has taken place on matters involving differences of opinion or other difficult or contentious matters, and the conclusions arising from those consultations.

 The significance and disposition of corrected and uncorrected misstatements identified during the engagement.

 The matters to be communicated to management and those charged with governance and, where applicable, other parties such as regulatory bodies.

 Whether working papers selected for review reflect the work performed in relation to the significant judgements and support the conclusions reached.

 The appropriateness of the report to be issued.
Engagement quality control reviews for engagements other than audits of financial statements of listed entities may, depending on the circumstances, include some or all of these considerations.
The engagement quality control reviewer conducts the review in a timely manner at appropriate stages during the engagement so that significant matters may be promptly resolved to the reviewer‟s satisfaction before the report is issued.
Where the engagement quality control reviewer makes recommendations that the engagement partner does not accept and the matter is not resolved to the reviewer‟s satisfaction, the report is not issued until the matter is resolved following the firm‟s procedures for dealing with differences of opinion.

iii) With respect to criteria for eligibility of engagement quality control reviewer
The firm‟s policies and procedures should address the appointment of engagement quality control reviewers and establish their eligibility through:
 The technical qualifications required to perform the role, including the necessary experience and authority; and
 The degree to which an engagement quality control reviewer can be consulted on the engagement without compromising the reviewer‟s objectivity.
The firm‟s policies and procedures on the technical qualifications of engagement quality control reviewers address the technical expertise, experience and authority necessary to perform the role. What constitutes sufficient and appropriate technical expertise, experience and authority depends on the circumstances of the engagement. In addition, the engagement quality control reviewer for an audit of the financial statements of a listed entity is an individual with sufficient and appropriate experience and authority to act as an audit engagement partner on audits of financial statements of listed entities.
The firm‟s policies and procedures are designed to maintain the objectivity of the engagement quality control reviewer. For example, the engagement quality control reviewer:
 Is not selected the engagement partner;
 Does not otherwise participate in the engagement during the period of review;
 Does not make decisions for the engagement team; and
 Is not subject to other considerations that would threaten the reviewer‟s objectivity.



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