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QUALITY CONTROL OF AUDIT WORK

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Title: QUALITY CONTROL OF AUDIT WORK


1
QUALITY CONTROL OF AUDIT WORK
  • Slovenian case
  • REPARIS Project in Macedonia

Meta Duhovnik, Ph.D., SLOVENIAN INSTITUTE OF
AUDITORS
2
Basic regulation
  • EU basis
  • Directive 2006/43/ES on statutory audits of
    annual accounts and consolidated accounts
    (Official Journal of the EU, No. L 157 - 9. 6.
    2006)
  • Regulation enforced in Slovenia
  • Auditing Act (Official Journal of the Republic of
    Slovenia, No. 65/2008 30. 6. 2008 hereinafter
    Zrev-2)
  • ISQC 1 Quality Control for Firms that Perform
    Audits and Reviews of Historical Financial
    Information, and other Assurance and Related
    Services Engagements

3
Basic regulation
  • Regulation enforced in Slovenia (continuation)
  • ISA 220 Quality Control for an Audit of
    Financial Statements
  • Code of Ethics for Professional Accountants
    (IFAC)
  • Code of Professional Conduct (Slovenian)

4
(No Transcript)
5
Quality control of audit work
  • Quality control system of the audit company
  • External quality control

6
Quality control system of the audit company in
Slovenia
  • Auditing rules
  • ISQC 1 Quality Control for Firms that Perform
    Audits and Reviews of Financial Statements, and
    other Assurance and Related Services Engagements
  • ISA 220 Quality Control for an Audit of
    Financial Statements

7
Definitions
  • Engagement partner
  • The partner or other person in the firm who is
    responsible for the engagement and its
    performance, and for the report that is issued on
    behalf of the firm, and who, where required, has
    the appropriate authority from a professional,
    legal or regulatory body.
  • Engagement quality control review
  • A process designed to provide an objective
    evaluation, on or before the date of the report,
    of the significant judgments the engagement team
    made and the conclusions it reached in
    formulating the report.

8
Definitions
  • Engagement quality control reviewer
  • A partner, other person in the firm, suitably
    qualified external person, or a team made up of
    such individuals, none of whom is part of the
    engagement team, with sufficient and appropriate
    experience and authority to objectively evaluate
    the significant judgments the engagement team
    made and the conclusions it reached in
    formulating the report.

9
Definitions
  • Engagement team
  • All partners and staff performing the engagement,
    and any individuals engaged by the firm or a
    network firm who perform procedures on the
    engagement. This excludes external experts
    engaged by the firm or a network firm.
  • Firm
  • A sole practitioner, partnership or corporation
    or other entity of professional accountants.

10
Definitions
  • Inspection
  • In relation to completed engagements, procedures
    designed to provide evidence of compliance by
    engagement teams with the firms quality control
    policies and procedures.
  • Listed entity
  • An entity whose shares, stock or debt are quoted
    or listed on a recognized stock exchange, or are
    marketed under the regulations of a recognized
    stock exchange or other equivalent body.

11
Definitions
  • Monitoring
  • A process comprising an ongoing consideration and
    evaluation of the firms system of quality
    control, including a periodic inspection of a
    selection of completed engagements, designed to
    provide the firm with reasonable assurance that
    its system of quality control is operating
    effectively.
  • Network firm
  • A firm or entity that belongs to a network.

12
Definitions
  • Network
  • A larger structure
  • that is aimed at cooperation, and
  • that is clearly aimed at profit or cost-sharing
    or shares common ownership, control or
    management, common quality control policies and
    procedures, common business strategy, the use of
    a common brand name, or a significant part of
    professional resources.

13
Definitions
  • Partner
  • Any individual with authority to bind the firm
    with respect to the performance of a professional
    services engagement.
  • Personnel
  • Partners and staff.

14
Definitions
  • Professional standards
  • IAASB Engagement Standards, as defined in the
    IAASBs Preface to the International Standards on
    Quality Control, Auditing, Review, Other
    Assurance and Related Services, and relevant
    ethical requirements.
  • Relevant ethical requirements
  • Ethical requirements to which the engagement team
    and engagement quality control reviewer are
    subject, which ordinarily comprise Parts A and B
    of the International Federation of Accountants
    Code of Ethics for Professional Accountants (IFAC
    Code) together with national requirements that
    are more restrictive.

15
Definitions
  • Reasonable assurance
  • In the context of ISQC, a high, but not absolute,
    level of assurance.
  • Staff
  • Professionals, other than partners, including any
    experts the firm employs.

16
Definitions
  • Suitably qualified external person
  • An individual outside the firm with the
    competence and capabilities to act as an
    engagement partner, for example a partner of
    another firm, or an employee (with appropriate
    experience) of either a professional accountancy
    body whose members may perform audits and reviews
    of historical financial information, or other
    assurance or related services engagements, or of
    an organization that provides relevant quality
    control services.

17
ISQC 1 compared with ISA 220
  • ISQC 1
  • The quality control policies and procedures which
    are documented and communicated to the firms
    personnel.
  • ISA 220
  • Quality control procedures that are applicable to
    the individual audit engagement.

18
Elements of a system of quality control
  • ISQC 1
  • Leadership responsibilities for quality within
    the firm
  • Relevant ethical requirements
  • Acceptance and continuance of client
    relationships and specific engagements
  • Human resources
  • Engagement performance
  • Monitoring
  • ISA 220
  • Leadership responsibilities for quality on audits
  • Relevant ethical requirements
  • Acceptance and continuance of client
    relationships and audit engagements
  • Assignment of engagement teams
  • Engagement performance
  • Monitoring

19
Leadership responsibilities
  • ISQC 1
  • The firms chief executive officer (or
    equivalent), or, if appropriate, the firms
    managing board of partners (or equivalent) should
    assume ultimate responsibility for the firms
    system of quality control.
  • ISA 220
  • The engagement partner is responsible for the
    overall quality on each audit engagement to which
    that partner is assigned.

20
Leadership responsibilities
  • ISQC 1
  • Establishment of policies and procedures that
    address performance evaluation, compensation, and
    promotion (including incentive systems) with
    regard to its personnel, in order to demonstrate
    the firms overriding commitment to quality.
  • Assignment of management responsibilities so that
    commercial considerations do not override the
    quality of work performed.
  • Provision of sufficient resources for the
    development, documentation and support of quality
    control policies and procedures.

21
Leadership responsibilities
  • ISA 220
  • Engagement partner is taking care of importance
    to audit quality of
  • performing work that complies with professional
    standards and applicable legal and regulatory
    requirements
  • complying with the firms quality control
    policies and procedures as applicable
  • issuing auditors reports that are appropriate in
    the circumstances and
  • the engagement teams ability to raise concerns
    without fear of reprisals.

22
Leadership responsibilities
  • ISQC 1
  • Any person assigned operational responsibility
    for the firms system of quality control by the
    firms chief executive officer or managing board
    of partners should have sufficient and
    appropriate experience and ability, and the
    necessary authority, to assume that
    responsibility.

23
Ethical requirements
  • ISQC 1
  • ISA 220
  • Ethical requirements ordinarily comprise Parts A
    and B of the IFAC Code together with national
    requirements that are more restrictive.

24
Ethical requirements
  • The fundamental principles of professional
    ethics, which include
  • Integrity
  • Objectivity
  • Professional competence and due care
  • Confidentiality
  • Professional behavior

25
ISQC 1 Ethical requirements
  • The firm shall establish policies and procedures
    designed to provide it with reasonable assurance
    that the firm and its personnel comply with
    relevant ethical requirements.

ISA 220 Ethical requirements
  • Throughout the audit engagement, the engagement
    partner shall remain alert, through observation
    and making inquiries as necessary, for evidence
    of non-compliance with relevant ethical
    requirements by members of the engagement team.

26
ISQC 1 Ethical requirements independence
  • The firm establishes policies and procedures
    designed to provide it with reasonable assurance
    that the firm, its personnel and, where
    applicable, others subject to independence
    requirements (including network firm personnel)
    maintain independence where required by relevant
    ethical requirements.
  • Such policies and procedures shall enable the
    firm to
  • communicate its independence requirements to its
    personnel and, where applicable, others subject
    to them
  • identify and evaluate circumstances and
    relationships that create threats to
    independence, and to take appropriate action to
    eliminate those threats or reduce them to an
    acceptable level by applying safeguards, or, if
    considered appropriate, to withdraw from the
    engagement, where withdrawal is permitted by law
    or regulation.

27
ISQC 1 Ethical requirements independence
  • At least annually, the firm obtains written
    confirmation of compliance with its policies and
    procedures on independence from all firm
    personnel required to be independent by relevant
    ethical requirements.
  • Relevant policies and procedures to assure
    independence are
  • setting out criteria for determining the need for
    safeguards to reduce the familiarity threat to an
    acceptable level when using the same senior
    personnel on an assurance engagement over a long
    period of time and
  • requiring, for audits of financial statements of
    listed entities, the rotation of the engagement
    partner and the individuals responsible for
    engagement quality control review, and where
    applicable, others subject to rotation
    requirements, after a specified period in
    compliance with relevant ethical requirements.

28
ISA 220 Ethical requirements independence
  • The engagement partner has to
  • obtain relevant information from the firm and,
    where applicable, network firms, to identify and
    evaluate circumstances and relationships that
    create threats to independence
  • evaluate information on identified breaches, if
    any, of the firms independence policies and
    procedures to determine whether they create a
    threat to independence for the audit engagement
  • take appropriate action to eliminate such threats
    or reduce them to an acceptable level by applying
    safeguards, or, if considered appropriate, to
    withdraw from the audit engagement, where
    withdrawal is possible under applicable law or
    regulation.
  • The engagement partner shall promptly report to
    the firm any inability to resolve the matter for
    appropriate action.

29
Independence requires
IFAC Code
  • independence of mind
  • The state of mind that permits the expression of
    a conclusion without being affected by influences
    that compromise professional judgment.
  • independence of appearance
  • The avoidance of facts and circumstances that are
    so significant that a reasonable and informed
    third party , having knowledge of all relevant
    information, including safeguards applied, would
    reasonably conclude a firms or auditors
    independence had been compromised.

30
Possible threats to independence
IFAC Code
  • Self-interest threat
  • Self-review threat
  • Advocacy threat
  • Familiarity threat
  • Intimidation threat

31
Self-interest threat
IFAC Code
  • Self-interest threat may occur as a result of the
    financial or other interests of a professional
    accountant or of an immediate or close family
    member.

32
Self-review threat
IFAC Code
  • Self-review threat may occur when a previous
    judgment needs to be re-evaluated by the
    professional accountant responsible for that
    judgment.

33
Advocacy threat
IFAC Code
  • Advocacy threat may occur when a professional
    accountant promotes a position or opinion to the
    point that subsequent objectivity may be
    compromised.

34
Familiarity threat
IFAC Code
  • Familiarity threats may occur when, because of a
    close relationship, a professional accountant
    becomes too sympathetic to the interests of
    others.

35
Intimidation threat
IFAC Code
  • Intimidation threat may occur when a professional
    accountant may be deterred from acting
    objectively by threats, actual or perceived.

36
Safeguards
IFAC Code
  • Two broad categories
  • Safeguards created by the profession, legislation
    or regulation.
  • Safeguards in the work environment.

37
Safeguards created by the profession, legislation
or regulation include
IFAC Code
  • Educational, training and experience requirements
    for entry into the profession.
  • Continuing professional development requirements.
  • Corporate governance regulations.
  • Professional standards.
  • Professional or regulatory monitoring and
    disciplinary procedures.
  • External review by a legally empowered third
    party of the reports, returns, communications and
    information produced by a professional
    accountant.

38
Safeguards in the work environment include
IFAC Code
  • Depending on the circumstances
  • Firm wide safeguards
  • Engagement specific safeguards

39
Firm-wide safeguards in the work environment may
include
IFAC Code
  • Leadership of the firm that stresses the
    importance of compliance with the fundamental
    principles
  • Leadership of the firm that establishes the
    expectation that members of an assurance team
    will act in the public interest
  • Policies and procedures to implement and monitor
    quality control of engagements

40
Firm-wide safeguards (continuation 1)
IFAC Code
  • Documented policies regarding
  • the identification of threats to compliance with
    the fundamental principles,
  • the evaluation of the significance of these
    threats and
  • the identification and the application of
    safeguards to eliminate or reduce the threats to
    an acceptable level
  • For firms that perform assurance engagements,
    documented independence policies regarding
  • the identification of threats to independence,
  • the evaluation of the significance of these
    threats and
  • the evaluation and application of safeguards to
    eliminate or reduce the threats to an acceptable
    level

41
Firm-wide safeguards (continuation 2)
IFAC Code
  • Documented internal policies and procedures
    requiring compliance with the fundamental
    principles
  • Policies and procedures that will enable the
    identification of interests or relationships
    between the firm or members of engagement teams
    and clients
  • Policies and procedures to monitor and, if
    necessary, manage the reliance on revenue
    received from a single client
  • Using different partners and engagement teams
    with separate reporting lines for the provision
    of non-assurance services to an assurance client

42
Firm-wide safeguards (continuation 3)
IFAC Code
  • Policies and procedures to prohibit individuals
    who are not members of an engagement team from
    inappropriately influencing the outcome of the
    engagement
  • Timely communication of a firms policies and
    procedures, including any changes to them, to all
    partners and professional staff, and appropriate
    training and education on such policies and
    procedures
  • Designating a member of senior management to be
    responsible for overseeing the adequate
    functioning of the firms quality control system

43
Firm-wide safeguards (continuation 4)
IFAC Code
  • Advising partners and professional staff of those
    assurance clients and related entities from which
    they must be independent
  • A disciplinary mechanism to promote compliance
    with policies and procedures
  • Published policies and procedures to encourage
    and empower staff to communicate to senior levels
    within the firm any issue relating to compliance
    with the fundamental principles that concerns
    them.

44
Engagement-specific safeguards in the work
environment may include
IFAC Code
  • Involving an additional professional accountant
    to review the work done or otherwise advise as
    necessary
  • Consulting an independent third party, such as a
    committee of independent directors, a
    professional regulatory body or another
    professional accountant
  • Discussing ethical issues with those charged with
    governance of the client

45
Engagement-specific safeguards (continuation 1)
IFAC Code
  • Disclosing to those charged with governance of
    the client the nature of services provided and
    extent of fees charged
  • Involving another firm to perform or re-perform
    part of the engagement
  • Rotating senior assurance team personnel.

46
National regulation
  • Auditing Act
  • Code of Professional Conduct
  • Basic Auditing Principles
  • Guidelines for setting the fees
  • Guidelines for the Operation of the Audit
    Companies

47
More restrictive national requirements Auditing
Act (Article 45(1))
  • An audit company is not allowed to audit an
    individual legal person if (1)
  • it holds investments in that legal person
  • that legal person holds investments in the audit
    company
  • the persons related to the legal person are
  • close family members of the members of the
    management or supervisory board or the certified
    auditors of an audit company,
  • joint indirect or direct holders of a qualifying
    (10) holding in the audit company

48
More restrictive national requirements Auditing
Act (Article 45(1))
  • An audit company is not allowed to audit an
    individual legal person if (2)
  • the audit company or any organizational unit in
    the network it belongs to, or person connected
    with the audit company performs or has performed
    in the two years prior to concluding an agreement
    on the auditing of a legal person's financial
    statements
  • any type of accounting or bookkeeping services,
  • valuation services for the purpose of financial
    reporting that could affect the items in the
    financial statements,

49
More restrictive national requirements Auditing
Act (Article 45(1))
  • An audit company is not allowed to audit an
    individual legal person if (3)
  • tax consultation services that could affect items
    in the financial statements,
  • agency services in tax and judicial procedures
    regarding tax matters,
  • internal auditing services,
  • services involving the set-up or introduction of
    an information system that includes the area of
    accounting or the generation of information
    included in the financial statements of a legal
    person,

50
More restrictive national requirements Auditing
Act (Article 45(1))
  • An audit company is not allowed to audit an
    individual legal person if (4)
  • business and financial services that affect items
    in the financial statements and business and
    financial services that include advertising,
    trading or guarantees for the equity and debt
    securities of a legal person,
  • legal services,
  • any other services that could affect the items in
    the financial statements
  • it is connected with a legal person in some other
    way and doubt regarding the independence and
    objectivity of auditing may exist due to this
    connection.

51
More restrictive national requirements Auditing
Act (Article 45(2))
  • A certified auditor is not allowed to audit an
    individual legal person if (1)
  • he/she has, as key audit partner, audited the
    financial statements of a legal person for seven
    consecutive years following the date of his/her
    first appointment, and if following the last
    audit, two years have not passed for which
    another key audit partner audited the financial
    statements
  • he/she holds investments in that legal person

52
More restrictive national requirements Auditing
Act (Article 45(2))
  • A certified auditor is not allowed to audit an
    individual legal person if (2)
  • he/she is connected with a legal person in some
    other way, and doubt regarding the independence
    and objectivity of auditing may exist due to this
    connection
  • he/she performs or has performed services
    affecting the financial statements in the two
    years prior to carrying out auditing tasks.

53
More restrictive national requirements
Auditing Act (Article 46)
  • A certified auditor or key audit partner that
    audits financial statements may not assume the
    function of member or consultant of a management
    body or head of an accounting and/or financial
    department at the legal person being audited
    until at least two years have passed following
    the cessation of audit work as a certified
    auditor or key audit partner.

54
More restrictive national requirements
Auditing Act (Article 47(4))
  • The price for auditing services shall not
  • be conditional on the provision of additional
    services for the audited legal person or
  • dependent on any other conditions.

55
More restrictive national requirements
Auditing Act (Article 9(2))
  • One of the tasks and competencies of the
    Institute in the field of auditing and other
    specialist fields related to auditing
  • defining guidelines for setting the fees for
    auditing services and corporate, real estate,
    machines and equipment valuation services.

56
More restrictive national recommendations
Guidelines for Setting the Fees
  • Guidelines
  • The fee has to be adequate to the nature, timing
    and extent of the work performed.
  • The recommended prices
  • assistant between 34,92 and 43,65
  • auditor between 56,74 and 69,84
  • manager between 78,57 and 104,76
  • certified auditor between 104,76 and 126,58
  • engagement partner between 135,31 and 161,50
  • The invoice has to be paid within 8 days after
    receipt.
  • No more than 60 can be required in advance.

57
More restrictive national requirements Code
of Professional Conduct
  • Rule 1 (Independence)
  • The audit firm is not allowed to gain the
    majority of the revenue from only one source.

58
More restrictive national requirements
Guidelines for the Operation of the Audit
Companies
  • Any action that could threaten the independence
    of personnel
  • for example employment offering, or
  • service offering,
  • is forbidden.

59
Acceptance and continuance of client
relationships and specific engagements
  • ISQC 1
  • The firm has to establish policies and procedures
    for the acceptance and continuance of client
    relationships and specific engagements, designed
    to provide the firm with reasonable assurance
    that it will only undertake or continue
    relationships and engagements where the firm
  • is competent to perform the engagement and has
    the capabilities, including time and resources,
    to do so
  • can comply with relevant ethical requirements
    and
  • has considered the integrity of the client, and
    does not have information that would lead it to
    conclude that the client lacks integrity.

60
Client relationships
  • ISQC 1
  • The firm has to obtain such information as it
    considers necessary in the circumstances before
    accepting an engagement with a new client, when
    deciding whether to continue an existing
    engagement, and when considering acceptance of a
    new engagement with an existing client.

61
Client relationships
  • ISQC 1
  • If issues have been identified, and the firm
    decides to accept or continue the client
    relationship or a specific engagement, the firm
    has to document how the issues were resolved.

62
Client relationships
  • ISQC 1
  • The firm has to establish policies and procedures
    on continuing an engagement and the client
    relationship, addressing the circumstances where
    the firm obtains information that would have
    caused it to decline the engagement had that
    information been available earlier. Such policies
    and procedures shall include consideration of
  • the professional and legal responsibilities that
    apply to the circumstances, including whether
    there is a requirement for the firm to report to
    the person or persons who made the appointment
    or, in some cases, to regulatory authorities and
  • the possibility of withdrawing from the
    engagement or from both the engagement and the
    client relationship.

63
Client relationships
  • ISA 220
  • The engagement partner has to
  • assure that appropriate procedures regarding the
    acceptance and continuance of client
    relationships and audit engagements have been
    followed, and
  • determine that conclusions reached in this regard
    are appropriate.

64
Client relationships
  • ISA 220
  • If the engagement partner obtains information
    that would have caused the firm to decline the
    audit engagement had that information been
    available earlier, the engagement partner has to
    communicate that information promptly to the
    firm, so that the firm and the engagement partner
    can take the necessary action.

65
Human resources
  • ISQC 1
  • The firm has to establish policies and procedures
    designed to provide it with reasonable assurance
    that it has sufficient personnel with the
    competence, capabilities, and commitment to
    ethical principles necessary to
  • perform engagements in accordance with
    professional standards and applicable legal and
    regulatory requirements and
  • enable the firm or engagement partners to issue
    reports that are appropriate in the
    circumstances.

66
Human resources
  • ISQC 1
  • Personnel issues relevant to the firms policies
    and procedures related to human resources
    include, for example
  • Recruitment
  • Performance evaluation
  • Capabilities, including time to perform
    assignments
  • Competence
  • Career development
  • Promotion
  • Compensation
  • The estimation of personnel needs

67
Human resources
  • ISQC 1

Competence is the knowledge and skills necessary
to accomplish tasks that define the individuals
job.
  • Competence can be developed through a variety of
    methods, including the following
  • Professional education
  • Continuing professional development, including
    training
  • Work experience
  • Coaching by more experienced staff, for example,
    other members of the engagement team
  • Independence education for personnel who are
    required to be independent

68
Assignment of engagement teams
  • MSR 220
  • The engagement partner has to assure that the
    engagement team, and any auditors experts who
    are not part of the engagement team, collectively
    have the appropriate competence and capabilities
    to
  • perform the audit engagement in accordance with
    professional standards and applicable legal and
    regulatory requirements and
  • enable an auditor to issue a report that is
    appropriate in the circumstances.

69
Engagement teams
  • MSR 220
  • The engagement partner may take into
    consideration such matters as the teams
  • understanding of, and practical experience with,
    audit engagements of a similar nature and
    complexity through appropriate training and
    participation
  • understanding of professional standards and legal
    and regulatory requirements
  • technical expertise, including expertise with
    relevant information technology and specialized
    areas of accounting or auditing
  • knowledge of relevant industries in which the
    client operates
  • ability to apply professional judgment
  • understanding of the firms quality control
    policies and procedures.

70
Engagement performance
  • ISQC 1
  • The firm has to establish policies and procedures
    designed to provide it with reasonable assurance
    that
  • engagements are performed in accordance with
    professional standards and applicable legal and
    regulatory requirements, and
  • the firm or the engagement partner issue reports
    that are appropriate in the circumstances.

71
Engagement performance
  • ISQC 1
  • Such policies and procedures have to include
  • matters relevant to promoting consistency in the
    quality of engagement performance
  • supervision responsibilities
  • review responsibilities.
  • The firms review responsibility policies and
    procedures have to be determined on the basis
    that work of less experienced team members is
    reviewed by more experienced engagement team
    members.

72
Engagement performance - consultation
  • ISQC 1
  • The policies and procedures of the firm have to
    assure that
  • appropriate consultation takes place on difficult
    or contentious matters
  • sufficient resources are available to enable
    appropriate consultation to take place
  • the nature and scope of, and conclusions
    resulting from, such consultations are documented
    and are agreed by both the individual seeking
    consultation and the individual consulted and
  • conclusions resulting from consultations are
    implemented.

73
Engagement performance Engagement quality
control review
  • ISQC 1
  • The firm has to establish policies and procedures
    requiring, for appropriate engagements, an
    engagement quality control review that provides
    an objective evaluation of the significant
    judgments made by the engagement team and the
    conclusions reached in formulating the report.

74
Engagement performance Engagement quality
control review
  • ISQC 1
  • Policies and procedures have to
  • 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 shall be evaluated to determine
    whether an engagement quality control review
    should be performed and
  • require an engagement quality control review for
    all engagements, if any, meeting the criteria
    established.

75
Engagement performance Engagement quality
control review
  • ISQC 1
  • The firm has to establish policies and
    procedures setting out the
  • nature,
  • timing and
  • extent
  • of an engagement quality control review. Such
    policies and procedures require that the
    engagement report not be dated until the
    completion of the engagement quality control
    review.

76
Engagement performance Engagement quality
control review
  • ISQC 1
  • The firm has to establish policies and procedures
    on documentation of the engagement quality
    control review which require documentation that
  • the procedures required by the firms policies on
    engagement quality control review have been
    performed
  • the engagement quality control review has been
    completed on or before the date of the report
    and
  • the reviewer is not aware of any unresolved
    matters that would cause the reviewer to believe
    that the significant judgments the engagement
    team made and the conclusions it reached were not
    appropriate.

77
Engagement performance Differences of opinion
  • ISQC 1
  • The firm has to establish policies and procedures
    for dealing with and resolving differences of
    opinion within the engagement team, with those
    consulted and, where applicable, between the
    engagement partner and the engagement quality
    control reviewer.
  • Conclusions reached have to be documented and
    implemented.
  • The report must not be dated until the matter is
    resolved.

78
Engagement performance Engagement documentation
  • ISQC 1
  • The firm has to establish policies and procedures
    for
  • engagement teams to complete the assembly of
    final engagement files on a timely basis after
    the engagement reports have been finalized
  • In the case of an audit such a time limit would
    ordinarily not be more than 60 days after the
    date of the auditors report.
  • the retention of engagement documentation for a
    period sufficient to meet the needs of the firm
    or as required by law or regulation.
  • In the specific case of audit engagements, the
    retention period would ordinarily be no shorter
    than five years from the date of the auditors
    report, or, if later, the date of the group
    auditors report.

79
More restrictive national requirements
Auditing Act (Article 39 (2))
  • When auditing financial statements, the audit
    company must ensure that
  • the certified auditor who signs the audit report
    on financial statements, participates in at least
    15 of total audit time
  • the total number of working hours of the
    assistants of the certified auditor with more
    than two years of audit experience account for at
    least 60 of total audit time
  • the total number of working hours of other
    persons in the audit group account for a maximum
    of 25 of total audit time.

80
National requirements Auditing Act (Article
39 (5))
  • The audit company shall store the audit
    documentation for six years following the
    completion of an audit.

81
Engagement performance
  • ISA 220
  • The engagement partner has to take responsibility
    for
  • the direction, supervision and performance of the
    audit engagement in compliance with professional
    standards and applicable legal and regulatory
    requirements
  • the auditors report being appropriate in the
    circumstances
  • reviews being performed in accordance with the
    firms review policies and procedures
  • the engagement team undertaking appropriate
    consultation on difficult or contentious matters
  • not dating the auditors report until the
    completion of the engagement quality control
    review (where applicable)
  • following the firms policies and procedures for
    dealing with and resolving differences of opinion
    within the engagement team, with those consulted
    or, where applicable, between the engagement
    partner and the engagement quality control
    reviewer.
  • determine that conclusions reached in this regard
    are appropriate.

82
National requirements Auditing Act (Article 37
(3))
  • Engagement performance consultation
  • Whenever the testing and assessment of individual
    items in the financial statements require
    professional knowledge not available to a
    certified auditor, the legal person has to, at
    the request of the audit company, obtain an
    expert opinion or appraisal from a certified
    appraiser.

83
Monitoring
ISQC 1
  • The firm has to establish a monitoring process
    designed to provide it with reasonable assurance
    that the policies and procedures relating to the
    system of quality control are relevant, adequate,
    and operating effectively.

84
Monitoring
ISQC 1
  • The monitoring process has to
  • include an ongoing consideration and evaluation
    of the firms system of quality control
    including, on a cyclical basis, inspection of at
    least one completed engagement for each
    engagement partner
  • require responsibility for the monitoring process
    to be assigned to a partner or partners or other
    persons with sufficient and appropriate
    experience and authority in the firm to assume
    that responsibility
  • require that those performing the engagement or
    the engagement quality control review are not
    involved in inspecting the engagements.

85
Monitoring
ISQC 1
  • The firm has to evaluate the effect of
    deficiencies noted as a result of the monitoring
    process and determine whether they are either
  • instances that do not necessarily indicate that
    the firms system of quality control is
    insufficient to provide it with reasonable
    assurance that it complies with professional
    standards and applicable legal and regulatory
    requirements, and that the reports issued by the
    firm or engagement partners are appropriate in
    the circumstances
  • systemic, repetitive or other significant
    deficiencies that require prompt corrective
    action.

86
Monitoring Documentation of the System of
Quality Control
ISQC 1
  • The firm has to establish policies and procedures
    requiring
  • appropriate documentation to provide evidence of
    the operation of each element of its system of
    quality control,
  • retention of documentation for a period of time
    sufficient to permit those performing monitoring
    procedures to evaluate the firms compliance with
    its system of quality control, or for a longer
    period if required by law or regulation,
  • documentation of complaints and allegations and
    the responses to them.

87
Monitoring
ISA 220
  • The engagement partner has to consider
  • the results of the firms monitoring process as
    evidenced in the latest information circulated by
    the firm and, if applicable, other network firms
    and
  • whether deficiencies noted in that information
    may affect the audit engagement.
  • A deficiency in the firms system of quality
    control does not necessarily indicate that a
    particular audit engagement was not performed in
    accordance with professional standards and
    applicable legal and regulatory requirements, or
    that the auditors report was not appropriate.

88
External quality control
  • Main objectives
  • to ensure auditors meet their obligation to
    society to provide work of the highest quality
  • to fulfill the need to sustain public confidence
    in the profession by demonstrating a concern for
    maintaining high standards of professional work
  • to avoid the adverse consequences of sub-standard
    work and loss of public confidence
  • to encourage, educate and assist members and
    member audit firms in achieving the highest
    standards of professional work, consistently
    throughout the profession.

89
Legal basis
  • Auditing Act
  • IFAC pronouncements
  • Institutes auditing rules

90
The basis for disciplinary procedure
  • Zrev-2
  • Act on general administrative procedure

91
Competence for external quality control
  • Institute Auditing Council
  • The president of the Auditing Council represents
    the Institute in the procedures to be performed
    by the Auditing Council under public
    authorization given to the Auditing Council by
    the Auditing Act.
  • Agency for the Public Oversight of Auditing
    (hereinafter Agency) Expert Council

92
Auditing Council
  • decides about the issue of licences for auditing
    firms and certified auditors
  • supervises the auditing
  • adopts the auditing rules
  • defines the criteria for obtaining the
    certificate of a certified auditor
  • performs other professional tasks related to the
    development of the auditing profession.

Meta Duhovnik, Ph.D.
2009.04.01
93
Auditing Council
  • Seven members
  • the director of the Institute
  • four members with the license of a certified
    auditor
  • two representatives of the interested public with
    appropriate knowledge and experience in the field
    of accountancy and finance.
  • Appointed for a term of four years.

Meta Duhovnik, Ph.D.
2009.04.01
94
Quality control
  • Audit companies
  • Certified auditors

Meta Duhovnik, Ph.D.
2009.04.01
95
Monitoring
  • Carried out by experts
  • authorized by the Director of the Institute and
    employed at the Institute
  • 3 certified auditors and 1 lawyer
  • authorized by the Agency.

Meta Duhovnik, Ph.D.
2009.04.01
96
Quality control Audit companies
  • verification of whether individual entities meet
    the conditions for the issue of a license to
    provide auditing services
  • Institute directly, Agency indirectly
  • continuous verification of whether certified
    auditors and audit companies meet the conditions
    for entry in the appropriate register
  • Institute directly, Agency indirectly

97
Quality control Audit companies (continuation)
  • monitoring, collection and verification of
    reports and notifications of audit companies and
    other persons that are obliged to report to or
    notify the Institute with regard to individual
    facts and circumstances in accordance with the
    provisions of Zrev-2 and other acts
  • Institute and Agency
  • examinations of the operations of audit
    companies
  • Institute and Agency
  • imposing measures of supervision in accordance
    with ZRev-2
  • Agency.

98
Quality control Audit companies
  • Examinations of the operations of audit companies
    have to be carried out
  • at least every three years for audit companies
    carrying out statutory audits of entities whose
    securities are traded on the regulated securities
    market of any Member State
  • at least every six years for other audit
    companies.

99
Quality control Audit companies
  • The supervision of an audit company includes
  • an examination of the quality control system at
    the audit company
  • verification of the independence of the certified
    auditors from the audit clients
  • verification of the compliance of auditing
    procedures with auditing rules
  • an assessment of the quality and quantity of
    factors used (composition of the auditing team
    and working hours)
  • an examination of the auditing services charged
  • direct supervision of certified auditors.

100
Quality control Certified auditors
  • Direct supervision of certified auditors is
    carried out in a way that the quality of their
    work is verified (during the supervision of the
    audit company) with an examination of the
    complete audit documentation related to the audit
    of at least one client in the period since the
    last supervision was carried out.

101
Quality control Supervisors
  • A person carrying out the supervision of audit
    companies and the tasks performed by a certified
    auditor has to
  • be a certified auditor
  • possess a high level of active knowledge of the
    Slovenian language
  • fulfill the special ethical requirements (no
    conviction of a crime against property or an
    economic crime that has yet to expunged from the
    record).
  • A supervisor has to prepare a written report on
    the examination of the quality of auditing that
    shall contain the main findings of the review.

102
Disciplinary sanctions for certified auditors
  • withdrawal of the licence
  • public warning.

103
Withdrawal of the licence
  • the license was obtained by stating false data
  • the conditions required (Article 48 of Zrev-2)
    were not fulfilled upon acquisition of the
    license
  • certified auditor has been convicted of a
    commercial or property crime
  • certified auditor holds investments in the
    client
  • certified auditor is connected with the client in
    another manner that could give rise to a doubt as
    to the independence and objectivity of auditing
  • certified auditor violates the auditing rules,
    which results in a deficient and misleading audit
    report
  • certified auditor violates the duty to protect
    confidential data
  • certified auditor repeatedly violates other
    provisions of auditing rules.

104
Conditional withdrawal of the licence
  • The Agency may provide that the withdrawal will
    not be implemented if within the time limit set
    by the Agency of no less that six months and not
    exceeding two years, the certified auditor
    refrains from committing another violation giving
    rise to the withdrawal of the license or a public
    warning.

105
Public warning
  • violation of the auditing rules
  • no grounds for withdrawal or conditional
    withdrawal of the licence.

2009.04.01
Meta Duhovnik, Ph.D.
106
Disciplinary sanctions for auditing firms
  • order for elimination of violation
  • imposition of additional measures
  • withdrawal of the licence.

107
Order for elimination of violation
  • The audit company
  • violates the prohibition connected with the
    investments
  • carries out the activities prohibited under
    Zrev-2
  • is organized as a joint-stock company but it has
    not issued registered shares
  • violates the duty of reporting and notification
  • fails to publish transparency report (if
    applicable) on its website within three months of
    the conclusion of each financial year
  • fails to meet any of the conditions for the issue
    of a license to provide auditing services
  • violates other auditing rules.

108
Imposition of additional measures
  • Serious violation of auditing rules.
  • Measures
  • the improvement of procedures of internal
    supervision of auditing
  • the improvement of procedures of internal
    supervision concerning the flow of confidential
    data
  • the change of internal structure of the auditing
    firm
  • other measures required for implementation of the
    auditing rules.

109
Withdrawal of the licence
  • the licence was obtained by stating false data
  • additional measure was imposed on the auditing
    firm, and the competent body (old or newly
    appointed) failed to eliminate the violations
    and/or to take additional measures.

110
Quality control
  • Financial resources
  • Institute
  • tariff (fee for the supervisory function)
  • Agency
  • main source state budget
  • sanctions and offences tariff

111
Reporting under Zrev-2 (Article 77)
  • An audit company has to
  • notify the Institute of all changes regarding all
    facts and circumstances, based on which it
    obtained a license to provide auditing services,
    within ten days
  • once a year until the end of May of the current
    year, report data regarding the following to the
    Institute and Agency
  • holders of the audit company's shares and the
    acquisition of or changes to qualifying holdings
  • investments based on which the audit company has
    indirectly or directly acquired a qualifying
    holding in another legal person, and any
    subsequent investments in that legal person
  • changes to the articles of association or
    memorandum of association and all other acts of
    the audit company

112
Reporting under Zrev-2 (Article 77)
  • reporting once a year (continuation)
  • changes to a cooperation agreement with another
    audit company or the conclusion of a new
    cooperation agreement with another audit company
  • the method of calculating the amount of auditor's
    liability insurance and the method of insuring
    the auditor's liability
  • employees
  • all contracts on the auditing of financial
    statements that the audit company concluded with
    clients from the previous accounting period and
    all contracts that the audit company concluded
    for other assurance engagements and agreed-upon
    procedures engagements
  • number of planned and actual hours for each
    member of the audit team for each individual
    audit of financial statements
  • number of audit reports signed by an individual
    certified auditor.

113
Reporting under Zrev-2 (Article 77)
  • The audit company is obliged to report to the
    Agency and Institute the number of audit reports
    an individual certified auditor employed or in a
    contractual relationship with the audit company
    signed in connection with audits performed of
    individual and consolidated financial statements
    and the contents of concluded contracts on the
    auditing of financial statements in the manner,
    to the extent and by deadlines defined by the
    Agency in special regulations.

114
Reporting under Zrev-2 (Article 77)
  • An audit company has to inform the Institute and
    Agency in writing about the dismissal or
    resignation of an audit company during a period
    for which it has been appointed, and
    appropriately explain the reasons for dismissal
    or resignation.
  • If requested by the Institute or Agency, an audit
    company has to submit reports and information on
    all issues relevant to supervision or to carrying
    out other competencies and tasks of the Institute
    or Agency.

115
Rules of the Auditing Council
  • Internal (more detailed) rules regarding the
    procedure of supervision.
  • Written statement regarding independence and
    objectivity of the members.

116
Auditing of the financial statements
  • Commercial sector
  • statutory audit according to the Companies Act
    and Auditing Act
  • Public sector
  • statutory audit according to the Accounting Act
    and Public Finance Act
  • internal audit according to the Public Finance
    Act
  • supervision of the Court of Audit

117
Commercial Sector
The Accounting Profession
  • Statutory audit
  • large and medium-sized companies
  • dual companies
  • small listed companies
  • companies obliged to draw up consolidated
    financial statements
  • banks
  • insurance companies

118
Public Sector
The Accounting Profession
  • Audit under the Accounting Act
  • mandatory for large legal entities that provide
    public services
  • possible (ministers or mayors requirement)
  • for the financial statements of the legal
    entities with at least 15 state or municipality
    ownership
  • Internal audit under the Public Finance Act
  • mandatory for all direct and indirect Budget
    users

119
The Auditing Profession
  • The period 1996 - 2001
  • the first Slovenian Auditing Act
  • the Institute is responsible for the monitoring
    of statutory audits
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