We are a Dallas, Texas CPA firm specializing in audit, review, compilation, and agreed upon procedures services for Texas businesses in a wide range of industries and sizes.
".25 The auditor should include in the audit documentation the following:(Ref: par. .A35)
Issues identified with respect to compliance with relevant ethical requirements and how they were resolved
Conclusions on compliance with independence requirements that apply to the audit engagement and any relevant discussions with the firm that support these conclusions
Conclusions reached regarding the acceptance and continuance of client relationships and audit engagements
The nature and scope of, and conclusions resulting from, consultations undertaken during the course of the audit engagement (Ref:par. .A36)
.26 The engagement quality control reviewer should document, for the audit engagement reviewed
that the procedures required by the firm's policies on engagement quality control review have been performed;
the date that the engagement quality control review was completed; and
that the reviewer is not aware of any unresolved matters that would cause the reviewer to believe that the significant judgments that the engagement team made and the conclusions it reached were not appropriate"
AU-C Section 230 addresses the auditor's responsibility to prepare audit documentation for an audit of financial statements. Section 230 also states that it is neither necessary nor practicable for the auditor to document every matter considered, or professional judgment made, in an audit.
Documentation of consultations with other professionals involving difficult or contentious matters that is sufficiently complete and detailed contributes to an understanding of
the issue on which consultation was sought and
the results of the consultation, including any decisions made, thebasis for those decisions, and how they were implemented.
"An effective system of quality control includes a monitoring process designed to provide the firm with reasonable assurance that its policies and procedures relating to the system of quality control are relevant, adequate, and operating effectively. The engagement partner should consider
the results of the firm's monitoring process as evidenced in the latest information circulated to the engagement partner by the firm and, if applicable, other network firms and
whether deficiencies noted in that information may affect the audit engagement. (Ref: par. .A32–.A34)"
QC section 10 requires the firm 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.
In considering deficiencies that may affect the audit engagement, the engagement partner may consider measures the firm took to rectify the situation that the engagement partner considers sufficient in the context of that audit.
A deficiency in the firm's 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 auditor's report was not appropriate.
.21 For those audit engagements, if any, for which the firm has determined that an engagement quality control review is required, the engagement partner should
determine that an engagement quality control reviewer has been appointed;
discuss significant findings or issues arising during the audit engagement, including those identified during the engagement quality control review, with the engagement quality control re-viewer; and
not release the auditor's report until the completion of the engagement quality control review. (Ref: par. .A23–.A25)
.22 The engagement quality control reviewer should perform an objective evaluation of the significant judgments made by the engagement team and the conclusions reached in formulating the auditor's report. This evaluation should involve
discussion of significant findings or issues with the engagement partner;
reading the financial statements and the proposed auditor's report;
review of selected audit documentation relating to the significant judgments the engagement team made and the related conclusions it reached; and
evaluation of the conclusions reached in formulating the auditor's report and consideration of whether the proposed auditor's report is appropriate. (Ref: par. .A26–.A31)
Differences of Opinion
.23 If differences of opinion arise within the engagement team; with those consulted; or, when applicable, between the engagement partner and the engagement quality control reviewer, the engagement team should follow the firm's policies and procedures for resolving differences of opinion."
An engagement quality control review is a process designed to provide an objective evaluation, before the report is released, of the significant judgments the engagement team made and the
conclusions it reached in formulating the auditor's report. The engagement quality control review process is only for those audit engagements, if any, for which the firm has determined that
an engagement quality control review is required, in accordance with its policies and procedures.
An engagement quality control reviewer is a partner, other person in the firm, suitably qualified external person, or 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 that the engagement team made and the conclusions it reached in formulating the auditor's
report.
An engagement quality control review should be conducted in a timely manner at appropriate stages during the engagement so that significant findings or issues can be promptly resolved to the engagement quality control reviewer's satisfaction.
Documentation of the engagement quality control review may be completed after the
report release date as part of the assembly of the final audit file, as required in AU-C Section 230. However, when the engagement quality control review is completed after the auditor's report is dated and identifies instances where additional procedures or additional evidence is necessary, the date of the report should be changed to the date when the additional procedures have been satisfactorily completed or the additional evidence has been obtained, as required by AU-C Section 700.
The engagement partner should be alert for changes in circumstances in which an engagement quality control review is necessary, even though at the start of the engagement such a review was not required. The extent of the engagement quality control review may depend, among other things, on the complexity of the audit engagement and the risk that the auditor's report might not be appropriate in the circumstances. The performance of an engagement quality control review does not reduce the responsibilities of the engagement partner for the audit engagement and its performance.
Matters that may be considered in an engagement quality control review include the following:
Significant risks identified during the engagement in accordance with AU-C Section 315 and the responses to those risks in accordance with AU-C Section 330, including the engagement team's assessment of, and response to, the risk of fraud in accordance with AU-C Section 240
Judgments made with respect to materiality and significant risks
The significance and disposition of corrected and uncorrected misstatements identified during the audit
The matters to be communicated to management and those charged with governance and,when applicable, other parties, such as regulatory bodies
The engagement quality control reviewer may also consider the following:
The evaluation of the firm's independence with regard to the audit engagement
Whether appropriate consultation has taken place on matters involving differences of opinion or other difficult or contentious matters and the related conclusions arising from those consultations
Whether audit documentation selected for review reflects the work performed regarding the significant judgments and supports the conclusions reached
take responsibility for the engagement team undertaking appropriate consultation on difficult or contentious matters;
be satisfied that members of the engagement team have under-taken appropriate consultation during the course of the engagement, both within the engagement team and between the engagement team and others at the appropriate level within or outside the firm;
be satisfied that the nature and scope of such consultations are agreed with, and conclusions resulting from such consultations are understood by, the party consulted; and
determine that conclusions resulting from such consultations have been implemented. (Ref: par. .A20–.A22)"
Members of the engagement team have a responsibility to bring to the attention of appropriate personnel matters that, in their professional judgment, are difficult or contentious and may require consultation.
Effective consultation on significant technical, ethical, and other matters within the firm or, when applicable, outside the firm can be achieved when those consulted
are given all the relevant facts that will enable them to provide informed advice and
have appropriate knowledge, authority, and experience.
The engagement team may consult outside the firm (for example, when the firm lacks appropriate internal resources).The engagement team may take advantage of advisory services provided by other firms, professional and regulatory bodies, or commercial organizations that provide relevant quality
control services.
"The engagement partner should take responsibility for the following:
The direction, supervision, and performance of the audit engagement in compliance with professional standards, applicable legal and regulatory requirements, and the firm's policies and procedures (Ref: par. .A12–.A14 and .A19)
The auditor's report being appropriate in the circumstances"
The engagement partner should inform the engagement team about their responsibilities to comply with relevant ethical requirements and plan and perform the audit with professional skepticism, as required by AU-C Section 200.
A discussion with the engagement team should involve:
The objectives of the work to be performed
The nature of the entity's business
Risk-related issues
Problems that may arise
The detailed approach to the performance of the engagement
Supervision of the engagement team should include the following:
Tracking the progress of the audit engagement
Considering the competence and capabilities of individual members of the engagement team
Addressing significant findings or issues arising during the audit engagement
Identifying matters for consultation or consideration by qualified engagement team members during the audit engagement
".16 The engagement partner should be satisfied that the engagement team and any auditor's external specialists, 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's report that is appropriate in the circumstances to be issued. (Ref: par. .A9–.A11)"
The engagement partner has a responsibility to ensure that the engagement team members are competent and experienced enough to perform the audit engagement and issue an appropriate audit report.
In order to determine whether he has selected the appropriate engagement team, the engagement partner should make sure the engagement team has
understanding of, and practical experience with, audit engagements of a similar nature and complexity through appropriate training and participation.
understanding of professional standards and applicable legal and regulatory requirements.
technical expertise, including expertise with relevant IT and specialized areas of accounting or auditing.
knowledge of relevant industries in which the entity operates.
ability to apply professional judgment.
understanding of the firm's quality control policies and procedures.
".18 The engagement partner should take responsibility for reviews being performed in accordance with the firm's review policies and procedures. (Ref: par. .A15–.A16 and .A19) .19 On or before the date of the auditor's report, the engagement partner should, through a review of the audit documentation and discussion with the engagement team, be satisfied that sufficient appropriate audit evidence has been obtained to support the conclusions reached and for the auditor's report to be issued. (Ref: par. .A17–.A19)"
QC Section 10 recommends that suitably experienced team members review the work of other team members. As such, the engagement partner may delegate part of the review responsibility to other members of the engagement team.
A review consists of consideration of whether, for example
the work has been performed in accordance with professional standards and applicable legal and regulatory requirements;
significant findings or issues have been raised for further consideration;
appropriate consultations have taken place and the resulting conclusions have been documented and implemented;
the nature, timing, and extent of the work performed is appropriate and without need for revision;
the work performed supports the conclusions reached and is appropriately documented;
the evidence obtained is sufficient and appropriate to support the auditor's report; and
the objectives of the engagement procedures have been achieved.
Timely reviews by the engagement partner should the following items are appropriately addressed:
Critical areas of judgment
Significant risks
Other areas that the engagement partner considers important
The engagement partner need not review all audit documentation; however, he must document
the extent and timing of the reviews as required by AU-C Section 230.
An engagement partner taking over an audit during the engagement may review the work performed to the date of the change in order to assume the responsibilities of an engagement partner.
These direction, supervision, and review responsibilities are also required when the engagement team includes a member with expertise in a specialized area of accounting or auditing. For example the engagement partner might
Agree with that member upon the nature, scope, and objectives of that member's work and the respective roles of, and the nature, timing, and extent of communication between, that member and other members of the engagement team
Evaluate the adequacy of that member's work, including the relevance and reasonableness of that member's findings or conclusions and the consistency of those findings or conclusions with other audit evidence
