Compliance with Framework of Quality Control - General & Specific Controls CA Vimal Chopra, Ex Chairman of CIRC of ICAI

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.

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

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

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

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

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

Question 2 Tasks Is it designed to ensure compliance with Technical Standards and maintenance of quality attestation work? Review of general controls: Independence Maintenance of Professional skills and Outside consultation Staff supervision and development Office administration

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

Compliance Review of General Controls

Independence Independence policies and procedures Communication thereof Designation of Independence Officer Monitoring independence

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Concluding Observations

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

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

Thanks