Quality Control Reviews (QCRs) [April 2012]

Quality Control Reviews (QCRs) Welcome The Nexia International Audit Committee The quality control programme Planning the review Introduction to the reviewer’s pack Reviewing the firm’s procedures Reviewing the audit files Feedback and recommendations Finalising the report What happens next?

The Nexia International Audit Committee Who are they? What do they do? How do quality control reviewers interact with the Committee?

Nexia International Audit Committee – who are they? Chairman – Felix Lozano (N&CA) Deputy chairman – Michel Girbes (EMEA) Jojo Alveido (AP) Horacio Brihet (S) George Dakis (AP) Bill Drimel (N&CA) Christian Fuchs (EMEA) Yvonne Lang (EMEA) Steven Schenkel (N&CA)

Responsibilities of the Audit Committee Quality control programme Annual Audit Quality Confirmation survey Information for members Independence requirements - NIMo Annual Audit Forum Forum of firms/ TAC

Interaction of quality control reviewers and the audit committee Here to help each other Audit Committee produces reviewers packs Keep us informed through the Audit Director Completed reports are considered by the Committee

The QCR programme Purpose Frequency of reviews

Purpose of the QCR programme Protect our reputation Confidence amongst members Consider new members Opportunity for members to develop and learn from each other

Frequency of reviews FSRs at least every 3 years LSRs at least every 6 years Advanced QCR when recommended from previous QCR Pre-admittance FSR QCRs for potential new members

The reviewer’s pack – an introduction Guide through the process Combines review and reporting in one place Suggestions for improvements are always welcome

Planning the review Initial contact with firm Who pays what? –Time –Travel –Accommodation & meals –Budget

Initial contact with firm Audit Director/Reviewer/Regional Chairman or QC Representative Some guidance as to what to expect Reviewer liaises with key contact at firm as to logistics of review

Who pays for what - time 50% of ‘standard’ charge out rate Paid through audit committee budget – bill to Nexia International Include –Time spent on review –Time completing report –Time answering any questions from the Audit Director/ Audit Committee Do not include –Travel time MUST bill promptly (at least within 3 months of review)

Who pays for what - travel MUST be booked through Corporate Traveller unless agreed in advance with Audit Director/ Executive Air fares – economy class for upto 4 hours; business class in excess of 4 hours

Who pays for what – accommodation & meals Should be arranged by firm subject to review Paid for by the firm subject to review If you pay – bill to Nexia and it will be recharged

The reviewer’s pack Combines: –Reporting –Recommendations –Work programme

Section D – Details of review Hopefully self-explanatory

Section E – Background information Organisation structure Partner profile –Succession issues –‘Sleeping’ partners Staff profile –Sufficient –Suitably qualified and experienced Sub-contractors and consultants –How are these controlled –Checking of qualifications, independence etc.

Background information Clients Profile –High dependence on one client –Small number in specialist sector –One or two listed companies –Public Interest Entities –Other regulated clients

Background information Recent regulatory/other reviews Outcome –Any matters requiring specific follow up –Extent of reliance

Background information Audit documentation In house developed Predecessor firms Maintenance IFAC Audit Guide

Section F – ISQC1 Compliance Firm-wide procedures The importance of ‘tone at the top’ ISQC 1 IFAC Quality Guide Consideration of ‘no’ answers –Acceptable for size of firm now –What about the future?

Reviewing the audit files Selecting the sample Dealing with groups Detail of review Recording questions and findings Discussion with audit partner

Selecting a sample Smaller firms –One file per audit partner minimum Larger firms –Cross-section Partners Industries Consider international work Maximum sample ordinarily should be 5 Any questions please ask the Audit Director

Dealing with groups Do not have to do the whole group! Consolidation Significant subsidiary

Approach to review Discuss audit with partner/manager Financial statements Planning Fieldwork Completion

Considerations Does the work reflect what was planned? Is it clear what work was done? Is it clear how conclusions were reached? Do we agree with the conclusions reached?

Detail of review Matters requiring clarification –Notes –Discuss with partner/manager Complete programme Record any explanatory comments

Feedback and recommendations Closing meeting Grading the recommendations Key considerations

Closing meeting Important part of process Discuss findings and recommendations No surprises! Explain what will happen with report Document meeting in reporting pack

Recommendations - grading A – require immediate attention B – attention in near future C – require attention as practice grows or environment develops

Key considerations Summary for Audit Committee Include any matters you think are important for the Audit Committee to consider

Finalising the report Agreeing it with the firm –Send in draft –Suggest give them a deadline to respond Sending it to Audit Director –Review Further questions

What happens next? Consideration by the Audit Committee –Audit Director circulates –Highlights any matters of concern Further questions Audit Director finalises QCR report and completion letter, send PDF copies to firm Summary provided in the Committee’s report to every Board meeting, including highlighting problems firms

Quality Control Reviews [April 2012]