1. AUDIT QUALITY REGULATORY FOCUS AREAS
Andrew Hoffmann, Noemi Cohn, Mohammed Yaqoob
Audit Forum, Barcelona October 2014

2. Introduction Roles in audit quality - Partner lead
Quality and adequacy of audit evidence -regulator hot spots
Results of Nexia peer reviews – improving our quality

3. Focus on Audit Quality
Video

4. Roles in Audit Quality
Audit quality improvements through a Partner lead approach.
The role of culture and accountability .
The Partner needs to be accountable.
Firm focus – communication on quality is regular and is a consistent Partner/staff agenda item.
Resourcing – senior resources to promote quality are funded and promoted (smaller firms can consider external arrangements for relevant resources).

5. Roles in Audit Quality The role of experience and expertise
Training – Partners run training or knowledge sharing sessions with staff (share experiences).
Training - focus on relevant levels of seniority.
Resourcing – all staff have access to standards etc. Encourage centres of excellence.
Time – prepare a time budget and have it approved (by a Partner).
Remediation – adopt a root cause analysis of why there are quality issues.

6. Roles in Audit Quality The role of supervision and review
Focus – make sure time for Partner review is included.
Focus – allow for hot reviews by someone external to the engagement.
Tools – an agreed format for reviewing files.
Skills – training is provided to all staff on:
Effective supervison techniques
How to undertake a critical review of work.
How to review and assess reports of experts or specialists
How to assess management’s use of accounting policies, key areas of estimation and judgement.

7. Quality and Adequacy of
Audit Evidence
Noemi Cohn

8. Quality and adequacy of Audit Evidence
Impairment
Going Concern
Work of Experts
Sampling
Journal Entries Test
Completion of Audit Files
Practical Tips

9. Quality and adequacy of Audit Evidence
Impairment
(Technical matters covered in a later audit forum session).
Importance of documentation related to:
Identification of assets subject to impairment test
Appropriateness of the methodology applied and assumptions used
Review of proper disclosure in the Financial Statements related to impairment matters

10. Quality and adequacy of Audit Evidence
Going Concern
Documentation of the audit work performed and the basis for conclusions regarding the going concern assumption.
Document the auditor’s assessment of the reasonableness of cash flow forecasts and underlying assumptions supporting going concern
Evidence of professional scepticism – challenging management’s representations

11. Quality and adequacy of Audit Evidence
Use of work of expert
Work of experts should be used satisfying all the requirements of ISAs
Where reliance has been placed on the use of an expert, consideration should be given to their qualifications and independence from the client
review the terms of reference with the expert and consider whether they were appropriate
The appropriateness of assumptions used by the expert should be reviewed and referenced to other evidence

12. Quality and adequacy of Audit Evidence
Sampling
The following documents have to be considered in respect of sampling:
Explanation on how the sample size was determined;
Discussion about the nature and composition of the population, including number of items and total value;
Discussion of the method of selection of the sample;
Indication as to what percentage of the population was included in the sample with reference to the number of items or value; and
Explanation why items over X were included in the sample

13. Quality and adequacy of Audit Evidence General Journal Testing
Documentation regarding the review of general journal entries, and discussion in the audit plan regarding the nature, timing and extent of journal testing.
ISAs require the auditor to test the appropriateness of journal entries and other adjustments irrespective of the auditor’s assessment of the risk of management override of controls.
Audit procedures should be performed and documented to consider the appropriateness of general journal entries throughout the reporting period and at year end.

14. Quality and adequacy of Audit Evidence Completion of Audit Files
Permanent, current year and correspondence files, appropriate index and section dividers
Planning – KYC, risk assessment, audit approach, planned testing, Audit Planning Memo – APM - (record of meetings (client, audit team) and approval by engagement partner), Engagement Quality Control Review – EQCR -
Work conducted – link to planning, all working papers to record objectives, methodology/sampling, detailed results of detailed tests and conclusions
Review & completion – Audit Completion Memo – ACM - , supervisor, manager, partner reviews, EQCR
File lockdown within 60 days or terms determined by applicable regulation

15. Practical Tips
How to improve quality without adding significant additional costs
QCR Questionary: Applicable Tool for auto-test

16. Results of peer reviews
Areas to Improve
Mohammed Yaqoob

17. Result of peer reviews
The following QCRs have been completed during the 8 months to June 2014:
2 advanced FSR QCRs – 1 now being mentored
4 pre-admittance FSR QCRs – all satisfactory
6 routine FSRs QCRs – all satisfactory but with some improvements required
2 pre-admittance LSRs QCRs – all satisfactory
4 routine LSR QCRs – all satisfactory but 2 did have some recommendations

18. Result of peer reviews The most occurring issues were as follows:
Documentation lapses (41/66 = 62%); 8 significant lapses, 3 planning meeting, 3 independence, 3 communications with those charged with governance, 3 related parties, 3 going concern reviews
QC lapses (11/66 = 17%); 5 whole firm/cold file reviews, 3 EQCR
Annual survey not completed (4/66 = 6%)

19. Result of peer reviews
The mentoring methodology was implemented in 2012.
7 members firms are being mentored at present.
The Committee has completed it’s detailed review of the mentoring methodology and decided that based on experience during 2014 the process had worked well and there was no need at present to make any changes.

20. Completion of audit files
In some instances:
audit files have not been locked down within 60 days as required by ISAs
work papers and completion programs were completed after the date of the audit report.
There is a risk that some audit procedures may not have been performed prior to the date of the audit opinion.
Firms to lockdown all audit files within 60 days after the audit Partner has signed the audit report.
Planning is the key to an effective and efficient audit

21. © 2014 Nexia International Limited. All rights reserved
© 2014 Nexia International Limited. All rights reserved. The trade marks NEXIA INTERNATIONAL, NEXIA and the NEXIA logo are owned by Nexia International Limited. Nexia International and its member firms are not part of a worldwide partnership. Member firms of Nexia International are independently owned and operated. Nexia International does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its members.