INTEGRATED CPA REVIEW – AUDITING J. RAMIREZ, JD c.

QUALITY CONTROL SYSTEM

Quality Control to Provide Audit, Review and other Assurance Engagements

The firm should establish a system of quality control which consist of policies designed to provide
it with reasonable assurance that the firm and its personnel comply with professional standards and
regulatory and legal requirements, and that reports issued by the firm or engagement partners are
appropriate in the circumstances and the procedures necessary to implement and monitor compliance
with those policies. The quality control policies and procedures should be documented and
communicated to the firm’s personnel.

Elements of Quality Control

a. Leadership responsibilities for quality within the firm

b. Ethical requirements
c. Acceptance and continuance of client relationships and specific engagements
d. Human resources
e. Engagement performance
f. Monitoring

a. Leadership responsibilities for quality within the firm

1. The firm should establish policies and procedures designed to promote an internal culture based
on the recognition that quality is essential in performing engagements. Such policies and
procedures should require the firm’s chief executive officer (or equivalent) or, if appropriate, the
firm’s managing board of partners (or equivalent), to assume ultimate responsibility for the firm’s
system of quality control.
2. Any person or persons assigned operational responsibility for the firm’s quality control system by
the firm’s chief executive officer or managing board of partners should have sufficient and
appropriate experience and ability, and the necessary authority, to assume that responsibility.

b. Ethical Requirements

1. The firm should establish policies and procedures designed to provide it with reasonable assurance
that the firm and its personnel comply with relevant ethical requirements.
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Independence
1. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the firm, its personnel and, where applicable, others subject to independence
requirements (including experts contracted by the firm and network firm personnel), maintain
independence where required by the Philippine Code. Such policies and procedures should
enable the firm to:
a. Communicate its independence requirements to its personnel and, where applicable, others
subject to them; and
b. 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.

c. Acceptance and Continuance of Client Relationships and Specific Engagements

1. The firm should establish policies and procedures for the acceptance and continuance of client
relationships and specific engagements, designed to provide it with reasonable assurance that it
will only undertake or continue relationships and engagements where it:
a. Has considered the integrity of the client and does not have the information that would lead
it to conclude that the client lacks integrity;
b. Is competent to perform the engagement and has the capabilities, time and resources to do
so; and
c. Can comply with ethical requirements

d. Human Resources

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

Such policies and procedures address the following personal issues:

1. Recruitment;
2. Performance evaluation;
3. Capabilities;
4. Competence;
5. Career development;
6. Promotion;
7. Compensation; and
8. The estimation of personnel needs

e. Engagement Performance

1. The firm should establish policies and procedures designed to provide it with reasonable
assurance that engagements are performed in accordance with professional standards and
regulatory and legal requirements, and that the firm or the engagement partner issue reports that
are appropriate in the circumstances.
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f. Monitoring

1. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the policies and procedures relating to the system of quality control are relevant,
adequate, operating effectively and complied with its practice. Such policies and procedures
should include an ongoing consideration and evaluation of the firm’s system of quality control,
including a periodic inspection of a selection of completed engagements.

2. The purpose of monitoring compliance with quality control policies and procedures is to provide
an evaluation of:
a. Adherence to professional standards and regulatory and legal requirements;
b. Whether the quality control system has been appropriately designed and effectively
implemented; and
c. Whether the firm’s quality control policies and procedures have been appropriately applied,
so that reports that are issued by the firm or engagement partners are appropriate in the
circumstances.

Engagement Quality Control Review

An engagement quality control review ordinarily involves discussion with the engagement partner,
a review of the financial statements or other subject matter information and the report, and, in
particular, consideration of whether the report is appropriate. It also involves a review of selected
working papers relating to the significant judgments the engagement team made and the conclusions
they reached. The extent of the review depends on the complexity of the engagement and the risk
that the report might not be appropriate in the circumstances. The review does not reduce the
responsibilities of the engagement partner.

An engagement quality control review for audits of financial statements of listed entities includes
considering the following:
a. The engagement team’s evaluation of the firm’s independence in relation to the specific
engagement
b. Significant risks identified during the engagement and the responses to those risks
c. Judgments made, particularly with respect to materiality and significant risks
d. Whether appropriate consultation has taken place on matters involving differences of opinion or
other difficult or contentious matters, and the conclusions arising from those consultations
e. The significance and disposition of corrected and uncorrected misstatements identified during
the engagement
f. The matters to be communicated to management and those charged with governance and,
where applicable, other parties such as regulatory bodies
g. Whether working papers selected for review reflect the work performed in relation to the
significant judgments and support the conclusions reached.
h. The appropriateness of the report to be issued.

The firm’s policies and procedures are designed to maintain the objectivity of the engagement
quality
control reviewer. For example, the engagement quality control reviewer:
a. Is not selected by the engagement partner;
b. Does not otherwise participate in the engagement during the period of review;
c. Does not make decisions for the engagement team;
d. Is not subject to other consideration that would threaten the reviewer’s objectivity
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Complaints and Allegation

The firm should establish policies and procedures designed to provide it with reasonable at it
deals appropriately with
a. Complaints and allegations that the work performed by the firm fails to comply with
professional standards and regulatory and legal requirements , and
b. Allegations of non-compliance with the firm’s system of quality control.

Documentation

The firm should establish policies and procedures requiring appropriate documentation to provide
evidence of the operation of each element of its system of quality control.

Factors to consider when determining the form and content of documentation evidencing the operation
of each of the elements of the system of quality control include the following:
a. The size of the firm and the number of offices.
b. The degree of authority both personnel and offices have.
c. The nature and complexity of the firm’s practice and organization.