IAASB Quality Control Project

Transcription

1 IAASB Quality Control Project Karin French, IAASB Member ASB Meeting July 19,

2 BACKGROUND OF QC PROJECT Concerns noted from Results from ISA Implementation project Respondent comments on public consultation for IAASB Work Plan Regulators and audit oversight bodies Concerns led to identification of four priority projects professional skepticism quality control group audits special considerations in audits of financial statements of financial institutions (which evolved into ISA 540 Estimates project) 2

3 BACKGROUND OF QC PROJECT Three working groups established in fall of 2014 to focus on identifying issues and performing outreach Resulted in Invitation to Comment - Enhancing Audit Quality in the Public Interest: A Focus on Professional Skepticism, Quality Control and Group Audits Issued December 2015 with a 150-day comment period Identified concerns and challenges Proposed quality management approach to ISQC 1 Received 87 comment letters from a broad range of stakeholders 3

4 OUR INVITATION TO COMMENT THEMES FROM OUTREACH Strong calls for the IAASB to maintain a principles-based approach to its standards, but also to sharpen their focus and provide increased clarity on how to apply them to different and evolving circumstances Support for the current standards (including ISQC 1) as a sound starting point for consideration of future enhancements, including strengthening certain important elements More practical guidance is also needed calls for more examples of what good looks like Not necessarily in the ISAs, but may be Staff guidance or other solutions Reinforce importance of understanding the business and operational drivers as foundational to performing quality audits Consider the impact of culture on the standards and on how they can and should be applied 4

5 QUALITY CONTROL CHALLENGES IDENTIFIED IN ITC ISQC 1 Direct leadership responsibility and accountability for quality Engagement performance matters Understanding causal factors of findings from internal and external inspections and monitoring the effectiveness of remedial actions Extant standard viewed as "one size fits all" and not easily scalable EQC review requirements 5

6 OUR INVITATION TO COMMENT - THEMES ON QUALITY CONTROL Support for emphasizing importance of tone at the top and leadership responsibilities and accountability Driven down through the firm importance of tone at the middle also highlighted Support for updating ISQC 1 to incorporate and emphasize the importance of and need for monitoring / remediation / root cause analysis / expectation of continuous improvement mindset Ongoing support for the importance of EQCR a key quality control measure But keep balance and perspective relative to engagement partner who is ultimately responsible for quality 6

7 OUR INVITATION TO COMMENT - THEMES ON QUALITY CONTROL Support for looking at emphasizing and strengthening role of engagement partner (will also help in group audits) Including in situations where the engagement partner is not located where the majority of the work is performed Mixed views on whether the IAASB should establish requirements for transparency reporting; however, calls from some to continue exploring the topic, including possible use of audit quality indicators 7

8 OUR INVITATION TO COMMENT - THEMES ON QUALITY CONTROL General support for incorporating a QMA in revising ISQC 1 However, not enough understanding yet as to what this may entail and some reservations about extent of change that may be required agreed that would enhance scalability, in particular for firms that may not perform audits or audits of listed entities robustness of ISQC 1 cannot be lost in restructuring the standard board encouraged to consider how QMA could be developed at engagement level 8

9 MAKING PROGRESS Project Plan developed for Quality Control and Group Audits, approved by board in December 2016 Task Force working through issues, proposing recommendations to board, performing outreach Goal of issuing EDs in December

10 QUALITY MANAGEMENT APPROACH (QMA) 10

11 ISQC 1 Components of ISQC 1 and Terminology Quality Management Components Principles or requirements: Governance and leadership, including organization, culture and strategy Information, communication and documentation Quality management process (QMP) QMP Requirements for firms to: Establish quality objectives Identify and assess quality risks Design and implement responses to quality risks Monitor and remediate Prescribed quality objectives, risks and responses Addressing the elements in extant ISQC 1 that are common to all firms. Firm still needs to identify: More granular quality objectives More granular quality risks or additional quality risks and responses 11

12 QUALITY MANAGEMENT PROCESS Establish Objectives Perform Quality Risk Assessment Design and Implement Response to Quality Risks 12

13 MONITORING Monitoring and Remediation: The Monitoring Process Inspection of completed engagement Extant Monitoring the firm s quality control policy and procedures (paragraphs 48 and A64-A68) Responsibility for monitoring assigned Objectivity requirements M O N I T O R I N G Working Draft Establish monitoring and remediation process (para. 38) Design and perform monitoring activities that address the components of the system of quality management (para. 39) Scope and frequency Inspection of completed engagements Operational responsibility for monitoring Experience, knowledge, capacity, objectivity 13

14 REMEDIATION Monitoring and Remediation: The Remediation Process Extant Communicate findings & recommendations (para. 50) Remedial actionfile or person Communication to training Deficiencies from monitoring Evaluate effect (i.e., systemic or repetitive or significant deficiencies) (para. 49) Change the QC policy & procedure Immediate action (paragraph 52) Disciplinary action R E M E D I A T I O N Communication Monitoring activities Working Draft External inspection Identify deficiencies firm SOQM Immediate action (para. 44) Cause (para. 45) Effect (para. 46) Remedial action (para. 47) Are remedial actions working? Other sources 14

15 ENGAGEMENT QUALITY CONTROL REVIEWS Enhancing requirements and application material related to Engagements subject to review Criteria for eligibility of reviewer Execution of the review Documentation of the review In June 2017, Board approved the development of a separate firm-level EQCR standard 15

16 OTHER TOPICS TO BE DISCUSSED WITH BOARD Engagement partner performance and rewards, competency and human resources Documentation Transparency reporting Networks 16

17 NEXT STEPS Working draft of ISQC 1 and accompanying power point presentation to be used as outreach tools Meeting with Forum of Firms, GPPC in the fall Continuing outreach with SMPs through SMP correspondent task force member and other outreach opportunities Roundtables and other events planned in

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