The global body for professional accountants

COMMON DEFICIENCIES ON ISQC 1 AND ISA

COMPLIANCE

The global body for professional accountants

AGENDA

• ISQC 1 (firm-wide policies and procedures)

• ISA (audit file reviews)

1. Planning an audit

2. Documentation

3. Audit evidence

4. Going concern

5. Control and review

The global body for professional accountants

Common deficiencies on ISQC1 compliance

1. Leadership responsibility

Policies / procedures not reviewed and documented

Staff not confirming have read and understood

2. Independence and ethical requirements

Independence declarations from staff not obtained Register of identified threats and safeguards not maintained

(Specific common issues covered in third part)

The global body for professional accountants

Common deficiencies on ISQC1 compliance (CONTINUED)

3. Client acceptance and continuanceNo integrity checks including client identificationProcedures not documentedProfessional clearance not obtainedEngagement letter not issued

4. Human ResourcesReferences not obtained for new staffFit and proper declarations not obtainedInsufficient training on ISA/IFRS and record keepingStaff appraisals not done or informal

The global body for professional accountants

Common deficiencies on ISQC1 compliance

5. Engagement performance

Audit methodology not effectiveLack of supervision and controlLack of policy on second partner review (QRP)

6. Monitoring

No on-going review of policies and proceduresNo cold file reviews

The global body for professional accountants

Common deficiencies on ISA compliance

Planning

• Documenting the understanding of business

• No risk assessment - Identifying risks from:- understanding of the business- compliance with laws and regulations - consideration of fraud and error- preliminary analytical review

• Key audit areas based on risk assessment not identified

• Audit approach not identified

• Design of audit procedures - audit programme not used or suitably tailored (use of pre-clarity programs)

• Overall and/or performance materiality not calculated

• Sampling basis and selection for audit tests not determined

The global body for professional accountants

Common deficiencies on ISA compliance

Documentation

• No audit work recorded (We only recognise work recorded on file)

• Basis of sample size and selection not recorded

• Insufficient record of nature and extent of audit work – source of audit evidence and samples tested not recorded

• No summary and evaluation of the results of audit tests to support the conclusion

The global body for professional accountants

Common deficiencies on ISA compliance

Deficiencies in audit evidence

• Existence of plant and equipment not verified

• Ownership of property and motor vehicles not verified (especially those brought forward from prior years)

• Valuation of property (shown at valuation) not assessed

• Ownership and valuation of investments, including group companies.

• Inventory -Physical count not attended -No tests on cost and net realisable value -No consideration of stock obsolescence

The global body for professional accountants

Common deficiencies on ISA compliance

Deficiencies in audit evidence (continued)

• Recoverability of receivables not tested

• No bank letter / bank reconciliations not verified

• Completeness of payables not tested

• Validity of related party balances not tested. Recoverability of debit balances of related parties (including directors and shareholders) not tested

• Completeness of income for understatement not tested

The global body for professional accountants

Common deficiencies on ISA compliance

Deficiencies in audit evidence (continued)

• No analytical review on completion

• No subsequent events review

• No going concern review

• No review of financial statements for adequate disclosures

• No management representation letter

• No evidence of communication with client (either pre-audit communication – ISA 260 or communication of deficiencies – ISA 265)

The global body for professional accountants

Common deficiencies on ISA compliance

Deficiencies in audit evidence (continued)

• Audit Reports, format and modification

The global body for professional accountants

Common deficiencies on ISA compliance

Going concern review

• Need to document whether agrees or disagrees with the going concern assumption

• If disagrees, then a qualified audit opinion or adverse opinion issued depending on circumstances

• If agrees but there is uncertainty, need to ensure that this uncertainty is properly disclosed in the notes of the financial statements

• Disclosure note should include a description of the uncertainty and management plans as to how going concern will be ensured

The global body for professional accountants

Common deficiencies on ISA compliance

Going concern review (continued)

• If management plans include shareholders providing financial support, firm must obtain written statement from shareholders and assess their ability to provide such financial support.

• Evaluation of management plans should be documented and if adequate, can issue an unmodified audit report but with emphasis of matter. If it these plans not achievable, should consider issuing a qualified audit opinion or an adverse opinion.

• Emphasis of matter paragraph should include a short description of the uncertainty and make reference to the relevant note in the financial statements.

The global body for professional accountants

Common deficiencies on ISA compliance

Control and review

• Staff not always aware of reasoning behind tests and how to document

• No evidence of engagement partner supervision

• No evidence of engagement partner review

The global body for professional accountants

ANY QUESTIONS?

The global body for professional accountants

THANK YOU