QUALITY CONTROL

(AUDIT QUALITY)
TOPIC 2A
 Learning Objectives
◦To understand the elements of audit quality based on ISQC 1
and ISA 220
◦To understand the importance of quality control to auditors
 Audit Quality
◦ Quality Controls –a system that relates to the concept of professional competence and the meeting of
professional standards (technical and ethical) in providing professional services, so that audit
failure and audit risk are reduced to an acceptable low level.
◦ Four categories of audit deficiencies:
❖ tendency to accept management’s representations without adequate verifications
❖ inadequate documentation of audit work
❖ failure to report any departures from accounting standards
❖ uncritical acceptance of questionable accounting practices
◦ In order to provide high quality work, one of important element is audit engagement partner should take
ultimate responsibility for the overall quality on each audit engagement
 Audit Quality
◦Reasons why we should provide quality audit service:
❖ to ensure professional standards are complied
❖ to restore & enhance public confidence
◦Quality control in auditing must be developed at the
◦ professional level (setting technical and ethical standards)
◦ firm level (policies for its own practice)
◦ engagement level (policies for every engagement).
 Audit Quality
Two components:
◦ International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform Audits and Reviews of
Financial Statements and Other Assurance and Related Services Engagements
◦ ISA 220 –Quality Control for an Audit of Financial Statements
◦ ISQC 1 and ISA 220 are both developed by IFAC and adopted by MIA.
◦ ISQC 1 is intended for all assurance engagement at firm level.
◦ ISA 220 provide quality control standards applicable at engagement level.
◦ However, ISQM 1 replaces ISQC 1, Quality Control for Firms that Perform Audits and Reviews of Financial
Statements and Other Assurance and Related Services Engagements. Firms are required to have systems of
quality management designed and implemented in accordance with ISQM 1 by December 15, 2022
◦ The audit quality is intended to tackle quality issues at different level in providing professional services, such as:-
◦ Firm Level quality issue such as standard audit manual or program, audit letters (bank confirmation), standard
policy and procedure on ethical issues, client acceptance, charged out rates and etc..
◦ Engagement Level Quality issues such as accepting new appointment, sufficient qualified staff and etc.
Elements of Quality Control (ISQC
1)-Firm Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM
Control TO:

1-Leadership Emphasis on top level management where they should support & reinforce the
responsibilities for important of quality control. They should recognizes & reward the high
quality quality work and not only focus on the profitable driven.

2 – Ethical requirement Ensure fundamental principles of ethic are complied with .

(Must have E.g. to address independent issues, firm should put in place policies and
independence procedures to identify and evaluate threats to independence and take necessary
checklist) action.
Elements of Quality Control (ISQC
1)-Firm Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM
Control TO:

3 -Acceptance and (Important to ensure the client has integrity, firm is competent to perform the
continuance of clients engagement and able to comply with ethical requirement such as independent).
and engagements
So policy develop must ensure the firm is thoroughly/timely evaluate existing
and prospective client.

For example: to identify the attitude and reputation of the key management,
owners, related parties. Nature of client business, reason of appointment etc.

With that the firm should evaluate whether they have the necessary
resources, whether may give rise to a conflict of interest and ultimately to decide
whether to accept or not to accept the appointment.
Elements of Quality Control (ISQC
1)-Firm Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM
Control TO:
4 Human resources Cover the policies and procedures that relates to recruitment process,
development of competence, carrier development, performance evaluation
& compensation to the staff.

Human resources policies also must ensure the staff are committed to ethical
principal in carry out engagement in accordance with professional standards
and also failure to comply with may result in disciplinary action.

This to ensure the firm has taken reasonable steps to hired and to have right
person that can deliver the high quality work.
 Elements of Quality Control (ISQC 1)-Firm Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM
Control TO:
5-Engagement Ensure every engagement team assigned have capability to deliver a good
performance job.

Each engagement team comprise engagement partner, senior, experience and

less experienced staff. The procedures should address the following matters:
• On Job Coaching (proper briefing, team work and training),
• Supervision and review (experienced staff oversee the progress of the
job)
• Consultation (discussion with internal and external person such as MIA
to get advice)
• Resolving Difference of Opinion (Should have proper channel and
procedures on to resolve and its must be properly documented)
• Engagement Quality Control Review (to evaluate of the significant and
conclusion made by the Engagement team in issuing report and it must be
made for all listed entities) .
Elements of Quality Control (ISA220)-At
Engagement Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM TO:
Control

1 - Leadership The partner should become a role model for other team members
Responsibilities for and should always promote internal culture that stress the important of audit
quality quality.

2 – Ethical requirement The engagement partner should be able to evaluate the clients background and
financial statement whether there is any threats of independent to the
engagement team and to eliminate it.

This to ensure the team able to establish professional ethic during the course of the
audit work. Any threats should always discuss with partner.
Elements of Quality Control (ISA220)-At
Engagement Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM
Control TO:
3 -Acceptance and Preliminary planning activities at the beginning audit work includes procedures
continuance of clients acceptance and continuance of the client.
and engagements
Accepting new client is more critical that continuing services to the existing as
the auditor has possesses knowledge about the entity and the environment.

For new client, auditor should investigate the prospective client before
accepting the appointment.

Example: Review financial information, third party information,

communicated with previous auditors, determine whether independence can be
maintained and necessary skill required to perform the task and etc.
Elements of Quality Control (ISA220)-At
Engagement Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM
Control TO:
4 –assignment of The procedures developed must ensure that the partner select the audit team
engagement team that has necessary competencies to perform the audit in accordance with
(human resources) professional standards and applicable regulatory requirement.

Every engagement should be carried out by the appropriate number of staff,

time to perform and the technical knowledge each staff must suitable for the
job undertaken.
 Elements of Quality Control (ISA220)-At
Engagement Level
Elements of Quality Policies and procedures SHOULD BE ESTABLISHED BY THE FIRM TO:
Control
5 - Engagement The engagement partner is ultimately responsible for the performance of the team up
performance to the standard.

The partner need to access the planning and risk, need to timely supervise the team,
review process & ensure the engagement team well documented their job before the
audit report issued.

Engagement partner should address all issues and identify matter that require
consultation.
6 –Monitoring Engagement team (partner and member) should communicate with the firm for any
complaints regarding the quality control policies and procedures for better
improvements and also failures to comply with professional standards for may be
disciplinary action to be taken.
 AUDIT OVERSIGHT BOARD
AOB will work together with all relevant parties to ensure the successful implementation of a robust
and independent audit oversight framework

BNM

Industry
Group
CCM AOB (PIEs or
companies)

Auditors
 AUDIT OVERSIGHT BOARD
◦ AOB is established under the supports of the SC, and the SC will remain accountable for all of
the AOB’s acts and omissions.
◦ Why there is need to establish the Audit Oversight Board (AOB)
◦ The assurance function preformed by external auditors on company’s financial statements has
long played an important role in the corporate governance framework.
◦ The collapse of large firms and news of fraud involving globally recognized firms over the years have
raised concerns regarding the credibility of audited financial statements.
◦ A strong corporate governance framework requires providing the necessary assurance on the
consistency of the audit process and the quality and reliability of audited financial statements.
◦ To provide independent audit oversight over public interest entities (listed co and GLCs)
◦ To ensure our regulatory framework for auditors is par with international standards.
 AUDIT OVERSIGHT BOARD
Key responsibilities of the AOB
◦ implement policies and programmes in ensuring an effective audit oversight system in
Malaysia;
◦ register auditors of PIEs;
◦ direct the MIA to establish or adopt or by way of both, the auditing and ethical standards
to be applied by registered auditors;
◦ conduct inspections and monitor programmes on registered auditors to assess the degree
of compliance of auditing and ethical standards; and
◦ conduct inquiries and impose appropriate sanctions against registered auditors who fail to
comply with auditing and ethical standards.
 AUDIT OVERSIGHT BOARD
Functions of the SC relating to audit oversight –Section 31B SCA
1. To promote and develop and effective and strong audit oversight
framework in Malaysia
2. To promote confidence in the quality and reliability of audited financial
statements in reliability of audited financial statements in Malaysia
3. To control auditors of public interest entities
 AUDIT OVERSIGHT BOARD
Various functions/responsibilities of AOB:
◦ Registration -Registration process will encompass individual auditors and audit firms of PIEs to
ensure every party involved in the auditing process is fit and proper . Non-registration is an offence.
Registration is done on an annual basis
◦ Inspection -Inspection officers to have power to access working papers, books and accounts and to
take down oral or written information
◦ Inquiry -Inquiry conducted when there is reason to believe that provisions of the Act, written notice
or guidelines are breached
◦ Sanctions -To enable effective and balanced authorizations to be taken i.e suspension or revocation
of approval
◦ Standard setting - Compliance with established auditing standards is an integral aspect in ensuring
reliability of the company’s audited financial statement
Applicable to all auditors of Public Interest Entities (PIE) only
END OF TOPIC