ISA/ASA 220 Quality Control on Audits EXPLAINED
Summary
TLDRThis video delves into the importance of ISA 220, a standard that ensures a minimum level of quality in audits. It discusses the impact of industry specialists and larger firms on audit quality, emphasizing the need for ethical requirements and independence. The script outlines the responsibilities of audit firms at both the firm and engagement levels, highlighting the importance of leadership, team assignment, and performance. It also stresses the necessity of documentation to support audit decisions and judgments, with a focus on the role of quality control reviews in maintaining audit standards.
Takeaways
- 📊 ISA 220 is crucial for understanding quality control in auditing, ensuring minimum standards for audit quality.
- 🌍 Australian auditing standards are internationally harmonized, so international students using ISAs can apply these standards as well.
- ✅ Auditing standards like SQCs and ISAs set a minimum level of quality for all audits, ensuring consistency across the board.
- 🏢 Audit quality can be influenced by factors such as using industry specialists or large audit firms like the Big Four, which tend to provide higher quality audits.
- 👨💼 The engagement partner is responsible for the overall audit quality, and if anything goes wrong, they are held legally accountable.
- ⚖️ Ethical requirements, particularly regarding auditor independence, are emphasized, with compliance to standards like APES 110 and the Corporations Act in Australia.
- 📝 Teamwork is essential in auditing, with each level (junior, senior, manager, partner) reviewing and supervising the work of the others to maintain quality.
- 🔍 Quality control reviews are conducted by a second partner to ensure that audit judgments and conclusions are appropriate.
- 🧾 Proper documentation is critical in auditing as it serves as proof of the audit work performed and supports the decisions made during the audit.
- 🔒 Regular monitoring and inspections by the audit firm or external bodies ensure that policies and procedures are followed effectively over time.
Q & A
What is the primary focus of ISA 220?
-ISA 220 focuses on quality control in audits, ensuring that a minimum level of quality is maintained across all audits, which is crucial for the reliability of audit outcomes.
Why are international standards important for audits?
-International standards, like those mentioned in the script, are important because they harmonize audit practices globally, ensuring consistency and comparability of audit quality regardless of the location.
What does the term 'audit quality' refer to in the context of ISA 220?
-In the context of ISA 220, 'audit quality' refers to the level of excellence an audit achieves, which is influenced by factors such as the auditor's expertise, adherence to auditing standards, and the effectiveness of the audit firm's quality control systems.
How does the involvement of industry specialists impact audit quality?
-Industry specialists can enhance audit quality by bringing specific knowledge and insights about the industry, which can lead to a more thorough and accurate audit.
What role does the audit partner play in ensuring audit quality?
-The audit partner is crucial for ensuring audit quality as they are legally responsible for the overall audit quality. They supervise, direct, and review the audit work, ensuring it meets the required standards.
Why is ethical compliance a requirement in the audit process?
-Ethical compliance is a requirement in the audit process to maintain the integrity and objectivity of the audit, which is fundamental to the credibility of the audit outcomes and the auditor's independence.
What is the significance of the quality control review mentioned in the script?
-The quality control review is significant as it provides an additional layer of assurance that the audit has been conducted in accordance with the relevant standards and that the audit conclusions are appropriate.
How does the assignment of engagement teams contribute to audit quality?
-The assignment of engagement teams contributes to audit quality by ensuring that the team has the appropriate mix of skills, industry knowledge, and experience necessary to perform the audit effectively.
What is the purpose of the monitoring process in an audit firm?
-The purpose of the monitoring process in an audit firm is to regularly assess the effectiveness of the firm's quality control policies and procedures, ensuring continuous improvement and adherence to audit standards.
Why is documentation so critical in the audit process?
-Documentation is critical in the audit process as it serves as evidence of the work performed, the decisions made, and the conclusions reached by the audit team. It provides a record that supports the audit findings and judgments.
What is the relationship between ISA 220 and other standards like ISA 210 and ISA 230?
-ISA 220 sets the framework for quality control, while ISA 210 and ISA 230 provide more specific guidance on establishing audit relationships and audit documentation, respectively. They work in conjunction to ensure the overall quality of the audit process.
Outlines
📚 Introduction to Audit Quality Control
The video begins by emphasizing the importance of quality control in audits, particularly in light of recent press coverage about order quality. It mentions that Australian standards are internationally harmonized, making the content relevant for international students as well. The presenter introduces the standards for quality control, specifically ISA 220, and explains that these standards aim to ensure a minimum level of quality across all audits. The video also touches on how certain factors, such as industry specialists or larger firms, can contribute to higher quality audits. The main objective of the standard is to promote audit quality, with a focus on legally enforceable requirements and explanatory material that aids in interpretation.
👥 Key Responsibilities and Ethical Standards in Auditing
Paragraph 2 delves into the specific responsibilities of auditors regarding quality control procedures for financial reporting audits. It highlights the importance of leadership, with the engagement partner being accountable for the overall audit quality. Ethical requirements, including independence, are discussed, with references to APS 110 and the Corporations Act. The paragraph also covers the assignment of engagement teams, emphasizing the need for appropriate personnel with the right skills and industry knowledge. The process of audit execution, including supervision, review, and consultation, is outlined. The role of the engagement control quality reviewer is introduced, who is responsible for an objective evaluation of the team's judgments and conclusions. The paragraph concludes by mentioning the firm's monitoring process to ensure the effectiveness of their quality control policies and procedures.
🔍 The Importance of Documentation and Quality Control Review
Paragraph 3 focuses on the critical role of documentation in auditing, serving as proof of work and supporting decisions or judgments. It mentions that there is a whole audit standard dedicated to documentation (ISA 230), which will be covered in a subsequent video. The paragraph underscores the need for auditors to document their conclusions, the evidence supporting them, and the process by which they were reached. Additionally, it discusses the quality control reviewer's responsibility to document their work. The video concludes with an invitation for viewers to engage with the content by asking questions or providing feedback and encourages viewers to subscribe for more content on auditing standards.
Mindmap
Keywords
💡ISA 220
💡Quality Control
💡Engagement Partner
💡Ethical Requirements
💡Independence
💡Engagement Quality Control Reviewer
💡Documentation
💡Monitoring Process
💡Supervision
💡Audit Team Competence
Highlights
ISA 220 is crucial for quality control in audits, with international relevance including for Australian standards.
Quality control standards are harmonized globally, affecting international students and professionals alike.
Audit standards aim to ensure a minimum level of quality across all audits for consistency.
Higher quality audits may involve industry specialists or larger firms, indicating a potential for variable quality.
ISA 220, along with other standards like ISA 210, sets the minimum requirements for quality control in audits.
The objective of ISA 220 is to promote audit quality through enforceable requirements and explanatory material.
Leadership and responsibility are key, with the audit partner being accountable for the overall audit quality.
Ethical requirements, including independence, are cornerstones of audits and must be strictly followed.
Engagement teams must be appropriately staffed with individuals having the right skills and industry knowledge.
The audit process involves supervision at all levels, from partners overseeing managers to managers overseeing junior auditors.
Review processes are critical in audits, with senior staff reviewing the work of junior staff to ensure quality.
Communication within the audit team is essential for sharing insights and maintaining audit quality.
A quality control review by a second partner ensures that the audit was conducted in accordance with standards.
Disagreements between partners must be resolved following firm policies and procedures.
Firms must have a monitoring process in place to ensure their quality control policies are effective.
Documentation is vital in audits, serving as proof of work and supporting decisions and judgments made.
The explanatory material provides additional guidance on interpreting and applying the requirements of ISA 220.
Transcripts
[Music]
in this video I'm going to look at a si
slash is a 220 and 220 is quite
important because it looks at quality
control and there's certainly been a lot
in the press recently about the quality
of orders so remember that our
Australian standards are internationally
harmonized so if you're an international
student and you're using ISAs then this
video will apply to you just as well now
remember we also have standards on
quality control
so a sqc or is QCs on quality control
and a PE s110 also has specific
requirements about quality they actually
refer you back to is a a si 220
now why is auto quality important well
the idea of an audit and audit standards
is that everybody is supposed to be
doing the same minimum level of an audit
so if we have auto quality I'll draw
this on a scale order quality okay and
here at different companies or what the
standards are supposed to do is that the
is a si si s are meant to give us a
minimum basic level of quality so all
audit should be at least at this level
sometimes you might have audits that are
of a slightly higher quality the
research shows us a couple of different
things the sorts of things that might
lead to higher quality audits could be
industry specialists so if you're using
an industry specialist that could lead
to a higher quality audit or if you're
using a big full firm quite often their
audits are of higher quality so a SQ c
and a sa is a 210 are here to make sure
that we know what is the minimum level
of things we should be doing for quality
control as well as following generally a
say so this is especially about quality
control within the audit firms and on
the specific audit engagement so let's
skip through to our content so we'll
have a quick overview of our contents
nothing really unusual here the
objective of the standard is to promote
audit quality
some requirements remember these are the
legally enforceable components that we
have to do and then our explanatory
material is just that other stuff that
will help us interpret what's up here in
the requirements in my videos I don't go
into the explanatory material I just go
into their requirements there's our
conformity with international standards
so you'll see here we are compliant with
is a 220 on quality control so let's
jump into the introduction so the
introduction is very clear this standard
deals with specific responsibilities of
the audit of regarding quality control
procedures for the audit of a financial
report so what sort of quality control
does the firm need to have at their firm
level at the individual engagement and
it also I mentioned is QC one as well
now our objective of our standard is
always really critical go back if you're
wondering what a standard is about the
objective is always critical implement
quality control procedures for the
engagement that provide the auditor with
reasonable assurance that we are
following the auditing standards and
then we're issuing the report in
appropriate stance our circumstances now
this is because audits are done by teams
of people now lots of people working
together we need to make sure that we
have good policies and procedures to
make sure that everybody in that team is
doing the right thing we have some
definitions you can read through those
definitions yourself within the standard
there's lots of information on the
definitions but let's jump into the
requirements
remember the requirements here in
Australia are the parts that are legally
enforceable so there has to be
leadership we have an engagement partner
a partner who is responsible for signing
the audit and they are responsible for
the overall audit quality so if
something goes wrong on the audit that
partner is going to be legally
responsible okay
so it's really important there's a lot
of pressure on that audit partner to get
it right the second area is ethical
requirement so it says we have to comply
with our ethical requirements and those
ethical requirements for us are going to
be a PE s110 so they have to make sure
that they follow the ethical
requirements now it goes into some
detail here specifically about
independence because remember
independence is the cornerstone of an
audit so we should as the partner look
at independence and make sure that we
follow the requirements in a PS 110 and
in Australia also our Corporations Act
all right so we have to follow all of
those particular requirements now we
have to check that everybody is
independent even if you're using our
other firms that if we have a breach we
know what to do and if we have threats
to independence then we have to reduce
them by applying safeguards those
safeguards of course come from a PS 110
and I'll make another video on ApS 110
it's a mega huge standard now what if we
have client engagements well if we
accept or continue an existing
engagement then we need to make sure
that we've followed all of the
requirements from a sa is a 210 about
establishing our relation now if we
scroll up I'm not going to go through
every single paragraph but I'm gonna go
through key ones so here assignment of
engagement teams is really important
about making sure that we have the right
personnel they
appropriately confident they've got the
right industry knowledge so that skill
could be related to a particular
industry they might need to have a
certain amount of audit experience in
general to meet those requirements so we
have to have the right people on the
team which wouldn't accept a job if we
can't then when we do the audit we have
to make sure that when we have the
performance of the audit or the
execution when we're executing the audit
or we're going out and we're collecting
evidence we do a few specific things
number one the partner is responsible
for supervising directing supervising
and performance of the audits and they
have to make sure that the right plan is
put in place they supervise managers
managers supervisors senior auditors
supervise junior auditors and of course
I mentioned they give the right report
there has to be a process of review all
right so this is a really important
process where someone senior checks a
junior staff members work oops I can't
spell member there so this is really
important because of the teamwork aspect
all right so that means junior auditors
work is checked by the senior senior
ordered as well as checked by the
manager managers work might be checked
by the partner now those reviews could
be looking at specific documents and
saying okay what sort of work is this
person doing are they doing the right
thing yep they're doing the right thing
or it could even be an interview where
two people sit down perhaps with a
little beverage each hot cup of tea and
they talk about what has been going on
in the audit one thing that was common
popular at PwC where I was was this
review by interview approach and we
should also have consultation so if
there is something that needs to be
talked about with the team we should be
communicating with that team this is
really important so communication
between all of the team members about
the audit the partner just doesn't
leave them to it they actually have to
go and set a plan check in regularly
about how things are going what work is
being done now once we've done the audit
there needs to be a quality control
review all right so somebody should
check that there is an engagement
control quality reviewer now this is a
second partner different partner who
checks that everything has been done in
accordance with the ISA ASAS so their
job is to perform an objective
evaluation of the judgments made by the
team and their conclusions to make sure
that they're appropriate alright so what
they're going to do is they're going to
do a few different things they're going
to talk with the partner they're going
to look at documents including audit
documentation to make sure it's all done
correctly in accordance with policy and
with the standards all right to make
sure that there are no loopholes this is
like a second check now this is my very
poor attempt at a magnifying glass but
that's what that is right there so we
have to have this second pair of eyes to
check now if there are differences what
happens if two partners disagree well
then they might need to follow the
firm's policies and procedures to figure
out and resolve that difference of
opinion so we have all of these
procedures and there's quality checking
now what the firm should also do is a
monitoring process so they need to check
that their own policies and procedures
are operating effectively all the time
so that might be some form of we just
change my color pin here audit firm
regular inspections all right so that
could be regular inspections by some
sort of quality control unit it could be
peer review of audits by another firm
it could even be inspection by a
professional association now the next
section I want to talk about is really
really critical because order to spend a
lot of time doing this and this is
documentation now without documentation
there's no proof that we did anything so
for the auditor documentation is proof
of our work and supporting our decisions
or our judgments so if I don't have this
documentation in place there's no proof
that we actually did anything so what
sort of things should we document and
there is actually a whole audit standard
on this a si 2:30 which is the next
video in this series we'll talk about
documentation but important things are
like we have to say why we've made our
conclusions um how did we make those
conclusions how did we come about with
our evidence for that and the Quality
Control reviewer should actually
document their work as well so now we
move on to the explanatory material
which I'm not going to get into but you
can certainly look at the explanatory
material I've got a link in the comments
to where you can see the standards I
hope you found this useful if you have
any questions about quality control
please pop them in the comments
otherwise we'd really appreciate a like
of the video if you found it useful
click to subscribe and certainly check
out the other videos in our auditing
standards series thanks for watching and
I'll see you in the next video
[Music]
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