Quality Control ISA 220

Summary

This video script delves into ISO 220, the auditing standard for quality control in financial statement audits. It emphasizes the audit firm's responsibility to adhere to professional standards and meet client requirements. The script outlines key policies and procedures, including human resources, ethical compliance, client acceptance, leadership responsibilities, monitoring through hot and cold reviews, and engagement performance. These components ensure the audit firm maintains high-quality work and forms appropriate audit opinions.

Takeaways

• 🔍 This video covers the topic of quality control in relation to the auditing standard ISO 220 for audits of financial statements.
• 🏢 The standard focuses on audit firms' quality control procedures, emphasizing the obligation to follow professional standards and meet client requirements.
• 👥 The 'H' in the mnemonic 'HEAR ME' stands for Human Resources, highlighting the importance of ensuring that the audit team is capable and competent.
• ⚖️ 'E' stands for Ethical Requirements, stressing the need for audit firms to comply with the ACCA Code of Ethics and manage ethical threats and conflicts of interest.
• 🔄 'A' represents Acceptance and Continuance of clients, where audit firms must assess the risk level before accepting or continuing client engagements.
• 👨‍💼 'R' stands for Responsibilities of Leadership, with the engagement partner taking overall responsibility for the audit process and ensuring high-quality control procedures.
• 🔍 'M' stands for Monitoring, recommending both hot and cold reviews to ensure compliance with professional standards and consistency across audit teams.
• 🔥 Hot reviews, conducted before signing the audit report, focus on high-risk clients and ensure the appropriateness of the audit opinion.
• ❄️ Cold reviews occur after the audit is completed, involving a sample of clients to ensure consistency and identify risks of non-compliance.
• 📊 'E' stands for Engagement Performance, focusing on the direction, supervision, and review of the audit to ensure professional standards are met and evidence is sufficient and appropriate.

Q & A

What is the primary focus of the ISO 220 standard?

ISO 220 focuses on the audit firm's own quality control procedures to ensure they follow professional standards and that their reports are appropriate for the client's requirements.

What does the acronym 'HEAR ME' represent in the context of ISO 220?

In the context of ISO 220, 'HEAR ME' is a mnemonic to remember the key policies and procedures: Human Resources, Ethical Requirements, Acceptance and Continuance, Responsibilities of Leadership, Monitoring, and Engagement Performance.

What is the importance of human resources in the context of quality control in auditing?

Human resources are crucial as the audit firm and the engagement partner must ensure the audit team is capable, competent, and has the necessary technical skills and knowledge of the client being audited.

Why is it essential for an audit firm to comply with the ACCA Code of Ethics?

It is essential to ensure that the fundamental principles are followed, and any ethical threats, conflicts of interest, or other risks are managed appropriately to maintain the integrity and credibility of the audit process.

What does the 'A' in 'HEAR ME' stand for, and what does it involve?

The 'A' stands for Acceptance and Continuance, which involves the audit firm considering whether to accept an engagement and reviewing it annually to ensure the entity should continue to be their client.

What is the role of the engagement partner in quality control?

The engagement partner must take overall responsibility for the audit team and the audit process, ensuring that the quality control procedures within the firm are of a high standard to follow professional standards.

What are the two types of monitoring recommended by ISO 220, and how do they differ?

The two types of monitoring are hot review and cold review. A hot review is conducted before the audit report is signed, usually for listed clients or those with significant audit risks, while a cold review takes place after the audit has been completed and the report signed, involving a sample of clients across the audit firm.

What is the purpose of a hot review in the auditing process?

A hot review is conducted to ensure that the overall conclusion, i.e., the opinion on the financial statements, is appropriate and is usually carried out by an independent partner within the audit firm.

What is the purpose of a cold review in the auditing process?

A cold review is performed to ensure consistency across audit teams, identify any risk of non-compliance or professional standards, and is conducted after the audit report has been signed.

What are the three elements of engagement performance in auditing?

The three elements of engagement performance are direction, supervision, and review. Direction ensures everyone is aware of the audit objectives and client knowledge, supervision ensures the audit is reviewed by a senior person, and review ensures professional standards have been followed and evidence collected is sufficient.

How does ISO 220 help audit firms ensure the highest quality of work?

ISO 220 provides a recommended set of policies and procedures that audit firms should carry out, which includes aspects like human resources, ethical compliance, client acceptance, leadership responsibilities, monitoring, and engagement performance, to ensure the highest quality of work and appropriate audit opinions.