Quality Control ISA 220
Summary
TLDRThis 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
- π This video covers the topic of quality control in relation to the auditing standard ISO 220 for audits of financial statements.
- π’ The standard focuses on audit firms' quality control procedures, emphasizing the obligation to follow professional standards and meet client requirements.
- π₯ The 'H' in the mnemonic 'HEAR ME' stands for Human Resources, highlighting the importance of ensuring that the audit team is capable and competent.
- βοΈ '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.
- π 'A' represents Acceptance and Continuance of clients, where audit firms must assess the risk level before accepting or continuing client engagements.
- π¨βπΌ 'R' stands for Responsibilities of Leadership, with the engagement partner taking overall responsibility for the audit process and ensuring high-quality control procedures.
- π 'M' stands for Monitoring, recommending both hot and cold reviews to ensure compliance with professional standards and consistency across audit teams.
- π₯ Hot reviews, conducted before signing the audit report, focus on high-risk clients and ensure the appropriateness of the audit opinion.
- βοΈ Cold reviews occur after the audit is completed, involving a sample of clients to ensure consistency and identify risks of non-compliance.
- π '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.
Outlines
π Quality Control in Auditing: ISO 220 Overview
This paragraph introduces the topic of quality control in auditing, specifically in relation to ISO 220, which is an auditing standard for financial statement audits. It emphasizes the importance of an audit firm's own quality control procedures to ensure adherence to professional standards and the appropriateness of their reports for clients' needs. The paragraph outlines a set of recommended policies and procedures, including the importance of human resources in ensuring a capable audit team, ethical requirements as per the ACCA code, and the acceptance and continuance of clients based on risk assessment. It also touches on the responsibilities of leadership, particularly the engagement partner, and the necessity of monitoring through hot and cold reviews to maintain consistency and compliance with professional standards.
Mindmap
Keywords
π‘Quality Control
π‘ISO 220
π‘Audit Firm
π‘Engagement Partner
π‘Human Resources
π‘Ethical Requirements
π‘Acceptance and Continuance
π‘Leadership Responsibilities
π‘Monitoring
π‘Engagement Performance
Highlights
ISO 220 standard focuses on audit firm's own quality control procedures.
Audit firm must ensure adherence to professional standards and appropriateness of reports for client requirements.
Standard provides recommended policies and procedures for audit firms to follow.
Human Resources (H) involves ensuring the audit team's capability and competence.
Ethical Requirements (E) mandate compliance with the ACCA Code of Ethics and managing ethical threats.
Acceptance and Continuance (A) of clients involves assessing the risk level and suitability of engagements.
Responsibilities of Leadership (R) require the engagement partner to oversee audit quality and process.
Monitoring (M) includes hot and cold reviews to ensure adherence to quality control procedures.
Hot reviews are conducted pre-audit report signing for listed clients or those with significant risks.
Cold reviews are post-audit and ensure consistency across audit teams and identify compliance risks.
Engagement Performance (E) assesses the overall audit assignments' performance within the firm.
Direction, supervision, and review are key elements of engagement performance.
Audit direction ensures team awareness of objectives, client knowledge, and potential risks.
Supervision involves senior review to ensure team competence and timely information delivery.
Review ensures professional standards are followed and evidence is sufficient and appropriate.
ISO 220 aims to enable audit firms to perform high-quality work and form appropriate audit opinions.
The video provides a useful guide for understanding and implementing ISO 220 quality control standards.
Transcripts
this video is going to cover the topic
of quality control
this relates directly to the auditing
standard iso 220 quality control for an
audit of financial statements
this auditing standard focuses on the
audit firm's own quality control
procedures
an audit firm has an obligation to
ensure they follow professional
standards and that their reports are
appropriate for the client's
requirements
for this to happen the standard gives a
recommended set of policies and
procedures that should be carried out
to help remember the key policies and
procedures from the standard you could
use hear me
the h is for human resources
the audit firm and in particular the
engagement partner who is responsible
for the client should ensure that their
audit team is capable
they should assess the competence of the
team members to ensure that the audit is
performed at an appropriate standard
they should ensure that the audit team
has sound knowledge of the client being
audited
and therefore understands the entity and
its environment
however they must also ensure the
technical skills within the audit team
are enough to reach appropriate
conclusions
the e is for ethical requirements
quite simply the audit firm must ensure
that they comply with the acca code of
ethics
they must ensure the fundamental
principles are followed and that they
manage any ethical threats
conflicts of interest or other risks
appropriately
the a is for acceptance and continuance
of clients
the audit firm must consider whether
they should accept every engagement
once they have accepted the client
engagement they must then review every
year to ensure the entity should
continue to be their client
the key issue is that the audit firm
must only accept clients with an
acceptable level of risk
the r is for responsibilities of
leadership
the engagement partner must take overall
responsibility for the audit team and
the audit process
this means that they must also ensure
the quality control procedures within
the firm are of a high standard so as to
follow professional standards
accordingly
the m is for monitoring
we have already said that strong
policies and procedures should be in
place however to ensure these are
followed there must be an element of
review from the audit firm
the standard recommends two types of
monitoring a hot and cold review
an independent partner within the audit
firm undertakes the hot review usually
they review the audit work and
conclusions reached
this is to ensure that the overall
conclusion i.e the opinion is
appropriate
hot reviews are usually carried out for
listed clients or those with significant
audit risks
a hot review is carried out before the
audit report is signed
it is also known as an
eqcr or engagement quality control
review
a senior member of staff at the audit
firm performs a cold review an external
consultant can also carry it out
they review the work carried out for the
client and the conclusions reached
the key difference is that the review
takes place after the audit has been
completed and the audit report signed
a sample of clients is selected across
the audit firm to review
this ensures consistency across audit
teams and identifies if there is a risk
of non-compliance or professional
standards
finally e is for engagement performance
this looks at the overall performance of
the audit assignments across the audit
firm
this is made up of three elements the
direction supervision and review of the
audit
the direction focuses on ensuring
everyone is aware of the objectives of
the audit knowledge of the client
business the risks and any problems that
may arise
supervision is looking to ensure that
the audit is reviewed by someone senior
who can ensure the team is competent and
the deadlines are met to provide timely
information for the client
the review is to ensure professional
standards have been followed
that there is evidence to back up
conclusions made and the evidence
collected is sufficient and appropriate
each of these six components is
explained in iso 220 to enable audit
firms to ensure the highest quality of
work is performed this therefore ensures
that an appropriate audit opinion is
formed on the financial statements for
every client
i hope you found this video useful thank
you and good luck
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