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.

Outlines

00:00

📊 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.

Keywords

💡Quality Control

Quality Control refers to the processes and procedures implemented to ensure that a product or service meets certain standards of quality. In the context of the video, it relates to the auditing standard ISO 220, which focuses on the audit firm's own quality control measures to ensure they follow professional standards and that their reports are suitable for the client's needs. The video emphasizes the importance of quality control in the auditing process to maintain the integrity and reliability of financial statement audits.

💡ISO 220

ISO 220 is an auditing standard specifically designed for quality control in an audit of financial statements. It provides a recommended set of policies and procedures for audit firms to follow. The video script mentions ISO 220 as the framework that guides audit firms in establishing their quality control procedures, which is central to the video's theme of ensuring the highest quality of work in financial statement audits.

💡Audit Firm

An Audit Firm is a professional service organization that provides audit and assurance services to clients. In the script, the audit firm is responsible for implementing quality control procedures as per ISO 220 to ensure the accuracy and reliability of their audit work. The firm's adherence to these procedures is crucial for maintaining professional standards and client trust.

💡Engagement Partner

The Engagement Partner is the individual within an audit firm who has overall responsibility for the audit engagement. As mentioned in the script, this person is responsible for ensuring that the audit team is competent and that the audit is performed at an appropriate standard. The engagement partner plays a pivotal role in the quality control process by overseeing the audit team's work and ensuring compliance with professional standards.

💡Human Resources

In the context of the video, Human Resources refers to the audit firm's responsibility to ensure that the audit team is capable and competent. The script highlights the need for the audit team to have a sound knowledge of the client and the technical skills required to perform the audit. Human Resources is a key component of the quality control process, as it directly impacts the quality of the audit work.

💡Ethical Requirements

Ethical Requirements pertain to the moral principles and professional codes that guide the conduct of auditors. The script emphasizes the audit firm's obligation to comply with the ACCA Code of Ethics, manage ethical threats, and avoid conflicts of interest. Adhering to ethical requirements is fundamental to maintaining the integrity of the audit process and the trust of stakeholders.

💡Acceptance and Continuance

Acceptance and Continuance refer to the process by which an audit firm decides whether to accept a new client or continue with an existing one. The video script explains that the audit firm must assess the risk level of potential clients and ensure that they only accept engagements with an acceptable level of risk. This process is part of the quality control measures to safeguard the reputation and reliability of the audit firm.

💡Leadership Responsibilities

Leadership Responsibilities highlight the duties of the engagement partner and the audit firm's leadership in overseeing the audit process. The script mentions that the engagement partner must take overall responsibility for the audit team and ensure that quality control procedures are followed. This includes ensuring that the audit work meets professional standards, which is a critical aspect of quality control.

💡Monitoring

Monitoring in the context of the video refers to the review processes that an audit firm must undertake to ensure that quality control policies and procedures are being followed. The script distinguishes between 'hot' and 'cold' reviews, which are methods of reviewing audit work to ensure the appropriateness of conclusions and adherence to professional standards. Monitoring is a vital component of quality control, ensuring consistency and compliance across audit teams.

💡Engagement Performance

Engagement Performance relates to the overall execution of audit assignments within an audit firm. The script outlines three elements of engagement performance: direction, supervision, and review. These elements ensure that the audit objectives are clear, the team is competent and supervised, and professional standards are adhered to. Engagement performance is a key aspect of quality control, as it directly affects the quality of the audit opinion formed on the financial statements.

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