Roundtable Meeting on Quality Control Standards

1
Roundtable Meeting on Quality Control Standards

• Muhammad Asif Iqbal
• Director PSC E
• ICAP Lahore - 15 December 2006

2
Outline of Presentation

• Why have we gathered here?
• SMO 1
• What is ISQC 1?
• Code of Corporate Governance
• Comparison of ISA 220 with ISQC 1
• Views of SMP Taskforce
• Conclusion / Way Forward

3
Why have we gathered here?

• Have you considered the impact that ISQC 1 will
  have on your practice?
• Are you happy with your firm's quality control
  policies and procedures?
• Do they cover the six areas required by the
  standard
• Leadership responsibilities for quality within a
  firm Ethical requirements Acceptance and
  continuance of client relationships and specific
  engagements Human resources Engagement
  performance and Monitoring?
• Are you aware that the effective date of ISQC 1
  was June 15, 2005?
• If you have answered no to any of these
  questions, then it is never too late, still we
  can still make a fresh beginning!

4
SMO 1 Quality Assurance

• The member body should establish and publish
  quality control standards and guidance requiring
  firms to implement a system of quality control in
  accordance with ISQC 1.
• Individual firms are responsible for implementing
  policies and procedures that comply with ISQC 1.
  The member body establishes a quality assurance
  review program that monitors compliance with
  those policies and procedures.

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What is ISQC 1?

• Effective from 15 June 2005 all audit firms
  regardless of size and client base must have
  documented and communicated firm-wide quality
  policies and procedures in full compliance with
  ISQC 1
• Documentation and Communication are the two
  pillars of this standard.
• It is a principles based standard.

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What is ISQC 1?

• ISQC 1 raises the bar considerably and most firms
  will find that they could have some changes to
  embed into their practices or policies and
  procedures to document if they are to be able to
  demonstrate, with ease, compliance with ISQC 1.
• Dont forget if a matter isnt documented then
  under this standard it isnt done.

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What is ISQC 1?

• This ISQC applies to all firms. The nature of the
  policies and procedures developed by individual
  firms to comply with this ISQC will depend on
  various factors such as the size and operating
  characteristics of the firm, and whether it is
  part of a network.
• The ISAs are published with principles and
  essential procedures in bold type paragraphs.
  The language in grey type is non-prescriptive
  material which is designed to assist auditors in
  interpreting and applying the auditing standards.
  However, the ISQC 1 is different. While the
  principles and essential procedures are still
  emboldened, the material in bold type is to be
  understood and applied in the context of the
  explanatory and other material (grey type).
  Accordingly, the entire of the ISQC form the
  standard that is to be applied.

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Code of Corporate Governance

• CCG requires that No listed company shall
  appoint as external auditors a firm of auditors
  which firm or a partner of which firm is
  non-compliant with the IFAC Guidelines on Code of
  Ethics, as adopted by the ICAP and auditors
  certify this fact in their CCG review report.
• For ethical requirements, ISQC 1 refers to the
  IFAC Code of Ethics

9
ISA 220 and ISQC 1Leadership Responsibilities
10
ISA 220 and ISQC 1Age Profile of Practicing
Members
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ISA 220 and ISQC 1Ethical Requirements
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ISA 220 and ISQC 1 Acceptance and Continuance of
Client Relationships
13
ISA 220 and ISQC 1Human Resources
14
ISA 220 and ISQC 1Engagement Performance
15
ISA 220 and ISQC 1Engagement Quality Control
Review (EQCR)
16
ISA 220 and ISQC 1Practicing Firms With Listed
Clients
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ISA 220 and ISQC 1Monitoring
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EQCR and Monitoring by SMPs

• In determining the scope of the inspections, the
  firm may take into account the scope or
  conclusions of an independent external inspection
  program. However, an independent external
  inspection program does not act as a substitute
  for the firms own internal monitoring program.
• Small firms and sole practitioners may wish to
  use a suitably qualified external person or
  another firm to carry out engagement inspections
  and other monitoring procedures. Alternatively,
  they may wish to establish arrangements to share
  resources with other appropriate organizations to
  facilitate monitoring activities.

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Views of SMP Taskforce

• ISQC 1 is general in nature and applicable to all
  firms without taking into account the size and
  practice of the firm. In the presence of already
  existing auditing standards it is merely an
  attempt to re-invent the wheel.
• It is too detailed and cumbersome.
• It has addressed the problems and solutions for
  audit practices in the developed countries.
  Pakistan being an underdeveloped country is not
  in a position at this stage to adopt such a
  comprehensive standard.
• Adoption of the ISQC 1 may for the time being
  restricted to Firms having 5 or more partners.

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Conclusion / Way Forward

• ISQC 1 is basically a document containing the
  best practices of good governance within the
  firm.
• It will help in developing firms into
  institutions rather than family or one person
  dominated concerns.
• Monitoring of ISQC 1 by ICAP to be on a pure
  educative basis, say till a certain period of
  time
• Opportunities for firms to Merge / Networking
• Dispute Resolution Mechanism within ICAP
• Engagement of qualified staff for middle level
  management.
• ICAP is facilitating the SMPs by framing guidance
  for networking, training of their staff,
  providing guidance manuals, consultations etc.

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An important question to answer?

• Is ISQC 1

• a Regulatory Imposition

• or a Business Imperative?

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Thank you.