[240] Quality control for audit work

Transcription

1 [240] Quality control for audit work (Issued September 2000) Contents Paragraphs Introduction 1 7 The firm 8 38 The audit engagement partner Independent review Monitoring Compliance with International Standards on Auditing 71 Effective date 72 Appendix Summary of key roles described in SAS 240 This revised version of SAS 240 replaces the original SAS issued in 1995

2 Quality control for audit work Statements of Auditing Standards ( SASs ) are to be read in the light of The scope and authority of APB pronouncements. In particular, they contain basic principles and essential procedures ( Auditing Standards ), indicated by paragraphs in bold type, with which auditors are required to comply in the conduct of any audit. SASs also include explanatory and other material which is designed to assist auditors in interpreting and applying Auditing Standards. The definitions in the Glossary of terms are to be applied in the interpretation of SASs. Introduction The independent audit function is an important aspect of good corporate governance necessary for the maintenance of confidence in the operation of business, capital markets and the public sector. Quality control is of paramount importance to the independent audit function. In this SAS quality control policy and processes are defined as those designed to provide reasonable assurance as to the appropriateness of the auditors report and of adherence to Auditing Standards, ethical and other regulatory requirements. 1 Many quality assurance frameworks take an holistic approach to quality, encompassing a wide range of business considerations including client and employee satisfaction, and commercial performance. Firms are encouraged to embed procedures to meet the requirements of this SAS into a wider quality assurance framework. There is benefit in auditors discussing audit performance with boards of directors, audit committees (where they exist) and senior management in achieving wider quality assurance objectives. However, when seeking the views of directors and senior management, auditors are mindful of the fact that satisfaction on the part of directors and senior management does not necessarily mean that the requirements of this SAS have been met and, in particular, does not signify that an audit has been performed in accordance with Auditing Standards, nor that the need for independence and objectivity has been satisfied Small firms Firms will develop different policies and processes to satisfy the requirements of this SAS, and the nature, timing and extent of those policies and processes will depend on many factors, including the size and nature of the firm. The policies and processes adopted by small firms need not be complex or time consuming to be effective. This SAS describes several different roles and functions within the audit firm, including responsibilities for quality control policy and processes and monitoring. For small firms and sole practitioners, a single individual may perform some of these roles and functions but in some circumstances they may wish to use the services of a suitably qualified external consultant. 5 1 This SAS does not include all of the detailed requirements of Audit Regulations and guidance on professional ethics issued by the professional accountancy bodies.

3 Quality drivers 6 This SAS seeks to achieve a balance between the following drivers of quality: between individual responsibilities and the collective responsibilities of the firm. All members of an audit team should feel responsible for the performance of their work in accordance with professional standards. The audit engagement partner, however, has an especially important role in promoting a quality culture within the audit team. The firm provides an environment to support audit engagement partners and the necessary processes to facilitate their role. The appointment of a suitably senior audit partner within the firm to take overall responsibility for quality control policy and processes will assist this process. between personal accountability and teamworking. Personal accountability can provide an important motive for ensuring that quality control policy and processes are applied in practice. While it is important to clarify responsibilities within the firm and the audit team, it is also necessary that consultation takes place to ensure that the collective wisdom of, first the team, and then the firm, is applied in resolving difficult or contentious matters. between building quality into processes and monitoring the results. Quality processes are aimed at getting it right first time as well as monitoring performance after the event. Monitoring provides a stimulus for performance as well as important information on the application of quality control policy and processes which can be used to improve them. Definitions 7 In this SAS, the following terms have the meaning attributed below: (a) audit engagement partner the partner or other person in the firm who assumes responsibility for the conduct of the audit and for issuing an auditors report on the financial statements on behalf of the firm 2. (b) audit staff 3 the personnel involved in an individual audit, including experts employed by the auditors, other than the audit engagement partner. (c) client service partner a partner who takes primary responsibility for coordinating the range of services provided to an audit client. (d) competencies the knowledge, skills and abilities of audit engagement partners and audit staff. (e) firm sole practitioners, partnerships, limited liability partnerships and other corporate entities engaged in the provision of auditing services. (f) independent partner a partner with sufficient experience and authority to perform an independent review, other than the audit engagement partner, who is not engaged in the performance of the audit or the provision of other 2 The audit firm has ultimate responsibility for the auditors report on the financial statements. Section 236(5) of the Companies Act 1985 states that where the office of auditor is held by a body corporate or partnership, the auditors report is signed on behalf of the body corporate or partnership by a person authorised to sign on its behalf. The eligibility of persons to sign audit reports is regulated by the Recognised Supervisory Bodies under Section 30 of the Companies Act 1989 (or Article 33 Companies (No 1) (Northern Ireland) Order 1990). Similar requirements exist in the Republic of Ireland under section 191 of the Companies Act This term has the same meaning as assistants in the APB s Glossary of terms.

4 services 4 and who is free of all other responsibilities for the audited entity and any entities in the same group of entities. Where an individual is appointed as audit engagement partner to an entity, that individual is not subsequently appointed to undertake an independent review of the audit of that entity until at least two annual audits have been completed following that individual ceasing to be the audit engagement partner. (g) independent review an objective, independent assessment of the quality of the audit undertaken before the issue of the auditors report. (h) listed companies entities whose capital instruments are listed or publicly traded on a stock exchange or market, including domestic and foreign exchanges and markets, and markets other than main markets 5. (i) monitoring periodic reviews of working papers for completed audits by, (j) wherever possible, reviewers independent of those who performed the audit. partner sole practitioners, partners in partnerships and limited liability partnerships and directors of other corporate entities engaged in the provision of auditing services. (k) quality control policy and processes policy and processes designed to provide reasonable assurance as to the appropriateness of the auditors report, and of adherence to Auditing Standards, ethical and other regulatory requirements. (l) suitably qualified external consultant another registered auditor or an employee (with appropriate experience) of either a professional accountancy body whose members may register as auditors or a specialist organisation, such as a training consortium, which provides review services. The firm Leadership and responsibilities within the firm Firms should establish, and communicate to audit engagement partners and audit staff, and others who need to be aware of them, quality control policy and processes; this will involve the establishment of an appropriate structure within the firm, including the appointment of a senior audit partner to take responsibility for these matters. (SAS 240.1) 8 The importance of audit quality In order to carry out an audit in a manner that meets the reasonable expectations of users of audited financial statements, it is essential that audit work is carried out with due regard for audit quality. The firm never compromises the demands of audit quality in order to achieve financial success. In developing quality control policy and processes, and in order to preserve audit quality, management structures within firms are designed to prevent commercial considerations taking precedence over the quality of audit work. 9 4 This does not preclude the independent partner from performing an independent review of other services provided to the audited entity. 5 This definition includes markets such as the London and Irish Stock Exchanges, EASDAQ, NASDAQ and the Alternative Investment Market.

5 10 If audit engagement partners believe that their objectivity or the firm s independence may be impaired by the actions of a client service partner, or others in the firm wishing to market other services, they discuss their concerns, and agree appropriate actions, with the senior audit partner responsible for establishing quality control policy and processes. Appointment of a senior audit partner 11 The importance of audit quality means that the development, documentation and communication of quality control policy and processes are the responsibility of a senior audit partner. Firms with more than one office may appoint several individuals to undertake quality control activities locally but one senior audit partner takes ultimate responsibility for these matters within the firm. The senior audit partner with overall responsibility for quality control has the experience, seniority and authority necessary to fulfil the role, and the influence to help ensure that the quality of audit engagements conducted by the firm is never compromised by commercial considerations. Establishment of policy and processes 12 The development of quality control policy and processes assists firms by establishing a framework within which all relevant requirements, including the requirements of Auditing Standards and ethics, can be met. The policy and processes adopted by firms vary as they depend on factors such as the size and nature of the practice and its organisation. Communication 13 Communication of quality control policy and processes to audit staff and audit engagement partners is an essential prerequisite to their effective implementation. Common methods include the use of internal training, electronic and paper circulars, and staff manuals. Documentation 14 It is unlikely, except in the case of sole practitioners with no audit staff, that quality control policy and processes can be effectively communicated to audit engagement partners and audit staff in the absence of appropriate documentation. Appropriate documentation normally includes: (a) a description of the policy and processes and the objectives they are designed to achieve; (b) records of amendments to policies and processes; (c) a record of how policy and processes and changes to them have been communicated. Acceptance and continuance of audit engagements 15 Before accepting a new audit engagement firms should ensure that they: (a) are competent to undertake the work;

6 (b) consider carefully whether there are threats to their independence and objectivity and, if so, whether adequate safeguards can be established; (c) assess the integrity of the owners, directors and management of the entity; and (d) comply with the ethical requirements of the professional accountancy bodies in relation to changes in appointment. Firms should also ensure that they reconsider these matters, before the end of their term of office, when deciding whether they are willing to continue in office as auditor. (SAS 240.2) Firms enquire as to: 16 (a) the identity of those who control the entity, its owners, directors and managers (or their equivalents) 6 ; (b) the nature of the entity s activities; (c) the reasons for the proposed appointment and the reasons for the retirement or removal of any incumbent or predecessor auditors 7. Firms also consider potential audit risks associated with the engagement and the likelihood of qualifications or modifications to the auditors report. Firms make enquiries to help them assess the integrity of the owners, directors and management of the entity (or their equivalents). Such enquiries may involve discussions with third parties, the obtaining of written references and searches of relevant databases. The outcome of these enquiries, as well as affecting the decision of whether to accept the engagement, will also be relevant to the audit planning process, including consideration of audit risk. In normal circumstances, in addition to communicating in writing, the prospective auditors speak directly with the incumbent auditors (or previous auditors where the office of auditor is vacant) to ascertain whether they have information of which the prospective auditors should be aware, before deciding whether or not to accept the appointment. In addition, they seek to confirm the reasons for the proposed appointment and to obtain information to assist them in their assessment of the integrity of the owners, directors and management of the entity 8. The responsibility for the decision to accept or decline an audit appointment rests solely with the prospective auditors, regardless of the outcome of these enquiries SAS 460 (paragraphs 34 to 36) provides guidance in relation to determining the name of the entity s ultimate controlling party. 7 Auditors enquiries include, but are not limited to, consideration of the statement of circumstances made by auditors ceasing to hold office for any reason under section 394(1) Companies Act 1985 (or Article 58(1) Companies (No 2) (Northern Ireland) Order 1990). This section requires the auditor to make... a statement of any circumstances connected with his ceasing to hold office which he considers should be brought to the attention of the members or creditors of the company or, if he considers that there are no such circumstances, a statement that there are none. Similar requirements exist in the Republic of Ireland (section 185 Companies Act, 1990). Auditors ceasing to hold office ensure they comply with the related legal requirements and the ethical requirements of the professional accountancy bodies. 8 Firms have due regard to the protocols for client confidentiality and changes in audit appointment that are set out in the guidance on professional ethics issued by the professional accountancy bodies.

7 19 In deciding whether to accept a new engagement, the firm considers whether there are any constraints to undertaking sufficient work to be able to perform the audit in accordance with Auditing Standards. In particular, in accordance with SAS 601 Imposed limitation of audit scope, if auditors are aware that the directors of the entity will impose a limitation in audit scope which is likely to result in the need to issue a disclaimer of opinion, auditors do not accept the engagement. 20 Both incumbent and prospective auditors seek the permission of the entity before communicating with each other; if permission to communicate is declined, the prospective auditors evaluate carefully the entity s reasons and consider whether, in exceptional circumstances, they can accept the appointment If, after accepting an engagement, firms become aware of any factors, which would have caused them to decline the appointment, they should consider whether to complete the current audit or whether to resign. (SAS 240.3) 22 Where the audit has commenced, it may be desirable, in the interests of those who have appointed the auditors and those to whom the auditors report (such as the shareholders), for the auditor to complete the current engagement and describe the findings or uncertainties in the auditors report. 23 Before the completion of the audit, or shortly thereafter, the firm considers whether to let its name go forward for reappointment as auditor (or whether to continue in office where the entity makes use of elective resolutions). It considers all of the factors that have arisen during the term of office, and its expectations of what will happen over the coming year, before coming to its conclusion. Resources 24 Firms should have sufficient audit engagement partners and audit staff with the competencies necessary to meet their needs. (SAS 240.4) 25 Firms develop, implement and periodically review plans for recruitment, appraisal and career development in order to have available adequate numbers of audit engagement partners and audit staff with the competencies necessary to meet their needs. This will involve the projection of personnel needs in order to establish the number and characteristics of the individuals required. Firms recruitment processes include procedures to help determine whether recruits are individuals of integrity and have the capacity to develop the competencies necessary to perform the firm s work. 26 Competencies are developed through: (a) professional education and development (including technical and management training, in-house courses and external training); all relevant members of a firm from the most junior to the most senior participate in training designed to enable the firm to perform audits in accordance with Auditing Standards; (b) work experience and coaching by other members of the audit team; practical experience, especially in an environment in which team-working is encouraged, 9 Ethical guidance issued by the professional accountancy bodies currently indicates that the prospective auditor should not accept appointment in such circumstances.

8 helps less experienced audit staff develop attitudes of professional scepticism and make sounder judgments concerning the assessment of risk and adequacy of audit evidence. Firms assist in the development and maintenance of technical competencies by the provision of technical circulars, libraries and technical departments. Smaller firms that do not possess the resources to maintain their own technical facilities may benefit from outsourcing these functions to third parties. 27 Assignment of personnel to audit engagements An audit engagement partner should be appointed to each audit engagement undertaken by a firm, to take responsibility for the engagement on behalf of the firm. (SAS 240.5) Audit engagement partners are responsible for the conduct of the audits to which they have been appointed in accordance with Auditing Standards, ethical and other regulatory requirements, and for the issue of the auditors report on behalf of the firm. Firms develop policies and processes to provide reasonable assurance that: (a) audit engagement partners have the competencies necessary to perform their role; (b) audit engagement partners responsibilities are clearly defined and communicated to them; (c) the identity and role of the audit engagement partner is known to the directors and senior management of the audited entity; (d) audit engagement partners have appropriate support (e.g. another partner), where necessary, at meetings with the directors and senior management of the audited entity that will involve matters that are, or may be, material to the auditors report; and (e) audit engagement partners have sufficient time to discharge their responsibilities. Firms should assign audit staff with the competencies necessary to perform the audit work expected of them to individual audit engagements. (SAS 240.6) To facilitate the assignment of audit staff with the competencies necessary to perform the audit work expected of them, firms establish processes to assess individuals knowledge, skills and abilities. For smaller firms, where the competencies of staff are widely known within the firm, such processes need not be overly formalised. Competencies to be considered include: (a) understanding and practical experience of auditing (through participation in audit engagements and appropriate training); (b) understanding applicable accounting, auditing, ethical and other technical standards; (c) knowledge of specific industries; (d) professional judgement;

9 (e) understanding the firm s quality control policy and processes. Consultation 34 Firms should establish procedures to facilitate consultation and to ensure that sufficient resources are available to enable appropriate consultation to take place in relation to difficult or contentious matters. The results of consultation that are relevant to audit conclusions should be documented. (SAS 240.7) 35 Consultation brings to bear the collective experience and technical expertise of the firm and reduces the possibility that significant technical errors or errors of judgement may occur. Firms seek to establish a climate in which consultation is perceived to be a strength and not a weakness; they encourage partners and staff to consult whenever they are considering a difficult or contentious matter. 36 Although audit engagement partners are strongly encouraged, and may be required by their firm s procedures, to consult, they recognise that the responsibility for the issue of the auditors report on behalf of the firm rests with them and they only sign an auditors report with which they concur. If consultation results in conflicting views regarding important matters the firm s procedures for dealing with such conflicts are followed (see paragraph 65). If another audit engagement partner assumes responsibility for signing the auditors report they complete an appropriate review of the audit before doing so (see paragraph 41). 37 Firms establish the likely circumstances in which consultation is encouraged or required, and who is to be consulted. Consultation on technical matters may amount to a simple request for advice from a technical department or from an expert within the firm. Consultation may be necessary in relation to ethical matters affecting either the firm or individual partners and others within it. Consultation procedures are designed to ensure that individuals of appropriate seniority and experience within the firm are consulted on all difficult or contentious issues and that the results of consultations relevant to audit conclusions are properly documented. 38 Firms needing to consult externally, particularly small firms, may take advantage of advisory services provided by the professional bodies, commercial organisations and others. In such circumstances, appropriate arrangements are made to safeguard client confidentiality. The audit engagement partner Leadership and responsibilities 39 Audit engagement partners should, in all cases, take responsibility on behalf of the audit firm for the quality of the audit engagements to which they are assigned. (SAS 240.8) 40 Audit engagement partners are responsible for finalising and signing the auditors report on behalf of the firm and for applying the firm s quality control policy and processes to individual audit engagements in an appropriate manner. The specific quality control processes to be applied are influenced by the size and complexity of

10 the entity s activities, the assessed level of audit risk and the competencies of the audit staff involved. Where there is a change of audit engagement partner during the course of an audit engagement, the new audit engagement partner undertakes a review of the work performed to date. The review procedures are sufficient to satisfy the new audit engagement partner that Auditing Standards, ethical and all other regulatory requirements have been complied with. In the exceptional circumstance that the audit engagement partner is unable to sign the auditors report (e.g. because of illness) another individual authorised to sign audit reports confirms with the audit engagement partner, before signing, that Auditing Standards, ethical and other regulatory requirements have been complied with and that the audit engagement partner would sign the report were they physically able to. In these circumstances the audit engagement partner retains responsibility for the auditors report. In the event that such confirmation cannot be obtained the circumstances are treated in the same way as a change of audit engagement partner (see paragraph 41) and the individual who signs takes responsibility for the auditors report. Where more than one partner (other than an independent partner) is involved in the conduct of an audit, it is important that the responsibilities of the respective partners are clearly defined and understood by the partners themselves, the audit staff and the audited entity. It may be desirable in certain circumstances for the respective responsibilities of different partners to be set out in writing and communicated to audit staff and the audited entity. Audit engagement partners are responsible for ensuring that an appropriate level of professional scepticism is applied by audit staff in the conduct of the audit and that there is proper communication both within the audit team and with the audited entity. Audit engagement partners should consider whether adequate arrangements are in place to safeguard their objectivity and the firm s independence, and document their conclusions. (SAS 240.9) Audit engagement partners consider whether there are actual, or potential, threats to their objectivity and to the independence of their firm, including those arising from the provision of non-audit services by the firm. Any conflicts of interest are identified and audit engagement partners, together with other partners, agree upon the necessary safeguards. Such safeguards may involve resignation from the audit or other engagement. Before accepting appointment or agreeing to continue in office as auditor, a summary is prepared (or reconsidered if already in existence) of any factors that may reasonably be thought to bear on the firm s independence 10 and the objectivity of the audit engagement partner and the audit staff and the related safeguards that are in place. The summary includes a record of all non-audit work, other than that which is insignificant individually and in aggregate, that the firm has agreed to perform for the audited entity. The audit engagement partner concludes on the summary as to Audit Regulation 3.04 and related guidance require a detailed record to be kept/updated of factors considered with regard to independence.

11 whether adequate safeguards have been established. The summary should be updated, and the appropriateness of remaining in office as auditor reconsidered, as necessary to reflect changed circumstances. 48 A firm appointed as auditor of an entity needs to have in place appropriate procedures to ensure that the audit engagement partner is made aware of any other relationship which exists between the firm and it s related entities and the client entity and it s related entities that may reasonably be thought to bear on the firms independence and the objectivity of the audit engagement partner and the audit staff. Direction, supervision and review 49 Audit engagement partners should ensure that audit work is directed, supervised and reviewed in a manner that provides reasonable assurance that the work has been performed competently. (SAS ) 50 Direction of audit staff involves them being informed of their responsibilities, the nature of the entity s business, accounting or auditing problems that may arise, and the overall audit plan. Audit staff are encouraged to raise any questions they may have with more experienced team members. 51 It is particularly important that the objectives of the work to be performed are understood by junior audit staff who possess limited audit experience and may draw inappropriate conclusions as a result of misunderstandings. Appropriate teamworking and training assist junior audit staff in clearly understanding the objectives of the work they have been assigned. 52 Audit planning is an important means of providing direction to audit staff. Audit engagement partners are responsible for the prompt approval of the audit plan and the audit programme, and any subsequent changes thereto. SAS 200 Planning requires an overall audit plan to be prepared as well as an audit programme, describing the nature, timing and extent of planned audit procedures. The audit plan sets out the supervision and review responsibilities, including those of the audit engagement partner, and other quality control processes specific to the audit engagement. 53 Supervision is closely related to both direction and review and includes: (a) considering the progress of the audit; (b) considering whether audit staff have the competencies necessary to perform the audit work expected of them and sufficient time to carry out their work, whether they understand their instructions and whether the work is being carried out in accordance with the overall audit plan and audit programme; (c) addressing significant accounting and auditing questions raised during the audit, assessing their significance and modifying the overall audit plan and audit programme as appropriate; and (d) identifying matters for further consideration during the audit. 54 Work performed by audit staff is reviewed by other more senior audit staff or the audit engagement partner. Reviewers consider whether:

12 (a) the work has been performed in accordance with the firm s procedures and in accordance with the audit programme; (b) the work performed is adequate in light of the results obtained and has been adequately documented; (c) significant audit matters have been raised for further consideration; (d) appropriate consultations have taken place and the results of such consultations have been documented; (e) the objectives of the audit procedures have been achieved; and (f) the conclusions are consistent with the results of the work performed. Audit engagement partners perform an overall review of working papers. The review is sufficient for them to be satisfied that the working papers contain sufficient appropriate evidence to support the conclusions reached and for the auditors report to be issued. Although the review may not cover all working papers, it covers: 55 (a) all critical areas of judgement, especially any relating to difficult or contentious matters identified during the audit; (b) audit evidence relating to high risk areas; (c) any other areas which the audit engagement partner considers important. Audit engagement partners document the extent of their review and its timing so as to demonstrate that it was completed before the auditors report was signed. The audit engagement partner reads the auditors report, the financial statements and the information 11 issued with the financial statements. Where questions or points are raised in writing during the review of working papers, they need not be retained at the end of the audit provided that the working papers are otherwise complete and, in particular, record the reasoning on all significant matters which require the exercise of judgement Independent review Firms should ensure that an independent review is undertaken for all audit engagements where the audited entity is a listed company. In addition, firms should establish policies setting out the circumstances in which an independent review should be performed for other audit engagements, whether on the grounds of the public interest or audit risk. (SAS ) The independent review should take place before the issue of the auditors report in order to provide an objective, independent assessment of the quality of the audit. Firms policies should set out in detail the manner in which this objective is to be achieved. (SAS ) The independent review is performed by one or more independent partners having sufficient experience 12 and authority to fulfil the role. Where sole practitioners and small firms identify audit engagements requiring independent review, a suitably qualified external consultant may perform the role of independent partner and SAS 160 includes standards and guidance for auditors consideration of other information in documents containing audited financial statements. 12 Firms consider whether specialist knowledge is a requirement for reviews of entities in certain industries.

13 conduct the independent review. In such circumstances, appropriate arrangements are made to safeguard client confidentiality. 61 The independent review involves consideration of the following matters in order to assess the quality of the audit: (a) the objectivity of the audit engagement partner and key audit staff and the independence of the firm. This normally includes a review of the summary of factors that could be perceived as threatening either the audit team s objectivity or the independence of the firm, as set out in paragraph 47 above; (b) the rigour of the planning process including the analysis of the key components of audit risk identified by the audit team and the adequacy of the planned responses to those risks; (c) the results of audit work and the appropriateness of the key judgements made, particularly in high risk areas; (d) the significance of any potential changes to the financial statements that the firm is aware of but which the management of the audited entity has declined to make; (e) whether all matters which may reasonably be judged by the auditors to be important and relevant to the directors, identified during the course of the audit, have been considered for reporting to the board of directors and/or the audit committee (or their equivalents); and (f) the appropriateness of the draft auditors report. 62 The independent review does not involve a detailed review of all audit working papers, nor does it affect the responsibilities of the audit engagement partner. Its purpose is to provide an independent assessment of the quality of the audit, including the key decisions and significant judgements made. The extent of the review depends on the complexity of the engagement, the risks associated with the audit and the experience of the audit engagement partner and the audit staff. 63 The independent partner is involved sufficiently early to allow for all material matters identified during the review process to be dealt with properly. Towards the end of the audit the independent partner considers the adequacy of proposed disclosures in the financial statements relating to significant matters identified during the course of the audit. In all cases, the independent review is completed before the issue of the auditors report. The scope and conclusions of the independent review are documented. 64 Where independent partners have undertaken the independent review of the audited entity for a number of years, firms recognise the risk that their objectivity may become impaired. Firms policies provide for the replacement of independent partners where their objectivity might be impaired, for this or any other reason. 65 Firms should establish procedures for dealing with conflicting views regarding important matters between audit staff, between audit staff and the audit engagement partner, and between the audit engagement partner and the independent partner. (SAS ) 66 The procedures established by firms for dealing with conflicting views between audit staff, between audit staff and audit engagement partners, and between the audit engagement partner and the independent partner are normally built into the consultation procedures set out in paragraphs above. Firms procedures deal

14 with the resolution of issues at an early stage and contain clear guidelines as to the successive steps to be taken thereafter. Firms procedures also require documentation of how issues are concluded. Firms employing external consultants in the capacity of independent partner make arrangements for the possibility of disagreements; such arrangements might, for example, include consultation with another practitioner or a professional body. Monitoring Firms should appoint a senior audit partner to take responsibility for monitoring the quality of audits carried out by the firm. (SAS ) The responsibility for monitoring the quality of audit performance is different from the responsibility for the establishment of quality control policy and processes, as required by SAS Wherever possible, the two responsibilities are undertaken by different senior audit partners. The objective of monitoring reviews is to provide an independent assessment of: (a) the appropriateness of the auditors report, and the conduct of the audit in accordance with Auditing Standards, ethical and other regulatory requirements; (b) whether the firm s own quality control policy and processes have been applied in practice and appropriate consultation has taken place in relation to difficult or contentious issues. The senior audit partner responsible for the monitoring process develops procedures for the systematic review of the conduct of a sample of completed audit engagements 13. The review is undertaken by competent individuals who, wherever possible, are independent of those performing the audit. Small firms and sole practitioners may wish to use the services of a suitably qualified external consultant. The senior audit partner also develops appropriate courses of action where failures are identified. Courses of action may involve communication of the findings within the firm, additional training and professional development, changes to the firm s policies and procedures and disciplinary action against those who repeatedly fail to comply with the firm s standards. 70 Compliance with International Standards on Auditing Compliance with the Auditing Standards contained in this SAS ensures compliance in all material respects with International Standard on Auditing 220 Quality Control for Audit Work. 71 Effective date Auditors are required to comply with the Auditing Standards contained in this SAS in respect of audits of financial statements for periods commencing on or after 23 December This may be satisfied, where appropriate, as part of the audit compliance review for the purposes of Audit Regulations.

15 Appendix Summary of key roles described in SAS 240 Partner who takes responsibility for establishing quality control policy and processes Must be: a senior audit partner of the firm Cannot be: an external consultant Partner who takes responsibility for monitoring the quality of audits Must be: a senior audit partner (wherever possible a different partner to the partner responsible for establishing quality control policy and processes) Cannot be: an external consultant Audit engagement partner Must be: a partner or other person in the firm who is authorised to issue an auditors report on behalf of the firm Cannot be: the independent partner for the audited entity or any other entities in the same group of entities Individual who preforms an independent review Must be: an independent partner with sufficient experience and authority to fufil the role; or a suitably qualified external consultant Cannot be: a partner engaged in the performance of the audit or the provision of other services or with any other responsibilities for the audited entity or any entities within the same group of entities

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