An audit is a complex task involving number of people at different levels. As we observed in the preparation and development of audit programme, the auditor would naturally have to depend upon number of technical experts as well. During the course of his work, the auditor is also likely to use the work performed by other auditors also. A lot of work is also delegated by him to his assistants SA 200, “Basic Principles Governing an Audit”, the auditor should carefully direct, supervise and review work delegated to assistants. The auditor should obtain reasonable assurance that work performed by other auditors or experts is adequate for his purpose. SA 220, “Quality Control for Audit Work” lays down standards on the quality control.
Firm Level
At the firm level, SA 220 requires that the audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with Auditing and Assurance Standards (SAs). Compliance with all SAs would necessitate that the quality control policies to be adopted by a firm would incorporate that standards of professional requirements, technical competence, training, proficiency, etc. are observed at the firm level. The objective of the quality control policies to be adopted by an audit firm will ordinarily incorporate the following:
Individual Audit Level
At the individual audit level, however, it shall be absolutely necessary that the work delegated to assistants is directed, supervised and reviewed in a proper manner.
Direction: Direction involves informing assistants of their responsibilities and the objectives of the procedures they are to perform.It also involves informing them of matters, such as the nature of the entity’s business and possible accounting or auditing problems that may affect the nature, timing and extent of audit procedures with which they are involved. The audit programme is an important tool for the communication of audit directions. Time budgets and the overall audit plan are also helpful in communicating audit directions.
Supervision: Supervision is closely related to both direction and review and may involve elements of both. Personnel carrying out supervisory responsibilities perform the following functions during the audit:
(iii) the work is being carried out in accordance with the overall audit plan and the audit programme.
Review: The work performed by each assistant would require to be reviewed by a personnel of at least general competence.
(a) policies and procedures of an audit firm regarding audit work generally; and
(b) procedures regarding the work delegated to assistants on an individual audit.
SA 220 suggests two fold approach to quality control, viz., first, at the firm level, and, secondly, at the individual audit level.
Firm Level
At the firm level, SA 220 requires that the audit firm should implement quality control policies and procedures designed to ensure that all audits are conducted in accordance with Auditing and Assurance Standards (SAs). Compliance with all SAs would necessitate that the quality control policies to be adopted by a firm would incorporate that standards of professional requirements, technical competence, training, proficiency, etc. are observed at the firm level. The objective of the quality control policies to be adopted by an audit firm will ordinarily incorporate the following:
(a) Professional Requirements: Personnel in the firm are to adhere to the principles of Independence, Integrity, Objectivity, Confidentiality and Professional Behavior.
(b) Skills and Competence: The firm is to be staffed by personnel who have attained and maintain the Technical Standards and Professional Competence required to enable them to fulfil their responsibilities with Due Care.
(c) Assignment: Audit work is to be assigned to personnel who have the degree of technical training and proficiency required in the circumstances.
(d) Delegation:There is to be sufficient direction, supervision and review of work at all levels to provide reasonable assurance that the work performed meets appropriate standards of quality.
(e) Consultation: Whenever necessary, consultation within or outside the firm is to occur with those who have appropriate expertise.
(f) Acceptance and Retention of Clients: An evaluation of prospective clients and a review, on an ongoing basis, of existing clients is to be conducted. In making a decision to accept or retain a client, the firm‘s independence and ability to serve the client properly are to be considered.
(g) Monitoring:The continued adequacy and operational effectiveness of quality control policies and procedures is to be monitored.
Individual Audit Level
(a) monitor the progress of the audit to consider whether:
(i) assistants have the necessary skills and competence to carry out their assigned tasks;
(ii) assistants understand the audit directions; and
(b) become informed of and address significant accounting and auditing questions raised during the audit, by assessing their significance and modifying the overall audit plan and the audit programme as appropriate; and
(c) resolve any difference of professional judgement between personnel and consider the level of consultation that is appropriate.
Responsibilities would include to monitor the progress of audit, consider significant accounting and auditing question and resolve any difference of professional judgement as well.