Quality Management for an Audit of Financial Statements

The ISA (UK) 220 (revised July 2021) on Quality Management for Audit of Financial Statements will be applicable for the audits of financial statements on or after 15 December 2022. The recent revision imposes significant responsibilities on the engagement partner (key auditor) to conduct the audits most effectively to maintain the audit quality so that the audit quality is maintained throughout. Let’s discuss these responsibilities in detail with the help of a practical example. 

Overview and the Purpose of this Standard

The standard focuses on the responsibilities carried out by the auditor to conduct the audit following the applicable professional standards, rules, and regulations. 

The standard requires from the key auditor the following to maintain the quality of the audits:

• Leadership responsibilities 

• Ethical compliances including independence of the auditor

• Determining policies and procedures to accept and continue the relationships with the clients and the audits  

• Availability of sufficient resources and the environment to the audit team from time to time

• Take responsibility to direct and supervise the work carried out by the audit team and review their work.

• Documentation, monitoring, and remediation related responsibilities 

Practical Implication with the Help of an Example

The Key Auditor and his team are conducting an audit of a stock broking company. To verify the transactions of such a vast company, the auditor will need a well-equipped Information Technology set-up at his firm. He will also need such an audit team that knows how to run verification reports. 

In the above example, the revised standard requires the key auditor of the firm to take leadership in maintaining the quality of the audit. His duty will be to direct and supervise the audit team members on how to verify the transactions of the stockbroking company and the understanding of how to conduct the entire audit effectively to ensure adherence to the standard. 

He is also responsible for making available necessary audit environment that enables the team members to conduct the audit more efficiently. The availability of sufficient IT infrastructure in the given example would be the responsibility of the key auditor. 

Thus, there have been substantial changes concerning the engagement partner’s responsibilities (key auditor) through the revised standard. The purpose is to maintain the utmost quality of the audit where the early adoption of the standard is also allowed.  

References:

1. ISA (UK) 220_Revised July 2021_final

2. The FRC's new requirements of auditors