Thursday, August 19, 2021

ISA (UK) 220: Quality Control for an Audit of Financial Statements

 

The auditor is responsible for the quality control of the audit of financial statements. This responsibility is not solely outlined through ISA 220, but also through ISQC 1 and is further to be corroborated through the applicable ethical requirements. Each audit firm is responsible for the implementation and maintenance of a quality control system in order to ensure that the firm and its personnel comply with the ethical, legal, and regulatory requirements [L&RR] and that the audit reports issued by the firm are appropriate.

Responsibilities of an Engagement Partner

Being the leader of the audit team, the engagement partner observes a higher need for the maintenance of quality control throughout the audit. He, being responsible for the overall quality of the audit engagement, should stay alert and skeptical for any instance of non-compliance with the ethical and regulatory requirements by any member of the audit team.

Ethical Requirements

While the ethical requirements may vary from jurisdiction to jurisdiction, the fundamental principles of ethics laid down by the IESBA Code of Ethics include Integrity, Objectivity, Professional Competence, Confidentiality, and Professional Behavior. Additional ethical requirements may be imposed on an auditor through the local codes of conduct prevalent in different jurisdictions.

Engagement Team and Performance

The engagement partner must ensure that the team deployed on the audit of financial statements under his audit engagement is competent and capable enough to comply with the professional standards and applicable L&RR. The audit team must have the necessary competence to enable an audit report under the given circumstances.

The responsibility for the audit report and its validity, however, rests with the engagement partner. He is also responsible for the direction, oversight, and performance of the audit engagement in accordance with the applicable LR&R and professional standards.

Practice

While accepting or continuing an audit engagement, an engagement partner shall obtain information from the firm and network firms to identify any potential threats of non-compliance with the applicable quality control requirements. In the instance of identifying any such threat, an auditor is advised to immediately report the matter in his reporting line, or seek the application of safeguards that reduce the threat to an acceptably low level, or where appropriate, withdraw from the audit engagement. Any inability to resolve a given matter should be disclosed to the firm immediately for appropriate action.

It is also advised to conduct a thorough and rigorous review of the audit documentation and working papers before or on the date of the audit report to be satisfied that sufficient and appropriate audit evidence has been obtained by the audit team to base the audit opinion on.

References:

https://www.frc.org.uk/getattachment/615b6684-314e-44ae-a47f-1fc8ffa92bac/ISA-(UK)-220_Revised-November-2019-With-Covers.pdf

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