Quality Controls
Module 07 1
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First Part
Module 07 1
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System of Quality Control
PSQC 1 (redrafted) establishes the basic principles and
essential procedures and to provide guidance and to
provide guidance regarding a firm’s responsibilities for its
system of quality control for audits and reviews of
historical financial information, and for other assurance
and related services engagements.
System of Quality Control
Consists of policies Established and
designed to achieve the implemented to ensure
objectives of quality that a public accounting
control and the procedures firm adheres to the
necessary to implement standards of the
and monitor compliance accounting profession.
with those policies.
System of Quality Control
Consists of policies Established and
designed to achieve the implemented
Set of policies
objectives of and procedures
quality designed toto provide
ensure
reasonable
control and theassurance
procedures that thethat a public
public accounting
accounting firm
complies with
necessary firm adheres to the
professional standards.
to implement
and monitor compliance standards of the
with those policies. accounting profession.
Its siz its
e and o f
of its natur atu re
e n
polici
es The ractice
p
Appropriate cost / Its geographic
benefit consideration dispersion
ra ting
It s
f o pe to it s
e o lowed
or
g re
ga
De my al el
ni
n o o n n
auto pers
za
tio
n
The quality control policies and procedures
shall be documented and communicated to
the firm’s personnel.
Engagement performance Monitoring
Elements of a SystemHuman
of Quality
Acceptance and continuance of
resources
client relationships and specific
Control
engagements
Leadership responsibilities for Relevant ethical requirements
quality within the firm
Engagement performance Monitoring
Elements of a SystemHuman
of Quality
Acceptance and continuance of
resources
client relationships and specific
Control
engagements
Leadership responsibilities
Leadership responsibilities for
for Relevant ethical requirements
quality within
quality within the
the firm
firm
Leadership responsibilities for
quality within the firm
The firm shall establish policies and procedures
designed to promote an internal culture based
on the recognition that quality is essential in
performing engagements.
Firm’s chief executive officer (or equivalent) or, if
appropriate, the firm’s managing board of partners (or
equivalent), to assume ultimate responsibility for the firm’s
system of quality control.
Leadership responsibilities for
quality within the firm
The firm’s policies and
procedures
The firm addressing
assigns its
The firm devotes evaluation,
performance sufficient
management
resources for responsibilities
theanddevelopment, so
compensation,
that commercial and promotion
considerations
documentation,
with regard to its support of
personnel,
do
its not override
quality control the qualityand
policies of
are designed
work performed. to demonstrate
procedures.
the firm’s overriding
commitment to quality; and
Quality Business
Leadership responsibilities for
quality within the firm
Any person or persons assigned operational responsibility
for the firm’s quality control system by the firm’s chief
executive officer or managing board of partners shall
have sufficient and appropriate experience and ability,
and the necessary authority, to assume that
responsibility.
Engagement performance Monitoring
Elements of a SystemHuman
of Quality
Acceptance and continuance of
resources
client relationships and specific
Control
engagements
Leadership responsibilities for Relevant
Relevant ethicalethical
requirements
quality within the firm requirements
Relevant ethical
requirements
The firm shall establish policies and procedures
designed to provide it with reasonable
assurance that the firm and its personnel
comply with relevant ethical requirements.
The revised code of ethics for professional accountants in
the Philippines establishes the fundamental principles of
professional ethics, which include:
Professional Competence
Integrity Objectivity and Due Care
Confidentiality Professional Behavior
Relevant ethical
requirements
Firm’s policies and procedures
A process
Education
for dealing with
emphasize the
The leadership offundamental
Monitoring the firm
principlesnoncompliance
and training
End of First Part
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Quality Controls
Module 07 1
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Second Part
Module 07 1
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Engagement performance Monitoring
Elements of a SystemHuman
of Quality
Acceptance and continuance of
resources
client relationships and specific
Control
engagements
Leadership responsibilities for Relevant ethical requirements
quality within the firm
Acceptance and continuance of
client relationships and specific
engagements
The firm shall establish policies and procedures
Hasacceptance
for the considered the
andintegrity of
continuance of client
Is competent
the client
Canand does
comply to perform
not have
with ethicalthe
relationships
engagementand and specific
has the engagements,
capabilities,
information
designed time, that would
requirements
to provide lead
it with it reasonable
to conclude and
that resources
the client to do so
lacks
assurance that it will only undertake or continue
relationships andintegrity.
engagements where it:
Acceptance and continuance of
client relationships and specific
engagements
If a potential conflict of interest is identified in
accepting an engagement from a new or an existing
client, the firm should determine whether it is
appropriate to accept the engagement.
Where issues have been identified and the firm
decides to accept or continue the client relationship or
a specific engagement, it should document how the
issues were resolved.
Acceptance and continuance of Firm personnel have experience with
relevant regulatory or reporting
client relationships and specific requirements, or the ability to gain the
engagements necessary skills and knowledge
effectively.
The firm is able to Individuals are meeting the
complete the engagement Matters the firm criteria and eligibility
within the reporting considers include requirements to perform
deadline engagement quality control
whether review are available, where
Experts are available, if applicable
needed
Firm personnel have
The firm has sufficient knowledge of relevant
personnel with the necessary industries or subject
capabilities and competence. matter.
Acceptance and continuance of
client relationships and specific
engagements
Where
The professional
the firm obtains
and legal
information
responsibilities
that would
have
that
caused
The apply it
totothe
possibility decline
ofcircumstances,
an engagement
withdrawing including
from theif that
information
whether had
therebeen
engagement is aorrequirement
available
from both earlier,
for the
the policies
andengagement
firm
procedures
to reportand
to
onthe theperson
continuance
client or persons
relationshipof the
engagement
who madeand the appointment
the client relationship
or, in some shall
include
cases,
consideration
to some regulatory
of: authorities
Engagement performance Monitoring
Elements of a SystemHuman
of Quality
Acceptance and continuance of
resources
Human resources
client relationships and specific
Control
engagements
Leadership responsibilities for Relevant ethical requirements
quality within the firm
Human resources
The firm shall establish policies and procedures
designedTo enable the firm
Totoperform
provide orit engagement
its engagements
with reasonable
in
partners
assurance that itto
accordance issue
with
has reports that
professional
sufficient are
personnel
standards
with
appropriate
the capabilities,
and regulatory inand
the legal
competence,circumstances.
requirements
and commitment
to ethical principles necessary:
Human resources
Career
Competence Development
Recruitment Promotion
Performance The estimation of
evaluation personnel needs
Capabilities Compensation
Personnel
Issues
Human resources
Continuing Professional
Professional education Development, including
training
Capabilities and
competence
Coaching by more
Work experience experienced staff
Human resources
The firm’s performance Makes personnel aware of the firm’s expectations
regarding performance and ethical principles
evaluation, compensation and
promotion procedures give due
recognition and reward to the Provides personnel with evaluation of, and
development and maintenance counselling on, performance, progress and career
development; and
of competence and
commitment to ethical
principles. Helps personnel understand that
advancement to positions of
greater responsibility depends,
among other things, upon
performance quality and
adherence to ethical principles,
and that failure to comply with
the firms policies and procedures
may result in disciplinary action.
Human resources
The firm shall assign responsibility for each
engagement to an engagement partner. The
firm should establish policies and procedures
requiring that
Assignment of
The identity and role of the engagement partner
Engagement Teams are communicated to key members of client
management and those charged with governance;
The engagement partner has the appropriate
capabilities, competence, authority and time to
perform the role; and
The responsibilities of the engagement partner are
clearly defined and communicated to that partner.
Human resources
An understanding of, and practical experience with, engagements of a
similar nature and complexity through appropriate training and
participation
a b il ities
Cap and An understanding of professional standards and regulatory and legal
requirements.
p e t en ce
com sidered
con hen
Appropriate technical knowledge, including knowledge of relevant
information technology.
w ing
n
assig ement
g
enga ams:
Knowledge of relevant industries in which the clients operate.
te
Ability to apply professional judgment.
An understanding of the firm’s quality control policies and procedures
End of Second Part
Module 07 1
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Quality Controls
Module 07 1
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Third Part
Module 07 1
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Engagement performance Monitoring
Engagement Performance
Elements of a SystemHuman
of Quality
Acceptance and continuance of
resources
client relationships and specific
Control
engagements
Leadership responsibilities for Relevant ethical requirements
quality within the firm
Engagement Performance
The firm shall establish policies and procedures designed to
provide it with reasonable assurance that engagements are
performed in accordance with professional standards and
regulatory and legal requirements, and that the firm or the
engagement partner issue reports that are appropriate in
the circumstances.
Engagement Performance
• Tracking the progress of the engagement.
• Considering the competence and capabilities of
individual members of the engagement team, whether
Engagement they have sufficient time to carry out their work,
supervision whether they understand their instructions and whether
the work is being carried out in accordance with the
includes the planned approach to the engagement.
following: • Addressing significant matters arising during the
engagement, considering their significance and
modifying the planned approach appropriately; and
• Identifying matters for consultation or consideration by
more experienced engagement team members during
the engagement.
Engagement Performance
• The work has been performed in accordance with professional
standards and regulatory and legal requirements;
• Significant matters have been raised for further consideration;
A review • Appropriate consultations have taken place and the resulting
consists of conclusions have been documented and implemented;
• There is a need to revise the nature, timing and extent of work
consideration performed;
of whether: • The work performed supports the conclusions reached and is
appropriately documented;
• The evidence obtained is sufficient and appropriate to support
the report; and
• The objectives of the engagement procedures have been
achieved.
Independence
Engagement Performance
The firm shall establish policies and procedures
designed to provide it with reasonable assurance that
the firm, its personnel, and, where applicable, others
subject to independence requirements (including
experts contracted by the firm and network firm
personnel), maintain independence where required by
the Philippine code.
Engagement Performance Independence
Identify and evaluate
circumstances and
relationships that create
Communicate its threats to independence,
independence requirements and to take appropriate
to its personnel and, where action to eliminate those
applicable, others subject to threats or reduce them to an
them; and acceptable level by applying
safeguards, or if considered
appropriate, to withdraw
from the engagement.
enable the firm to:
Engagement Performance Independence
Engagement partners to provide
the firm with relevant information Personnel to promptly notify the
about client engagements, firm of circumstances and
including the scope of services, to relationships that create a threat to
enable the firm to evaluate the independence so that appropriate
overall impact, if any, on action can be taken; and
independence requirements;
shall require:
The accumulation and communication of relevant information to appropriate
personnel so that:
• The firm and its personnel can readily determine whether they satisfy independence
requirements;
• The firm can maintain and update its records relating to independence; and
• The firm can take appropriate action regarding identified threats to independence.
Engagement Performance Independence
The firm shall establish policies and procedures designed to provide it with
reasonable assurance that it is notified of breaches of independence requirements,
and to enable it to take appropriate actions to resolve such situations. The policies
and procedures should include requirements for:
The firm to promptly
communicate identified
breaches of these policies Prompt communication to
All who are subject to
and procedures to: the firm, if necessary, by
independence
• The engagement partner who, the engagement partner
requirements to promptly with the firm, needs to address and other relevant
notify the firm of the breach; and personnel so that the firm
independence breaches of • Other relevant personnel in the
can determine whether it
which they become aware; firm and those subject to the
independence requirements who should take further action.
need to take appropriate actions;
and
Engagement Performance Independence
At least annually, the firm shall obtain written
confirmation of compliance with its policies and
procedures on independence from all firm personnel
required to be independent by the Revised Code of
Ethics for Professional Accountants in the Philippines.
Engagement Performance Independence
Applying appropriate
safeguards to eliminate
the threats to Withdrawing from the
independence or to engagement.
reduce them to an
acceptable level; or
breach of independence
policies and procedures
Engagement Performance Independence
Requiring, for audits of financial
statements of listed entities, the
Setting out criteria for determining the rotation of engagement partner and the
need for safeguards to reduce the individuals responsible for engagement
familiarity threat to an acceptable level quality control review (5 years), and
when using the same senior personnel where applicable, others subject to
on an assurance engagement over a rotation requirements, after a specified
long period of time; and period in compliance with the Revised
Code of Ethics for Professional
Accountants in the Philippines
Familiarity threat on using the same senior
personnel on an assurance engagement
Engagement Performance Consultation
The firm shall establish policies and procedures designed to provide it with
reasonable assurance that:
Appropriate consultation takes Sufficient resources are
place on difficult or contentious available to enable appropriate
matters; consultation to take place;
The nature and scope of such Conclusions resulting from
consultations are documented; consultations are documented
and and implemented.
Engagement Performance Consultation
Effective consultation with other professionals
requires that those consulted be given all the relevant
facts that will enable them to provide informed advice
on technical, ethical or other matters.
The documentation of consultation is sufficiently complete and
detailed to enable an understanding of:
• The issue on which consultation was sought; and
• The results of the consultation, including any decisions
taken, the basis for those decisions and how they were
implemented
Engagement Performance Differences of Opinion
The firm shall establish policies and procedures for dealing with and
resolving differences of opinion within the engagement team, with
those consulted and, where applicable, between the engagement
partner and the engagement quality control reviewer.
Such policies and procedures shall require that:
• Conclusions reached be documented and implemented; and
• The report not be dated until the matter is resolved.
The firm shall establish policies and procedures for the
retention of documentation for a period sufficient to meet
the needs of the firm or as required by law or regulation.
Engagement Quality
Engagement Performance
Control Review
The firm shall establish policies and procedures
requiring, for appropriate engagements, and
engagement quality control review that provides an
objective evaluation of the significant judgments made
by the engagement team and the conclusions reached in
formulating the report.
Engagement Quality
Engagement Performance
Control Review
Require an engagement quality control review for all audits of financial
statements of listed entities;
Set out criteria against which all other audits and reviews of historical
financial information, and other assurance and related services
engagements should be evaluated to determine whether an
engagement quality control review should be performed; and
Require an engagement quality control review for all engagements
meeting the criteria established in compliance with above paragraph.
Engagement Quality
Engagement Performance
Control Review
The nature of the engagement, including
n t it ies toto the extent to which it involves a matter of
E bject
be su an
public interest.
a g e ment
eng ality The identification of unusual
qu rol
cont ew
circumstances or risks in an
revi
engagement or class of engagements.
Whether laws or regulations require an
engagement quality control review.
Engagement Quality
Engagement Performance
Control Review
• The engagement team’s evaluation of the firm’s
independence in relation to the specific
engagement;
u di ts of • Whether appropriate consultation has taken
For ancial place on matters involving differences of
fina ments ofs, opinion or other difficult or contentious
stated entitie matters, and the conclusions arising from those
liste gement consultations;
enga ity • The firm shall establish policies and procedures
qual rol review setting out:
cont l also • The nature, timing, and extent of an
shal de: engagement quality control review;
inclu • Criteria for the eligibility of engagement
quality control reviewers; and
• Documentation requirements for an
engagement quality control review.
Engagement Quality
Engagement Performance
Control Review
Engagement quality control review involves discussion with the engagement
partner, a review of the financial statements or other subject matter information
and the report, and, in particular, consideration of whether the report is
appropriate
The engagement quality control reviewer conducts the review in a timely
manner at appropriate stages during the engagement so that significant matters
may be promptly resolved to the reviewer’s satisfaction before the report is
issued.
When the engagement quality control reviewer makes recommendations that
the engagement partner does not accept and the matter is not resolved to the
reviewer’s satisfaction, the report is not issued until the matter is resolved by
following the firm’s procedures for dealing with differences of opinion
Engagement Quality
Engagement Performance
Control Review
The firm’s policies and procedures should address the appointment of engagement
quality control reviewers and establish their eligibility through:
The technical qualifications required to perform the role,
including the necessary experience and authority; and
The degree to which an engagement quality control
reviewer can be consulted on the engagement without
compromising the reviewer’s objectivity.
Engagement Quality
Engagement Performance
Control Review
The firm’s policies and procedures are designed to maintain the objectivity of the
engagement quality control reviewer. For example, the engagement quality control
reviewer:
Does not otherwise
Is not selected by the participate in the
engagement partner; engagement during the
period of review;
Is not subject to other
Does not make decisions
considerations that would
for the engagement team;
threaten the reviewer’s
and
objectivity.
Engagement Quality
Engagement Performance
Control Review
• The procedures required by the firm’s
policies on engagement quality
and n control review have been performed;
c i e s • The engagement quality control
Poli edures o on
proc mentati review has been completed before the
docu e report is issued; and
of th gement ol • The reviewer is not aware of any
enga ity contr d unresolved matters that would cause
qualew shoul the reviewer to believe that significant
revi ire n
requ mentatio judgments the engagement team
docu: made and the conclusions the reached
that were not appropriate.
Engagement performance Monitoring
Monitoring
Elements of a SystemHuman
of Quality
Acceptance and continuance of
resources
client relationships and specific
Control
engagements
Leadership responsibilities for Relevant ethical requirements
quality within the firm
Monitoring
The firm should establish policies and procedures
designed to provide it with reasonable assurance that
the policies and procedures relating to the system of
quality control are relevant, adequate, operating
effectively, and complied with in practice.
Such policies and procedures should include an ongoing
consideration and evaluation of the firm’s system of quality
control, including a periodic inspection of a selection of
completed engagements.
Monitoring
The firm should evaluate the effect of deficiencies noted as a result of the
monitoring process and should determine whether they are either:
Instances that do not necessarily indicate that the firm’s system of
quality control is insufficient to provide it with reasonable
assurance that it complies with professional standards and
regulatory and legal requirements, and that the reports issued by
the firm or engagement partners are appropriate in the
circumstances; or
Systemic, repetitive or other significant deficiencies that require
prompt corrective action.
Monitoring
The firm’s evaluation of each type of deficiency should result in
recommendations for one or more of the following:
Taking appropriate remedial The communication of the
action in relation to an findings to those responsible for
individual engagement or training and professional
member of personnel development;
Disciplinary action against those
Changes to the quality control who fail to comply with the
policies and procedures; and policies and procedures of the
firm, especially those who do so
repeatedly.
Monitoring
The firm should evaluate the effect of deficiencies noted as a result of the
monitoring process and should determine whether they are either:
Complaints and allegations that the work
performed by the firm fails to comply
with professional standards and
regulatory and legal requirements; and
Allegations of non-compliance with the
firm’s system of quality control
Monitoring
The firm should establish policies and procedures requiring
appropriate documentation to provide evidence of the
operation of each element of its system of quality control.
Systems of quality control in
compliance with PSQC 1 (redrafted)
are required to be established by
December 15, 2009. Firms consider the
appropriate transitional arrangements
for engagements in process at that
date.
End of Third Part
Module 07 1
C 0
SQ
P