The global body for professional accountants

COMMON DEFICIENCIES
ON ISQC 1 AND ISA
COMPLIANCE
The global body for professional accountants
AGENDA

ISQC 1 (firm-wide policies and procedures)

ISA (audit file reviews)

1. Planning an audit

2. Documentation

3. Audit evidence

4. Going concern

5. Control and review


The global body for professional accountants
Common deficiencies on ISQC1 compliance
1. Leadership responsibility
Policies / procedures not reviewed and documented
Staff not confirming have read and understood
2. Independence and ethical requirements

Independence declarations from staff not obtained
Register of identified threats and safeguards not maintained
(Specific common issues covered in third part)

The global body for professional accountants
Common deficiencies on ISQC1 compliance
(CONTINUED)
3. Client acceptance and continuance
No integrity checks including client identification
Procedures not documented
Professional clearance not obtained
Engagement letter not issued
4. Human Resources
References not obtained for new staff
Fit and proper declarations not obtained
Insufficient training on ISA/IFRS and record keeping
Staff appraisals not done or informal

The global body for professional accountants
Common deficiencies on ISQC1 compliance
5. Engagement performance

Audit methodology not effective
Lack of supervision and control
Lack of policy on second partner review (QRP)

6. Monitoring

No on-going review of policies and procedures
No cold file reviews
The global body for professional accountants
Common deficiencies on ISA compliance

Planning

Documenting the understanding of business

No risk assessment - Identifying risks from:
- understanding of the business
- compliance with laws and regulations
- consideration of fraud and error
- preliminary analytical review

Key audit areas based on risk assessment not identified

Audit approach not identified

Design of audit procedures - audit programme not used or
suitably tailored (use of pre-clarity programs)

Overall and/or performance materiality not calculated

Sampling basis and selection for audit tests not determined


The global body for professional accountants
Common deficiencies on ISA compliance

Documentation

No audit work recorded (We only recognise work recorded on
file)

Basis of sample size and selection not recorded

Insufficient record of nature and extent of audit work source of
audit evidence and samples tested not recorded

No summary and evaluation of the results of audit tests to support
the conclusion








The global body for professional accountants
Common deficiencies on ISA compliance

Deficiencies in audit evidence

Existence of plant and equipment not verified

Ownership of property and motor vehicles not verified (especially
those brought forward from prior years)

Valuation of property (shown at valuation) not assessed

Ownership and valuation of investments, including group
companies.

Inventory
-Physical count not attended
-No tests on cost and net realisable value
-No consideration of stock obsolescence





The global body for professional accountants
Common deficiencies on ISA compliance

Deficiencies in audit evidence (continued)

Recoverability of receivables not tested

No bank letter / bank reconciliations not verified

Completeness of payables not tested

Validity of related party balances not tested. Recoverability of
debit balances of related parties (including directors and
shareholders) not tested

Completeness of income for understatement not tested




The global body for professional accountants
Common deficiencies on ISA compliance

Deficiencies in audit evidence (continued)

No analytical review on completion

No subsequent events review

No going concern review

No review of financial statements for adequate disclosures

No management representation letter

No evidence of communication with client (either pre-audit
communication ISA 260 or communication of deficiencies ISA
265)



The global body for professional accountants
Common deficiencies on ISA compliance

Deficiencies in audit evidence (continued)

Audit Reports, format and modification


The global body for professional accountants
Common deficiencies on ISA compliance

Going concern review

Need to document whether agrees or disagrees with the going
concern assumption

If disagrees, then a qualified audit opinion or adverse opinion
issued depending on circumstances

If agrees but there is uncertainty, need to ensure that this
uncertainty is properly disclosed in the notes of the financial
statements

Disclosure note should include a description of the uncertainty
and management plans as to how going concern will be ensured


The global body for professional accountants
Common deficiencies on ISA compliance

Going concern review (continued)

If management plans include shareholders providing financial
support, firm must obtain written statement from shareholders and
assess their ability to provide such financial support.

Evaluation of management plans should be documented and if
adequate, can issue an unmodified audit report but with emphasis
of matter. If it these plans not achievable, should consider issuing
a qualified audit opinion or an adverse opinion.

Emphasis of matter paragraph should include a short description
of the uncertainty and make reference to the relevant note in the
financial statements.


The global body for professional accountants
Common deficiencies on ISA compliance


Control and review

Staff not always aware of reasoning behind tests and how to
document

No evidence of engagement partner supervision

No evidence of engagement partner review







The global body for professional accountants
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