Guide to Using International Standards on Auditing in - IFAC

41
<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
The IFAC <strong>Guide</strong> <strong>to</strong> Quality Control for Small- and Medium-Sized Practices provides a detailed description of
the quality control standards and guidance on how <strong>to</strong> implement a system of quality control for small- and
medium-sized practices (SMPs). 2
The Code of Ethics for Professional Accountants, issued by the IESBA, can be downloaded from the IFAC web
site. In 2009, a revised Code of Ethics for Professional Accountants was issued that clarifies some requirements,
and significantly strengthens the independence requirements of audi<strong>to</strong>rs, such as those outlined below:
• Extending the independence requirements for audits of listed entities <strong>to</strong> all public-interest entities;
• Requiring a cooling-off period before certain members of the firm can join public-interest audit clients
in certain specified positions;
• Extending partner-rotation requirements <strong>to</strong> all key audit partners;
• Strengthening some of the provisions related <strong>to</strong> the provision of non-assurance services <strong>to</strong> audit clients,
such as tax planning and other advisory services. Some prohibitions may apply in cases of non-publicinterest
entities audits with regard <strong>to</strong> tax planning and other advisory services, as well as <strong>to</strong> assistance in
resolution of tax services;
• Requiring a pre- or post-issuance review if <strong>to</strong>tal fees from a public-interest audit client exceed 15% of the
<strong>to</strong>tal fees of the firm for two consecutive years; and
• Prohibiting key audit partners from being evaluated on, or compensated for, selling non-assurance
services <strong>to</strong> their audit clients.
The revised Code will be effective from January 1, 2011.
4.2 Quality Control Systems
The system of quality control in an accounting firm could be mapped <strong>to</strong> the five internal control elements
that audi<strong>to</strong>rs are required <strong>to</strong> evaluate as part of understanding any entity being audited. In a firm, these five
internal control elements would also be applicable <strong>to</strong> control systems in place (other than quality control),
such as time and billing, office workflow, expense control, and marketing activities.
The following diagram maps the quality control elements outlined in ISQC 1 and ISA 220 <strong>to</strong> the five internal
control components contained in ISA 315, which are applicable <strong>to</strong> entities being audited. Each of these five
control elements is more fully addressed in Volume 1, Chapter 5 of this <strong>Guide</strong>.
Exhibit 4.2-1
Internal Control Elements
(ISA 315)
Control Environment
(Tone at the Top)
Risk Assessment
(What Could Go Wrong?)
Firm-Level QC Elements (ISQC 1)
Leadership Responsibilities for
Quality within the Firm
Relevant Ethical Requirements
Human Resources
Acceptance and Continuance of
Client Relationships and Specific
Engagements
Engagement-Level QC
Elements (ISA 220)
Leadership Responsibilities for
Quality on Audits
Relevant Ethical Requirements
Assignment of Engagement Teams
Acceptance and Continuance of Client
Relationships and Audit Engagements
Risks that the report might not be
appropriate in the circumstances
2 The web link is http://web.ifac.org/publications/small-and-medium-practices-committee/implementation-guides