Guide to Using International Standards on Auditing in - IFAC

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<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
Internal Control Elements
(ISA 315)
Information Systems
(Tracking performance)
Control Activities (Prevent
& detect/correct controls)
Moni<strong>to</strong>ring (Are the firm’s/
engagement’s objectives being
met?)
Firm-Level QC Elements (ISQC 1)
Quality Control System
Documentation
Engagement Performance
Ongoing Moni<strong>to</strong>ring of the Firm’s
Quality Control Policies and
Procedures
Engagement-Level QC
Elements (ISA 220)
Audit Documentation
Engagement Performance
Applying Results of Ongoing
Moni<strong>to</strong>ring <strong>to</strong> Specific Audit
Engagements
4.3 The Control Environment
Delivery of high-quality and cost-effective services is the principal driver of success for professional audit
firms. Quality service is also vital in relation <strong>to</strong> the public-interest responsibilities of professional accountants.
The provision of quality services should always be a key objective in the firm’s business strategy; that
objective needs <strong>to</strong> be communicated <strong>to</strong> all personnel on a regular basis, and the results moni<strong>to</strong>red. This
requires leadership and accountability for promised actions. Poor quality control can lead <strong>to</strong> inappropriate
opinions, poor client service, lawsuits, and loss of reputation.
In smaller firms, some of the hindrances <strong>to</strong> a strong <strong>to</strong>ne at the <strong>to</strong>p could include matters set out below.
Exhibit 4.3-1
Hindrance
Poor Attitudes
Description
A poor attitude is at the heart of most hindrances <strong>to</strong> quality. It includes such attitudes
(but not necessarily this extreme) as the following:
• Firm continually operates in a crisis mode;
• Poorly planned engagements and activities are the norm;
• Poor commitment <strong>to</strong> quality or compliance with the highest ethical standards;
• Not caring about the expectations of quality by the public and other stakeholders;
• Regarding changes in auditing standards as only applicable <strong>to</strong> big entities.
Some practices and terminology may get changed <strong>to</strong> demonstrate compliance
on the surface, but in substance, the old audit practices continue as before;
• Belief that there is no risk <strong>to</strong> the firm in small audits—so work performed should
be minimal;
• Audit work tailored <strong>to</strong> the fee received—not the risk involved;
• Clients considered <strong>to</strong>tally trustworthy by the control partner;
• Minimizing or avoiding the need for “engagement quality control reviews”;
• Belief that, because the clients pay the bill, they must get what they want;
• Partners keeping (or accepting) an audit client (for the fees generated) even
though it is (would be) highly risky for the firm;
• Unwillingness <strong>to</strong> adopt standard firm policies on quality control. A partner
wants files and working papers <strong>to</strong> be prepared his/her way without regard for
what others do; and
• Asking staff <strong>to</strong> follow the firm’s policies, but not complying personally (i.e., “do
what I say, not what I do”).