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QUALITY ASSURANCE PROCESS MANUAL FOR SOLE PROPRIETOR CPA

INTRODUCTION

This manual contains a system of quality assurance policies and procedures which is specially designed for _(sole proprietor CPA) and her personnel as a guide and a reference manual in the performance of her audit practice. While ___________is a single practitioner, she also employs several audit and administrative personnel who assist her in the performance of her professional practice. Thus, this manual also contains policies and procedures covering the personnel management / administration. This manual is comprehensive and suitably designed to be responsive to the changing environment in accordance with the standards established by the governing bodies of audit practice such as the Auditing Standards ouncil, !oard of Accountancy and Securities "#change ommission, etc. The ob$ective of a detailed quality assurance manual is to provide THE SOLE PROPRIETOR and her personnel %referred to as the &'() in this manual* with a reasonable assurance that it complies with THE SOLE PROPRIETOR+s standards of quality in con$unction with applicable professional standards of quality. 'n line with this ob$ective, this manual contains a system of policies and procedures that address the ma$or elements of quality assurance as follows, '.* ''.* '''.* '..* -eadership responsibilities for quality within the firm "thical (equirements Acceptance and ontinuance of specific engagements /uman (esources lient (elationship and

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..* .'.*

"ngagement 0erformance )onitoring

These elements are interrelated. &or a firm to establish and maintain independence, integrity and ob$ectivity, it must continually assess client relationships that affect policies and procedures related to the acceptance and continuance of clients and engagements. Similarly, the personnel management element of quality assurance encompasses criteria related to professional development, hiring, advancement and assignment of firm+s personnel to engagements, which all affect policies and procedures related to engagement performance. 'n addition, policies and procedures related to the monitoring element enable a firm to evaluate whether its policies and procedures for each of the other five elements of quality assurance and control are suitably designed and effectively applied. THE SOLE PROPRIETOR and staff shall then endeavor to practice the accountancy profession by strictly adhering to the policies and procedures set forth in this manual.
I. LEADERSHIP RESPONSIBILITIES FOR QUALITY WITHIN THE FIRM

1)

The business and affairs of the Firm is managed under the direct supervision of THE !"E P#!P#$ET!#% &ho represents the Firm being the sole proprietor' As a manager of the Firm% ((((((((( shall assume full responsibility for the decisions and actions the Firm may ta)e in the course of its functions% and to live up to the conse*uences that flo& from them including submitting oneself to *uality revie& appropriate to her office' Her basic responsibility is to e+ercise sound business ,udgment and to act in &hat she reasonably believe to be the best interest of the firm' As part of her responsibility and function% The !"E P#!P#$ET!# shall see to it that all the elements of *uality assurance embodied in this manual are effectively implemented and properly adhered to' As the manager% the !"E P#!P#$ET!# is entirely responsible for setting a tone for the organi/ation that stresses the importance of ethical values%

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especially as they pertain to accounting and auditing engagements% and communicates related policies and procedures to firm personnel' 0' The !"E P#!P#$ET!# shall be the designated *uality assurance officer to revie& relevant pronouncements relating to independence% integrity% and ob,ectivity% ans&er *uestions% and resolve matters' As the manager% the !"E P#!P#$ET!# shall serve as a model to her employees and shall conduct herself in a manner that upholds the honor% dignity% integrity and ob,ectivity of the accounting profession'

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To ensure that quality assurance within the organi1ation and among its employees is strictly observed, the S2-" 0(20('"T2( shall be tas3ed to perform the following, 1. Continually emphasi1e the concepts of independence, integrity, and ob$ectivity %including the significance of client engagements* in its professional development meetings, in the acceptance and continuance of clients and engagements, and in the performance of engagements. 0rovide each of its professional personnel with access to applicable professional and regulatory literature and advising them that they are e#pected to be familiar with that literature. (equire periodic independence and ethics training for all professional personnel. Such training covers the firm+s independence and ethics policies and the independence and ethical requirements of all applicable regulators. 'nform personnel, on a timely basis, of those entities to which independence policies apply, by, 7 0reparing and maintaining a list of entities with which firm personnel are prohibited from having a business relationship. 7 )a3ing the list available to personnel so they may evaluate their independence %including personnel new to the firm*.
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7 8otifying personnel on a timely basis of changes in the list. II.


ETHICAL REQUIREMENTS

The ob$ective of these ethical conduct standards is to provide the &irm with reasonable assurance that personnel maintain independence %in fact and in appearance* in all required circumstances, perform all professional responsibilities with integrity, and maintain ob$ectivity in discharging professional responsibilities. The three main ethical standards of the Firm shall be : a) Independence which encompasses an impartiality that recognizes an obligation for fairness not only to management and owners of a business but also to those who may otherwise use the firms report Integrity which re!uires personnel to be honest and candid within the constraints of client confidentiality" #er$ice and the public trust should not be subordinated to personal gain and ad$antage% and &b'ecti$ity which is a state of mind and a !uality that lends $alue to a firms ser$ices" The principle of ob'ecti$ity imposes the obligation to be impartial% intellectually honest and free of conflicts of interest"

b)

c)

(elow are the policies and procedures of the firm relati$e to ethical standards: 9. All personnel are re*uired to adhere to applicable independence% integrity% and ob,ectivity re*uirements as provided for in the Code of Professional Ethics for Certified Public Accountants and as embodied in the 2ood 2overnance Code of Ethics of the Firm as submitted to the 3oard of Accountancy. : The SOLE PROPRIETOR and personnel must strive to e#emplify the highest standards of professional and personal ethics in all aspects of the business. All personnel are encouraged to always 3eep abreast of recent and new developments relating to independence,

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integrity, and ob$ectivity and other related issues affecting the industry through various methods. : All employees are required to submit written representations, upon hire and on an annual basis, concerning whether they are familiar with and in compliance with professional standards and the firm+s policies and procedures regarding independence, integrity, and ob$ectivity. "ach team leader %Audit Supervisor* shall be responsible for reviewing the independence representations for completeness of their respective audit staff and shall report e#ceptions to the )anager, for resolution. The )anager shall be tas3ed to prepare a current list of the following, ; ; all entities with which firm personnel are prohibited from having a business relationship, and, all activities in which the firm is prohibited from engaging and ma3ing the list available to the staff so they may evaluate their independence. unpaid fees from clients to ascertain whether any outstanding amounts impair the firm+s independence. a master record of all its clients showing salient information such as< services performed, audit fee, no. of years, etc.

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All personnel should avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict' To effectively implement this policy% employees are advised to4 (efuse any gift, favor or hospitality that would influence or influence their actions. (efrain from engaging in any activity that would pre$udice their ability to carry out their duties ethically. (efrain from either actively or passively subverting the attainment of the firm+s legitimate and ethical ob$ectives.

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(ecogni1e and communicate professions limitations or other constraints that would preclude responsible $udgment or successful performance of an activity. ommunicate unfavorable as well as favorable information and professional $udgments or opinions. (efrain from engaging in or supporting any activity that would discredit the profession.

5.

All employees have a responsibility to refrain from disclosing information ac*uired in the course of their &or) e+cept &hen authori/ed% unless legally obligated to do so' To preserve confidentiality of information% the firm implements the follo&ing4 The SOLE PROPRIETOR shall inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their wor3 and monitor their activities to assure the maintenance of that activity. All employees are advised to refrain from using or appearing to use confidential information acquired in the course of wor3 for unethical or illegal advantages either personally or third parties.

4.

The Firm must al&ays be a&are of possible threats to independence and ob,ectivity and shall perform the follo&ing to help mitigate it4 : The SOLE PROPRIETOR shall always be responsible for the concurring review of all audit and attest engagements performed by her audit staff. &or high ris3 or significant clients and for clients that the SOLE PROPRIETOR personally audited, the &irm shall engage the services of other independent auditors to conduct the concurring review.

5.

The Firm shall establish procedures for confirming the independence of other firms &ho are performing part of an engagement &hich can be accomplished by:

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(equiring that independence representations be first obtained from other firms who are performing part of the engagement before the start of an engagement and< (equiring that such representations be documented.

III.

PERSONNEL MANAGEMENT

A firm+s quality control system depends heavily on the proficiency of its personnel. 'n ma3ing assignments, the nature and e#tent of supervision to be provided should be considered. =enerally, the more able and e#perienced the personnel assigned to a particular engagement, the less supervision is needed. The ob$ective of the personnel management element of a system of quality control is to provide the firm with reasonable assurance that all personnel have the competency to perform their assigned responsibilities. Attributes or qualities that enhance the competency of personnel who perform, supervise, or review wor3 include integrity, ob$ectivity, intelligence, $udgment, e#perience, and motivation of personnel who perform, supervise and review the wor3. The SOLE PROPRIETOR satisfies this ob$ective by establishing and maintaining the following policies and procedures, 1. All personnel hired by the Firm should possess the characteristics that enable them to perform competently' This policy can be achieved by developing and maintaining hiring standards and evaluating the firm5s personnel needs as follo&s4 : >esignating the Administrative 0ersonnel, under the guidance and direction of the SOLE PROPRIETOR, to be responsible for evaluating the firm+s personnel needs by considering factors such as e#isting clientele, anticipated growth, personnel turnover, and individual advancement. >eveloping criteria that identify attributes, achievements and e#periences desired in entry level and e#perienced personnel. "stablishing criteria for evaluating personal characteristics such as integrity, competence, and motivation.

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Setting guidelines for the additional procedures to be performed when hiring e#perienced personnel, such as performing bac3ground chec3s and inquiring about any outstanding regulatory actions.

2.

The !"E P#!P#$ET!# assigns personnel based on the )no&ledge% s)ills% and abilities re*uired in the circumstances% and the nature and e+tent of supervision needed' This policy shall be implemented by the follo&ing4 : The SOLE PROPRIETOR, upon the recommendation of her audit supervisor, shall be responsible for assigning personnel to engagements based on such factors as, 7 "ngagement type, si1e, significance, comple#ity, and ris3 profile. 7 Speciali1ed e#perience and e#pertise required for the engagement and competencies gained through prior e#perience. 7 0ersonnel availability. 7 Timing of the wor3 to be performed. 7 ontinuity and rotation of personnel.

7 2pportunities for on;the;$ob training. 7 Situations for which independence or ob$ectivity concerns e#ist. : _________________, being the sole proprietor / practitioner, is fully in charge of the firm+s accounting, auditing, and attestation engagements and possesses the competencies needed to accomplish their engagement responsibilities. These competencies include having an understanding of, 7 The role of the firm+s system of quality assurance and the !oard of Accountancy+s ode of 0rofessional "thics for ertified 0ublic Accountants, in assuring the integrity of the accounting, auditing, and attest functions to users of reports.

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7 The performance, supervision, and reporting aspects of the engagement, which ordinarily are gained through participation or training in similar engagements. 7 The professional standards applicable to the engagement and the industry in which the client operates. Such standards include accounting, auditing, and attestation standards, as well as rules and regulations issued by other applicable regulators. 7 The industry in which the client operates, including its organi1ation and operating characteristics, sufficient to identify areas of high or unusual ris3 associated with the engagement, and to evaluate the reasonableness of industry;specific estimates. 7 The s3ills that contribute to sound professional $udgment, including the ability to e#ercise professional s3epticism. 7 /ow the organi1ation uses information technology, and the manner in which information systems are used to record and maintain financial information. .' All accounting and auditing personnel of the Firm shall participate in general and industry6specific continuing professional education 7CPE) and professional development activities that should enable them to accomplish assigned responsibilities and satisfy applicable CPE re*uirements of the 3oard of Accountancy% and other applicable regulators' : The SOLE PROPRIETOR, through the Administrative 0ersonnel, shall maintain an office professional development program that, 7 (equires personnel to participate in professional development programs in accordance with firm guidelines and in sub$ects that are relevant to their responsibilities. 7 Ta3es into account the requirements of the !oard of Accountancy %!2A* in establishing the firm+s 0" requirements.

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7 0rovides course materials for and maintains records of 0" completed by professional personnel. 7 0rovides an orientation and training program for new hires. : "ncourage participation by personnel at each level in the firm in other professional development activities such as e#ternal professional development programs, including graduate level and self;study courses, membership in professional organi1ations, serving on professional committees, writing for professional publications, and spea3ing to professional groups. ommunicate and distribute to personnel, when applicable, changes in accounting, auditing, and independence requirements, and the firm+s guidance with respect to these requirements.

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!nly those individuals &ho have the *ualifications necessary to accomplish the responsibilities they &ill be called on to assume are selected for advancement' : The SOLE PROPRIETOR, shall have the sole authority and responsibility for ma3ing advancement and termination decisions. Such responsibilities include, 7 'dentifying criteria for evaluating personnel at each professional level and for advancement to the ne#t higher level of responsibility. Such criteria give due recognition and reward to the development and maintenance of competence and commitment to ethical principles. 7 'nforming firm personnel about the criteria for advancement to the ne#t higher level of responsibility. 7 >esignating personnel responsible for preparing evaluations and determining when they should be prepared. 7 'nforming personnel that failure to adhere to the firm+s policies and procedures regarding performance quality and commitment to ethical principles may result in disciplinary action.

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7 ?sing forms that include the applicable qualifications when evaluating the performance of personnel. Such forms include qualifications related to performance quality and adherence to ethical principles. 7 (eviewing evaluations on a timely basis with the individual being evaluated. : ounseling personnel regarding their progress and career opportunities by, 7 Annually summari1ing and reviewing with personnel the evaluation of their performance, including an assessment of their progress with the firm. onsiderations should include past performance, future ob$ectives of the individual and the firm, the individual+s assignment preferences, and career opportunities. 7 0eriodically evaluating partners by means counseling, peer evaluation, or self;appraisal, appropriate. 1' of as

Employees are compensated in a manner that provides an incentive and re&ard for *uality &or) and for maintaining independence% integrity% and ob,ectivity' : The SOLE PROPRIETOR shall maintain a compensation system that predominantly rewards employees for the quality of their accounting and auditing wor3. The compensation system rewards personnel involved in the accounting and auditing practice %a* for the quality of their wor3 and their compliance with professional standards, and %b* provide disincentives for behavior that might be perceived as impairing the independence or ob$ectivity of their wor3, for e#ample, the cross selling of certain consulting services.

IV. ACCEPTANCE AND CONTINUANCE OF CLIENTS ENGAGEMENTS

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The ob$ective of the acceptance and continuance of clients and engagements element of a system of quality control is to establish criteria for deciding whether to accept or continue a client relationship and whether to perform a specific engagement for that client. !elow stated policies and procedures provide the firm with reasonable assurance that, : : : : The li3elihood of association with a management lac3s integrity is minimi1ed. client whose

The firm underta3es only those engagements that can be completed with professional competence. The ris3s associated with providing professional services in particular circumstances are appropriately considered. An understanding with the client regarding the services to be performed is reached.

The SOLE PROPRIETOR satisfies this ob$ective, with respect to the initial period for which the firm is performing its service and for subsequent periods, by establishing and maintaining the policies and procedures described as follows, 8. The firm evaluates factors that have a bearing on management5s integrity &hich shall be implemented by4 : : 'nforming personnel of the firm+s policies and procedures for accepting and continuing clients. 2btaining and evaluating available financial information regarding the client and its operations such as annual reports, interim financial statements, reports to and from regulators, income ta# returns, and credit reports before accepting or continuing a client. )a3ing inquiries of client management about the nature and purpose of the services to be provided. )a3ing inquiries of the client+s ban3ers, factors, attorneys, credit services, and others who have business relationships with the entity. ommunicating with the predecessor accountant or auditor when required or suggested by professional standards.

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'f after ta3ing the steps described above, the firm is unable to obtain sufficient information about the prospective client, or there is an indication that management or someone affiliated with the prospective client may be less than reputable, the firm conducts a bac3ground chec3 of the business, its officers, and the person%s* in question. -' The firm 7a) evaluates &hether the engagement can be completed &ith professional competence% 7b) underta)es only those engagements that can be completed &ith professional competence% and 7c) considers the ris) associated &ith providing professional services in particular circumstances' The !"E P#!P#$ET!# shall put this policy into use by4 : "valuating whether the firm has obtained or can reasonably e#pect to obtain the 3nowledge and e#pertise necessary to perform the engagement. Specifying conditions that trigger the requirement to reevaluate a specific client or engagement. The following are e#amples of such conditions, 7 Significant changes in the client, for e#ample, a ma$or change in senior client personnel, ownership, advisers, the nature of its business, or the financial stability of the client. 7 7 hanges in the nature or scope of the engagement, including requests for additional services. hanges in the composition of the firm, for e#ample, the loss of and inability to replace 3ey personnel who are particularly 3nowledgeable about a speciali1ed industry.

7 The decision to discontinue services to clients in a particular industry. 7 The e#istence of conditions that would have caused the firm to re$ect the client or engagement had such conditions e#isted at the time of the initial acceptance. 7 The client has been delinquent in paying fees. %This may also affect the firm+s independence.*

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7 "ngagements for entities operating in highly speciali1ed or regulated industries, including financial institutions, governmental entities, and employee benefit plans. 7 "ngagements that require a burdensome amount of time to complete relative to the available resources of the firm. 7 "ngagements for entities in the development stage. 7 "ngagements in which the client has ignored prior recommendations, for e#ample, recommendations that address deficiencies in internal control. : 2btaining relevant information to determine whether the relationship should be continued, and establishing a frequency for evaluations. ontinuance decisions should be made annually. "valuating the information obtained regarding acceptance or continuance of the client or engagement by having, 7 The S2-" 0(20('"T2( evaluates the information obtained about the client or the specific engagement, including information about the significance of the client to the firm, and ma3e a recommendation about whether the client or engagement should be accepted or continued. 7 The S2-" 0(20('"T2( approves client acceptance form first before start of the engagement . 7 The S2-" 0(20('"T2( approves and signs client continuance if conditions e#ist that trigger the requirement between annual audits to reevaluate a client or engagement. 7 The S2-" 0(20('"T2( evaluates and approves the recommendation made by the Audit Supervisor. 'f the Audit Supervisor recommends not accepting a client or discontinuing a client relationship, The S2-" 0(20('"T2( discusses his or her reasons for the acceptance or continuance decision with the Audit Supervisor.

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The firm obtains an understanding &ith the client regarding the services to be performed by obtaining% for all engagements% a &ritten and signed engagement letter thus minimi/ing the ris) of misunderstanding regarding the nature% scope% and limitations of the services to be performed'

V.

ENGAGEMENT PERFORMANCE

The ob$ective of the engagement performance element of a system of quality control is to provide the firm with reasonable assurance that the wor3 performed by engagement personnel meets the applicable professional standards, regulatory requirements, and the firm+s standards of quality. 0olicies and procedures for engagement performance encompass all phases of the design and e#ecution of the engagement. To the e#tent appropriate and as required by applicable professional standards, these policies and procedures should cover planning, performing, supervising, reviewing, documenting, and communicating the results of each engagement. 0olicies and procedures also should require that personnel refer to authoritative literature or other sources and consult, on a timely basis, with individuals within or outside the firm, when appropriate. 8' Planning for engagements meets professional% regulatory% and the firm5s re*uirements' The S2-" 0(20('"T2( applies this policy by maintaining and providing personnel with the firm+s chec3lists which prescribe the factors the engagement team should consider in the planning process and the e#tent of documentation of those considerations. 0lanning considerations may vary depending on the si1e and comple#ity of the engagement, but generally include, : : : Assigning responsibilities to appropriate personnel during the planning phase. >eveloping or updating bac3ground information on the client and the engagement. >eveloping a planning document that includes, 7 0roposed wor3 engagement. programs tailored to the specific

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7 Staffing requirements and the need for speciali1ed 3nowledge. 7 The economic conditions affecting the client and its industry and their potential effect on the conduct of the engagement. 7 The audit ris3s, including fraud considerations, affecting the client and the engagement and how they may affect the procedures performed. 7 A budget that allocates a sufficient amount of time for the engagement to be performed in accordance with professional standards and the firm+s quality control policies and procedures. 2. The engagement is performed% supervised% revie&ed% documented% and reported 7or communicated) in accordance &ith the re*uirements of professional standards% applicable regulators% and the firm' The SOLE PROPRIETOR applies this policy by, : 0roviding adequate supervision during the course of an engagement. The training, ability, and e#perience of the personnel are considered when assigning supervisors and audit staff to the engagement. (equiring that a written wor3 program be used in all engagements. Adhering to the guidelines set forth by the firm for the form and content of documentation of the wor3 performed and conclusions reached. Such documentation includes standardi1ed forms, chec3lists, and questionnaires used in the performance of engagements and e#planations, when required, of how the firm integrates such aids into engagements. (equiring documentation in the wor3ing papers in accordance with professional standards and the firm+s policies. Adhering to the following guidelines established by the firm regarding review of the documentation of the wor3 performed and conclusions reached, the financial statements, and reports,
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7 All reviewers are to have appropriate e#perience, competence, and responsibility. 7 All wor3 performed and the reports and financial statements issued are to be complete and comply with professional standards and firm policy. 7 &or each engagement, there should be evidence of appropriate review of documentation of the wor3 performed and conclusions reached, the financial statements, and the report. 7 All differences of professional $udgment among members of an Audit Supervisor are to be resolved by the )anager %the S2-" 0(20('"T2(*. The resolution of differences should be appropriately documented. 'f a member of the team continues to disagree with the resolution, he or she may disassociate himself or herself from the resolution of the matter and should be offered the opportunity to document that a disagreement continues to e#ist. .' For high ris) or significant engagements% The !"E P#!P#$ET!# engages the services of another *ualified independent auditor &ithin her net&or) or associations 7&ho may or may not be sole practitioners) to perform concurring revie& or peer revie& on the engagement' The SOLE PROPRIETOR implements this policy by developing procedures with respect to, : The qualifications of the independent auditor performing independent reviews of high;ris3 engagements. The firm+s procedures require that an independent auditor performing peer review, 7 /ave sufficient technical e#pertise and e#perience. 7 arry out his or her responsibilities with ob$ectivity and due professional care without regard to the relative positions of the engagement manager.

7 >o not assume any of the responsibilities of the engagement manager or have responsibility for the audit of any significant subsidiaries, divisions, benefit plans, or affiliated or related entities.
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The nature, timing, and e#tent of the review. The firm+s procedures require that the independent review auditor, 7 >iscusses significant accounting, auditing, and financial reporting matters with the engagement manager %the S2-" 0(20('"T2(*. 7 >iscusses with the SOLE PROPRIETOR and the engagement team the identification and audit of high; ris3 transactions and account balances. 7 /olds a discussion with the engagement team if there has been consultation regarding significant accounting, auditing, or financial reporting matters. 7 (eviews documentation of the resolution of significant accounting, auditing, and financial reporting matters, including documentation of consultation with firm personnel or e#ternal sources. 7 (eviews the summary of unad$usted audit differences, if one e#ists. 7 (eads the financial statements and auditor+s report. 7 onfirms with the SOLE PROPRIETOR or the engagement supervisor that there are no significant unresolved matters.

7 (eviews the wor3ing papers to the e#tent considered necessary or as required by firm policy. 7 ompletes his or her review before the release of the audit report or reissuance of the audit report if the performance of subsequent;events procedures is required by professional standards.

The resolution of conflicting opinions between the SOLE PROPRIETOR or the engagement;in;charge and the independent review auditor regarding significant matters. The policy requires documentation of the resolution of conflicting opinions before the release of the audit report or reissuance of the audit report if the performance of subsequent;events procedures is required by professional standards.
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>ocumentation by the independent review auditor. The firm requires, 7 That the engagement files contain evidence that the firm+s policies and procedures with respect to the requirement for independent auditor were complied with before issuance of the firm+s report. 7 >ocumentation that the independent auditor performed the procedures specified by the firm+s policies as well as the peer review engagement chec3list procedures. 7 >ocumentation that no matters have come to the attention of the independent review auditor that would cause him or her to believe that % a* the financial statements are not in conformity with accounting principles generally accepted in the 0hilippines, in all material respects, or %b*the firm+s audit was not performed in accordance with auditing standards generally accepted in the 0hilippines.

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The firm identifies areas and speciali/ed situations for &hich consultation is necessary and re*uires personnel to refer to authoritative literature and practice aids% and consult% on a timely basis% &ith individuals &ithin or outside the firm &hen appropriate% for e+ample% &hen addressing comple+% unusual% or unfamiliar issues' The SOLE PROPRIETOR implements this policy by, : : 'nforming personnel of the firm+s consultation policies and procedures. (equiring consultation in speciali1ed areas or situations with appropriate individuals within and outside the firm when matters such as the following arise, 7 The application pronouncements. of newly issued technical

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7 'ndustries with special accounting, auditing, or reporting requirements, including unusually comple# accounting transactions. 7 "merging practice problems. 7 hoices among alternative generally accepted accounting principles upon initial adoption or when an accounting change is made.

7 (eissuance of a report, consideration of omitted procedures after a report has been issued, or subsequent discovery of facts that e#isted at the date a report was issued. 7 &iling requirements of regulators. 7 )eetings with regulators at which the firm is to be called on to support the application of generally accepted accounting principles or generally accepted auditing standards that have been questioned. : : 0roviding all professional personnel with adequate and current reference materials. access to

'ncluding all relevant facts, circumstances, the professional literature used, and conclusions reached in the engagement documentation of the wor3 performed and conclusions reached. >ocumenting the resolution of differences of opinion. 'f there is an unresolved disagreement, an outside source may be consulted to assist in determining the appropriate application of accounting principles.

VI.

MONITORING

The ob$ective of the monitoring element of a system of quality control is to provide the firm with reasonable assurance that the policies and procedures relating to the other elements of quality control are suitably designed and effectively applied. )onitoring is an ongoing consideration and evaluation process. The SOLE PROPRIETOR satisfies this ob$ective by establishing and maintaining the policies and procedures as follows,
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The firm considers and evaluates% on an ongoing basis% the relevance and ade*uacy of its *uality control policies and procedures' The SOLE PROPRIETOR, being the sole proprietor and manager is responsible for quality assurance, including, : Assuring that the firm+s quality control policies and procedures and its audit methodology remain relevant and adequate. &actors to be considered include, 7 )ergers and divestitures of portions of the practice. 7 hanges in professional standards or other regulatory requirements applicable to the firm+s practice.

7 (esults of inspections and peer reviews. 7 (eview of litigation and regulatory enforcement actions against the firm and its personnel. 7 The effect that changes in technology may have on a client+s method of doing business. 7 7 : hanges in a client+s industry that may affect its operations. hanges in applicable !2A, 0( requirements. and 0' 0A membership

>etermining whether personnel have been appropriately informed of their responsibilities for maintaining the firm+s standards of quality in performing their duties. 'dentifying the need to, 7 (evise policies and procedures related to the other elements of quality control because they are ineffective or inappropriately designed. 7 'mprove compliance with firm policies and procedures related to the other elements of quality control.

2. The firm considers and evaluates% on an ongoing basis% the appropriateness of its guidance materials and practice aids by4
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(eviewing and evaluating the firm+s practice aids, such as audit programs, forms, and chec3lists, and considering whether they reflect recent professional pronouncements. 0roviding information during staff meetings regarding new professional standards, regulatory requirements, and the related changes that should be made to the firm+s practice aids.

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The firm considers and evaluates% on an ongoing basis% the effectiveness of its professional development activities. The S2-" 0(20('"T2( put this policy into practice as follows, : The SOLE PROPRIETOR, is responsible for reviewing the professional development policies and procedures to determine whether they are appropriate, effective, and meet the needs of the firm. The Administrative 0ersonnel, through the guidance and direction of the SOLE PROPRIETOR shall be designated to review summaries of the 0" records of the firm+s professional personnel to evaluate each individual+s compliance with the requirements of the 0( , 0' 0A and other applicable regulators. Soliciting information from the firm+s personnel during staff meetings regarding the effectiveness of training programs.

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The firm considers and evaluates% on an ongoing basis% its compliance &ith its policies and procedures and &ith professional standards. The SOLE PROPRIETOR implements policy 6 as follows, : The SOLE PROPRIETOR shall be responsible for performing an annual inspection using guidance for performing inspection procedures. These procedures include reviewing a cross;section of engagements using the following criteria in selecting engagements, 7 Significant speciali1ed industries with emphasis on high;ris3 engagements. 7 Audits of the financial statements

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Quality Assurance Process Manual


(for Sole Proprietor)

7 &irst;year engagements. 7 Significant client engagements. 7 -evel of service performed %that is, audit, review, compilation, and attest*. 7 "ngagements performed by all audit personnel having accounting and auditing responsibilities. 7 "ngagements for which there have been complaints or allegations from firm personnel, clients, or other third parties that the wor3 performed by the firm failed to comply with professional standards, regulatory requirements, or the firm+s system of quality control. 7 "ngagements in which there were significant disagreements between the independent review auditor and the engagement in;charge. : "stablishing an approach and timetable for performing the inspection procedures and determining the forms and chec3lists to be used during the inspection and the e#tent of documentation required. >eciding how long to retain detailed documentation %as opposed to summaries*. inspection

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Selecting a sample of engagements for review and reevaluating that selection throughout the process. Selecting other engagement files to determine compliance with the firm+s quality control policies and procedures and reviewing the selected engagements. (eviewing correspondence regarding consultation on independence, integrity, and ob$ectivity matters, and acceptance and continuance decisions. (eviewing the resolution of matters reported by professional personnel regarding independence to determine that matters have been appropriately considered and resolved. Summari1ing findings procedures.
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resulting from the inspection

Quality Assurance Process Manual


(for Sole Proprietor)

0reparing a summary inspection report that evaluates the overall results of the inspection and sets forth any recommended changes that should be made to the firm+s policies and procedures. (eviewing the recommended corrective actions and reaching final conclusions as to the actions to be ta3en. ommunicating inspection findings and quality control changes to all professional personnel. &ollowing up on planned corrective actions to determine whether those actions were ta3en and whether they achieved the intended ob$ective%s*.

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T12 #&32 45&45I2T&5

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