Question Tag: Audit Processes

You have just joined the partnership of a small firm of Chartered Accountants, SMP Accountants & Partners, and have been asked to prepare a communication brief for distribution to all staff, which will then be followed by a presentation with a question-and-answer session. The communication brief required is regarding quality control procedures and audit working papers.

ISA 220 requires quality control procedures to be implemented at the engagement level, and ISQC 1 requires them to be implemented at the level of the audit firm. The partners are concerned that the firm’s quality control procedures may not be satisfactory as they have never been reviewed since they were first implemented five years ago. In addition, staff are able to read the policies and procedures in the staff manual, but there are currently no other ways in which the information is communicated to them.

Required:

a. Prepare a communication brief for distribution to all staff, which sets out: i. why quality control policies and procedures are necessary
ii. the areas that should be covered by quality control policies
iii. procedures that would be required to ensure that the policies are met.
(12 Marks)

b. Answer the following queries which were asked at the question-and-answer session:
i. What is the difference between a hot review and a cold review, and why are both necessary?
ii. Why is it so important that all audit reasons and justifications are documented in the working papers when it should be obvious from test results what the key issues are?
iii. Why do audit working papers have to be standardized since this inhibits auditors exercising their skills and experience in the most effective way?
(8 Marks)

(Total: 20 Marks)