INDEPENDENT REVIEW
Firms should ensure that:
(a) an independent review is undertaken for all audit engagements where
the audited entity is a listed company;
(b) policies setting out the circumstances in which an independent review
should be performed for other audit engagements, whether on the
grounds of the public interest or audit risk, are established;
(c) independent review should take place before the issue of the auditors’’
report in order to provide an objective, independent assessment of the
quality of the audit;
(d) Firms’ policies should set out in detail the manner in which this objective
is to be achieved; and
(e) The independent review is performed by one or more independent
partners having sufficient experience and authority to fulfil the role on
the particular engagement.
“The independent review involves consideration of the following matters
in order to assess the quality of the audit:
(i) the objectivity of the audit engagement partner and key audit
staff and the independence of the firm. This normally includes a
review of the summary of factors that could be perceived as
threatening either, the audit team’s objectivity or the
independence of the firm;
(ii) The rigour of the planning process including the analysis of the
key components of audit risk identified by the audit team and
the adequacy of the planned responses to those risks;
(iii) The results of audit work and the appropriateness of the key
judgements made, particularly in high risk areas;
(iv) The significance of any potential changes to the financial
statements that the firm is aware of but which the management
of the audited entity has declined to make;
(v) Whether all matters which may reasonably be judged by the
auditors to be important and relevant to the directors, identified
during the course of the audit, have been considered for reporting
to the board of directors and/or the audit committee (or their
equivalents); and
(vi) The appropriateness of the draft auditors’ report” (Chitty, 2004).
The independent review:
(a) Does not necessarily involve a detailed review of all audit working
papers, nor does it affect the responsibilities of the audit engagement
partner;
(b) Its purpose is to provide an independent assessment of the quality of
the audit, including the key decisions and significant judgements made;
(c) The extent of the review depends on the complexity of the engagement,
the risks associated with the audit and the experience of the audit;
(d) engagement partner and the audit staff;
(e) The independent review partner is involved sufficiently early to allow
for all materials matters identified during the review process to be dealt
with properly;
(f) Towards the end of the audit the independent partner considers the
adequacy of proposed disclosures in the financial statements relating
to significant matters identified during the course of the audit;
(g) In all cases, the independent review is complete before the issue of the
auditors’ report; and
(h) The scope and conclusions of the independent review are documented.
Monitoring
(a) Firms should appoint a senior audit partner to take responsibility for
monitoring the quality of audits carried out by the firm.
(b) The responsibility for monitoring the quality of audit performance is
different from the responsibility for the establishment of quality control
policy and processes. Wherever possible, the two responsibilities are
undertaken by different senior audit partners.
(c) The objective of monitoring reviews is to provide an independent
assessment of:
(i) the appropriateness of the auditors’ report, and the conduct of
the audit in accordance with auditing standards, ethical and other
regulatory requirements;
(ii) whether the firm’s own quality control policy and processes have
been applied in practice and appropriate consultation has taken
place in relation to difficult or contentious issues’ (Chitty, 2004).
The senior audit partner responsible for the monitoring process should:
(a) Develop procedures for the systematic review of the conduct of a sample
of completed audit engagements. The review is undertaken by competent
individuals who, wherever possible, are independent of those performing
the audit.
(b) Develop appropriate course of action where failures are identified.
Courses of action may involve communication of the findings within the
firm, additional training and professional development.
(c) Ensure changes to the firm’s policies and procedures and disciplinary
action against those who repeatedly fail to comply with the firm’s
standards.
Appendix - Summary of Key Roles Described
Partner who takes responsibility for establishing quality control policy andprocesses:
Must be: a senior audit partner of the firm
Cannot be: an external consultant
Partner who takes responsibility for monitoring the quality of audits:
Must be: a senior audit partner (wherever possible a different partner to
the partner responsible for establishing quality control policy and
processes).
Cannot be: an external consultant Audit engagement partner.
Must be: a partner or other person in the firm who is authorised to issue
an auditors’ report on behalf of the firm.
Cannot be: the ‘independent partner’ for the audited entity or any other
entities in the same group of entities.
Individual who performs an ‘independent review’:
Must be: an ‘independent partner’ with sufficient experience and authority
to fulfil the role; or a suitably qualified external consultant
Cannot be: a partner engaged in the performance of the audit or the provision
of other services or with any other responsibilities for the audited
entity or any entities within the same group of entities
(Source: ACCA Auditing Handbook 2004/2005)
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