May 2020 Q5 a.
ISA 220 – Quality Control for an Audit of Financial Statements, deals with the specific responsibilities of the auditor regarding quality control procedures for an audit of financial statements. It also addresses, where applicable, the responsibilities of the engagement quality control reviewer. According to ISA 220, the auditor should consider certain factors before accepting a new engagement or continuing an existing engagement.
Required:
Discuss THREE (3) of such factors. (10 marks)
View Solution
As per ISA 220 – Quality Control for Audits of Financial Statements
Audit firms should only accept a new client or continue an existing client relationship where it;
• Has considered the “Integrity of the Client”
• Is “Competent to perform” the engagement (capabilities / time / resources)
• Is in compliance with “Ethical Requirements”
(1 mark)
Integrity of the Client
• Client Reputation
• Nature of Client Operations
• Attitudes of Key Players (Aggressive Standards Interpretation / internal controls / Low audit fees / limiting scope of work)
• Money Laundering
• Outgoing auditors (reason)
(3 points for 3 marks)
Competency of the Audit Firm to Perform the Engagement
• Knowledge of Industry / Subject Matter
• Experience with Relevant Statutory / Reporting Requirements
• Sufficient Personnel and Time / Capacity
• Experts where Necessary
• Ability to Perform Quality Control Review
(3 points for 3 marks)
Ethical Considerations
• Audit Firm and Individual Personnel – Independence.
• No perceived Conflict of Interest with an existing audit client.
• The company has no dispute with outgoing auditors in terms of fees.
(3 points for 3 marks)