Insights of QRB Report

Government of India has, in exercise of the powers conferred under section 28A of the Chartered Accountant Act 1949, constituted Quality Review Board to make recommendations to the Council with regard to the quality of services ( including audit services) provided by the member of the Institute and to guide member of the institute to improve the quality of services and adherence to the various statutory and other regulatory requirements.

Quality Review Board(QRB) was established by Parliament of India with the mandate to review the quality of audit services provided by the members of the ICAI and to guide its members to improve the quality of audit services. QRB also notes failure to adhere to the various statutory and other regulatory requirements.

From the inception, it is continued endeavour of the QRB to oversee the Audit firm’s audit quality services and to ensure that the audit firms deficiencies in statutory audit services for listed and other public interest entities, in particular , are being appropriately and suitably addressed.

Keeping in view the experience gained during the process of reviews being carried out by the QRB as well as international practices and requirements for audit oversight , the Board has formed study groups for the following areas :

?Toundertake holistic examination of the “ Procedure for Quality Review of Audit review, criteria used for the selection of the firms, review team composition, reporting, confidentiality and other aspects make recommendations to the Board for suggesting appropriate amendments.

?Tosuggest measure to raise audit quality bar in line with the stakeholders perceptions towards high quality financial reporting, effective audits and good corporate governance.

?Tosuggest framework for undertaking Root cause analysis of review findings.

Root causes and Takeaways for Key findings

Insight		Root Causes		Takeaways for Audit Firms	SA
Quality Control	1.	Audit firm did not have comprehensive SQC	1.	Improve implementation and documentation	SQC-1
Framework		document on various elements of quality		for various elements of the systems of quality
		control or was not backed by evidence		control as per SQC-1
		supporting implementation.	2.	Maintain policy & procedure to notify
	2.	CEO and Managing Partner did not fully		breaches of independence requirements
		recognize how audit environment had	3.	Provide eligibility and maintain objectivity of
		changed, and did not understand required		engagement quality control reviewer (EQCR)
		quality control system to be implemented.	4.	Maintain Staff appraisal policy
	3.	CEO and Managing Partner did not take action	5.	Maintain policies and procedures with regard
		to enhance Partners awareness, capabilities		to engagement performance, engagement
		and competence to improve audit quality and		documentation and archival process
		perform audit engagements.	6.	Improve monitoring mechanism and take
	4.	Failure to allocate sufficient resources,		corrective actions for any of the deficiency
		enough time and experienced, competent		identified during inspection process and
		engagement team including EQCR.		communicate to its partner.
	5.	Failure to implement policies and procedures
		for acceptance and continuance of
		engagements.
	6.	Failure to test independence on engagements
		ensuring independence at all times.
	7.	Failure to have learning calendar and ensuring
		that firm’s partners and employees are
		complying ICAI CPE rules.
	8.	Failure to implement elements of monitoring
		activity.

Agreeing Terms of			1.	Agree on terms of audit engagement with		Para 3 of SA 210
Audit Engagement				management
			2.	Cover all aspects of the objective and scope of
				audit, responsibilities of the management and
				auditors in the EL
			3. Identify the applicable financial reporting
				framework in EL
			4.	Make reference to expected form and content
				of any reports to be issued
			5. EL		should be signed and dated within a
				reasonable time from date of appointment
Audit	1.	Audit firm’s personnel did not fully recognise	1.	Prepare audit documentation on a timely basis		Para 5 of SA 230
Documentation		the importance of audit documentation.		duly recording who performed and reviewed
	2. Engagement team did not fully verify whether			audit work and the date/s of completion and
		audit documentation was prepared.		review
	3. Engagement Partner did not review audit		2.	Prepare audit documentation to understand:
		documentation nor provided sufficient		•	Nature, timing and extent of audit
		attention because they placed too much			procedures performed to comply with SAs
		confidence on sharing awareness of entity			and applicable legal and regulatory
		issues and audit procedures to be performed			requirements
		among their engagement team.		• Results of audit procedures performed,
	4. Engagement Partner did not provide sufficient				and audit evidence obtained
		direction and supervision to less experienced		• Significant matters arising during audit,
		audit practitioners despite they were in			conclusions reached, and significant
		majority due to frequent turnover.			professional judgments made
	5.	Engagement Partner did not conduct	3.	Document decisions of significant matters
		sufficient review of audit documentation.		with management and those charged with
	6. Engagement Partner did not have proper			governance
		EQCR in place.	4.	Put in place EQCR system and ensure
				compliance

	7.	Audit firm did not have in place education	5.	Put in place education/training system with
		system with due consideration of experience		due consideration of experience of audit
		of audit practitioners, scope of their audit		practitioners, scope of their audit
		engagements, newly adopted audit standards		engagements, newly adopted audit standards
		and other relevant factors.		and other relevant factors
			6.	Comply with policies and procedures for
				assembly and archival of work papers within
				stipulated time.
A u d i t o r ’ s			1.	Maintain professional scepticism through out	Para 10 of SA-240
Responsibilities				the audit period
relating to fraud in			2.	Make inquires of management and other
audit of FS				within the entity and not merely with MD and
				CFO. Inquiry should also be made with
				Chairman, Audit Committee, Board Members,
				Internal Audit Team, KMP and others not
				generally associated with audit on regular
				basis
			3.	Identify and sufficiently respond to significant
				risks such as revenue recognition, journal
				entries and related parties by adequately
				performing sufficient work in the areas
				identified
			4.	Review of accounting estimates for biases and
				performing adequate work
			5.	Review policies frequently to determine if the
				materiality policies are still appropriate in
				terms of requirement of SAs

Risk Assessment	1.	Audit firm failed to establish overall audit
and Responses to		strategy
Assessed Risk	2.	Audit firm failed to include in the audit plan
		about the planned audit procedures including
		identification and assessment of risk of
		material misstatements that are required to
		be carried out so that the engagement
		complies with SAs.
	3.	Audit firm failed to implement a suitable
		sampling methodology and document on file
		any calculations as proof thereof and that the
		extent of testing is an adequate response to
		the assessed risk levels.
	4.	Audit firm failed to test IT related controls,
		testing IT generated reports, changes to IT
		systems and have adequate IT personnel on
		engagement.
	5.	Lack of appropriate audit tools, training and
		experienced staff as well as review.
	6.	Audit firm failed to document design and
		effectiveness of controls and performing
		appropriate test of controls.

Perform risk assessment procedure to provide SA 300, 315, 320,330 a basis for identification and assessment of

risks of material misstatement at the financial statement and assertion levels.

Obtain understanding of nature of entity, its operations, its ownership and governance structures, type of investments that the entity is making and plans to make, including investments in SPEs.

Obtain understanding internal control relevant to the audit

Design and perform further audit procedures whose nature, timing and extent are based on and are responsive to assessed risk of material misstatement at the assertion level.

Include in the audit plan about the planned audit procedures including identification and assessment of risk of material misstatements and appropriate audit responses that are required to be carried out so that engagement complies with SAs.

Test IT related controls, IT generated reports and have appropriate planned procedures including changes to IT systems and have appropriate IT personnel on engagement.

Document the design and effectiveness of controls and performing appropriate test of controls to obtain sufficient appropriate audit evidence.

Audit Evidence	1.	Engagement team identifies significant risks
		but completes audit procedures only by
		inquiry without obtaining sufficient
		appropriate audit evidence.
	2.	Engagement team identifies inconsistencies
		and irregularities with other audit evidence
		but does not determine the necessity of
		additional audit procedures.
	3.	Even though the assessed risk of material
		misstatement is high, the engagement team
		performs the tests of details only by obtaining
		the entity’s internal vouchers and other less
		reliable audit evidence without assessing the
		quality of the obtained auditevidence.
	4.	During sampling among the audit procedures
		in response to the assessed risk, the
		engagement team does not select samples
		from the appropriate selection range to reach
		a conclusion for the entire population
	5.	Engagement team did not perform audit
		procedures to comprehensively understand
		the related parties.
	6.	Engagement team did not perform procedures
		on the management’s methods and data used
		for accounting estimates.
	7.	Engagement team did not assess the
		management’s bias.

Design and perform audit procedures that are appropriate in circumstances for obtaining sufficient appropriate audit evidence.
Maintain control over external confirmation requests while using external confirmation procedures.

Select items for the sample in such a way that each sampling unit in the population has a chance of selection.

Perform audit procedures to comprehensively understand related parties

Appropriately identify and assess risks of material misstatement in accounting estimates, and perform appropriate audit procedures to address such risks

Perform analytical procedures during planning stage, audit performance and when forming overall conclusion as to whether financial statements are consistent with auditor’s understanding ofentity.

Maintain documentation for work performed.

SA – 500, 505, 510, 520, 530, 540, 550, 570 and 580

Audit Conclusions	1.	Audit firm does not conclude the audit opinion
and Reporting		at the end of the audit, based on audit
		evidence obtained and sometimes they have
		pressure to complete the audit ontime

Form an opinion on FS based on evaluation of Para 6 of SA 700 conclusions drawn from audit evidence

obtained and express clearly that opinion through written report that also describes the basis for opinion.

Obtain reasonable assurance about whether FS as a whole are free from material misstatements, whether due to fraud or error.

Modify opinion in auditor’s report and conclude, based on audit evidence obtained, that the financial statements as a whole are not free from material misstatement. Have appropriate consultations within the Firm for any modifications to the audit report and document such consultations as part of work papers.

Include an Emphasis of Matter paragraph in auditor’s report to draw users’ attention to matter presented or disclosed in financial statements that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding.