Audit Quality Control: Development of Self-Assessment - Malaysian ...

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guideline is proposed for all SAIs to apply in bothcourts and offices, and to all audits, bothregularity and performance.2.2 International Standard on Quality ControlIn 2004 the International Auditing and AssuranceBoard (IAASB), of the International Federation ofAccountants (IFAC) has approved theInternational Standard on Quality Control (ISQC1) concerning the Quality Control for Firms thatPerform Audits and Reviews of HistoricalFinancial Information and Other Assurance andRelated Services Engagements. In line with therequirement by IFAC, Malaysian Institute ofAccountants (MIA) has imposed that allregistered accountants and auditors (practitioners)in Malaysia to comply with the new QualityControl standards by 30 June 2006. The standardsintroduce several new concepts and requirementsin respect of quality control within auditing firms.As a result, practitioners face with additionalresponsibilities in respect of implementing newquality control safeguards and procedures.ISQC 1 is different from ISA 220 “QualityControl for audits of Historical FinancialInformation” which sets out the quality controlstandards to be applied to individual auditengagements. On the other hand, ISQC 1 dealswith firm wide quality control which providesreasonable assurance that firms and its personnelcomply with professional standards andregulatory and legal requirements; and reportsissued by the firm or engagement partners areappropriate in the circumstances (Holt, 2006,p.14). ISQC 1 sets out six quality controlelements that must be rigorously andcomprehensively addressed. It covers (1)leadership responsibilities for quality within thefirm; (2) Ethical requirements; (3) Acceptanceand continuance of client relationships andspecific engagements; (4) Human resource; (5)Engagement performance; and (6) Monitoring.The standard requires audit firms to documentevidence of the operation of each of the sixelements of its quality control system and retainthat documentation for an appropriate period.3.0 METHODOLOGYThe development of the checklist involved threedifferent stages. First, the researchers formedcommon themes of ISQC 1 dimensions based onseveral sources. This study refers to the ISQC1requirements (MASA 2007), ISQC 1 manualsissued by MIA, MIA Practice ReviewQuestionnaires, MIA By-Laws, AustraliaQuestionnaires on Quality Control for Firms andPakistan’s ISQC 1 Review Self-assessmentQuestionnaire. A series of brainstorming sessionshas been conducted to identify the critical factorsfor each element of ISQC 1.Second, a review with two representatives fromthe MIA was conducted. The representativeswere the manager of technical development andthe manager of practice review. MIA requires apractice review for all audit firms which includescompliance on the ISQC 1 and ISA 220. Both ofthe representatives have thoroughly checked theformat, design and questions of the checklist. Thechecklist was further revised according to theircomments.Third, this study also uses a focus group interviewwith ten audit practitioners to evaluate each itemof the checklist. This method has been appliedpreviously in Sutton (1993). In this session, thepractitioners provide their inputs and discussed indetails the relevancy and usefulness of eachquestion. The conclusion of this session wasmarked by group consensus. Participants werealso required to provide their feedback on theoverall format of the checklist.4.0 PROPOSED SELF-ASSESSMENTCHECKLISTThere are seven dimensions of the quality controlin ISQC 1 (refer to figure 1). Details of thedefinition for each dimension are shown inAppendix 1.EthicalRequirementISQC 1dimensionsClientRelationshipsLeadershipDocumentationMonitoringEngagementPerformanceHumanResourcesFigure 1: Dimensions of ISQC1 auditquality control dimensions4
The structure of the checklist consists of two parts(refer figure 2). The first part presents questionson the policy and procedures and the second partpresents questions regarding the practices.PartPolicy andProceduresExplanationThe part presents the questions onthe policy and procedures on eachelements of ISQC 1. Thequestions shall be answered using“YES” or “NO” option.5.0 SCORE ASSESSMENTAn extension on this checklist is the developmentof score assessment. The score assessment wouldbe weighted according to the importance of eachdimension as well as the type of questions (eitherpolicies and procedures or practices). Audit firmsmay receive scores for each dimension as shownin Figure 4.PracticesThe part comprises of questionson the practices of each elementsof ISQC 1. Each indicator shallbe answered using four-scaleoptions.Figure 2: ISQC1 Self-assessment checklist -formatEthical RequirementClient RelationshipsLeadership109876543210DocumentationMonitoringQuestions on the practices shall be answeredusing four different indicators. The scale enablesthe audit firm to assess the degree to whichpractices and/or processes are in place thatindicate adherence to the indicators. The auditfirm may choose if the practices and/or processesare highly functional in the firm, operational,emerging or not evident (refer to figure 3). Thefirm should use the scale as an opportunity to askitself challenging questions and to respond withaccurate answers geared toward selfimprovement.IndicatorExplanationNot evident No evidence/ documentationexistsEmerging Evidence indicates early orpreliminary stages ofimplementation of practiceOperational Evidence indicates practicesand procedures are activelyHighlyfunctionalimplementedEvidence indicates practicesand procedures are effectivelyand consistently implementedFigure 3: Self-assessment checklist - Definitionsof scaleBased on the discussion with the practitioners, thefinalized questions for each dimension wereagreed consensusly. Details of the question itemsare shown in Appendix 2.Human resourcesEngagementPerformanceFigure 4: ISQC1 Self-assessment scoreOnce the determination of the scores of eachdimensions has been calculated, audit firms willreceived the overall score. This score is rankedinto five different scales (refer to Figure 5). Theoverall assessment score indicates the firm’soverall assessment of meeting the ISQC 1.Level of achievementGood to best practice in manyareasGood to best practice in at leastone areaScore91-100%81-90%Meets minimum standards 71-80%Needs significant improvement inat least one areaNeeds significant improvement inmany areasFigure 5: Overall score assessment61-70%0-60%5
Page 2 and 3: Audit Quality Control: Development
Page 6 and 7: 6.0 CONCLUSIONVery limited studies
Page 8: Appendix 2: Question items for each

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