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

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6.0 CONCLUSIONVery limited studies have examined the issue ofaudit quality directly in small and medium auditfirms. This study develops a self-assessmentchecklist of audit quality control based on therequirements in ISQC 1 for small and mediumaudit firms. Using a focus group interviewmethod, it is hoped that the feedback from thepractitioner in small and medium audit firms maycontribute to the understanding of audit quality.Furthermore, most past studies measure auditquality using audit firm size. This study,however, shows a direct proxy measure for auditquality.The audit quality control assessment provides apractical implication such that this is to enhanceaudit quality among small and medium auditfirms. A well-recognized audit quality of theorganization would make customers’ choiceseasier and lowers their expectation of risk. It alsobuilds loyalty, leads to repeat business, andencourages current clients to refer theorganization to others (Brinkley, 2006).This self-assessment checklist is not meant for apass-fail test or a competition. It is designed as adiagnostic tool in order to enhance understandingof each firm in comparison to the aspirationalpractices described in the ISQC 1. The scoreassessment could enable firms to pinpoint areasfor improvement.REFERENCESArrunada, B. 2004. Audit failure and the crisis ofauditing. European Business OrganizationLaw Review 5: 635-643.Arrunada, B. 2000. Audit quality: attributes,private safeguards and the role of regulation.The European Accounting Review 9 (2): 205-224.Brinkley, M. 2006. Health check for the auditbrands. Internal Auditor (June): 79-83.Carcello, J.V., Hermanson, R.H. & McGrath,N.T. 1992. Audit quality attributes: Theperceptions of audit partners, preparers, andfinancial statement users. Auditing:A Journaiof Practice & Theory, 11 (1): 1-15.DeAngelo, L. E. 1981. Auditor size and auditquality. Journal of Accounting andEconomics 3: 183-199.Dupoch, N. & D. Simunic 1982. Competing inAuditing: An assessment. Paper presented atSyposium on Auditing Research IV.University of Illanois at Urbana-Champaign.Krishnan, J. & Schauer, P.C. 2000. Thedifferentiation of quality among auditors:Evidence from the not-for-profit sector.Auditing 19 (2): 9-25.Malaysian Approved Standards on Auditing(MASA). 2007. Malaysian Institute ofAccountants.Mazur, J., Revesz, J., Vella, B. & Havens, H.2005. Guidelines on Audit Quality.International Journal of GovernmentAuditing 32 (2): 10-14.Moore, G. and W.R. Scott. 1989. Auditors’ LegalLiability, Collusion with Management andInvestors’ Loss. Contemporary AccountingResearch. Spring :754 -774.Omar, N. & Mohd Alwi, M.J. 2007. Internationalstandard on Quality Conrol (ISQC 1): Asurvey report for the Malaysian Institute ofAccountants (MIA), Working Paper,Universiti Teknologi MARA.Palmrose, Z-V. 1988. An analysis of auditorlitigation and audit service quality. TheAccounting Review (January): 55–73.Sutton, S.G. 1993. Toward an understanding ofthe factors affecting the quality of the auditprocess. Decision Sciences 24 (1): 88-105.6
Appendix 1: Definition of each ISQC 1 elementsNo. Element Definition1. Leadershipresponsibilities forquality within thefirmThe firm shall establish policies and procedures designed topromote an internal culture based on the recognition that quality isessential in performing engagements. Such policies and proceduresshall require the firm’s chief executive officer (or equivalent) or, ifappropriate, the firm’s managing board of partners (or equivalent),to assume ultimate responsibility for the firm’s system of qualitycontrol2. Ethical requirements The firm shall establish policies and procedures designed to provide itwith reasonable assurance that the firm and its personnel comply withrelevant ethical requirements3. Acceptance andcontinuation of clientrelationships andspecific engagementsThe firm shall establish policies and procedures for the acceptanceand continuance of client relationships and specific engagements,designed to provide it with reasonable assurance that it will onlyundertake or continue relationships and engagements where it: (a)Has considered the integrity of the client and does not haveinformation that would lead it to conclude that the client lacksintegrity; (b) Is competent to perform the engagement and has thecapabilities, time and resources to do so; and (c) Can comply withrelevant ethical requirements4. Human resources The firm should establish policies and procedures designed toprovide it with reasonable assurance that it has sufficient personnelwith the capabilities, competence, and commitment to ethicalprinciples necessary to perform its engagements in accordance withprofessional standards and regulatory and legal requirements, and toenable the firm or engagement partners to issue reports that areappropriate in the circumstances5. EngagementperformanceThe firm should establish policies and procedures designed toprovide it with reasonable assurance that engagements areperformed in accordance with professional standards and regulatoryand legal requirements, and that the firm or the engagement partnerissues reports that are appropriate in the circumstances6. Monitoring The firm should establish policies and procedures designed toprovide it with reasonable assurance that the policies andprocedures relating to the system of quality control are relevant,adequate, operating effectively and complied with in practice. Suchpolicies and procedures should include an ongoing considerationand evaluation of the firm’s system of quality control, including aperiodic inspection of a selection of completed engagements7. Documentation The firm shall establish policies and procedures for thedocumentation to provide evidence of the operation of each elementof the system of quality control(Source: MASA 2007)7
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