UNIVERSITY OF THE EAST

COLLEGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF ACCOUNTANCY, BUSINESS LAW AND TAXATION

Philippine Standards on Quality

Control

Prof. Jherome G. Ng, CPA, MBA, CEA

Related Standards
Related Standards
 Important Terms
Firm. A sole practitioner or partnership of professional accountants
System of Quality Control. Refers to quality control policies and procedures
adopted by CPA firms that are designed to provide reasonable assurance that
the firm and its personnel comply with professional standards and regulatory
and legal requirements and that reports issued by the firm or engagement
partners are appropriate in the circumstances.
 Important Terms
Network firm. A firm or entity that belongs to a
network
Network. A larger structure:
• That is aimed at cooperation, and
• That is clearly aimed at profit or cost-sharing
or shares common ownership, control or
management, common quality control policies
and procedures, common business strategy,
the use of a common brand name, or a
significant part of professional resources.

Back
 Important Terms Back
Engagement quality control review. A process designed to provide an
objective evaluation, on or before the date of the report, of the significant
judgments the engagement team made and the conclusions it reached in
formulating the report. The engagement quality control review process is for
audits of financial statements of listed entities, and those other engagements, if
any, for which the firm has determined an engagement quality control review is
required.

Engagement quality control reviewer. A partner, other person in the firm,

suitably qualified external person, or a team made up of such individuals, none
of whom is part of the engagement team, with sufficient and appropriate
experience and authority to objectively evaluate the significant judgments the
engagement team made and the conclusions it reached in formulating the report.

Suitably qualified external person. An individual outside the firm with the
competence and capabilities to act as an engagement partner, for example a
partner of another firm, or an employee (with appropriate experience) of either a
professional accountancy body whose members may perform audits and
reviews of historical financial information, or other assurance or related services
engagements, or of an organization that provides relevant quality control
services.
Objectives under PSQC 1

Objectives under PSA 220

 Elements of System of Quality Control
PSQC 1 PSA 220

⚫ Leadership responsibilities ⚫ Leadership responsibilities

for quality within the firm for quality on audits
⚫ Relevant ethical ⚫ Relevant ethical
requirements requirements
⚫ Acceptance and continuance ⚫ Acceptance and continuance
of client relationships and of client relationships and
specific engagements audit engagements
⚫ Human resources ⚫ Assignment of engagement
teams
⚫ Engagement performance
⚫ Engagement performance
⚫ Monitoring
⚫ Monitoring
 Element 1: Leadership responsibilities
PSQC 1 PSA 220

⚫ The firm’s chief executive ⚫ The engagement partner

officer (or equivalent), or, if
appropriate, the firm’s
isresponsible
managing board offor the overall
partners (or equivalent)
should assume ultimate
quality on each audit
engagement to which that
responsibility for partner is assigned.
the firm’s system
of quality control.
 Element 1: Leadership responsibilities
PSQC 1 PSA 220
⚫ firm’s chief executive officer (or ⚫ engagement partner
equivalent), or, if appropriate, the
firm’s managing board of partners
(or equivalent)

FIRM
A sole practitioner, partnership or other entity of professional
accountants.

Engagement Team
All partners and staff performing the engagement, and any individuals engaged by the firm or a
network firm who perform procedures on the engagement. This excludes external experts engaged
by the firm or a network firm.

Engagement Partners
The partner or other person in the firm who is responsible for the engagement and its performance,
and for the report that is issued on behalf of the firm, and who, where required, has the appropriate
authority from a professional, legal or regulatory body.

Staff
Professionals, other than partners, including any experts the firm
employs.
 Element 1: Leadership responsibilities
PSQC 1 PSA 220
⚫ Establishment of policies and ⚫ Engagement partner is taking
procedures that address care of importance to audit
performance evaluation, quality of:
compensation, and promotion ➢ performing work that complies
(including incentive systems) with with professional standards and
regard to its personnel, in order to applicable legal and regulatory
requirements;
demonstrate the firm’s overriding
commitment to quality. ➢ complying with the firm’s quality
control policies and procedures
⚫ Assignment of management as applicable;
responsibilities so that commercial ➢ issuing auditor’s reports that are
considerations do not override the appropriate in the
quality of work performed. circumstances; and
⚫ Provision of sufficient resources ➢ the engagement team’s ability to
for the development, raise concerns without fear of
documentation and support of reprisals.
quality control policies and
procedures.
 Element 2: Relevant Ethical Requirements
PSA 220
PSQC 1
⚫ Throughout the audit engagement,
⚫ The firm shall establish policies the engagement partner shall remain
and procedures designed to alert, through observation and
provide it with reasonable making inquiries as necessary, for
assurance that the firm and its evidence of non-compliance with
personnel comply with relevant relevant ethical requirements by
ethical requirements. members of the engagement team.
Element 2: Relevant Ethical Requirements
 Element 2: Relevant Ethical Requirements - Independence
PSQC 1 HOW? At least annually, the firm
⚫ The firm establishes policies and procedures obtains written confirmation of
designed to provide it with reasonable compliance with its policies and
assurance that the firm, its personnel and, procedures on independence from all
where applicable, others subject to firm personnel required to be
independent by relevant ethical
independence requirements (including
requirements.
network firm personnel) maintain
independence where required by relevant HOW? The Philippine Ethics
ethical requirements. Code recognizes that the
familiarity threat is
⚫ Such policies and procedures shall enable the particularly relevant in the
firm to: context of financial statement
➢ communicate its independence requirements to audits of listed entities. For
its personnel and, where applicable, others these audits, the Philippine
subject to them; Ethics Code requires the
rotation of the key audit
➢ identify and evaluate circumstances and
partner after a pre-defined
relationships that create threats to
period, normally no more than
independence, and to take appropriate action to seven years, and provides
eliminate those threats or reduce them to an related standards and
acceptable level by applying safeguards, or, if guidance.
considered appropriate, to withdraw from the
engagement, where withdrawal is permitted by HOW? engagement quality
law or regulation. control review
 Element 2: Relevant Ethical Requirements - Independence
PSA 200
⚫ The engagement partner has to:
 obtain relevant information from the firm and, where applicable, network firms, to
identify and evaluate circumstances and relationships that create threats to
independence;
 evaluate information on identified breaches, if any, of the firm’s independence policies
and procedures to determine whether they create a threat to independence for the audit
engagement;
 take appropriate action to eliminate such threats or reduce them to an acceptable level
by applying safeguards, or, if considered appropriate, to withdraw from the audit
engagement, where withdrawal is possible under applicable law or regulation.
⚫ The engagement partner shall promptly report to the firm any inability to resolve
the matter for appropriate action.

What to do when safeguards may not be able to

eliminate or reduce to an acceptable level?

Private Public
Sector Sector
 Element 3: Acceptance and continuance of client
relationships and specific engagements
PSQC 1 PSA 220
⚫ The firm has to establish policies and ⚫ PSQC 1 (Redrafted) requires the firm to
procedures for the acceptance and obtain information considered necessary in
continuance of client relationships the circumstances before accepting an
and specific engagements, designed engagement with a new client, when
to provide the firm with reasonable deciding whether to continue an existing
engagement, and when considering
assurance that it will only undertake or
Important: Competence, compliance and ofintegrity
acceptance a new engagement with an
continue relationships and existing client. Information such as the
engagements where the firm: following assists the engagement partner in
 is competent to perform the determining whether the conclusions
engagement and has the FIRM-WIDE
capabilities, CLIENT-WIDE
reached regarding the acceptance and
including time and resources, to do so; continuance of client relationships and
 can comply with relevant ethical audit engagements are appropriate:
 The integrity of the principal owners, key management
requirements; and and those charged with governance of the entity;
 has considered the integrity of the  Whether the engagement team is competent to perform
the audit engagement and has the necessary
client, and does not have information capabilities, including time and resources;
that would lead it to conclude that the  Whether the firm and the engagement team can comply
client lacks integrity. with relevant ethical requirements; and
 Significant matters that have arisen during the current or
previous audit engagement, and their implications for
continuing the relationship.
 Element 3: Acceptance and continuance of client
relationships and specific engagements
PSQC 1 PSA 220
⚫ is competent to perform the engagement  Whether the engagement team is
and has the capabilities, including time and competent to perform the audit
resources, to do so; engagement and has the necessary
capabilities, including time and
resources;

Considerations:
✓ knowledge of relevant industries or subject matters
✓ experience with relevant regulatory or reporting requirements, or the
ability to gain the necessary skills and knowledge
✓ effectively
✓ sufficient personnel with the necessary competence and capabilities
✓ experts are available if needed
✓ meeting the criteria and eligibility requirements to perform
engagement quality control review are available, where applicable
✓ able to complete the engagement within the reporting deadline
 Element 3: Acceptance and continuance of client
relationships and specific engagements
PSQC 1 PSA 220
 has considered the integrity of the  The integrity of the principal owners,
client, and does not have information key management and those charged
that would lead it to conclude that the with governance of the entity;
client lacks integrity.
 Element 3: Acceptance and continuance of client
relationships and specific engagements
PSQC 1 PSA 220
 has considered the integrity of the  The integrity of the principal owners,
client, and does not have information key management and those charged
that would lead it to conclude that the with governance of the entity;
client lacks integrity.
 Element 3: Acceptance and continuance of client
relationships and specific engagements

To do list:
✓ Communicate with
predecessors
✓ Inquiry with firm
personnel or seek
third party advise
✓ Database check
 Element 3: Acceptance and continuance of client
relationships and specific engagements

➢If issues have been identified, and the firm

decides to accept or continue the client
relationship or a specific engagement, the
firm has to document how the issues
were resolved.
 Element 3: Acceptance and continuance of client
relationships and specific engagements

➢ Where the firm obtains information that would have caused it

to decline the engagement had that information been
available earlier, such policies and procedures shall include
consideration of:
➢ the professional and legal responsibilities that apply
to the circumstances, including whether there is a
requirement for the firm to report to the person or persons
who made the appointment or, in some cases, to
regulatory authorities; and
➢ the possibility of withdrawing from the engagement or
from both the engagement and the client relationship.
 Element 3: Acceptance and continuance of client
relationships and specific engagements
Policies and procedures on withdrawal from an engagement or from both the
engagement and the client relationship address issues that include the
following:
✓ Discussing with the appropriate level of the client’s management and
those charged with its governance the appropriate action that the firm
might take based on the relevant facts and circumstances.
✓ If the firm determines that it is appropriate to withdraw, discussing with the
appropriate level of the client’s management and those charged with its
governance withdrawal from the engagement or from both the engagement
and the client relationship, and the reasons for the withdrawal.
✓ Considering whether there is a professional, regulatory or legal
requirement for the firm to remain in place, or for the firm to report the
withdrawal from the engagement, or from both the engagement and the
client relationship, together with the reasons for the withdrawal, to
regulatory authorities.
✓ Documenting significant matters, consultations, conclusions and the basis
for the conclusions.
 Element 4: Human Resources
PSQC 1
PSA 220
⚫ Human resources. The firm shall
establish policies and procedures ⚫ The engagement partner
designed to provide it with shall be satisfied that the
reasonable assurance that it has engagement team, and any
sufficient personnel with the auditor’s experts who are not part
competence, capabilities, and of the engagement team,
commitment to ethical principles collectively have the appropriate
necessary to: competence and capabilities to:
 Perform engagements in  Perform the audit engagement in
accordance with professional accordance with professional
standards and regulatory and legal standards and regulatory and legal
requirements; and requirements; and
 Enable the firm or engagement  Enable an auditor’s report that is
partners to issue reports that are appropriate in the circumstances
appropriate in the circumstances. to be issued.

“Right person to the right job”

 Element 4: Human Resources
PSQC 1
Human resources
⚫ Personnel issues relevant to the firm’s policies and
procedures related to human resources include, for
example:
 Recruitment
 Performance evaluation
 Capabilities, including time to perform assignments
 Competence
 Career development
 Promotion
 Compensation
 The estimation of personnel needs
 Element 4: Human Resources
PSQC 1

Competence is the knowledge and

skills necessary to accomplish tasks
that define the individual’s job.

• Competence can be developed through a variety

of methods, including the following:
✓ Professional education
✓ Continuing professional development, including
training
✓ Work experience
✓ Coaching by more experienced staff, for example,
other members of the engagement team
✓ Independence education for personnel who are
required to be independent
 Element 4: Assignment of Engagement Team
PSA 220
Engagement Team
⚫ The engagement partner has to assure that the
engagement team, and any auditor’s experts who are not
part of the engagement team, collectively have the
appropriate competence and capabilities to:
 perform the audit engagement in accordance with
professional standards and applicable legal and regulatory
requirements; and
 enable an auditor to issue a report that is appropriate in the
circumstances.
 Element 4: Assignment of Engagement Team
PSA 220
Engagement Team
⚫ The engagement partner may take into consideration such matters as
the team’s:
 understanding of, and practical experience with, audit engagements of a
similar nature and complexity through appropriate training and participation;
 understanding of professional standards and legal and regulatory
requirements;
 technical expertise, including expertise with relevant information technology
and specialized areas of accounting or auditing;
 knowledge of relevant industries in which the client operates;
 ability to apply professional judgment;
 understanding of the firm’s quality control policies and procedures.
 Element 5: Engagement Performance
PSQC 1 PSA 220
⚫ The firm promotes consistency in the ⚫ The engagement partner has to take
quality of engagement performance responsibility for:
through its policies and procedures.  reviews being performed in
Such policies and procedures have to accordance with the firm’s review
include: policies and procedures;
 matters relevant to promoting  the engagement team undertaking
consistency in the quality of appropriate consultation on difficult or
engagement performance; contentious matters;
 supervision responsibilities;  not dating the auditor’s report until the
 review responsibilities. completion of the engagement quality
control review (where applicable);
 consultation responsibilities.
 following the firm’s policies and
Common Objectives. The firm has to establish procedures for dealing with and
policies and procedures designed to provide it resolving differences of opinion within
with reasonable assurance that the engagement team, with those
• engagements are performed in accordance consulted or, where applicable,
with professional standards and applicable between the engagement partner and
legal and regulatory requirements, and the engagement quality control
• the firm or the engagement partner issue reviewer.
reports that are appropriate in the
circumstances.
 Element 5: Engagement Performance
PSQC 1 and PSA 220
Engagement supervision: the action, process, or occupation of
supervising; especially : a critical watching and directing (as of
activities or a course of action).
Engagement supervision policy and procedure considerations:
 Tracking the progress of the engagement;
 Considering the competence and capabilities of individual members of
the engagement team, whether they have sufficient time to carry out
their work, whether they understand their instructions and whether the
work is being carried out in accordance with the planned approach to the
engagement;
 Addressing significant matters arising during the engagement,
considering their significance and modifying the planned approach
appropriately; and
 Identifying matters for consultation or consideration by more experienced
engagement team members during the engagement.
 Element 5: Engagement Performance
PSQC 1 and PSA 220
Consultation: discussion, at the appropriate level, with individuals
within or outside the firm who have specialized expertise to resolve
a difficult or contentious matter.
Venues for consultation:
 Other firms;
 Professional and regulatory bodies; or
 Commercial organizations that provide relevant quality control
services.
Policy and procedure making considerations:
 Policies on manner of consultation when difficult or contentious
matter arise
 Policies on the availability of sufficient resources for consultation
to successfully take place
 Documentation requirements for consultation including its nature
and scope
 Element 5: Engagement Performance
PSQC 1 and PSA 220
Review: this is determined on the basis that more
experienced engagement team members,
including the engagement partner, review work
performed by less experienced team members
Hot review
Cold review
Peer review
 Element 5: Engagement Performance
PSQC 1 and PSA 220
Hot review. Engagement Quality Control Review
Policies and procedures have to:
 require an engagement quality control review for all audits of financial
statements of listed entities (required for all LISTED ENTITY);
 set out criteria against which all other audits and reviews of historical
financial information and other assurance and related services
engagements shall be evaluated to determine whether an engagement
quality control review should be performed; and
 require an engagement quality control review for all engagements,
if any, meeting the criteria established.

Nature, timing and extent of the engagement quality control review.

• Must be done before issuing the engagement (audit) report.

• Documentation may be completed after issuing the engagement
(audit) report.
 Element 5: Engagement Performance

Need for Engagement Quality

Control Review (ECQR)?

Publicly listed entities Non-publicly listed entities

Audit of FS Other than audit of FS Audit of FS Other than audit of FS

Required Needs to set criteria whether there is a need

Meets the criteria Does not meet the criteria

Required Not Required

 Element 5: Engagement Performance

Engagement Quality Control Review

(by the engagement quality control reviewer)

Nature Timing Extent

• must be started • timely manner at • depends whether

before the date of appropriate stages the entity is publicly
the engagement during the or non-publicly
report but engagement listed entity
documentation can • on or before the • performance of an
be completed after date of the report engagement quality
the engagement control review does
report not reduce the
responsibilities of
the engagement
partner
 Element 5: Engagement Performance

Criteria for the Eligibility of Engagement Quality Control Reviewers

• Sufficient and Appropriate Technical Expertise, Experience and Authority
✓ What constitutes sufficient and appropriate technical expertise, experience and
authority depends on the circumstances of the engagement.
• Consultation with the Engagement Quality Control Reviewer
✓ The engagement partner may consult the engagement quality control reviewer
during the engagement.
• Objectivity of the reviewer
✓ What constitutes sufficient and appropriate technical expertise, experience and
authority depends on the circumstances of the engagement.
• Considerations specific to smaller firms
✓ It may not be practicable, in the case of firms with few partners, for the
engagement partner not to be involved in selecting the engagement quality
control reviewer. Suitably qualified external persons may be contracted where
sole practitioners or small firms identify engagements requiring engagement
quality control reviews. Alternatively, some sole practitioners or small firms may
wish to use other firms to facilitate engagement quality control reviews.
 Element 5: Engagement Performance

Differences of Opinion
• The firm has to establish policies and procedures for dealing with
and resolving differences of opinion within the engagement
team, with those consulted and, where applicable, between the
engagement partner and the engagement quality control
reviewer.
✓ Conclusions reached have to be documented and
implemented.
✓ The report must not be dated until the matter is resolved.
❖Procedures to resolve such differences may include
consulting with another practitioner or firm, or a
professional or regulatory body.
 Element 5: Engagement Performance

Engagement Documentation
• Documentation of the Engagement Quality Control Review
• The firm shall establish policies and procedures on documentation of the
engagement quality control review which require documentation that:
✓ The procedures required by the firm’s policies on engagement quality control
review have been performed;
✓ The engagement quality control review has been completed on or before the
date of the report; and
✓ The reviewer is not aware of any unresolved matters that would cause the
reviewer to believe that the significant judgments the engagement team
made and the conclusions it reached were not appropriate.

• Completion of the Assembly of Final Engagement Files

• Confidentiality, Safe Custody, Integrity, Accessibility and

Retrievability of Engagement Documentation
 Element 6: Monitoring
PSQC 1 PSA 220
⚫ The firm shall establish a monitoring
⚫ An effective system of quality control
process designed to provide it with
reasonable assurance that the policies and includes a monitoring process
procedures relating to the system of quality designed to provide the firm with
control are relevant, adequate, and reasonable assurance that its policies
operating effectively, which must include: and procedures relating to the system
 Include an ongoing consideration and of quality control are relevant,
evaluation of the firm’s system of adequate, and operating effectively.
quality control including, on a cyclical ⚫ The engagement partner shall
basis, inspection of at least one
consider the results of the firm’s
completed engagement for each
engagement partner; monitoring process as evidenced in
 Require responsibility for the
the latest information circulated by the
monitoring process to be assigned to a firm and, if applicable, other network
partner or partners or other persons firms and whether deficiencies noted
with sufficient and appropriate in that information may affect the audit
experience and authority in the firm to engagement.
assume that responsibility; and
 Require that those performing the
engagement or the engagement
quality control review are not involved
in inspecting the engagements.
 Element 6: Monitoring
PSQC 1 and PSA 220

⚫ The firm shall establish a monitoring process designed to

provide it with reasonable assurance that the policies and
procedures relating to the system of quality control are
relevant, adequate, and operating effectively, which must
include:
 Include an ongoing consideration and evaluation of the
firm’s system of quality control including, on a cyclical
basis, inspection of at least one completed engagement for
Same purposes each engagement partner;
with other  Require responsibility for the monitoring process to be
assigned to a partner or partners or other persons with
elements sufficient and appropriate experience and authority in the
firm to assume that responsibility; and
 Require that those performing the engagement or the
engagement quality control review are not involved in
inspecting the engagements.
Element 6: Monitoring
PSQC 1 and PSA 220
 Element 6: Monitoring
PSQC 1 and PSA 220
Inspection
⚫ The inspection process includes the selection of individual
engagements, some of which may be selected without
prior notification to the engagement team.
⚫ Performed in a cyclical basis.
⚫ Engagements selected for inspections include at least
one engagement for each engagement partner over an
inspection cycle, which ordinarily spans no more than
three years.
 Element 6: Monitoring
PSQC 1 and PSA 220
Others:
Element 6: Monitoring
PSQC 1 and PSA 220
Element 6: Monitoring
PSQC 1 and PSA 220
 UNIVERSITY OF THE EAST
COLLEGE OF BUSINESS ADMINISTRATION
DEPARTMENT OF ACCOUNTANCY, BUSINESS LAW AND TAXATION

Philippine Standards on Quality

Control

Prof. Jherome G. Ng, CPA, MBA, CEA

End of Discussion