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ED SSA Quality Control

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ED SSA Quality Control

     SINGAPORE

    STANDARD SSA 220

    ON AUDITING

    Quality Control for Audits of Historical Financial Information

The Singapore Standard on Auditing SSA 7 “Quality Control for Audit

    Work” was approved by the Council of the Institute of Certified Public

    Accountants of Singapore in September 1996.

SSA 220 supersedes SSA 7 of the same title in June 2004.

This revised SSA 220 supersedes SSA 220 “Quality Control for Audit

    Work” in March 2005.

Auditors are required to comply with the auditing standards contained

    in this SSA in respect of audits of historical financial information for

    periods beginning on or after 15 June 2005.

    Singapore Standards on Auditing (SSAs) are to be applied in the audit of financial statements. SSAs are also to be applied, adapted as necessary, to the audit of other information and to related services.

    SSAs contain the basic principles and essential procedures (identified in bold type black lettering) together with related guidance in the form of explanatory and other material. The basic principles and essential procedures are to be interpreted in the context of the explanatory and other material that provide guidance for their application.

    To understand and apply the basic principles and essential procedures together with the related guidance, it is necessary to consider the whole text of the SSA including explanatory and other material contained in the SSA, not just that text which is black lettered.

    In exceptional circumstances, an auditor may judge it necessary to depart from an SSA in order to more effectively achieve the objective of an audit. When such a situation arises, the auditor should be prepared to justify the departure.

SSAs need only be applied to material matters.

    The Public Sector Perspective (PSP) is set out at the end of an SSA. Where no PSP is added, the SSA is applicable in all material respects to the public sector.

    SSA 220

    SINGAPORE STANDARD ON AUDITING 220

    QUALITY CONTROL FOR AUDIT

    CONTENTS

     Paragraphs Foreword Introduction 1 - 4 Definitions 5 Leadership Responsibilities for Quality on Audits 6 - 7 Ethical Requirements 8 - 13 Acceptance and Continuance of Client Relationships and Specific Audit Engagements 14 - 18 Assignment of Engagement Teams 19 - 20 Engagement Performance 21 - 40 Monitoring 41 - 42 Effective Date 43

    SSA 220

    SINGAPORE

    STANDARD SSA 220

    ON AUDITING

    QUALITY CONTROL FOR AUDITS OF HISTORICAL

    FINANCIAL INFORMATION

Foreword

This Standard is based on International Standard on Auditing 220.

Introduction

1. The purpose of this Singapore Standard on Auditing (SSA) is to establish standards and

    provide guidance on specific responsibilities of firm personnel regarding quality control

    procedures for audits of historical financial information, including audits of financial statements.

    This SSA is to be read in conjunction with both the ICPAS and the Accounting and Corporate

    Regulatory Authority Codes of Professional Conduct and Ethics (the ICPAS and ACRA

    Codes).

2. The engagement team should implement quality control procedures that are applicable

    to the individual audit engagement.

3. Under Singapore Standard on Quality Control (SSQC) 1, “Quality Control for Firms that

    Perform Audits and Reviews of Historical Financial Information, and Other Assurance and

    Related Services Engagements,” a firm has an obligation to establish a system of quality

    control designed to provide it with reasonable assurance that the firm and its personnel

    comply with professional standards and regulatory and legal requirements, and that the

    auditor’s reports issued by the firm or engagement partners are appropriate in the

    circumstances.

4. Engagement teams:

    (a) Implement quality control procedures that are applicable to the audit engagement;

    (b) Provide the firm with relevant information to enable the functioning of that part of the

    firm’s system of quality control relating to independence; and

    (c) Are entitled to rely on the firm’s systems (for example in relation to capabilities and

    competence of personnel through their recruitment and formal training; independence

    through the accumulation and communication of relevant independence information;

    maintenance of client relationships through acceptance and continuance systems; and

    adherence to regulatory and legal requirements through the monitoring process), unless

    information provided by the firm or other parties suggests otherwise.

Definitions

5. In this SSA, the following terms have the meanings attributed below:

    (a) “Engagement partner” – the partner or other person in the firm who is responsible for

    the audit engagement and its performance, and for the auditor’s report that is issued on

    behalf of the firm, and who where required, has the appropriate authority from a

    professional, legal or regulatory body;

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    SSA 220

    (b) “Engagement quality control review” – a process designed to provide an objective

    evaluation, before the auditor’s report is issued, of the significant judgments the

    engagement team made and the conclusions they reached in formulating the auditor’s

    report;

    (c) “Engagement quality control reviewer” – a partner, other person in the firm, suitably

    qualified external person, or a team made up of such individuals, with sufficient and

    appropriate experience and authority to objectively evaluate, before the auditor’s report

    is issued, the significant judgments the engagement team made and the conclusions

    they reached in formulating the auditor’s report;

    (d) “Engagement team” –all personnel performing an audit engagement, including any

    experts contracted by the firm in connection with that audit engagement;

    (e) “Firm” a sole practitioner, partnership, corporation or other entity of professional

    accountants;

    (f) “Inspection” – in relation to completed audit engagements, procedures designed to

    provide evidence of compliance by engagement teams with the firm’s quality control

    policies and procedures;

    (g) “Listed entity” – an entity whose shares, stock or debt are quoted or listed on a

    recognized stock exchange, or are marketed under the regulations of a recognized

    stock exchange or other equivalent body;

    (h) “Monitoring” a process comprising an ongoing consideration and evaluation of the

    firm’s system of quality control, including a periodic inspection of a selection of ? an entity under common control, ownership or management with the completed engagements, designed to enable the firm to obtain reasonable assurance firm or any entity that a reasonable and informed third party having knowledge of all that its system of quality control is operating effectively; relevant information would reasonably conclude as being part of the firm nationally or (i) “Network firm”internationally;

    (j) “Partner” – any individual with authority to bind the firm with respect to the performance

    of a professional services engagement;

    (k) “Personnel” – partners and staff;

    (l) “Professional standards” – ICPAS engagement standards and relevant ethical

    requirements, which ordinarily comprise both the ICPAS and PAB Codes;

    (m) “Reasonable assurance” – in the context of this SSA, a high, but not absolute, level of

    assurance;

    (n) “Staff” – professionals, other than partners, including any experts the firm employs; and

    (o) “Suitably qualified external person” – an individual outside the firm with the capabilities

    and competence 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 of historical financial information or of an

    organization that provides relevant quality control services.

    Leadership Responsibilities for Quality on Audits

    6. The engagement partner should take responsibility for the overall quality on each audit

    engagement to which that partner is assigned.

    7. The engagement partner sets an example regarding audit quality to the other members of the

    engagement team through all stages of the audit engagement. Ordinarily, this example is

    provided through the actions of the engagement partner and through appropriate messages to

    the engagement team. Such actions and messages emphasize:

    (a) The importance of:

    (i) Performing work that complies with professional standards and regulatory and

    legal requirements;

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    SSA 220

    (ii) Complying with the firm’s quality control policies and procedures as applicable;

    and Ethical Requirements (iii) Issuing auditor’s reports that are appropriate in the circumstances; and

    8. The engagement partner should consider whether members of the engagement team (b) The fact that quality is essential in performing audit engagements. have complied with ethical requirements.

    9. Ethical requirements relating to audit engagements ordinarily comprise both the ICPAS and

    PAB Codes together with national requirements that are more restrictive. The ICPAS and PAB

    Codes establish the fundamental principles of professional ethics, which include:

    (a) Integrity;

    (b) Objectivity;

    (c) Professional competence and due care;

    (d) Confidentiality; and

    (e) Professional behaviour.

    10. The engagement partner remains alert for evidence of non-compliance with ethical

    requirements. Inquiry and observation regarding ethical matters amongst the engagement

    partner and other members of the engagement team occur as necessary throughout the audit

    engagement. If matters come to the engagement partner’s attention through the firm’s

    systems or otherwise that indicate that members of the engagement team have not complied

    with ethical requirements, the partner, in consultation with others in the firm, determines the

    appropriate action.

    11. The engagement partner and, where appropriate, other members of the engagement team,

    document issues identified and how they were resolved.

    Independence

    12. The engagement partner should form a conclusion on compliance with independence

    requirements that apply to the audit engagement. In doing so, the engagement partner

    should:

    (a) Obtain relevant information from the firm and, where applicable, network firms, to

    identify and evaluate circumstances and relationships that create threats to

    independence;

    (b) 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;

    (c) Take appropriate action to eliminate such threats or reduce them to an acceptable

    level by applying safeguards. The engagement partner should promptly report to

    the firm any failure to resolve the matter for appropriate action; and

    (d) Document conclusions on independence and any relevant discussions with the

    firm that support these conclusions.

    13. The engagement partner may identify a threat to independence regarding the audit

    engagement that safeguards may not be able to eliminate or reduce to an acceptable level. In

    that case, the engagement partner consults within the firm to determine appropriate action,

    which may include eliminating the activity or interest that creates the threat, or withdrawing

    from the audit engagement. Such discussion and conclusions are documented.

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    SSA 220

Acceptance and Continuance of Client Relationships and Specific Audit

    Engagements

    14. The engagement partner should be satisfied that appropriate procedures regarding the

    acceptance and continuance of client relationships and specific audit engagements

    have been followed, and that conclusions reached in this regard are appropriate and

    have been documented.

15. The engagement partner may or may not initiate the decision-making process for acceptance

    or continuance regarding the audit engagement. Regardless of whether the engagement

    partner initiated that process, the partner determines whether the most recent decision

    remains appropriate.

16. Acceptance and continuance of client relationships and specific audit engagements include

    considering:

    ? The integrity of the principal owners, key management and those charged with

    governance of the entity;

    ? Whether the engagement team is competent to perform the audit engagement and has

    the necessary time and resources; and

    ? Whether the firm and the engagement team can comply with ethical requirements.

    Where issues arise out of any of these considerations, the engagement team conducts the

    appropriate consultations set out in paragraphs 30-33, and documents how issues were

    resolved.

17. Deciding whether to continue a client relationship includes consideration of significant matters

    that have arisen during the current or previous audit engagement, and their implications for

    continuing the relationship. For example, a client may have started to expand its business

    operations into an area where the firm does not possess the necessary knowledge or

    expertise.

    18. Where the engagement partner obtains information that would have caused the firm to

    decline the audit engagement if that information had been available earlier, the

    engagement partner should communicate that information promptly to the firm, so that

    the firm and the engagement partner can take the necessary action.

Assignment of Engagement Teams

    19. The engagement partner should be satisfied that the engagement team collectively has

    the appropriate capabilities, competence and time to perform the audit engagement in

    accordance with professional standards and regulatory and legal requirements, and to

    enable an auditor’s report that is appropriate in the circumstances to be issued.

20. The appropriate capabilities and competence expected of the engagement team as a whole

    include the following:

    ? An understanding of, and practical experience with, audit engagements of a similar

    nature and complexity through appropriate training and participation.

    ? An understanding of professional standards and regulatory and legal requirements.

    ? Appropriate technical knowledge, including knowledge of relevant information

    technology.

    4 ? Knowledge of relevant industries in which the client operates.

    ? Ability to apply professional judgment.

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     ? An understanding of the firm’s quality control policies and procedures. Engagement Performance

    21. The engagement partner should take responsibility for the direction, supervision and

    performance of the audit engagement in compliance with professional standards and

    regulatory and legal requirements, and for the auditor’s report that is issued to be

    appropriate in the circumstances.

    22. The engagement partner directs the audit engagement by informing the members of the

    engagement team of:

    (a) Their responsibilities;

    (b) The nature of the entity’s business;

    (c) Risk-related issues;

    (d) Problems that may arise; and

    (e) The detailed approach to the performance of the engagement.

    The engagement team’s responsibilities include maintaining an objective state of mind and an

    appropriate level of professional scepticism, and performing the work delegated to them in

    accordance with the ethical principle of due care. Members of the engagement team are

    encouraged to raise questions with more experienced team members. Appropriate

    communication occurs within the engagement team.

    23. It is important that all members of the engagement team understand the objectives of the work

    they are to perform. Appropriate team-working and training are necessary to assist less

    experienced members of the engagement team to clearly understand the objectives of the

    assigned work.

    24. Supervision includes the following:

    ? Tracking the progress of the audit engagement.

    ? Considering the capabilities and competence 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 audit engagement. ? Addressing significant issues arising during the audit engagement, considering their

    significance and modifying the planned approach appropriately. ? Identifying matters for consultation or consideration by more experienced engagement

    team members during the audit engagement.

    25. Review responsibilities are determined on the basis that more experienced team members,

    including the engagement partner, review work performed by less experienced team members.

    Reviewers consider whether:

    (a) The work has been performed in accordance with professional standards and regulatory

    and legal requirements;

    (b) Significant matters have been raised for further consideration;

    (c) Appropriate consultations have taken place and the resulting conclusions have been

    documented and implemented;

    (d) There is a need to revise the nature, timing and extent of work performed;

    (e) The work performed supports the conclusions reached and is appropriately documented;

    (f) The evidence obtained is sufficient and appropriate to support the auditor’s report; and

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    (g) The objectives of the engagement procedures have been achieved.

26. Before the auditor’s report is issued, the engagement partner, through review of the

    audit documentation and discussion with the engagement team, should be satisfied

    that sufficient appropriate audit evidence has been obtained to support the

    conclusions reached and for the auditor’s report to be issued.

27. The engagement partner conducts timely reviews at appropriate stages during the

    engagement. This allows significant matters to be resolved on a timely basis to the

    engagement partner’s satisfaction before the auditor’s report is issued. The reviews cover

    critical areas of judgment, especially those relating to difficult or contentious matters identified

    during the course of the engagement, significant risks, and other areas the engagement

    partner considers important. The engagement partner need not review all audit documentation.

    However, the partner documents the extent and timing of the reviews. Issues arising from the

    reviews are resolved to the satisfaction of the engagement partner.

28. A new engagement partner taking over an audit during the engagement reviews the work

    performed to the date of the change. The review procedures are sufficient to satisfy the new

    engagement partner that the work performed to the date of the review has been planned and

    performed in accordance with professional standards and regulatory and legal requirements.

29. Where more than one partner is involved in the conduct of an audit engagement, it is

    important that the responsibilities of the respective partners are clearly defined and

    understood by the engagement team.

Consultation

30. The engagement partner should:

    (a) Be responsible for the engagement team undertaking appropriate consultation

    on difficult or contentious matters;

    (b) Be satisfied that members of the engagement team have undertaken

    appropriate consultation during the course of the engagement, both within the

    engagement team and between the engagement team and others at the

    appropriate level within or outside the firm;

    (c) Be satisfied that the nature and scope of, and conclusions resulting from, such

    consultations are documented and agreed with the party consulted; and

    (d) Determine that conclusions resulting from consultations have been

    implemented.

31. Effective consultation with other professionals requires that those consulted be given all the

    relevant facts that will enable them to provide informed advice on technical, ethical or other

    matters. Where appropriate, the engagement team consults individuals with appropriate

    knowledge, seniority and experience within the firm or, where applicable, outside the firm.

    Conclusions resulting from consultations are appropriately documented and implemented.

32. It may be appropriate for the engagement team to consult outside the firm, for example, where

    the firm lacks appropriate internal resources. They may take advantage of advisory services

    provided by other firms, professional and regulatory bodies, or commercial organizations that

    provide relevant quality control services.

33. The documentation of consultations with other professionals that involve difficult or

    contentious matters is agreed by both the individual seeking consultation and the individual

    consulted. The documentation is sufficiently complete and detailed to enable an

    understanding of:

    (a) The issue on which consultation was sought; and

    (b) The results of the consultation, including any decisions taken, the basis for those

    decisions and how they were implemented.

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    Differences of Opinion

     34. Where differences of opinion arise within the engagement team, with those consulted

    and, where applicable, between the engagement partner and the engagement quality

    control reviewer, the engagement team should follow the firm’s policies and

    procedures for dealing with and resolving differences of opinion.

35. As necessary, the engagement partner informs members of the engagement team that they

    may bring matters involving differences of opinion to the attention of the engagement partner

    or others within the firm as appropriate without fear of reprisals.

Engagement Quality Control Review

36. For audits of financial statements of listed entities, the engagement partner should:

    (a) Determine that an engagement quality control reviewer has been appointed;

    (b) Discuss significant matters arising during the audit engagement, including those

    identified during the engagement quality control review, with the engagement

    quality control reviewer; and

    (c) Not issue the auditor’s report until the completion of the engagement quality

    control review.

    For other audit engagements where an engagement quality control review is performed, the

    engagement partner follows the requirements set out in subparagraphs (a) to (c).

37. Where, at the start of the engagement, an engagement quality control review is not

    considered necessary, the engagement partner is alert for changes in circumstances that

    would require such a review.

38. An engagement quality control review should include an objective evaluation of:

    (a) The significant judgments made by the engagement team; and

    (b) The conclusions reached in formulating the auditor’s report.

39. An engagement quality control review ordinarily involves discussion with the engagement

    partner, a review of the financial information and the auditor’s report, and, in particular,

    consideration of whether the auditor’s report is appropriate. It also involves a review of

    selected audit documentation relating to the significant judgments the engagement team

    made and the conclusions they reached. The extent of the review depends on the complexity

    of the audit engagement and the risk that the auditor’s report might not be appropriate in the

    circumstances. The review does not reduce the responsibilities of the engagement partner.

40. An engagement quality control review for audits of financial statements of listed entities

    includes considering the following:

    ? The engagement team’s evaluation of the firm’s independence in relation to the specific

    audit engagement.

    ? Significant risks identified during the engagement (in accordance with SSA 315,

    “Understanding the Entity and its Environment and Assessing the Risks of Material

    Misstatement”), and the responses to those risks (in accordance with SSA 325,

    “Auditor’s Procedures in Response to Assessed Risks”), including the engagement

    team’s assessment of, and response to, the risk of fraud.

    ? Judgments made, particularly with respect to materiality and significant risks.

    ? Whether appropriate consultation has taken place on matters involving differences of

    opinion or other difficult or contentious matters, and the conclusions arising from those

    consultations.

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