QUALITY CONTROL QUALITY CONTROL QUALITY CONTROL QUALITY CONTROL QUALITY CONTROL

2.52.5 2.5

2.5 QUALITY CONTROLQUALITY CONTROLQUALITY CONTROLQUALITY CONTROLQUALITY CONTROL

An audit firm should be dedicated to the pursuit of the highest quality in all its operations. Quality control should not be in respect of each particular engagement only, but must also be a culture in the entire firm.

Quality control policies and procedures should be documented and communicated to the firm’s personnel. The International Audit and Assurance Standards Board (IAASB), a standing committee of IFAC issued in February

2004, its first International Standard on Quality Control (ISQC) which provides guidance specifically on quality control for audit firms.

The thrust of the standard as set out in paragraph 1.3 of the ISQC is as follows:

“The firm should 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 reports issued by the firm or engagement partners are appropriate in the circumstances”

(ISQC 1.3).

Other important aspects of quality control in an audit firm are highlighted below:

(a) An internal culture that considers quality as being important should be inspired by the leaders, that is, the partners of the firm; and in order to boost this, an individual or unit of the firm may be appointed to oversee quality in the firm;

(b) In order to be reasonably assured that the firm’s personnel can comply with professional standards and regulatory and legal requirements, appropriate policies and procedures should be put in place to provide the firm with adequate staff that possess the capabilities, competence, and commitment to ethical principles required to perform its engagements;

(c) The policies and procedures referred to in (b) above should cover recruitment, performance evaluation, promotion, career development, compensation, training and other personal needs and overall welfare of the firm’s personnel;

(d) An audit firm should have policies and procedures to ensure that the engagement partner (whose responsibility it is to assign the engagement team) is capable of performing his duties well, and the key staff of the client plus those charged with the client’s governance know who the engagement partner is;

(e) An audit firm should have a manual of standard engagement procedures given to all staff (either in hard or soft copy) to ensure that engagements are performed in accordance with those standards at all stages, that is, fieldwork and supervision stages;

(f) An audit firm should have in place policies and procedures for the review and responsibility for issuing reports, that is, when and how the audit report should be issued;

(g) An audit firm should have policies and procedures to determine when it will be necessary to use the services of a quality control reviewer, that is, using second partner quality control review. This is compulsory for the audit of financial statements of all listed companies;

(h) An audit firm should also have in place standards to determine what a suitable quality control review consists of, that is, documentation

(i) An audit firm should establish policies and procedures designed to provide it with reasonable assurance that consultation, if and when required, has been carried out and its nature, scope and conclusions have been documented;

(j) As regards monitoring, an audit firm should have policies to ensure that its quality control procedures are adequate, relevant, operating effectively and duly complied with. A monitoring team should be put in place for this purpose; and

(k) The results of the monitoring activity, which should be done either on a continuous or periodic basis, should be reported to the management of the firm on an annual basis and such reports should be treated appropriately by both the management collectively and each engagement partner in particular.

An example of Monitoring activitiesMonitoring activitiesMonitoring activitiesMonitoring activitiesMonitoring activities and impact of ReportReportReportReportReport on such activities is that monitors may ignore deficiencies that are found as one-offs, but if the deficiencies are repetitive or systematic, corrective action must be taken. Again, if in the course of monitoring, evidence is gathered that an inappropriate report might have been issued on a particular engagement, the audit firm may seek professional advice. This is a sort of pre-emptive action against a likely action for negligence.

Continuous monitoring involves an ongoing evaluation of the quality control system to ascertain if the system is up to date with regulatory and legal requirements and professional standards. This allows for a continuous review of the quality control system of the firm. On the other hand, periodic monitoring involves a periodic inspection of a sample of engagements selected in such a way that within a given period (say two to three years) at least one engagement per engagement partner would have been reviewed. The Institute has a special a special body called the Public Practices Monitoring Committee (PPMC) responsible for monitoring the quality of audit work of member firms.

Those medium sized firms having international cooperation with other firms and the “Big Four” firms usually have a standard manual of quality control system to be followed by all member firms. The other types of firms are encouraged to adopt the system of having a standard manual for the use of their staff. This is because there is really no substitute for ensuring that all engagements are carried out at the highest quality level.

In providing services to clients, an audit firm’s clients may be grouped into their various broad industrial sectors, for example, manufacturing, banking, insurance, e.t.c. However, this will be a function of the size of the firm. Such groupings facilitate specialisation on the part of staff as well as the partners.

2.6 2.62.6 2.6

2.6 TRAININGTRAININGTRAININGTRAININGTRAINING

The professional reputation of an audit firm revolves heavily around the quality of the work performed, which in turn is a function of the type of personnel employed. The human resources, therefore, constitute the most valuable and

vital resource of the firm. Audit firms must, therefore, have a policy of investing heavily in the training and re-training of all categories of their personnel.

Training should always be accompanied with development of human resources because through training and development, the audit firm can enhance the skill of its personnel. Training and development activities may also enhance motivation and positive attitudes by making work more interesting and supporting such needs as achievement and self esteem.

Training has been defined as “the organisation’s efforts to help employees learn job-related knowledge, skills and behaviour”; while development is defined as “the organisation’s efforts to help employees acquire knowledge, skills, and behaviours that improve their ability to meet changes in job requirements and customer needs” (Wright and Noe, 1996).

In order to have an effective training system, the audit firm will need to design the system that suits its requirements. The process for designing effective training systems could follow the steps listed below:

(a) Assessment of training needs, based on the analysis of the entire organisation, the tasks, and each individual staff;

(b) Assessment of employees’ readiness for learning;

(c) Creation of a learning environment;

(d) Ensuring transfer of training, that is, employees being able to apply what they have learnt to their jobs;

(e) Selection of appropriate training methods; and

(f) Evaluation of the training programme, including the opinion of the trainees about the programme and the impact of the programme on their behaviour. This is the step that provides feedback for modifying the organisation’s training system.

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There are various methods of training from which an audit firm may select.. There are formal, that is, outsourcing and informal, that is, in-house, training methods and the choice may be a function of the size of the audit firm and employees’

training needs.

The following are the most common techniques that could be used for training personnel of an audit firm:

(a) Presentation MethodsPresentation MethodsPresentation MethodsPresentation MethodsPresentation Methods

This involves the trainer telling or showing trainees the information that they are required to learn. These methods consist of lectures, use of audio-visual materials such as overhead projector slides, videotapes and multimedia facilities. They could take place in a classroom setting or via tele-conferencing. They are methods used for seminars, workshops and some in-house training programmes;

(b) Hands-Hands-Hands-on THands-Hands-on Ton Ton Training or Hands-on Training or Hands-raining or Hands-raining or Hands-on Lraining or Hands-on Lon Lon Lon Learningearningearningearningearning

This is used when trainees try new skills in the course of the training session. These methods include on-the-job training, business games,

(c) GrGrGroup Building TGrGroup Building Toup Building Toup Building Techniquesoup Building Techniquesechniquesechniquesechniques

This method involves training programmes for building group identities and teaching inter-personal skills through discussions and shared experiences. It is particularly common for organisations using teamwork as they apply these techniques during retreats for their personnel.

Employee Development Employee DevelopmentEmployee Development Employee Development Employee Development

The key resource to any audit firm is the quality of its staff. In order to ensure high quality audit work, the firm should at all times have adequate quality and number of staff necessary for the efficient and effective execution of the audit requirements of its clients.

It follows then that the firm should have in place adequate procedures for:

(a) Recruitment and retention of staff of the right quality; and (b) Training and re-training of its staff.

The staffing policy of the firm should be designed to ensure that only highly qualified personnel are recruited and that such staff are adequately trained to give then on the job experience. Hence the employment policy of the firm should be based on qualification, skill and cognate experience. It is necessary to adequately motivate the staff to ensure high morale and reduce staff turnover.

Some firms source their trainees from among only University graduates with a minimum of a prescribed honours degree. Some firms have in-house training outfit where they organise formal and continuous training of their staff while others outsource this to consultants. In all situations, the training and re-training of staff ensures that their skills and experience are constantly updated and are relevant to the needs of their clients.

In addition to the training and retraining of staff required to improve the skill and experience of audit staff, it is also essential for the firm to provide the necessary technical support to the staff to enhance their efficiency and effectiveness.

The type of technical support a firm may provide to its staff will include; audit manuals, standard audit programmes, standardised working papers, internal control questionnaires, checklists, provision of professional journals, internal newsletters, personal computers, and computer audit software.

Technical support provided to staff tend to standardise performance and help in the review processes. The technical support, especially audit manual, which the firm provides to its staff is a very good reference material to audit staff which guides them at all stages of the engagement.

Employee development requires that the audit firms use some combination of formal education, assessment, job experiences, and interpersonal relationships.

These methods are geared mainly at ensuring that the firm’s workforce is prepared for the growth and survival of the organisation:

(a) Formal education is aimed at attaining more qualifications, for example, audit trainees who are encouraged to take the professional examinations of the Institute, qualified staff who are encouraged to obtain post-graduate qualifications through part-time programmes (at the Universities) in the vicinity of the firm;

(b) Assessment is done by collecting information about employees’

behaviour, communication style, or skills and then providing the employees with a feedback. This is used to identify the employees’

strengths, weaknesses, and their potential for occupying management positions;

(c) Job experiences are designed by the organisation to expose employees to various aspects of the entire operations of the organisation. This could be done by both vertical and lateral moves; vertical moves through promotions and lateral moves though job rotation or transfer; and (d) Interpersonal relationships are promoted by the organisation when

deliberate attempts are made to encourage employees or managers to be mentored by more experienced members of the organisation. This is aimed at enhancing the development of the employee or manager with less experience.

Note:

Note:Note:

Note:

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The “Big Four” firms or some of the medium-sized firms can arrange for some of their staff to go on overseas training or attachment to offices of their overseas sister firms. In some cases, they may send some of their senior staff for either local or overseas “train-the-trainers” courses, which in turn will provide the opportunity for those who have been so trained to transfer such training to other employees.