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FRAMEWORK ON

THE PICPA VOLUNTARY QUALITY ASSURANCE REVIEW


(VQAR) PROGRAM

Objectives of the PICPA Voluntary Quality Assurance Review Program

Rationale of the Program

As part of the PICPA’s over-all mission of promoting, upholding, and maintaining high standards in the
accountancy profession and to serve the best interest of the members and the stakeholders, which can
be achieved through, among others, a committed leadership, effective professional development
programs, and strict implementation of professional ethics, PICPA initiates this Voluntary Quality
Assurance Review Program for audit practitioners.

Under the IFAC Statement of Membership Obligations 1 Quality Assurance, PICPA, being a member body
of IFAC, shall assist practitioners in understanding the objectives of quality control and implementing
and maintaining appropriate systems of quality control. To meet this obligation, PICPA is hereby
implementing a voluntary quality review program that will enable practitioners to obtain an
independent, confidential assessment of their quality control policies and procedures, apart from any
formal quality assurance review system. (see IFAC SMO 1.23-24)

Specific Objectives of the Program

The program has the objectives to provide the practitioners, with a/an:

 Understanding of the requirement of the International Standards on Quality Control 1 (ISQC


1) and International Standards on Auditing 220 (ISA 220);
 Capability to implement a quality assurance program within their respective practices that is
compliant with the requirements of ISQC 1 and ISA 220;
 Ability to document compliance with quality assurance program in their practice; and
 Adequate preparation for the mandatory independent quality assurance review.

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Scope of the Program:

The PICPA VQARP is a PICPA-initiated quality assurance review for practitioners who will
voluntarily submit themselves to a quality review to have a reasonable assurance that they are
in compliance with the requirements of ISQC 1 and ISA 220.

Definition of Terms:

PICPA – Philippine Institute of Certified Public Accountant

VQARP – PICPA Voluntary Quality Assurance Review Program

QAR or Review or Assignment – PICPA Quality Assurance Review

Director– QAR Director

Division – QAR Division

Team – QAR Team

Reviewer or Examiner – a Team or an individual assigned to do a QAR

Leader – QAR Team Leader

Practitioner– A sole public practitioner, a partner affiliated with an auditing firm, or an auditing
firm composed of a number of partners

Engagement–the practitioner’s engagement which is the subject of a review

Code of Ethics–IFAC Code of Ethics

Report – the QAR Report prepared by the Team after a Review

Inspection/Fieldwork – QAR procedures done at the practitioner’s premises

ISQC 1/PSQC 1 – International/Philippine Standard on Quality Control 1

ISA 220/PSA 220 – International/Philippine Standard on Auditing 220

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I.ORGANIZATION OF VQAR DIVISION

Composition of PICPA VQAR Division


The PICPA VQAR Division shall be composed of a QAR Director, a support staff, and a pool of Certified
QAR Examiners.
The PICPA QAR Director who is a full-time PICPA employee shall be a suitably qualified CPA
professional and shall be given the responsibility for managing QARs, to ensure that all QARs are
consistent with applicable professional standards, laws and regulations. (1.51)

The QAR Director reports directly to the Executive Director and shall ensure the availability of
appropriate expertise and adequate financial and other resources to enable the timely and effective
performance of QARs.

Certified QAR Examiners


The pool of QAR examiners shall be:
 CPAs preferably from the education sector, who are PICPA-members in good standing,
 not currently engaged in public practice,
 have finished the Training Module for QAR Examiners and have passed a written examination
for Certified QAR Examiners, and
 have undergone a satisfactory evaluation by the QAR Director. (1.32(a) (b).1.52
 contracted by the Division on a per review basis, and shall not be full-time employees of PICPA
CPAs in other sectors (i.e. commerce and industry and government) who meet equivalent qualifications,
training, certification and evaluation requirements shall also be qualified as Certified QAR Examiners.
AQAR team shall be organized by the Director for every review and shall be composed of an appropriate
number of examiners to accomplish the review within a reasonable time. The designated team leader
shall estimate the number of manhours to complete the review, and the budget, for final approval of
the QAR Director.

QAR Team and Leader

The QAR Director shall select and organize the QAR team composed of a leader and members for each
review on the basis of meritocracy. In forming and selecting the team for each assignment the Director
shall be guided by the following considerations:

a. understanding of the applicable professional standards and regulatory and legal


requirements;

b. understanding and practical experience on audit engagements and quality assurance


through appropriate training and participation;

c. appropriate technical knowledge, including knowledge on relevant information


technology.

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d. knowledge of specific industries;

e. ability to apply professional judgment;

f. satisfactory performance in previous QARs (1.53)

To establish independence, the Leader and team members must not have a financial or professional
interest in the practitioner and the engagements that will be examined. The leader or member of the
QAR Team of the previous three consecutive QARs of the practitioner shall not be part of the current
team, to establish a cool-off period.

Depending on the size and complexity of the practitioner under review, the Director shall assign a
team leader and a number of member/s for each review. The QAR team leader shall:

a. be a PICPA member in good standing,(1.57)

b. have relevant experience in quality reviews, assurance and related undertaking,

c. be a Certified QAR Examiner;

c. supervise the conduct of the QAR;

d. communicate directly with the practitioner; and

e. be responsible for preparing the main QAR report and other applicable QAR-related
documents.(1.55)

II. SUBJECT OF REVIEW

Definition of Practitioner
The subject of the QAR, herein called as “Practitioner” shall either be an individual practicing as a sole
owner of a practice, an individual practitioner (i.e. partner) belonging to an auditing firm, or an auditing
firm consisting of a number of partners who voluntarily subjects his/their practice to a QAR, for a
consideration and as provided for in this Framework.

Levels and Objectives of Review

For each QAR engagement, quality assurance is addressed at two levels: the practitioner level and the
engagement level. (1.3). At the practitioner level, the adequacy of the quality control policies and
procedures are reviewed to determine whether they comply with ISQC 1. At the engagement level,
selected engagements are reviewed to determine whether the selected engagements have complied
with professional standards, regulatory requirements and the practitioner’s policies and procedures.

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Period Covered Under Review

Audit engagements of financial statements subject to selection for QAR are those completed and issued
audits of financial statements with fiscal-year periods ending during the QAR period. If a more recent
auditor’s report has been issued during the QAR, consideration is given to reviewing that audit. (1.41)

If, during or after a QAR period, a practitioner under review has (a) made a significant acquisition of all
or a portion of another’s practice, or (b) has divested itself of a significant portion of its practice, before
commencing the QAR the Reviewer shall consult with the QAR Director on the scope of the QAR or other
actions that may be taken.(1.42).

Jurisdiction

Engagements of practitioners to be chosen for VQAR shall be limited to those within the Philippine
jurisdiction only, and for non-public interest entities (non-PIEs).

II. PREPARATION FOR REVIEW

Prior to the commencement of the review the practitioner:


 preferably, shall have attended a training on the QAR module for Practitioners(1.24). If an
auditing firm subjects itself to a QAR, all partners of the firm shall have attended the training.
 if the practitioner did not attend training on the QAR module for Practitioners, they should have
read and understand the PICPA VQAR Peer Review Checklist (Phase II) and signify their readiness
for the VQAR.
 shall have signified his written intention to undertake the voluntary QAR (QAR Form ______),
 and the QAR Director shall have signed a standard engagement letter (QAR Form ____) laying
the terms, conditions and preparations for the QAR.
 has duly paid the corresponding fee, as agreed based on the estimated manhours to accomplish
the review, as approved by the QAR Director.
 shall be notified of the identity of the QAR Team assigned to him.
 shall secure a written consent of the client/s for the engagement/s duly selected for review.

For each review assignment, the reviewer shall sign a standard contract (QAR Form _____) laying the
terms of for remuneration, timeline, deliverables, and an undertaking of confidentiality and non-
competition. The Team shall consider the fundamental principles set out in the Code of Ethics. These
include integrity, objectivity, professional competence and due care, confidentiality and professional
behavior.

III. REVIEW PROCESS AND DOCUMENTATION

Understanding the Practitioner’s Policies and Procedures

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In performing a VQAR, the Reviewer shall obtain a sufficient understanding of:

 The nature and extent of the practitioner’s audit practice and the methodologies used;
 The design of the system of quality control of the practitioner;
 The practitioner’s ethical and independence policies and procedures ; and
 The practitioner’s training policies and procedures; (1.46)

Planning the Review

To understand the practitioner and its policies and procedures on quality control and to prepare for
inspection, the Reviewer performs the following procedures:

a. A notification letter (QARP Form __) together with the questionnaires (Peer Review Checklist
____) are sent to the practitioner to be reviewed. The information covered by Section __ of
QARP Form __, together with the attachments and the answered questionnaires shall be sent
back to the Division within one (1) week from receipt thereof.

b. If deemed necessary, a preliminary meeting date will be set and confirmed with the practitioner.
The Team members will attend and document the preliminary meeting, including the
arrangements for workspace, computer and administrative assistance, the practitioner’s contact
person and the personnel who are needed for the inspection.

c. Based on the information obtained from Section __ of QARP Form __ and/or preliminary
meeting, engagements to be reviewed are selected, and inspection date is set.

d. The Team who will do the inspection shall be given a briefing about the practitioner, the focus of
the inspection, the timeline and their respective assignments.

e. A day before the start of the inspection, the practitioner shall be informed of the list of the
selected audit engagements. Also, the preparations made at the practitioner’s end are checked:
working space, audit files, availability of management, the person responsible for the quality
control and the partners and personnel involved in the engagements to be reviewed.

Inspection Procedures

To evaluate the quality control policies and procedures as to their conformity and compliance with
ISQC 1 and ISA 220 and regulatory and policies at the practitioner’s level and selected engagements,
the Reviewer shall perform the following procedures:

a. On the first day of the inspection, a meeting is conducted, using QARP Form __, in
coordination with the contact person, of all practitioner’s personnel involved, to briefly
discuss the QAR process, as this applies to the practitioner, the final timeline, the target
date of closing meeting, expected feedback and other matters. This will also be an

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opportunity for the introduction of all participants and familiarization with the practitioner’s
facilities.

b. All requirements shall be rechecked if met including the audit files of the engagements to be
reviewed.

c. All matters obtained during the inspection are documented. The inspection is performed,
using Peer Review Checklist Form ____ for the practitioner level review. Compliance with
ISQC 1 is determined through reviews of administrative files and engagements, inquiry with
personnel and observation.

The purpose of the practitioner level review is to assess the appropriateness of the
policies and procedures and the degree of compliance with them in each of the following
areas:
 Leadership responsibilities for quality
 Ethical requirements
 Human resources
 Client acceptance and continuance
 Engagement performance
 Monitoring
 Documentation

d. The inspection is performed using Peer Review Checklist Form __for the engagement level
review. The evaluation consists of a review of the auditor’s report, the financial statements
and underlying working papers, and discussions with the partner and members of the
engagement team.

The review of the audit working papers of the practitioner shall include evaluating:
 the existence and effectiveness of the system of quality control implemented by the
practitioner, and the performance of the audit;

 compliance with professional standards and regulatory and legal requirements


related to the engagement;

 the sufficiency and appropriateness of evidence documented in the working


papers; and
 based on the above, whether the audit reports are appropriate in the
circumstances.

For subsequent reviews, the Reviewer should also obtain the practitioner's most recent QAR report and
documentation regarding any litigation that the practitioner has been involved in since the last QAR.
Documentation

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The Team shall maintain documentation that supports the work performed, including findings and
recommendations.

The Team shall document matters that:

 Provide evidence supporting the QAR report; and


 Establish the QAR was carried out in accordance with the guidelines established by the
Division

During the QAR, the Team:


 documents the planning of the QAR, the scope of work performed, the conclusions
reached, and comments made to the practitioner or partner that were not deemed
sufficiently significant to be included as a finding;
 evaluates the nature, cause, pattern, pervasiveness, and significance of any
deficiencies in the design of the practitioner’s system of quality control, and in the
practitioner’s compliance with its system;
 evaluates the nature, cause, pattern, pervasiveness, and significance of any
deficiencies in the performance of an engagement; and
 summarizes findings.(1.49)

Summarizing and Communicating the Findings

To summarize findings, the Team shall perform documentation of consolidated results of QAR
observations, findings, conclusion and recommendation, by performing the following procedures:

 On the last day of the review, the practitioner and engagement level review findings and results
are consolidated to assist in preparing for the closing meeting and drafting the Leader’s Report,
using QARP Form ___.

 Closing meeting with the audit teams reviewed shall be held and findings, comments and
observations shall be reviewed, and any exceptions are cleared.

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REPORTING

The Team shall hold a closing meeting with the practitioner to discuss the results, findings,and
recommendations for corrective actions, if any.

Communication and Documentation of QAR Results


The QAR Report summarizes the results of the QAR and represents the official written summary of the
observations, findings and any recommendations of the Team.

The Report shall be prepared by the Leader based on the results of the review as documented in the
various forms and questionnaires. Any reference to specific names of engagements shall be avoided in
the Report.

A template, intended to present a suggested style and format to achieve a certain degree of uniformity,
shall be used as a guide in drafting the Report. It is not intended to inhibit the Leader from including any
comments he considers to be appropriate.

Documenting the Report on Practitioner Level Review


The Reviewer shall issue a report enumerating the Reviewer's findings and recommendations, if any on
the QAR, in accordance with the ISQC 1 and the ISA 220.

Documenting the Report on Engagement Level Review


The Reviewer shall issue a report on the findings and recommendations, if any on eachof the audit
engagements reviewed by the Team, in accordance with ISA 220.

Reporting to Practitioner
a. Within fifteen (15) days after the closing meeting with the reviewed practitioner, the QAR
Report (QARP Form __) is drafted, reviewed and sent to the practitioner.
b. TheDraft Report is submitted to the Director for review and approval.
c. The approved Report as signed by Leader, is addressed and sent to the reviewed practitioner’s
management.

Contents of the QAR Report

The QAR Team Leader shall issue a written report to the reviewed upon completion of each QAR
assignment. The report shall include the following portions:

 An introductory paragraph that:


a) a Voluntary QAR was conducted,
b) identifies the reviewed practitioner; and

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c) specifies the period covered by the QAR.

 The objective of the review.

 The coverage and scope of the review.

 A summary of the QAR results


a) results/findings of the practitioner level review; and
b) results/findings of the engagement level review;

 Recommendations for areas of improvement at both the practitioner level and the engagement
level.

Response of Practitioner

The reviewed practitioner shall provide a timely written response to the findings and recommendations
of the QAR report, including planned actions and expected time of completion or implementation. The
response shall be addressed to the QAR Director through the Leader, not later than fifteen (15) days
after receipt of the Report. The response to the Report (QARP Form ___) should address all matters
contained in the report and should present the Team’s comments, observations, and findings and the
practitioner’s response with action steps to be taken.

A template, intended to achieve a certain degree of uniformity in style and format, shall be used as a
guide for the reviewed practitioner.

Corrective Measures

After receiving the practitioner’s response the QAR Director, through the QAR Team Leader shall
recommend the following possible corrective measures that the reviewed practitioner may apply to his
practice:
 requiring revisions or additions to quality control policies and procedures or audit methodology;
 requiring additional CPD;
 requiring additional QARs;

POST-REVIEW

Ownership and Custody of the Working Papers

All findings from the review shall be documented properly and the working papers shall be the property
of the Division. Archives of the working papers post-engagement shall be in the custody of the Division.
Consistent with the practice as applied to audits of financial statements and as required by professional
standards, regulation and law, the timeframe of retaining documentation of accomplished QARs shall
be long enough to allow PICPA or its oversight body, if any, to maintain appropriate oversight of the QAR
process. (1.50)

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Confidentiality

The QAR team shall follow confidentiality requirements similar to those established for professional
accountants performing audits of financial statements. As stated in the Code of Ethics or relevant
national ethical requirements, and where not forbidden by law, practitioners under review shall be
exempted from professional client confidentiality requirements concerning audit engagement working
papers for the purpose of QARs. (1.66)

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