Paper 3: Advanced Auditing and Professional Ethics Chapter 21. CA. Ridhima Dubey

Transcription

1 Paper 3: Advanced Auditing and Professional Ethics Chapter 21 CA. Ridhima Dubey 1

2 1 Understanding the concept 2 Peer review process 2

3 Peer Review Board (PRB) established by ICAI PRB established in 2002 which regulates the process Statement on Peer Review issued Why is it important? Equity Listing Agreement requires listed companies to be audited only by firms (Practice Units or PU) holding valid peer review certificate effective April 5,

4 Peer: Person of similar standing Review: Re-examination or retrospective evaluation Peer Review: An examination and review of the systems and procedures to ensure audit quality Practice Unit: Members in practice (sole proprietor/firm) Assurance Service: As specified in Framework of Assurance Engagement 4

5 What are attestation services (Audit Service/Attestation function/audit function)? Auditing/ verification of financial transactions/ books/ accounts/ records Verification/ certification of financial accounting and related statements Do not include: Management Consulting Engagements Representing clients before Authorities Engagements for preparation of tax returns or advising clients in tax matters Engagements for FS compilation Engagements for preparing, compiling or collating information other than FS Testifying as expert witness Providing expert opinions on points of principle on the basis of facts provided by the client 5

6 To ensure that in carrying out the attest function, members: Comply with the Technical Standards Have proper systems for maintaining the quality of the attestation services Not to: Find out deficiencies or identify isolated cases of engagement failure To: Identify weaknesses pervasive and chronic in nature 6

7 It is essentially an examination and review of systems and procedures to determine whether they are: in existence effective operative during the period of review 7

8 Apply to all assurance assignment Coverage of review: Compliance with Technical, professional and ethical standards Quality of reporting Systems and procedures for carrying assurance engagement Training programmes for staff Compliance with Council guidelines/directions Confine to the period of preceding 3 years 8

9 What are Technical Standards? Accounting Standards Standards on Auditing Framework Statements Guidance Notes General Clarifications under the SAs Notifications/ Directions including those self-regulatory in nature Relevant Statutes/ Regulations Quality of Reporting The form and content of the report Policies and procedures to provide reasonable assurance 9

10 Office Systems and Procedures Staffing and Supervision Time Budget Continuous professional development Staff Training Programs Theoretical knowledge Skills Professional orientation Ethical Values 10

11 Level 1 Statutory Audit of PSU, Banks, Insurance, MF, AMC, listed company (equity/debt), Entities having public fund (>50 cr) Donation/contribution (>50 cr) Netwoth (>500 cr) Fund from Central/state govt (>50 cr) Level 2 Statutory/Internal/Concurrent/System/Tax Audit/Departmental review of branch/offices of: Public/private/foreign banks Insurance/Co-operative banks Statutory Audit of RRB/NBFCs Entities having networth > 50 cr /annual turnover >50 cr Level 3 Other than Level I and Level II 11

12 Level I Once in 3 years Level II Once in 4 years Level III Once in 5 years 12

13 Be a member of at least 10 years of experience Is in practice Undergone requisite training Furnish declaration to Board Signed Declaration of Confidentiality Have conducted audit of Level I entities for at least 7 years Shall not have: Disciplinary action/proceeding Found guilty Convicted by a Competent Court Obligation/Conflict of Interest in the Practice Unit/its Partners/Personnel 13

14 PRB/ PU initiates peer review PRB sends the Questionnaire and a Panel of three reviewers to the PU PU selects a reviewer PRB notifies reviewer PU to complete questionnaire and send to reviewer Continued 14

15 Continued Reviewer to evaluate questionnaire and call for further information, if required PU to produce additional information asked by reviewer Reviewer to decide initial sample from PU s client list Reviewer to notify the PU about the sample selected Reviewer to carry out review by visiting PU s office after fixing date per mutual consent Continued 15

16 Continued Reviewer to send preliminary report to PU for comments PU to submit representation to reviewer Reviewer to submit final/ interim report to PRB PRB to give recommendations to PU and/or instructions for further followup/ review On satisfactory conclusion by PRB, issue of Peer Review Certificate to the PU 16

17 Illustrative timelines PRB notifies the selection of PU for Review. The Questionnaire and a Panel of three reviewers to be sent to PU DAY 1 Reviewer to submit Final/Interim report as the case may be to the PRB DAY 90 17

18 The objective of peer review is to find out deficiencies or identify isolated cases of engagement failure TRUE FALSE FALSE, The Objective is to identify weaknesses pervasive and chronic in nature 18

19 Peer Review coverage extends to all type of engagements? TRUE FALSE FALSE, It covers only attestation services 19

20 Which of the below engagements can be classified as assurance engagement? Statutory Audit Tax Audit Management Consulting Engagements Accounting Opinion Issue of Certificate to Company for submission to Custom Authorities A, B and E 20

21 Scope of Peer Review do not extend to the firm s internal training programmes TRUE FALSE FALSE 21

22 Peer Reviewer can accept professional assignment from the Practice Unit YES, Peer reviewer can accept professional assignment without any restriction NO, Peer reviewer can never accept professional assignment YES, Peer Reviewer can accept professional assignment only after period of 2 years from the date of appointment as peer reviewer of the practice unit C is correct 22

23 Peer Review extends to how many preceding years? Peer review extends to 3 years 23

24 Peer Review focus on which of the following Compliance with Technical Standards Quality of Reporting Office Systems and Procedures Staff Training Programs A and B A, B and C Only A All of the above ALL of the above 24

25 A Practice Unit who is undertaking audit of a listed entity can do so only if holds a valid peer review certificate. TRUE FALSE TRUE 25

26 A peer review process do not cover quality of reporting TRUE FALSE FALSE, it cover quality of reporting 26

27 PRB will always issue a peer review certificate TRUE FALSE FALSE 27

28 What is required to clear the peer review successfully? Ensuring compliance with Technical Standards in all engagements Ensuring quality in reporting Ensuring adherence to internal systems and procedures Ensuring that ALL staff attend appropriate training programs Resources: Statement on Peer Review Peer Review Manual 28

29 The Peer Review Process Selection of PU and appointment of reviewer Planning Execution Reporting 29

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