Question

Question 1 (12 marks)

Public accounting firms perform audits of financial statements. CAS 220, Quality Control for an Audit of Financial Statements addresses the specific responsibilities of the auditor regarding quality control procedures for an audit of financial statements. All firms that perform audits must have standards for audit fieldwork and quality control procedures that must be followed by all staff performing an audit of financial statements.

Required:

i. Briefly outline the requirements for Quality Control for an Audit of Financial Statements found in CAS 220. (6 marks)

ii. Explain whether or not an Engagement Quality Control Reviewer is required for all audits of financial statements (3 marks)

iii. Explain whether or not students who work for accounting firms performing audits are required to comply with the Quality Control Requirements for an Audit of Financial Statements

Question 2 (9 marks)

You are the auditor of Hi Tech Innovations (HTI). HTI has an internal audit department that perform operational audits, such as the testing for internal controls over inventory, cost allocation etc.

Required

I. Explain the Canadian Auditing Standards (CAS 610) requirements that the external auditors must follow to “evaluate the internal audit function” before any reliance can be placed on the internal audit department.

II. Identify two similarities and two differences between internal and external auditors

Answer 1

Ans 1) i) Requirements for Quality Control of an Audit of Financial Statements found in CAS 220 are as follows;

a) Integrity- The quality of being honest and having strong moral principles with upholding the ethical values is one of the primary requirements of Quality Control.

b) Objectivity-  Being unbiased, fair and neutral in the auditing decisions should be the main objective of the auditor.

c) Competence- For a good quality control, an auditor must be efficient enough to perform his job with highest level of proficiency.

   d) Confidentiality- An auditor must also possess the quality of keeping financial informations confidential.

e) Professional Behaviour - One must be respectful and ensure a positive vibe at the workplace by behaving with utter dignity with the clients as well as with the co-workers.

ii) Yes, the 'Engagement Quality Control Reviewer' is required for all audits of financial statements as this person ensures that the decisions made by the engagement team are legit and properly evaluates the judgements made by them. He reviews the financial statements and looks into the auditor's report accuracy level. He also checks some valuable documents which are related with the auditor's report.

iii) Yes, it is necessary for students who work for accounting firms performing audits certainly requires to comply with the Quality Control Requirements for an Audit of Financial Statements, as they are doing same work as of the auditor, therefore performing according to the quality standards are not only necessary for the students but also essential for the company itself.

Ans) i) According to Canadian Auditing Standards (CAS 610), its is relevant to evaluate the internal audit function before relying on them because of the following reasons:

a) To check whether the level of disciplinary and systematic way of approach of the internal audit is up to the standard objective.

b) To also look into the competency and efficiency of the internal audit to rely on.

c) To watch out for the extent to which the internal audit 's policies and procedures support the objectivity of the internal auditors.

* Note- As per the guideline, answering the first 4 subparts*