CPA’S PROFESSIONAL AND LEGAL RESPONSIBILITIES: SYSTEM OF
QUALITY CONTROL
ACC 511 – Auditing Theory study guide and review materials
SYSTEM OF QUALITY CONTROL
If the public is to rely on the professional CPA’s work, it is essential that appropriate controls are put
in place to ensure that their work is consistently of high quality. Moreover, since audits are normally
conducted by an engagement team, it is only by implementing quality control policies and procedures
that CPAs can ensure that all members of the audit team perform the same level of quality work.
A system of quality control consists of policies and procedures adopted by CPA firms that are
designed to provide reasonable assurance that:
A. The firm and its personnel comply with professional standards and regulatory and legal
requirements; and
B. That the reports issued by the firm or engagement partners are appropriate in the
circumstances.
Quality control policies refer to the objectives and goals to be achieved whereas quality control
procedures are the steps taken to implement the policies adopted and monitor compliance with
those policies.
Establishing a System of Quality Control
The following standards cover the establishment of quality controls:
A. PSQC 1 – establishes standards and provides guidance regarding a firm’s responsibilities
for its system of quality control for audits and reviews of historical financial information and for
other assurance and related services engagements. It is to be read in conjunction with the
Code of Ethics for Professional Accountant in the Philippines.
B. PSA 220 (Redrafted) – establishes standards and provides guidance on specific
responsibilities of firm personnel regarding quality control procedures for audits of historical
financial information.
PSQC 1 applies to all firms. The nature and extent of a particular firm’s quality control policies and
procedures to comply with the PSQC depends on such factors as:
A. Its size and the nature of its policies.
B. Degree of operating autonomy allowed to its personnel.
C. The nature of its practice.
D. Its organization.
E. Its geographic dispersion.
F. Appropriate cost-benefit consideration.
Elements of a System of Quality Control
The firm’s system of quality control, which must be documented and communicated to the firm’s
personnel, should include policies and procedures addressing each of the following elements:
A. Leadership responsibilities for quality within the firm/for quality on audits.
B. Relevant ethical requirements.
C. Acceptance and continuance of client relationships.
D. Human resources/Assignment
E. Engagement performance.
F. Monitoring.
, LEADERSHIP RESPONSIBILITIES FOR QUALITY WITHIN THE FIRM
A. The firm should establish policies and procedures designed to promote and internal culture
based on recognition that quality is essential in the performance of the engagements. Such
policies and procedures should require the firm’s chief executive officer (or its equivalent) or
if appropriate, the firm’s managing board of partners (or its equivalent) to assume ultimate
responsibility for the firm’s system of quality control.
The firm’s leadership and the examples it sets significantly influence the internal culture of the
firm. The promotion of a quality-oriented internal culture depends on clear, consistent and
frequent actions and messages from all levels of the firm’s management that emphasize the
firm’s quality control policies and procedures and the requirement to:
Perform work that complies with professional standards and regulatory and legal
requirements; and
Issue reports that are appropriate in the circumstances.
Such actions and messages encourage a culture that recognizes and rewards high quality
work. These actions and messages may be communicated by, but are not limited to, training
seminars, meetings, formal or informal dialogue, mission statements, newsletters, or briefing
memoranda. They may be incorporated in the firm’s internal documentation and training
materials, and in partner and staff appraisal procedures such that they will support and
reinforce the firm’s view on the importance of quality and how, practically, it is to be achieved.
B. The firm should establish policies and procedures such that any person or persons assigned
operational responsibility for the firm’s system of quality control by the firm’s chief executive
officer or managing board of partners has sufficient and appropriate experience and ability,
and the necessary authority, to assume that responsibility.
Sufficient and appropriate experience and ability enables the person or persons responsible for
the firm’s system of quality control to identify and understand quality control issues and to
develop appropriate policies and procedures. Necessary authority enables the person or
persons to implement those policies and procedures.
RELEVANT ETHICAL REQUIREMENTS
A. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical requirements.
Independence
B. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the members of the engagement team, the firm and, where applicable, the
network firm maintains independence.
At least annually, the firm should obtain written confirmation of compliance with its policies and
procedures on independence from all firm personnel required to be independent by relevant
ethical requirements.
C. The firm should establish policies and procedures designed to provide it with reasonable
assurance that it is notified of breaches of independence requirements, and to enable it to take
appropriate actions to resolve such situations.
D. The firm should establish policies and procedures:
Setting out criteria for determining the need for safeguards to reduce the familiarity
threat to an acceptable level when using the same senior personnel on an assurance
engagement over a long period of time.
Requiring, for audits of financial statements of listed entities, the rotation of the
engagement partner and the individuals responsible for engagement quality control
QUALITY CONTROL
ACC 511 – Auditing Theory study guide and review materials
SYSTEM OF QUALITY CONTROL
If the public is to rely on the professional CPA’s work, it is essential that appropriate controls are put
in place to ensure that their work is consistently of high quality. Moreover, since audits are normally
conducted by an engagement team, it is only by implementing quality control policies and procedures
that CPAs can ensure that all members of the audit team perform the same level of quality work.
A system of quality control consists of policies and procedures adopted by CPA firms that are
designed to provide reasonable assurance that:
A. The firm and its personnel comply with professional standards and regulatory and legal
requirements; and
B. That the reports issued by the firm or engagement partners are appropriate in the
circumstances.
Quality control policies refer to the objectives and goals to be achieved whereas quality control
procedures are the steps taken to implement the policies adopted and monitor compliance with
those policies.
Establishing a System of Quality Control
The following standards cover the establishment of quality controls:
A. PSQC 1 – establishes standards and provides guidance regarding a firm’s responsibilities
for its system of quality control for audits and reviews of historical financial information and for
other assurance and related services engagements. It is to be read in conjunction with the
Code of Ethics for Professional Accountant in the Philippines.
B. PSA 220 (Redrafted) – establishes standards and provides guidance on specific
responsibilities of firm personnel regarding quality control procedures for audits of historical
financial information.
PSQC 1 applies to all firms. The nature and extent of a particular firm’s quality control policies and
procedures to comply with the PSQC depends on such factors as:
A. Its size and the nature of its policies.
B. Degree of operating autonomy allowed to its personnel.
C. The nature of its practice.
D. Its organization.
E. Its geographic dispersion.
F. Appropriate cost-benefit consideration.
Elements of a System of Quality Control
The firm’s system of quality control, which must be documented and communicated to the firm’s
personnel, should include policies and procedures addressing each of the following elements:
A. Leadership responsibilities for quality within the firm/for quality on audits.
B. Relevant ethical requirements.
C. Acceptance and continuance of client relationships.
D. Human resources/Assignment
E. Engagement performance.
F. Monitoring.
, LEADERSHIP RESPONSIBILITIES FOR QUALITY WITHIN THE FIRM
A. The firm should establish policies and procedures designed to promote and internal culture
based on recognition that quality is essential in the performance of the engagements. Such
policies and procedures should require the firm’s chief executive officer (or its equivalent) or
if appropriate, the firm’s managing board of partners (or its equivalent) to assume ultimate
responsibility for the firm’s system of quality control.
The firm’s leadership and the examples it sets significantly influence the internal culture of the
firm. The promotion of a quality-oriented internal culture depends on clear, consistent and
frequent actions and messages from all levels of the firm’s management that emphasize the
firm’s quality control policies and procedures and the requirement to:
Perform work that complies with professional standards and regulatory and legal
requirements; and
Issue reports that are appropriate in the circumstances.
Such actions and messages encourage a culture that recognizes and rewards high quality
work. These actions and messages may be communicated by, but are not limited to, training
seminars, meetings, formal or informal dialogue, mission statements, newsletters, or briefing
memoranda. They may be incorporated in the firm’s internal documentation and training
materials, and in partner and staff appraisal procedures such that they will support and
reinforce the firm’s view on the importance of quality and how, practically, it is to be achieved.
B. The firm should establish policies and procedures such that any person or persons assigned
operational responsibility for the firm’s system of quality control by the firm’s chief executive
officer or managing board of partners has sufficient and appropriate experience and ability,
and the necessary authority, to assume that responsibility.
Sufficient and appropriate experience and ability enables the person or persons responsible for
the firm’s system of quality control to identify and understand quality control issues and to
develop appropriate policies and procedures. Necessary authority enables the person or
persons to implement those policies and procedures.
RELEVANT ETHICAL REQUIREMENTS
A. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the firm and its personnel comply with relevant ethical requirements.
Independence
B. The firm should establish policies and procedures designed to provide it with reasonable
assurance that the members of the engagement team, the firm and, where applicable, the
network firm maintains independence.
At least annually, the firm should obtain written confirmation of compliance with its policies and
procedures on independence from all firm personnel required to be independent by relevant
ethical requirements.
C. The firm should establish policies and procedures designed to provide it with reasonable
assurance that it is notified of breaches of independence requirements, and to enable it to take
appropriate actions to resolve such situations.
D. The firm should establish policies and procedures:
Setting out criteria for determining the need for safeguards to reduce the familiarity
threat to an acceptable level when using the same senior personnel on an assurance
engagement over a long period of time.
Requiring, for audits of financial statements of listed entities, the rotation of the
engagement partner and the individuals responsible for engagement quality control
