An orientation slide deck on the IFAC SMP Committee's Guide to Quality Control for SMPs (QC Guide) that member bodies may use in training and orientation seminars to introduce staff and members to the QC Guide.

1. QC Guide—Orientation
IFAC SMP Committee
An Introduction to the Guide to
Quality Control for Small- and
Medium-Sized Practices
April 2012

2. QC Guide—Orientation
Contents
• International Standard on Quality Control (ISQC) 1
• The QC Guide
– Structure and Content
– Chapters
– Appendices
– Sample Manuals
• IFAC Resources

3. International Standard on Quality Control (ISQC) 1
• ISQC 1, paragraph 11
– The objective of the firm is to establish and maintain a system of quality
control to provide it with reasonable assurance that:
• The firm and its personnel comply with professional standards and applicable
legal and regulatory requirements; and
• Reports issued by the firm or engagement partners are appropriate in the
circumstances.
• Applying ISQC 1 proportionately to the size and
complexity of the firm is key to its efficient
implementation

4. The QC Guide
Published
August 2011

5. The QC Guide
• Helps SMPs apply ISQC 1 proportionately and efficiently
• Provides practical guidance, but is no substitute for:
– Reading and understanding ISQC 1 (itself, a requirement of ISQC 1)
– Using professional judgment
• Helps firms develop a system of quality control
• Promotes consistent application of quality control
requirements within audit, review, and other assurance
and related service engagements
• May serve as a reference document for training within a
firm

6. QC Guide
Structure and Content

7. QC Guide
Structure and Content
• Modular approach to the elements of ISQC 1
– Chapter 1: Leadership Responsibilities for Quality Within the Firm
– Chapter 2: Relevant Ethical Requirements
– Chapter 3: Acceptance and Continuance of Client Relationships and
Specific Engagements
– Chapter 4: Human Resources
– Chapter 5: Engagement Performance
– Chapter 6: Monitoring
– Chapter 7: Documentation
• ―Helpful Hints‖

8. QC Guide
Structure and Content
• Case study—M.M. and Associates
– Fictional sole practitioner employing four staff
– Performs review engagements and a small number of audits
– Illustrates the value of a system of quality control and how its elements
may be applied to practical situations
• Sample forms and checklists
• Two sample Quality Control Manuals
– Sole practitioner
– 2-5 partner firm

9. QC Guide
Chapters

10. Chapter 1
Leadership Responsibilities for Quality Within Firm
• The Leadership Responsibility Pyramid

11. Chapter 1
Leadership Responsibilities for Quality Within Firm
• Develop a culture of quality from top down
• Ultimate responsibility is with the firm’s managing board
• Underpinned by partner commitment to the firm’s quality
control policies and procedures
• Operational responsibilities for elements of the QC system
assigned to those with:
– Sufficient and appropriate experience; and
– The necessary authority
• Commercial considerations should not override
management responsibilities for quality (for example, in
performance evaluations, setting compensation, etc.)

12. Chapter 2
Relevant Ethical Requirements
• Embed within the firm the fundamental principles of
professional ethics:
– Integrity
– Objectivity
– Professional competence and due care
– Confidentiality
– Professional behavior
• Establish processes to identify and deal with non-
adherence to the fundamental principles

13. Chapter 2
Relevant Ethical Requirements
• Independence—required on all assurance engagements
• Understand the threats and safeguards to independence,
set out in the IESBA Code of Ethics
• Maintain policies and procedures to enable threats to
independence to be identified, documented, and managed
appropriately, including:
– Firm level—annual written confirmations from all partners and professional
staff
– Engagement level—written confirmation by engagement team
• Identify and manage conflicts of interest
• Establish confidentiality procedures

14. Chapter 3
Acceptance and Continuance of Client
Relationships and Specific Engagements

15. Chapter 3
Acceptance and Continuance of Client
Relationships and Specific Engagements
• Ensure the firm has the competence and capability, can
comply with ethical requirements, and considers the
client’s integrity when deciding to accept or continue the
engagement
… and document risks and (any) safeguards
• Withdrawal from engagements and/or client relationships
… and document underlying factors

16. Chapter 4
Human Resources

17. Chapter 4
Human Resources
• Need sufficient personnel in the firm with the competence,
capabilities, and commitment to ethical principles
necessary to do the work
• Focus on recruitment and retention relative to the needs of
the firm and its clients
• Ensure that staff and partners are appropriately trained
and developed and that their competence is maintained
• Assign engagement teams with the necessary
competence and capabilities to do the work
• Establish a disciplinary process

18. Chapter 5
Engagement Performance
• Policies and procedures should ensure consistent quality
output across the firm
• Engagement partner has defined responsibilities
• Establish:
– Effective planning, supervision, and review procedures
– Consultation procedures—when, who, how, etc.—including
external sources if necessary
– Procedures for resolving differences of opinion

19. Chapter 5
Engagement Performance
• Engagement quality control reviews (EQCR)
– Required for all audits of listed entities
– Establish criteria for other engagements where EQCR would be desirable
(e.g., high risk)
– Defined minimum scope
• Appoint suitable EQCR reviewer—internal or external
– Technically capable
– Necessary experience and authority
– Objective

20. Chapter 6
Monitoring
• Establish a monitoring program over the firm’s system of
quality control
• Inspection procedures:
– Consider nature and extent, but ensure coverage of at least one
engagement per partner at least every 3 years
– External inspections may be desirable (e.g., fresh perspective or sharing
of ideas) or necessary (if no suitable internal resource)
– Formal reporting
• Communicate deficiencies and take remedial actions
• Establish procedures for dealing with complaints and
allegations

21. Chapter 7
Documentation
• Required of:
– The firm’s quality control policies and procedures
– Engagement files
– Engagement quality control reviews
• File access and retention

22. QC Guide
Appendices

23. QC Guide
Appendices (extracts)

24. QC Guide
Using the Appendices
• Eight appendices, each of which may serve as a practice
aid for firms to use within their quality control systems
• May be adapted as appropriate, for example, to conform
with:
– Regulatory and professional requirements in the applicable
jurisdiction; and
– The policies and procedures of the firm

25. QC Guide
Sample Manuals

26. QC Guide
Sample Manuals

27. QC Guide
Using the Sample Manuals
• Determine the leadership positions that apply, or ought to
apply, within the firm, for example:
– Managing Partner
– Ethics Leader
– Human Resources
• Assign responsibility for all key, relevant quality control
functions, ensuring those assigned have sufficient and
appropriate experience, ability, and authority to carry out
such responsibilities.
• Select from policies (where presented) or modify the
policies as appropriate.

28. QC Guide
Using the Sample Manuals
• Ensure engagement templates are updated to reflect the
policies in the manual.
• Ensure agreement by all partners (if a partnership).
• Present the manual to all partners and staff, preferably in a
seminar environment.
• Provide the manual to new staff and perform a follow-up
interview to ensure it has been read and understood.
• Review and update the manual as new standards or new
firm policies are developed (suggested annually).

29. IFAC Resources

30. SMP Committee Home Page
www.ifac.org/smp
Access QC Guide
and Implementation
Resources from here

31. IFAC Resources
• Guide to Quality Control for Small- and Medium-Sized
Practices
– www.ifac.org/publications-resources/guide-quality-control-small-and-
medium-sized-practices-third-edition-0
• For ISQC 1, clarified ISAs, and related implementation
resources, see IAASB Clarity Center:
– www.ifac.org/auditing-assurance/clarity-center
• Tips for Cost-Effective ISQC 1 Application article
– www.ifac.org/publications-resources/tips-cost-effective-isqc-1-application

32. IFAC Resources
• Good practice guidance paper, Client Acceptance and
Continuance
– www.ifac.org/publications-resources/client-acceptance-and-continuance
• Policy Position Paper 2, Promoting a Single Set of
Auditing Standards for All Audits, Including of Small- and
Medium-Sized Entities
– www.ifac.org/publications-resources/single-set-auditing-standards-audits-
small-and-medium-sized-entities
• Links to other implementation resources
– www.ifac.org/relevant-links-implementation

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