1012 Audit quality, including roles and responsibilities for audit quality

Dec-2023

Canadian Standards on Quality Management (CSQMs) apply to all firms regarding their responsibilities for their systems of quality management for audits or reviews of financial statements, or other assurance or related services engagements. The authority of the CSQMs is set out in the introduction to the CSQMs. The CSQMs are to be read in conjunction with relevant rules of professional conduct and codes of ethics. The rules of professional conduct and code of ethics of the accounting profession, for example, require that members engaged in the practice of public accounting perform their professional services in accordance with the generally accepted standards of practice of the profession, including the standards and guidance contained in the CPA Canada Handbooks. While not part of assurance standards (which include Canadian generally accepted auditing standards), the CSQMs form part of generally accepted standards of practice of the profession.

The Office’s system of quality management addresses eight components:

1. The Office’s risk assessment process;
2. Governance and leadership;
3. Relevant ethical requirements;
4. Acceptance and continuance of client relationships and specific engagements;
5. Engagement performance;
6. Resources;
7. Information and communication; and
8. The monitoring and remediation process.

As part of the system of quality management, the Office is required to establish quality objectives, to identify and assess quality risks, and to design and implement responses to address the quality risks. Responses are policies or procedures designed and implemented by the Office to address one or more quality risk(s).

All staff have a role to play to contribute to a quality-oriented culture in the Office and ensure that they produce audits that meet the highest professional standards. Each auditor has a personal responsibility for quality and is expected to comply with Office policies and procedures.

Assistant auditors general (AAGs) collaborate to oversee the Office’s audit practices/product lines (annual audits and direct engagements) to which they are assigned as outlined in the Audit Operations—Senior Management Roles and Responsibilities. This oversight includes providing product line strategic direction and leadership. In addition, they have an important leadership role in promoting an internal culture of audit quality. The role of an assistant auditor general is further defined in OAG Audit 3066.

Audit principals, are typically the “engagement partner” for the purposes of the professional standards set out in the CPA Canada Handbook, and are typically the “engagement leader” responsible overall for managing and achieving the quality of the engagement and for being sufficiently and appropriately involved throughout the engagement. The role of an engagement leader is further defined in OAG Audit 3062.

Quality reviewers provide an objective evaluation, throughout the audit process and on or before the date of the assurance engagement report, of the significant judgments the engagement team made and the conclusions it reached in formulating the report by, among other things,

• being engaged on a timely basis throughout the audit process;
• reviewing the planning, examination, and reporting documentation necessary to achieve their objective and as directed by Office guidance and templates;
• bringing to the engagement leader identified issues that the engagement team has not addressed to the satisfaction of the quality reviewer;
• ensuring any differences of opinion are appropriately resolved on a timely basis in accordance with the Office’s policies and guidance for resolving differences of opinion; and
• documenting their involvement and review.

The role of a quality reviewer is further defined in OAG Audit 3063.

Audit Services teams

• provide consultation advice to staff, including audit team members, quality reviewers, and subject matter experts on the interpretation and application of audit methodology and the application of professional standards;
• perform quality assurance reviews concerning engagement reports and the accompanying subject matter (for attestation engagements) with the goal of achieving consistent and appropriate application of professional accounting and reporting standards and Office policies; and
• provide support to the assistant auditors general overseeing the Office’s product lines.

The individual assigned operational responsibility for the Office’s system of quality management

• understands the Office’s strategic decisions and actions and has experience with the Office’s business operations;
• identifies and understands quality management issues;
• develops appropriate responses (i.e. policies and procedures) to quality risks;
• implements approved policies and procedures by disseminating manuals and methodological guidance and tools, and by providing input to training and being consulted on the Office’s risks assessment process, relevant human, technological and intellectual resources issues, information and communication issues; and
• has the authority to communicate matters related to the operations of the Office’s system of quality management directly to the Auditor General, who is ultimately responsible and accountable for the Office’s system of quality management.

The individual assigned operational responsibility for the monitoring and remediation process

• monitors the implementation and compliance with approved policies and procedures by performing monitoring activities on the system of quality management, including inspections of completed engagements;
• evaluates whether the remedial actions are appropriately designed to address the identified deficiencies and their related root cause(s), have been implemented and are effective;
• communicates on a timely basis the results of the monitoring of the Office’s system of quality management; and
• has the authority to communicate matters related to the monitoring and remediation process directly to the Auditor General, who is ultimately responsible and accountable for the Office’s system of quality management.

The individuals assigned operational responsibility for compliance with independence requirements

• addresses matters related to independence;
• performs an objective review of the safeguards and actions proposed to eliminate or reduce threat to independence and provides approval to any proposed safeguards before the engagement work commences;
• ensures no work is performed where an independence threat exists that cannot be adequately safeguarded;
• helps ensure Information and Data Management received a copy of documentation on issues identified and how they were resolved for filing purposes;
• reports annually on the number of independence issues addressed, the nature and resolution of issues raised and any recommendations for changes in the Office’s system of quality management; and
• has the authority to communicate matters related to compliance with independence requirements directly to the Auditor General, who is ultimately responsible and accountable for the Office’s system of quality management.

The individuals with assigned operational responsibilities mentioned above all have a direct line of communication to the Auditor General to allow a more proactive quality management within the Office. This direct line of communication is accomplished by contacting directly the Auditor General via emails or other communication means with information about matters related to either the operations of the system of quality management, the monitoring and remediation process or compliance with independence requirements.

The Office encourages audit staff to communicate their views or concerns on quality management matters as it recognizes the importance of obtaining feedback on the Office’s system of quality management. Auditors may discuss views or concerns on quality management matters with their principal, an assistant auditor general of the applicable practice, or the Assistant Auditor General, Audit Services, who will further communicate the view or concern as appropriate. Auditors may also refer to the Office’s Complaints and Allegations policy (see OAG Audit 1091) where necessary.