Insight

Root Causes

Takeaways for Audit Firms

SA

Quality  Control

1.

Audit firm did not have comprehensive SQC

1.

Improve implementation and documentation

SQC-1

Framework

document on various elements of quality

for various elements of the systems of quality

control  or  was  not  backed  by  evidence

control as per SQC-1

supporting implementation.

2.

Maintain  policy  &  procedure  to  notify

2.

CEO and Managing Partner did not fully

breaches of independence requirements

recognize  how  audit  environment  had

3.

Provide eligibility and maintain objectivity of

changed, and did not understand required

engagement quality control reviewer (EQCR)

quality control system to be implemented.

4.

Maintain Staff appraisal policy

3.

CEO and Managing Partner did not take action

5.

Maintain policies and procedures with regard

to enhance Partners awareness, capabilities

to engagement performance, engagement

and competence to improve audit quality and

documentation and archival process

perform audit engagements.

6.

Improve  monitoring  mechanism  and  take

4.

Failure  to  allocate  sufficient  resources,

corrective actions for any of the deficiency

enough time and experienced, competent

identified  during  inspection  process  and

engagement team including EQCR.

communicate to its partner.

5.

Failure to implement policies and procedures

for  acceptance  and  continuance  of

engagements.

6.

Failure to test independence on engagements

ensuring independence at all times.

7.

Failure to have learning calendar and ensuring

that  firm’s  partners  and  employees  are

complying ICAI CPE rules.

8.

Failure to implement elements of monitoring

activity.

Agreeing Terms of

1.

Agree on terms of audit engagement with

Para 3 of SA 210

Audit Engagement

management

2.

Cover all aspects of the objective and scope of

audit, responsibilities of the management and

auditors in the EL

3.  Identify the applicable financial reporting

framework in EL

4.

Make reference to expected form and content

of any reports to be issued

5.  EL

should be signed and dated within a

reasonable time from date of appointment

Audit

1.

Audit firm’s personnel did not fully recognise

1.

Prepare audit documentation on a timely basis

Para 5 of SA 230

Documentation

the importance of audit documentation.

duly recording who performed and reviewed

2.  Engagement team did not fully verify whether

audit work and the date/s of completion and

audit documentation was prepared.

review

3.  Engagement Partner did not review audit

2.

Prepare audit documentation to understand:

documentation  nor  provided  sufficient

•

Nature,  timing  and  extent  of  audit

attention because they placed too much

procedures performed to comply with SAs

confidence on sharing awareness of entity

and  applicable  legal  and  regulatory

issues and audit procedures to be performed

requirements

among their engagement team.

•  Results of audit procedures performed,

4.  Engagement Partner did not provide sufficient

and audit evidence obtained

direction and supervision to less experienced

•  Significant matters arising during audit,

audit  practitioners  despite  they  were  in

conclusions  reached,  and  significant

majority due to frequent turnover.

professional judgments made

5.

Engagement  Partner  did  not  conduct

3.

Document decisions of significant matters

sufficient review of audit documentation.

with management and those charged with

6.  Engagement Partner did not have proper

governance

EQCR in place.

4.

Put  in  place  EQCR  system  and  ensure

compliance

7.

Audit firm did not have in place education

5.

Put in place education/training system with

system with due consideration of experience

due consideration of experience of audit

of audit practitioners, scope of their audit

practitioners,  scope  of  their  audit

engagements, newly adopted audit standards

engagements, newly adopted audit standards

and other relevant factors.

and other relevant factors

6.

Comply with policies and procedures for

assembly and archival of work papers within

stipulated time.

A u d i t o r ’ s

1.

Maintain professional scepticism through out

Para 10 of SA-240

Responsibilities

the audit period

relating to fraud in

2.

Make inquires of management and other

audit of FS

within the entity and not merely with MD and

CFO.  Inquiry  should  also  be  made  with

Chairman, Audit Committee, Board Members,

Internal Audit Team, KMP and others not

generally associated with audit on regular

basis

3.

Identify and sufficiently respond to significant

risks such as revenue recognition, journal

entries and related parties by adequately

performing  sufficient  work  in  the  areas

identified

4.

Review of accounting estimates for biases and

performing adequate work

5.

Review policies frequently to determine if the

materiality policies are still appropriate in

terms of requirement of SAs

Risk  Assessment

1.

Audit firm failed to establish overall audit

and Responses to

strategy

Assessed Risk

2.

Audit firm failed to include in the audit plan

about the planned audit procedures including

identification  and  assessment  of  risk  of

material misstatements that are required to

be  carried  out  so  that  the  engagement

complies with SAs.

3.

Audit firm failed to implement a suitable

sampling methodology and document on file

any calculations as proof thereof and that the

extent of testing is an adequate response to

the assessed risk levels.

4.

Audit firm failed to test IT related controls,

testing IT generated reports, changes to IT

systems and have adequate IT personnel on

engagement.

5.

Lack of appropriate audit tools, training and

experienced staff as well as review.

6.

Audit firm failed to document design and

effectiveness  of  controls  and  performing

appropriate test of controls.

Audit Evidence

1.

Engagement team identifies significant risks

but  completes  audit  procedures  only  by

inquiry  without  obtaining  sufficient

appropriate audit evidence.

2.

Engagement team identifies inconsistencies

and irregularities with other audit evidence

but does not determine the necessity of

additional audit procedures.

3.

Even though the assessed risk of material

misstatement is high, the engagement team

performs the tests of details only by obtaining

the entity's internal vouchers and other less

reliable audit evidence without assessing the

quality of the obtained auditevidence.

4.

During sampling among the audit procedures

in  response  to  the  assessed  risk,  the

engagement team does not select samples

from the appropriate selection range to reach

a conclusion for the entire population

5.

Engagement team did not perform audit

procedures to comprehensively understand

the related parties.

6.

Engagement team did not perform procedures

on the management’s methods and data used

for accounting estimates.

7.

Engagement  team  did  not  assess  the

management’s bias.

Audit Conclusions

1.

Audit firm does not conclude the audit opinion

and Reporting

at the end of the audit, based on audit

evidence obtained and sometimes they have

pressure to complete the audit ontime