Quality Review

‘Quality means doing it right when no one is looking.’ Henry Ford

Imp areas as per Quality Review Report 2018-19 in accordance with Standard on Quality Control -1 are:

 Whether the audit firm establishes and implements policies and procedure on all the element of system of
quality control
 Whether the EQCR review at an appropriate time for the planning of an audit, significant audit judgement, and
expressions of an audit opinion.
 Whether the audit firm assigns as the person responsible for the monitoring of the system of quality control a
person with appropriate experience for the role, vest the assigned person with sufficient and appropriate
authority.
 Whether the audit firm obtain, at least annually, a confirmation letter concerning compliance with policies and
procedure for the maintenance of independence from all person required to maintain independence.
 Whether the audit firm perform the independence confirmation procedure set forth in its internal rules before
acceptance and continuance of an audit engagement, and when issuing the auditor’s report appropriately confirms
that there was no change in the status of independence.
 Whether the audit firm develop and provides education/ training program that fully take into account the
knowledge, experience, competence and capabilities of the professional staff.

The scope & objective of the quality review includes: (RTP Nov-18)

 Examining whether the Stat auditor has ensured compliance with the applicable technical standards in India and
other applicable professional and ethical standards and other relevant guidance.
 Examining whether the Statutory Auditor has ensured compliance with the relevant laws and regulations as
required under applicable audit standard.
 Examining whether the Audit firm under review (AFUR) has implemented a system of quality control with
reference to the applicable quality control stds.
 Examining whether there is no MM of assets and liabilities as at the reporting date in respect to the selected
entity

Meaning of Technical Std as per Quality Review Board (QRB)

 Preface to the Statements of A/C Std;

 Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services;
 The a/c std notified under sec 133 of the Cos Act, 2013;
 The A/C Std issued by ICAI;
 The FFPPFS issued by ICAI; (FFPPFS Framework for
 The applicable Quality Control and Standards on Auditing issued by ICAI and notified under relevant statute;
 The Statements on Auditing issued by ICAI;
 The Notifications/Directions/Guidelines issued by ICAI
 Other relevant L&R (Legal & Regulatory) requirements which includes Code of Ethics & Guidance Notes issued by
ICAI

QRB Composition

 CP & 10 other members (CG nominates CP & 5 members, other 5 by Council ICAI)

Functions of QRB

 Make recommend. To Council wrt quality of services of members

 Review the quality of services provided by members
 To guide members of ICAI to improve the quality of services and adherence to various statutory and other
regulatory requirements

QRB to review audit of Cos under NFRA applicability only if referred by NFRA. For others it can do suo moto

By Shubham Keswani (For Revision Videos: Check my YouTube Channel)

NFRA Applicability

 Listed Cos
 Unlisted public cos. PSC >= 500 Cr OR turnover>= 1000 cr OR L/D/D >= 500 Cr
 Insurance/Banking/Electricity Cos
 Any other entity referred to NFRA by CG
 BC incorp o/s India which is Subsy/Associate of above if Income/NW >20% Consol I/NW

Powers of QRB

 On its own or through spl arrangement with ICAI, evaluate the quality of work of members
 Lay down evaluation criteria for evaluating the services of members
 Call for info from members, ICAI, Council, Clients etc.
 Invite experts for expert/technical advice or opinion
 Make recommendations to council to guide members to improve quality of service

Quality review excludes Internal/Tax/GST & other spl purpose audits. Also excludes employment services.

Selection of Audit Firms

Criteria:

 Other than those covered by NFRA Rules

 risk based selection including regulatory concerns pointing towards
 on account of being part of a sector otherwise identified as being susceptible to risk on the basis of market
intelligence reports.
 reported fraud or likelihood of fraud.
 serious a/c irregularities in the f/s highlighted by the media and other reports
 major non-compliances under relevant statutes highlighted in past reviews
 Joint Audits  All joint auditors maybe reviewed
 Also review firms if recommendation by RBI, SEBI, IRDA, MCA, NFRA
 Not consider complaints by others  dealt by CA Act 1949

Quality Review Cycle

The following quality review cycle of Audit firms may be followed generally or as maybe decided by the Board:

• Once in 3 years for Audit firms having 20 or more Partners

• Once in 4 years for Audit firms having 10 or more but less than 20 Partners

• Once in 5 years for Audit firms having less than 10 Partners.

Upto 3 engg may be selected by QRB in a cycle. If no adverse findings in past review then only 1.

If adverse finding then >3 also possible.

Criteria for Technical Reviewers

 Min 15 yrs of post qualification exp & practicing

 Atleast signed 3 stat audits as a CSA of Bank/public ltd cos/Govt cos/Pvt ltd cos with t/o >= 50 cr (last 10 yrs)
Out of 3 one must be other than pvt
 No disciplinary proceedings under CA Act 1949
 Not member of QRB/ICAI Council/ Regional council/ Branch comm.

Submit 6 annual declarations along with relevant evidences, to the QRB regarding their participation in training
workshops/programmes.

By Shubham Keswani (For Revision Videos: Check my YouTube Channel)

Stages of QR Assignments

 QRB selects Audit Firm and the audit file for review and identifies TR to conduct Quality Review.
 QRB sends Offer Letter of Engagement to TR.
 TR conveys his acceptance of Letter of Engagement to QRB by sending necessary declarations for meeting
eligibility conditions and furnishing statement of confidentiality by himself and his assistant/s, if any.
 QRB intimates AFUR about the proposed Quality Review. QRB also sends a copy of this intimation letter to TR
and provides them contact details of each other for further communication.
 TR sends the specified QR Questionnaire to the AFUR for filling-up. He also calls for additional information
from the AFUR, if required.
 TR & his team carry out the Quality Review by starting their off-site review by making proper planning for the
review and then on-site visiting the office of the AFUR by fixing the date as per mutual consent ensuring that
review exercise gets completed within specified time frame.
 On completion of on-site review, TR to send the preliminary report to AFUR. TR shall send a copy of preliminary
report to QRB as well.
 AFUR to submit representation on the preliminary report to the TR and TR to immediately send the reply of the
AFUR to QRB.
 TR to submit final report along with a copy of Annual report of the entity for the year under review, to the QRB
in the specified format, on his (individual) letterhead, duly signed and dated within specified time frame or as
extended by the QRB. In addition, he shall also send a copy of the final report to the AFUR, requesting them to
send their final reply thereon to the QRB within 7 days of receipt of the final report. AFUR shall also send a
copy of their final reply to TR.
 AFUR to submit to QRB their reply on the final report and feedback, in prescribed format, regarding their
experience of the quality review.
 Upon receipt of the final reply from the AFUR, TR shall submit to QRB within next 7 days a summary of his
findings, in the specified format, containing his findings, technical requirements, final reply of the AFUR and his
final comments thereon.
 QRG to consider the report of the TR and responses of AFUR and make recommendations to QRB. QRG may also
call for additional details/information/explanations, if required, from TR/AFUR or issue such directions to TR, as
it may deem appropriate, enabling it to assess the quality of audit and reporting by the AFUR.
 QRB to consider report and recommendations of QRG and decide further course of action.

QR Team headed by TR + upto 5 assistants, No firm of CA be a member.

Independence & Qualification of Technical Reviewers

 No discipl. Proceedings under CA Act 1949

 He/his firm/network firm not stat auditor of Co. or rendered other service in last 3 FY or thereafter
 He/his firm/network firm no association with AFUR last 3 FY or thereafter
 Comply with condn of Sec 141(3) of Cos Act 2013 wrt review of stat audit
 Not belong to city/region of HO of AFUR
Independence of Assistant (Qualified Assistance)
 He shall be CA;
 Not disqualified under CA Act 1949;
 Sign the statement of confidentiality;
 No direct interface either with the audit firm under review (AFUR) or the Board;
 Should be working with them for at least one year as a member/a partner in the CA firm with them;
 Not associated with the AFUR and the concerned entity, whose audit is being reviewed, last 3 FY/After.
 No disciplinary proceeding under CA Act, 1949 pending against him or any disciplinary action under CA Act, 1949
/ penal action under any other law taken/pending against him during last 3 FY/after;
 Not a member of current QRB/ICAI’s Central Council/Regional Council/Branch level Management Committee; and
 He should not himself be empanelled as a TR with the Quality Review Board.

By Shubham Keswani (For Revision Videos: Check my YouTube Channel)

BASIC ELEMENTS OF Quality Review Report (MTP Apr-18)

(a) Elements relating to audit quality of companies:

i. A ref. to scope of review and period of review of audit firm conducted alongwith limitations on scope.

ii. A statement indicating the instances of lack of compliance with T/P/E stds.

iii. A statement indicating the instances of lack of compliance with relevant laws and regulations.

(b) Elements relating to quality control framework adopted by the audit firm in conducting audit:

i. An indication of whether AFUR has implemented system of quality control with reference to quality control Stds.

ii. A statement indicating that system of quality control is responsibility of the AFUR.

iii. An opinion on whether AFUR's system of quality control is designed to meet the requirements of the quality control
stds for attestation services and whether it was complied with during the period reviewed to provide reasonable
assurance wrt complying with T/P/E stds, other guidance and laws and regulations in all material respects.

iv. Where reviewer concludes that modification in report is necessary, description of the reasons for modification with
suggestions.

v. A reference to the preliminary report.

vi. An attachment which describes quality review including info on planning and performing the review.

Actions that maybe recommended by QRB

(a) Make recommendations to the Council of ICAI u/s 28B(a) of CA Act, 1949 for referring the case to the Director
(Discipline) of ICAI for consideration and necessary action under the Chartered Accountants Act, 1949.

(b) Issue advisory and guidance to the AFUR u/s 28B(c) of CA Act, 1949 for improvement in the quality of services and
adherence to various statutory and other regulatory requirements. A copy of such advisory may also be sent to the ICAI
for information.

(c) Inform the details of the non-compliance to the regulatory bod(y)/ies relevant to the entity as may be decided by
the Board.

(d) Intimate the AFUR as to the findings of the Report as well as action initiated as above.

(e) In case of review arising out of a reference received from a regulatory body, inform the results of review and the
details of action taken to the concerned regulatory body.

(f) Consider the matter complete and inform the AFUR accordingly.

Do solve back questions of Study Material!

By Shubham Keswani (For Revision Videos: Check my YouTube Channel)