Statutory QCR Rating by SECP
QCR DocumentsQCR Framework (Revised)
Framework of Quality Control Review (QCR) Program
This document describes the framework encompassing objectives, responsibilities and functions of Quality Assurance Board (QAB) and policies, procedures and process of quality control review established by the Institute of Chartered Accountants of Pakistan ("the Institute").
1. Preamble
2. Objectives
3. Responsibilities and Functions of Quality Assurance Board
4. Definitions
5. Selection of audit engagements
6. Review
9. QCR Revisits
10. Withdrawal of Satisfactory QCR Rating
11. Reference to Investigation Committee
12. Confidentiality and Independence
13. Date of issue and effective date
1. Preamble
The Council of the Institute formed the Quality Control Review (QCR) Committee in 1987 with the primary objective of establishing a quality control review framework in respect of audits of financial statements conducted by the firms. With effect from October 2005, the QCR Committee has been converted into a Quality Assurance Board (the Board).
2. Objectives
2.1 To establish policies and procedures for the QCR program that ensures that firms carry out audits in accordance with the professional standards adopted by the Institute.
2.2 To establish appropriate quality assurance standards and guidelines in relation to audit practice of the firms that are considered essential in the interest of the profession, in the public interest and to comply with the requirements of Statement of Membership Obligation (SMO)-1 on Quality Assurance issued by the International Federation of Accountants (IFAC).
3. Responsibilities and Functions of Quality Assurance Board
3.1 To carry out the review of working papers relating to audits carried out by the firms. In carrying out its functions, the Board will be assisted by the Professional Standards Compliance & Evaluation (PSC&E) department of the Institute.
3.2 To monitor the QCR program to ensure its adequate and effective implementation.
3.3 To arrange or co-ordinate with CPD or other committees of the Institute the training programs and workshops to improve the standard of audit.
3.4 To perform a periodic review of the QCR program (including policies, procedures and processes etc.) to ensure that it remains up-to-date and in line with the standards and guidelines issued by the IFAC for such a program.
3.5 To set the policies for the program and ensure that it is as relevant as possible to all types and sizes of practices and decide on all matters relating to QCR, in the public interest.
In this Framework, the following terms have the meanings attributed below:
"Audit" - The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework and they give a true and fair view.
"Engagement partner" - the partner or other person in the firm who is responsible for the engagement and its performance, and for the report that is issued on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal or regulatory body; "Firm" - a sole practitioner or a partnership of the members of the Institute engaged in professional practice;
"Entity" - a client of a firm;
"Listed entity" - an entity whose shares, stock or debt are quoted or listed on a stock exchange, or are marketed under the regulations of a recognized stock exchange or other equivalent body.
"Quality Control Reviewer" - chartered accountant engaged by the Institute, to carry out the review of audit working papers of firms engaged in audits. The Quality Control Reviewers may be assisted by appropriately qualified and experienced staff.
5. Selection of audit engagements
5.1 Every firm conducting audits of financial statements is required to undergo a QCR organized by the Board after every two and half years. However, an earlier review may be required under special circumstances. These circumstances may include cases where a member is found guilty of professional misconduct by SECP or the Institute, or when a Financial Statements Review (FSR) of the Institute indicates need for such review in accordance with the FSR framework, or any other circumstances, that in the opinion of the Board warrants earlier review, in the public interest.
5.2 QCR is carried out by following a set of procedures, which provide assurance on the standard of audit work performed by members in practice. Working paper files of specific audit engagements are selected from list of entities of the firm, and are reviewed to determine the audit report issued by the firm in respect of reviewed client(s), was supported or not supported by appropriate audit evidence.
5.3 The selection of audit engagements is made in such a manner that atleast twenty five percent of all audit partners as well as all office locations engaged in audit practice are covered in the review.
5.4 Every firm engaged in the audit practice is required to submit to the PSC&E department a list of audit engagements on the prescribed format as of June 30 each year (to be submitted within 3 months after June 30), and as and when required by the PSC&E department as per Council Directive 4.13. The list should specify listed and other audit engagements separately for all office locations of the firm and audit engagement partners.
6.1 The PSC&E department selects audit engagements as provided in paragraph 5.3, from the list of audit engagements provided by the firm under review. In making the selection, the reviewers will use their professional judgment and giving preference to listed companies, other companies with substantial operations, or other public interest entities that are considered high risk engagements. Review of unlisted / private companies would be performed upon receipt of consent from such companies.
6.2 Audit working papers and correspondence files of latest audited financial statements are reviewed to determine whether or not the audit opinion expressed is based on sufficient and appropriate audit evidence
6.3 The review is carried out preferably at the premises of the firm. The reviewer uses a QCR Checklist to ensure that requirements of the International Standards on Auditing as applicable in Pakistan have been met and that the audit opinion issued by the firm is properly supported by audit evidence in the form of audit working papers.
6.4 The reviewer shall discuss all issues identified during the review with the engagement partner. After completion of the review, the reviewer shall prepare a review report, which includes issues and weaknesses identified during the review, and recommendations for improvement. In cases, where major weaknesses are found, a draft report is sent to the firm requiring comments in writing. Where comments are received from the firm on the draft report, such comments shall be presented before the Board. Comments received shall be analyzed, in certain cases second opinion will be obtained, before presenting both the report and the comments in the Board. In cases where "supported by appropriate audit evidence" report is issued, draft report is not sent to the firm and is directly presented in the Board meeting.
6.5 All reports are presented before the Board, for approval, except for urgent cases where the report may be finalized by circulation to atleast five members of Board including the Chairman and / or Vice Chairman.
7.1 After approval by the Board, a final report is issued to the firm, with a conclusion stating whether the audit report issued by the firm in respect of reviewed client(s), was supported or not supported by appropriate audit evidence.
7.2 In case where the conclusion of any audit engagement is assessed as "not supported by appropriate audit evidence" by the Board, then except for cases falling under section 11 below, the reviewer shall select more audit engagements. Selection of additional audit engagements would be preferably from listed companies. The overall conclusion of the firm would be "supported by appropriate audit evidence" if 75% or more of the selected audit engagements are found as "supported by appropriate audit evidence" . Review of additional files shall be carried out within a time period decided by the Board. The above requirements shall not apply in case of a first review.
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Change in paragraph 7.1 was approved by the Council of the Institute in its 189th meeting held on May 8, 2007.
Original paragraph 7.1 was as follows:-
"7.1 After approval by the Board, a final report is issued to the firm, with a conclusion stating:
" Standard of work performed was in-accordance with International Standards on Auditing
" Standard of work performed was not-in-accordance with International Standards on Auditing"
Consequential amendments in paragraph Nos. 5.2, 6.2, 6.4, 7.2, 8.1, 9.1, 9.2 and 10.1 of the Framework have been made accordingly.
8.1 When all the office locations, carrying out statutory audit engagements, have been reviewed and had received "supported by appropriate audit evidence" conclusion, the firm is issued a report indicating eligibility to be included in the list of firms having satisfactory QCR rating. The last QCR report will be valid till the time next QCR is carried out, which is required to be undertaken within six months of the expiry of two and half years from the last review.
8.2 In order to carry out timely reviews of firms which are already on the list of firms with satisfactory QCR ratings, the Institute is required to initiate the communication with such firms atleast six months before the expiry of two and half years. This list is available on the Institute's website and is updated on a monthly basis.
9.1 At least six months to twelve months time shall be given to firms, to improve their standard once it receives a "not supported by appropriate audit evidence" conclusion and a revisit is performed within six months to twelve months of the last review.
9.2 More than one file shall be reviewed at the revisit; one of the same audit engagement, which had resulted in a "not supported by appropriate audit evidence" conclusion, and rest of the files of other audit engagements.
10. Withdrawal of Satisfactory QCR Rating
10.1 If a firm already on the list of "firms having satisfactory QCR rating", receives a "not supported by appropriate audit evidence" conclusion in a subsequent review, the firm's name shall be immediately withdrawn from the list, after fulfilling the criteria laid down in paragraph 7.
10.2 Once a firm is included in the firms with satisfactory QCR rating list, it would be required to get all its office locations reviewed after every two and half years, failing which the name of the firm would be removed from the list of satisfactory ratings, after the expiry of six months after two and half years. In case where there is a delay due to some genuine reason or urgent engagements of the firm, additional time may be allowed by the Board.
11. Reference to Investigation Committee
11.1 The Board may refer a member or a firm to the Investigation Committee in the following circumstances:
a) The Board finds that the member is prima facie grossly negligent in issuing an audit report or performance of an audit; or
b) The firm has conducted audit of a listed company without obtaining a satisfactory QCR rating.
12. Confidentiality and Independence
12.1 The reviewers are required to sign a "Statement of Confidentiality" in order to ensure complete confidentiality of the information obtained from the audit firms. Further, they also sign a "Statement of Independence" to confirm that they are both, free and appear to be free from interest, which might be regarded as incompatible with their objectivity, as far as the firm being reviewed is concerned.
12.2 The name of the firm and their entities are to be kept confidential. The summary of review reports, which is presented to the QAB for approval, is also without naming the firm or their audit engagements.
13. Date of issue and effective date
This document was approved by the Council in its 185th meeting held on 12 September 2006. It is issued on 15 September 2006 and is applicable on all reviews falling due subsequent to this date.
