Peer Review and Quality Review – CA Final Audit Question Bank is designed strictly as per the latest syllabus and exam pattern.
Peer Review and Quality Review – CA Final Audit Question Bank
Question 1.
Explain the objectives of Peer Review. [Nov. 08, Nov. 18- New Syllabus (4 Marks)
Answer:
Objectives of Peer Review:
As per Statement of Peer Review issued by ICAI, objectives of peer review can be listed as below:
- To ensurethat members while carrying out assurance service assignments comply with Technical, Professional and Ethical Standards issued by the Institute;
- To ensure that member has in place proper system, including documentation thereof, for maintaining the quality of assurance services;
- To ensure adherence to various statutory and regulatory requirements.
- To identify and address patterns of non-compliance with quality control standards,
Note: Primary objective of peer review is not to find out deficiencies but to improve the quality of services rendered by members of the profession.
Question 2.
Write short note on: Focus of Peer Review. [May 10 (3 Marks)]
Or
Write short note on: Scope of Peer Review (Nov. 11, Nov. 13, Nov. 18- Old Syllabus (4 Marks), RTP-May 20)
Answer:
Scope of Peer Review:
The Peer Review process shall apply to all the assurance services provided by a Practice Unit. While carrying out review, the reviewer examines the assurance engagement records of the Practice Unit so as to cover the following:
- Compliance with Technical, Professional and Ethical Standards:
- Quality of reporting.
- Systems and procedures for carrying out assurance services.
- Training programmes for staff (including articled and audit assistants) concerned with assurance functions, including availability of appropriate infrastructure.
- Compliance with directions and/or guidelines issued by the Council to the Members, including Fees to be charged, Number of audits undertaken, register for Assurance Engagements conducted during the year and such other related records.
- Compliance with directions and/or guidelines issued by the Council in relating to article assistants and/or audit assistants, including attendance register, work diaries, stipend payments, and such other related records.
Statement of Peer Review aims to confine the scope of review to preceding 3 years since this would establish the consistency or deviations, if any, in respect of procedures followed by the PU.
Question 3.
Write short note on: Technical, Ethical and Professional Standards as per Statement of Peer Review. [May 13 (4 Marks)]
Or
“The Stateifient defines the scope of peer review which revolves around compliance with technical, ethical and professional standards; quality of reporting; office systems and procedures with regard to compliance of assurance engagements; and, training programmes for staff including articled and audit assistants involved in assurance engagements.” You are required to explain the meaning assigned to Technical, Ethical and Professional Standards as per Peer Review Statement. [MTP-May 20]
Answer:
Technical, Ethical and Professional Standards:
(i) Accounting Standards issued by ICAI and/or prescribed and notified by the C.G. of India;
(ii) Standards issued by the Institute of Chartered Accountants of India including
(a) Engagement standards
(b) Statements
(c) Guidance notes
(d) Standards on Internal Audit
(e) Statements on Quality Control
(f) Notifications/Directions/Announcements/Guidelines/Pronouncements/Professional standards issued from time to time by the Council or any of its committees.
(iii) Framework for the Preparation and presentation of financial statements, framework of statements and Standard on Auditing, Standard on Assurance Engagements, Standards .on Quality Control and Guidance Notes on related services issued, from time to time, by the Institute of Chartered Accountants of India and framework for assurance engagements;
(iv) Provisions of the various relevant statutes and/or regulations which are applicable in the context of the specific engagements being Reviewed including instructions, guidelines, notifications, directions issued by regulatory bodies as covered in the scope of assurance engagements.
Question 4.
What are the areas excluded from the scope of Peer Review. [May 14 (3 Marks)]
Or
Write short note on: Areas not to be examined in Peer Review. [Nov. 17 (4 Marks)]
Answer:
Area excluded from the scope of peer review:
As per Statement of Peer Review by ICAI, the following services are excluded from the scope of peer review:
- Management Consultancy Engagements;
- Representation before various Authorities;
- Engagements to prepare tax returns or advising clients in taxation matters;
- Engagements for the compilation of financial statements;
- Engagements solely to assist the client in preparing, compiling or collating information other than financial statements;
- Testifying as an expert witness;
- Providing expert opinion on points of principle, such as Accounting Standards or the applicability of certain laws, on the basis of facts provided by the client; and
- Engagement for Due diligence
“ICAI Examiner Comments”
Some examinees were able to highlight only few of the areas that are outside the purview of Beer Review. Few examinees wrongly mentioned that tax audit and internal audit are also not to be examined by Peer Reviewer. While few other examinees discussed wrongly on the areas to be examined by Peer Reviewer.
Question 5.
Write short note on: Eligibility criteria to be a Peer Reviewer. [May 18-Old Syllabus (4 Marks)]
Or
The elements of skill, experience and independence of reviews are ensured before initiating them in Peer Review process. In the above light, state few eligibility criteria fixed for a person to be em¬panelled and also for being appointed as a peer Reviewer. [May 18 – New Syllabus (4 Marks)]
Or
What is the eligibility to be a Peer Reviewer? [May 19 – Old Syllabus (4 Marks)]
Answer:
Eligibility criteria to be a Peer Reviewer:
(a) A Peer Reviewer shall: —
- Be a member with at least 10 years of experience in practice;
- Is in Practice as per the Chartered Accountants Act, 1949.
- Should have undergone the requisite training as prescribed by the Board.
- Should furnish a declaration as prescribed by the Board, at the time of acceptance of Peer Review appointment.
- Should have signed the Declaration of Confidentiality as prescribed by the Board.
- Should have conducted audit of Level I Entities for at least 7 years to be eligible for conducting Peer Review of Level I Entities as referred to in Para II of this Statement.
(b) For being a Reviewer, a member should not have:
- Disciplinary action/proceedings pending against him
- Been found guilty by the Council or the Disciplinary Board or Committee at any time.
- Been convicted by a Competent Court whether within or outside India, of an offence involving moral turpitude and punishable with transportation or imprisonment.
- Any Obligation or conflict of interest in the Practice Unit or its Partners/Personnel.
Question 6.
Write short note on: “Reporting stage in peer Review.” [May 09 (4 Marks)]
Or
Write a short note on: Preliminary Report under Peer review.
Answer:
Reporting Stage in Peer Review:
As per Statement of Peer Review by ICAI, reporting stage in peer review covers the following:
1. Preliminary Report of Reviewer: At the end of review, the reviewer is required to send a preliminary report to the PU (before making any report to the Board) in case systems and procedures of the PU have been found to be deficient or where non-compliance with reference to any other matter has been noticed by the reviewer. No preliminary report is required in case no deficiencies or non- compliance are noticed by the reviewer.
2. Response to Preliminary Report: The PU has to send its representations, in writing, to the reviewer, on the areas mentioned in the preliminary report within a period of 15 days from the receipt of the preliminary report from the reviewer.
3. Modified Report: If the reviewer is not satisfied with the reply of the PU, the reviewer shall submit a modified report to the Board incorporating his reasons for the same. The Reviewer shall also submit initial findings (i.e. Preliminary Report), response by the Practice Unit (Response to Preliminary Report) and the manner in which the responses have been dealt with.
A copy of the modified report shall also be forwarded to the PU. In case of a modified report, the Board shall order for a “Follow On” Review after a period of one year from the date of issue of modified report. If the Board so decides, the period of one year may be reduced but shall not be less than six months from the date of issue of the report.
4. Peer review Report: At the end of an on-site Review if the Reviewer is satisfied with the reply received from the PU, he shall submit a Peer Review Report to the Board along with his initial findings, response by the Practice Unit and the manner in which the responses have been dealt with. A copy of the report shall also be forwarded to the PU.
Question 7.
Explain the stepwise approach adopted by the Peer Reviewer. [May 15 (4 Marks), RTP – Nov. 18]
Answer:
Stepwise Approach adopted by the Peer Reviewer:
(i) Obtain an understanding of the assignment: The reviewer should obtain an understanding of the assignment so as to plan the review of documentation.
(ii) Selection of assurance engagements: Reviewer should ascertain the number of assurance engagements to be reviewed based on the evaluation of replies given in the questionnaire and the size of the practice unit.
(iii) Examine the Policies and procedures of Practice Unit: The reviewer should, wherever possible, examine that the policies and procedures for acceptance of audit have been complied with and necessary documentation with regard to the same exists.
(iv) Review and Evaluation of records – Compliance and Substantive Checking: The reviewer would conduct adequate compliance procedures to gain evidence that those general controls on which the reviewer intends to rely upon, actually exists and functioning effectively throughout the period of reliance. Based on the results of compliance procedures, the reviewer concludes either to rely or not to rely on the general controls.
In case the reviewer decides to rely on the general controls, he would also need to determine the extent of reliance to be placed on such controls. In such a situation, the NTE of substantive procedures would be, normally, less extensive and vice-versa. The substantive approach involves application of such review procedures that provide the reviewer with the evidence as to the appropriateness of the factors on which the review is required to be focused on.
“ICAI Examiner Comments”
Most of the candidates explained the process of Peer Review instead of step-wise Approach.
Question 8.
Write short note on: Selection of sample by the Reviewer in case of Peer Review. [RTP-Nov. 20]
Answer:
Selection of sample by the Reviewer in case of Peer Review:
- The Reviewer shall within 15 days of receiving the information from the PU select a sample of the assurance services that he would like to Review and intimate the same to the Practice Unit.
- The Reviewer may also seek further/additional clarification from the PU on the information furnished/not furnished.
- The Reviewer shall plan for an on-site Review visit or initial meeting in consultation with the PU. The Reviewer shall give the PU at least 15 days’ time to keep ready the necessary records of the selected assurance services.
- The Reviewer and PU shall mutually cooperate and ensure that the entire Review process is completed within 90 days from the date of notifying the PU about its selection for Review.
Question 9.
ABC & Co LLP is a large firm of Chartered Accountants based out of Chennai. ABC & Co. LLP is subject to peer review which was last conducted 3 years back. For the peer review of the financial year ended 31 March 2020, the firm got an intimation on 31 May 2020. The process of peer review got started and was completed on 29 September 2020. In view of peer reviewer, the systems and procedures of ABC & Co. LLP are deficient/non-compliant. The peer reviewer did not share any of his observations with ABC & Co. LLP as draft aud final report was submitted to the Board. Comment. [MTP-Oct. 20]
Answer:
Peer Review Report of Reviewer:
At the end of review, the reviewer is required to send a preliminary report to the PU (before making any report to the Board) in case systems and procedures of the PU have been found to be deficient or where non-compliance with reference to any other matter has been noticed by the reviewer. No preliminary report is required in case no deficiencies or non-compliance are noticed by the reviewer.
The PU has to send its representations, in writing, to the reviewer, on the areas mentioned in the preliminary report within a period of 15 days from the receipt of the preliminary report from the reviewer.
If the reviewer is not satisfied with the reply of the PU, the reviewer shall submit a modified report to the Board incorporating his reasons for the same. The Reviewer shall also submit initial findings (i.e. Preliminary Report), response by the Practice Unit (Response to Preliminary Report) and the manner in which the responses have been dealt with. A copy of the modified report shall also be forwarded to the PU.
In case of a modified report, The Board shall order for a “Follow On” Review after a period of one year from the date of issue of modified report. If the Board so decides, the period of one year may be reduced but shall not be less than six months from the date of issue of the report.
At the end of an on-site Review if the Reviewer is satisfied with the reply received from the PU, he shall submit a Peer Review Report to the Board along with his initial findings, response by the Practice Unit and the manner in which the responses have been dealt with. A copy of the report shall also be forwarded to the PU.
Conclusion: Contention of ABC & Co. LLP is correct. Peer reviewer should not submit the report
directly to the Board as systems and procedures of ABC & Co. LLP are deficient.
Question 10.
A, a practicing Chartered Accountant is appointed to conduct the peer review of another practicing unit. What areas A should review in the assessment of independence of the practicing unit? [May 12 (4 Marks), MTP-Oct. 18, Or
Write short note on: Area to be reviewed in the assessment of independence of the practicing unit, while conducting peer review. [Mayl6 (4 Marks)]
Answer:
Assessment of Independence of the Practice Unit:
- Does the PU have a policy to ensure independence, objectivity and integrity, on the part of partners and staff? Who is responsible for this policy?
- Does the PU communicate these policies and the expected standards of professional behaviour to all staff?
- Does the PU monitor compliance with policies and procedures relating to independence?
- Does the PU periodically review its association with clients to ensure objectivity and independence?
Question 11.
Briefly explain: Collection of evidences by Peer reviewer. [Nov. 09 (4 Marks)]
Answer:
Collection of Evidences by Peer Reviewer:
A Peer Reviewer collects evidence by applying the following methods:
(a) Inspection: It includes scrutiny of documentation and other records of the practicing unit.
(b) Observation: He observes the procedures/processes followed in the production unit.
(c) Enquiries: He enquiries and collects required information from the responsible person of practice unit, even by the use of questionnaire.
Question 12.
What are the inherent limitations of Peer Review? [Nov. 18 – New Syllabus (4 Marks)]
Answer:
Inherent Limitations of Peer Review:
Peer review suffers from certain inherent limitations given as below:
- The reviewer conducts the review in accordance with the Statement on Peer Review.
- The review would not necessarily disclose all weaknesses in compliance of technical standards and maintenance of quality of assurance services since it would be based on selective tests.
- As there are inherent limitations in the effectiveness of any system of quality control which happens to be subject-matter of review, departure from the system may occur and may not be detected.
Question 13.
Write short note on : Objectives of Quality Review
Answer:
Objectives of Quality Review
Quality Review is directed towards evaluation of audit quality and adherence to various statutory and other regulatory requirements.
It would involve assessment of the work of auditors while carrying out their audit function so that the Board is able to assess
(a) the quality of audit and reporting by the Statutory auditors; and
(b) the quality control framework adopted by the Statutory auditors/Audit firms in conducting audit.
Quality reviews initiated by the QRB are designed to identify and address weaknesses and deficiencies related to how the audits were performed by the Audit firms. To achieve that goal, quality reviews included reviews of certain aspects of selected statutory audits performed by the firm and reviews of other matters related to the firm’s quality control system.
In the course of reviewing aspects of selected audits, a review may identify ways in which a particular audit is deficient, including failures by the firm to identify, or to address appropriately, aspects in which an entity’s financial statements do not present fairly the financial position or the results of operations in conformity with the applicable Generally Accepted Accounting Principles (GAAP) and other technical standards.
It is not the purpose of a review, however, to review all of a firm’s audits or to identify every aspect in which a reviewed audit is deficient. Accordingly, a review should not be understood to provide any assurance that the firm’s audits, or its clients’ financial statements or reporting thereon, are free of any deficiencies.
Question 14.
Write short note on: Scope of Quality Review. [RTP-Nov. 19]
Answer:
Scope of Quality Review:
The scope of the quality review includes
(a) Compliance with Technical Standards: Technical Reviewer appointed by QRB is required to examine whether the Engagement Partner has ensured compliance with the applicable technical standards in India and other applicable professional and ethical standards and requirements.
(b) Compliance with Law and Regulations: Technical Reviewer appointed by QRB is required to examine whether the Engagement Partner has ensured compliance*With the relevant laws and regulations
(c) Implementation of Quality Control System: Technical Reviewer appointed by QRB is required to examine whether the Audit firm has implemented a system of quality control as envisaged by SQC 1.
Question 15.
Write short note on: Procedures to be followed by the Quality Review Board in discharge of its functions.
Answer:
Procedures to be followed by the QRB
Rule 6 of Chartered Accountants Procedures of Meetings of Quality Review Board, and Terms and
Conditions of Service and Allowances of the Chairperson and Members of the Board Rules, 2006 specifies that the Board may, in discharge of its functions:
(a) evaluate and review the quality of work and services provided by the members of the Institute in such manner as it may decide;
(b) lay down the procedure of evaluation criteria to evaluate various services being provided by the members of the Institute and to select, in such manner and form as it may decide, the individuals and firms rendering such services for review;
(c) call for information from the Institute, the Council or its Committees, Members, Clients of members or other persons or organizations, in such form and manner as it may decide;
(d) invite experts to provide expert/technical advice or opinion or analysis on any matter or issue which the Board may feel relevant for the purpose of assessing the quality of work and services offered by the members of the Institute;
(e) make recommendations to the Council to guide the members of the Institute to improve their professional competence and qualifications, quality of work and services offered and adherence to various statutory and other regulatory requirements and other matters related thereto.
Question 16.
Step down the stages involves in the Quality Review Process.
Answer:
Stages involved in Quality Review Process:
| 1 | Selection of Audit Firm and Technical Reviewer to conduct Quality Review and sending Offer Letter of Engagement to the Technical Reviewer. |
| 2 | Technical Reviewer to convey his acceptance of Letter of Engagement by sending necessary declarations for meeting eligibility conditions and furnishing statement of confidentiality by the Technical Reviewer and his assistant/s, if any. |
| 3 | Intimation to the Audit Firm about the proposed Quality Review and acceptance of the assignment by the Technical Reviewer. Also marking a copy of the intimation to the Technical, Reviewer. |
| 4 | Technical Reviewer to send the specified Quality Review Program General Questionnaire to the Audit firm for filling-up and call for additional information from the Audit Firm, if required. |
| 5 | Technical Reviewer to carry out the Quality Review by visiting the office of the Audit Firm by fixing the date as per mutual consent. |
| 6 | Technical Reviewer to send the preliminary report to Audit firm. |
| 7 | Audit firm to submit representation on the preliminary report to the Technical Reviewer. |
| 8 | Technical Reviewer to submit final report along with a copy of Annual report of the company/ entity for the year, as specified, to the Board in the specified format, on their (individual] letterhead, duly signed and dated within 45 days from the date of acceptance of the assignment.
In addition, they shall also send a copy of their final report to the Statutory Auditor/Audit firm, requesting the firm to send their submissions thereon to the Board within 7 days of receipt of the final report with a copy to Technical Reviewer. Upon receipt of their final submission, Technical Reviewer shall submit within next 7 days a summary of their findings, reply of the audit firm thereon along with their final comments in the specified format. |
| 9 | Quality Review Group to consider the report of the Technical Reviewer and responses of the Audit firm and make recommendations to Quality Review Board. |
| 10 | Quality Review Board to consider the report of the Quality Review Group and decide. |
Question 17.
Reviewers, based on the conclusions drawn from the review, shall issue a preliminary report and subsequently the final report. A clean report indicates that the reviewer is of the opinion that the affairs are being conducted in a manner that ensures the quality of services rendered. However, a reviewer may qualify the report due to one or more reasons. In view of above Give example of some of the situations when Reviewer of Quality Review Board may qualify the report. [MTP-Aug. 18]
Answer:
Examples of situations when Reviewer of Quality Review Board may qualify the report:
Reviewers, based on the conclusions drawn from the review, shall issue a preliminary report and subsequently the final report. A clean report indicates that the reviewer is of the opinion that the affairs are being conducted in a manner that ensures the quality of services rendered. However, a reviewer may qualifr the report due to one or more of the following:
(a) non-compliance with technical standards;
(b) non-compliance with relevant laws and regulations;
(c) quality control system design deficiency;
(d) non-compliance with quality control policies and procedures; or
(e) non-existence of adequate training programmes for staff.
Question 18.
What are the reporting responsibilities of the technical reviewer while carrying out a Quality review assignment? Answer:
Reporting responsibilities of Technical Reviewer
Quality Review process enables the Technical Reviewers to express an opinion on whether the system of quality control for the attestation services of the firm under review has been designed so as to carry out professional attestation services assignments in a manner that ensures compliance with the applicable Technical standards and maintenance of the quality of attestation service work they perform.
- TheTechnical Reviewer’s review would not necessarily disclose all weaknesses in the quality of attestation work or all Instances of lack of compliance with applicable Technical Standards.
- There are inherent limitations in the effectiveness of any system of quality control, departure from the system may occur and not be detected.
Projection of any evaluation of system of quality control to future periods is subject to the risk that the system of quality controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. In the process, the Technical Reviewers also identified what they considered to be deficiencies and any defects. In, or criticisms of the firm’s quality control system.
Question 19.
Reviewers, based on the conclusions drawn from the quality review, shall issue a preliminary report and subsequently the final report. As a quality reviewer briefly discuss the basic elements of Quality Review Report. [MTP-April 18]
Answer:
Basic Elements of Quality Review Report:
The report should contain:
(a) Elements relating to audit quality of companies:
- A reference to the description of the scope of the review and the period of review of audit firm conducted along with existence of limitation(s), if any, on the review conducted with reference to the scope as envisaged.
- A statement indicating the instances of lack of compliance with technical standards and other professional and ethical standards.
- Astatementindicatingthe 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 the firm has implemented a system of quality control with reference to the quality control standards.
(ii) A statement indicating that the system of quality control is the responsibility of the reviewed firm.
(iii) An opinion on whether the reviewed firm’s system of quality control has been designed to meet the requirements of the quality control standards for attestation services and whether it was complied with during the period reviewed to provide the reviewer with reasonable assurance of complying with technical standards in all material respects.
(iv) Where the reviewer concludes that a modification in the report is necessary, a description of the reasons for modification. The report of the reviewer should also contain the suggestions.
(v) A reference to the preliminary report.
(vi) An attachment which describes the quality review conducted including an overview and information on planning and performing the review.
The Quality Review Report should be issued on the reviewer’s (individual) letterhead and signed by the reviewer. The report should be addressed to the Board and should be dated as of the date of the conclusion of the review.
Question 20.
What are the consequences if the Quality review board notices major non-compliances with the requirements of the Standards on quality control or standards on auditing or accounting standards?
Answer:
Consequences if QRB notices major non-compliance with requirements of SQC or SA or AS:
Board may recommend the following actions:
(a) Referring the case to the Director (Discipline) of the Institute for necessary action under the Chartered Accountants Act, 1949;
(b) Informing the details of the non-compliance to the regulatory body relevant to the enterprise;
(c) Intimating the Auditor as to the findings of the Report as well as action initiated under Para 25(a) and/or (b);
(d) Consider the matter complete and inform the audit firm/auditor accordingly.
Question 21.
Give examples of areas w.r.t. Standards of Auditing on which the reviewer may qualify the report?
Answer:
Examples of areas w.r.t. Standards of Auditing on which the reviewer may qualify the report:
- SA 210 – The Audit firm has not issued the Engagement letter for the audit assignment, review of Unaudited financial statements, assignment and corporate governance and other certificate assignments.
- SA 220 – Periodic internal inspection for compliance with the firm’s independence policies and procedures was not undertaken.
- SA 230 – Documentation to show whether the audit firm has identified and assessed risks of material misstatement, whether due to fraud or error, based on an understanding of the entity and its environment was not in detail and in structured format.
- SA 240 – It was difficult to conclude whether fraud risk factors were considered during the audit of the Company’s financial statements. Audit process in relation to fraud inquiry procedures were not performed and hence not documented.
- SA 265 – There was no documentation to substantiate communication by the auditor with management in writing, about significant deficiencies in internal control that the auditor has communicated or intends to communicate to those charged with governance, unless it would be inappropriate to communicate directly to management in the circumstances.
- SA 299 – No formal records were maintained for discussion between the joint auditors.
- SA 320 – No evaluation had been done to determine the materiality level for particular class of transactions, account balances or disclosures.
- SA 530 – Selection of samples was not on scientific basis and ad hoc selections were made.