Column by CESAR FAUSTINO R. RAVALO, JR.
December is just around the corner and so is the effectivity of ISQM 1 & 2 and ISA 220 (revised) and the much-awaited implementation of Quality Assurance Review (QAR) on audit firms performing assurance services. In fact, ISQM 1 & 2 and ISA 220 (revised) will be effective ten days earlier than Christmas and QAR will have its initial soft implementation in 2023 just after New Year. This means that CPAs in Public Practice may find it difficult to separate the professional from the personal over the holidays.
In December 2020, the International Auditing and Assurance Standards Board issued 3 new quality management standards for audit firms, namely Quality Management for Firms that Perform Audits or Reviews of Financial Statements (ISQM 1), Engagement Quality Reviews (ISQM 2) and ISA 220 (Revised), which is Quality Management for an Audit of Financial Statements.Our local standard setting body, the Auditing and Assurance Standards Council (AASC),adopted these standards and submitted to the Professional Regulatory Board of Accountancy (PRBoA), which approved it last July 7, 2021. The Board is mandated by Republic Act No. 9298, also known as the Philippine Accountancy Act of 2004 to monitor the conditions affecting the practice of accountancy and to ensure that practitioners adhere to the standards of the profession.But despite the possibility of early implementation, the Quality Assurance Review program was put on hold during the pandemic.
The QAR inspection will have two level reviews. First is the systems or office review. This will basically cover the operational capability of the audit firm in performing quality engagements. Inspectors will take a deeper look into the governance and leadership of the firm. They will also check compliance to relevant ethical requirements and the process in accepting clients, as well as the sufficiency of resources to perform quality engagements. Included as well is the process of seeing if the firm and its personnel have defined roles in the performance of their audit engagements, and how information is communicated within and beyond the institution. Above all, the risk assessment strategies used by a firm will be examined; when faced with deficiencies, how did they address and overcome these?
Furthermore, a review of completed audit engagements of the firm is conducted. In essence, inspectors would verify if the firm followed the audit procedures as mandated by the Philippine Standards of Audit (PSA).
Smaller audit firms may be faced with overwhelming challenges in complying to all these standards and regulations. For one, the timing of the implementation coincides with the workload for the coming audit season.The lack of human, intellectual, and financial resources needed for the process is another factor to consider. Given these concerns,the Philippine Institute of Certified Public Accountants (PICPA) and the Association of Certified Public Accountants in Public Practice (ACPAPP) and PRBoA have collaborated to address the implementation challenges.
Through their Academy, ACPAPP has rolled out ISQM workshops to train the practitioners in dealing with implementation the quality standards in their firms. The workshops are conducted nationwide across different chapters, which makes it more cost-effective. With an outcome-based learning system, participants are encouraged to actively participate in the discussions and fulfill the System of Quality Management Matrix which will be presented to the QAR inspectors. On the other hand, the PICPA QAR committee has rolled out its Audit Methodology workshop,Training the Trainers, which aims to highlight the engagement review of the QAR. The initial session was held in Metro Manila and will be conducted in Cebu and Davao soon.
I can attest that we have done well in collaborating for the better good of our profession. It was a delight to see and hear colleagues discuss on how to reach out to fellows from different parts of the country. ISQM and QAR will take our profession a notch higher in terms of the delivery of quality engagements across firms. And while we have taken steps to better our practice, this process of change only marks the beginning of what we can achieve as a collective over time.
Cesar Faustino R. Ravalo Jr., CPA, DPPA, CRA is an active member of both the Philippine Institute of Certified Public Accountant and the Association of Certified Public Accountants in Public Practice (ACPAPP). He currently the Chair of the ACPAPP Academy and is a member of PICPA Committee on Media Affairs. He is also a Partner of PR Ramoso & Co., CPAs. The opinion of the writer does not reflect in any way the opinion of these institutions.