Question

Question 2 John recently graduated from the three-year accounting program at George Brown College. During his co-op term he worked for a small audit firm and decided to make that his career. After graduation, he was hired by Rowlands Marcellin and Khan, LLP, a national audit firm. On starting, John spent the first day meeting the staff and partners in his office. His staff manager took John to lunch for a casual conversation. During the lunch they talked about a lot of subjects, none of which were related to auditing. After lunch, John began his training and trained the entire first week. The second week, John went with two other staff to audit a radio station in Kingston, east of Toronto. The team stayed in a hotel for three nights and ate in restaurants. During the meals, John was eager to ask questions about the audit, but the other team members said that they did not want to talk about work. After the meal, though, both team members told John to ask anything he would like to help him understand the client better. John completed the sections testing controls over purchases, payables, and cash disbursements. He also did work on sales and revenue. As he completed each section, his work was carefully reviewed by the Senior Associate, who had one year of experience. John was unhappy that he made so many careless mistakes, but the senior said that it was normal for a person’s first audit. His work was also reviewed by the Manager who found no additional corrections. The Manager was interested in finding out what John had learned about auditing and how it was different from his classes. John replied that the work was not as hard as he thought, but that it was much more precise. The manager told John that that had been her experience as well. The next day, the team returned to Toronto. John’s next assignment would for a company that imported chemicals from China. John spent the rest of the week reading trade journals about chemical importing. Required Briefly discuss two elements of quality control in this case.

Answer 1

A firm's system of quality control encompasses the firm's organizational structure and the policies adopted and procedures established to provide the firm with reasonable assurance of complying with professional standards. The nature, extent, and formality of a firm's quality control policies and procedures should be appropriately comprehensive and suitably designed in relation to the firm's size, the number of its offices, the degree of authority allowed its personnel and its offices, the knowledge and experience of its personnel, the nature and complexity of the firm's practice, and appropriate cost-benefit considerations.

The quality control policies and procedures applicable to a firm's accounting and auditing practice should encompass the following elements:

1. Independence, Integrity, and Objectivity
2. Personnel Management
3. Acceptance and Continuance of Clients and Engagements
4. Engagement Performance
5. Monitoring

The elements of quality control are interrelated. For example, the maintenance of Integrity, Objectivity, and, where required, Independence requires a continuing assessment of client relationships. Similarly, the element of Personnel Management encompasses criteria for professional development, hiring, advancement, and assignment of the firm's personnel to engagements, which affect policies and procedures developed to meet the objectives of the quality control element of Engagement Performance. Similarly, policies and procedures for the quality control element of Monitoring are established to provide the firm with reasonable assurance that the policies and procedures related to each of the other elements of quality control are suitably designed and are being effectively applied

The 2 elements of quality control in this case are:

1) Personnel Management

A firm's quality control system depends heavily on the proficiency of its personnel. In making assignments, the nature and extent of supervision to be provided should be considered. Generally, the more able and experienced the personnel assigned to a particular engagement, the less direct supervision is needed.

The quality of a firm's work ultimately depends on the integrity, objectivity, intelligence, competence, experience, and motivation of personnel who perform, supervise, and review the work. Thus, a firm's personnel management policies and procedures factor into maintaining such quality.

Personnel Management encompasses hiring, assigning personnel to engagements, professional development, and advancement activities. Accordingly, policies and procedures should be established to provide the firm with reasonable assurance that—

1. Those hired possess the appropriate characteristics to enable them to perform competently.
2. Work is assigned to personnel having the degree of technical training and proficiency required in the circumstances.
3. Personnel participate in general and industry-specific continuing professional education and other professional development activities that enable them to fulfill responsibilities assigned, and satisfy applicable continuing professional education requirements of the AICPA and regulatory agencies.
4. Personnel selected for advancement have the qualifications necessary for fulfillment of the responsibilities they will be called on to assume.

In the given case as John was less experience so he commited mistake and as his senior associate has 1 year of experience so he review John's work as he has more experience than John so this is called personnel management .

2) Monitoring

Policies and procedures should be established to provide the firm with reasonable assurance that the policies and procedures established by the firm for each of the other elements of quality control described are suitably designed and are being effectively applied. Monitoring involves an ongoing consideration and evaluation of the—

1. Relevance and adequacy of the firm's policies and procedures.
2. Appropriateness of the firm's guidance materials and any practice aids.
3. Effectiveness of professional development activities.
4. Compliance with the firm's policies and procedures. When monitoring, the effects of the firm's management philosophy and the environment in which the firm practices and its clients operate should be considered.

In this case John's work was first reviewed by his senior associate and the again by the manager so his work is being completely monitored by different authorities of the firm so the principle of monitoring is applicable.