GCC Accounting & Auditing Organization

 

 

 

 

 

 

 

 

Definition, Objective and Scope of Quality Control

(Unofficial Translation)

 

 

 

 

 

November , 2003

 

 

Preface :

 

The GCC council aims to achieve coordination, integration and effective correlation between member countries to the extent that attains unification and deep relations between the people of these countries in the various fields.

 

The GCC Accounting and auditing organization is established to assist in achieving this objective. It has been established under the resolution of the supreme council taken during its summit meeting held in Abu Dhabi during the period December 7-9,1998. Article 3 of GCC Regulations states “the organization has an artificial personality , separate budget and enjoy privileges and immunities as adopted by the GCC Council.

 

The employees of the organization shall enjoy the facilities and privileges for carrying the work of the organization”. The organization started its work on May 20, 2001, when the general assembly was held and the member of the board were elected.

 

In its work the organization adopted a scientific method. The board prepared strategic plan reflecting the work of the board for five years.

 

The plan included main objectives representing the organization purposes provided in its regulations. These objectives were divided into sub-objectives representing the constituents usually required for the profession, these are : (1) conceptual framework for financial accounting (Objectives and concepts),(1) accounting standards (3) auditing standards, (4) professional qualification– fellowship certificate, (6) training and continuous education, (7) standards and programs for professional practice monitoring, (8) unified legal regulations for practicing the profession of auditing and accounting and (9) research, studies, bulletins and communication with specialists and users of the services provided by the organization (studies and information center). The board prepared a detailed schedule for implementing each sub-objective. The schedule indicates who will execute the objective and who will review it, when and how, plus the estimated cost.

 

The above mentioned constituents were prepared by specialized and expert consultants, reviewed by exerts and specialized work teams, and implemented as scheduled within the approved cost. The board approved the conceptual framework of financial accounting as it constitute the basis for looking effectively and competently into other constituents. The board also concluded to the final texts of other constituents mentioned above. The board decided  to distribute the constituents among accountants, auditors, universities capital markets, concerned governmental bodies, users of financial reports and other related parties in general. They will be requested to provide their comments and proposals within six months that end on 31.12.2003.

 

The board approved the means that assure continuous development , and that assure also the implementation and updating. These means are represented in the interior organization rules and bylaws, including: (1) Administrative and financial rules, (2) bylaws regulating the work of technical committees which are : accounting standards committee , auditing standards committee, consultation services standards committee, professional ethics committee, follow-ship examination committee, nomination committee, quality review committee and training and continious education committee.

 

The organization’s web site (ww.gccaao.org) accommodates the strategic plan, its implementation schedule, the above mentioned constituents, rules organizating the work of the organization for its development, following – up of the implementation and updating. It also accommodates the first issue of the organization’s bulletin.

 

The approval of the above constituents will result in :

·         Convincing financial report prepares, economic decion makers, accounting practitioners and scholars that, those constituents are in consistency with their economical, social and disciplinary (legal) environment.

·                     Providing unified reference in Arabic and English for all member countries. It will be also a reference for the accounting and auditing faculty and students, practitioners and accounting service benficiaries.

·         Creating the reasons for being able to positively participate in the various international forums, by bring forward the requirements of the GCC environment so as to be taken in consideration when such forums attempt to converge the constituents of the profession in countries of different environments. 

·         The implementation of the constituents will result in :

·         Financial reports presenting fairly the financial positions of the economic units and the results of its operations. It will be a supporting element when competing in global markets and will provide considerable enhancement to the economic of the GCC Countries.

·         Regular preparation and updating of the constituents by national citizens who are directly close to local changes and constantly aware of the global changes.

·         Preparation and updating of constituents that are appropriate for the GCC environment as needed according to priority and in a quality not less than that issued by specialized organizations in other environments.

 

Finally, I would like to thank every one who contributed in those achieve-ments including, the consultants, experts, work teams, governmental bodies, professional organization and private entities. I hope, for every one able to participate, to send his comments and proposals about the constituents above mentioned before the end of December, 2003.

 

Prepared on 09.08.2003

 

 

Abdul Aziz Bin Rashed Ibrahim Al Rashed

Chairman of the Board of Directors

 

 

 

Introduction :

 

Within the effort that the G.C.C Accounting and Auditing Organization (GCCAAO) makes to promote the profession of accounting and auditing and enhance its status in the GCC countries, GCCAAO board established a strategic plan for preparing the constituents of the profession. One of these constituents is the establishment of appropriate organization for field monitoring and proposing quality review standards and monitoring programs and setting guiding procedures for the accounting firm review teams. The organization assigned Mr. Abdu Aziz Saleh Al – Feraih to carry out this job including preparation of quality control standards for the accounting firm.

 

On is meeting held during the period June 1-4 2003, the board concluded to the final texts of the quality control standards. The board decided to distribute these standards among accountants, auditors, universities and other concerned bodies, and requested to receive their comments  before the end of year 2003. Then the board will look into the comments received and gives its final approval in its meeting decided to be held by the end of the year 2003.

 

This  product may be found on the organization website (www.gccaao.org) and also they are printed in this documents which also includes a summary of the organization progress and its future prospect, beside an executive summary prepared by the consultant about the outcomes achieved with respect to the proposed appropriate organization for quality review monitoring.

 

Please provide the organization with your comments on the attached form or an the electronic form at website so that we can be able to study, analyze and make use of such comments before the final approval of the quality control standards.

 

 

Best Regards

 

The executive manager

 

GCC Accounting and Auditing Organization

Definition, Objective and Scope of Quality Control

 

(This form may be filled at web site www.gccaao.org.)

 

Page No. (      ) from (      )

Page

Paragraph

Line

Comment / proposed amendment

Reasons for amendment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notice : Please write each comment in a separate page to facilitate tabulation of comments according to subjects for study purpose.

 

                  To be sent to the following address P.O. Box 55822 Riyadh 11544, Kingdom of Saudi Arabia or faxed to (009661-4736805)

GCC Accounting and Auditing Organization

 

Quality Control Standards

Contents

 

 

 

Description

Page No.

A summary of the establishment of the GCC Accounting and Auditing Organization and the products of its Activities

6

Section One : Definition, Objectives and Scope of Quality Control.

15

 

1.                Definition.

17

 

2.                Objective.

17

 

3.                Scope.

17

Section Two : Quality Control Standards for the Accounting firm

18

 

1.  Objective of quality control standards for the accounting firm.

19

 

2.  Responsibilities for compliance with quality control Standards

19

 

3.  Quality control standard and elements

19

 

 

3.1 Independence and compliance with professional rules and ethics.

19

 

 

3.2 Assignment of personnel to engagements.

20

 

 

3.3 Consultation.

20

 

 

3.4 Supervision

21

 

 

3.5 Hiring.

22

 

 

3.6 Professional development and training of personnel.

22

 

 

3.7 Evaluation of personnel performance and their promotion

23

 

 

3.8 Acceptance and continuance of clients.

23

 

 

3.9 Compliance with rules and regulations.

23

 

 

3.10 Periodic internal review (monitoring)

24

 

4. Major factors to be considered when designing or evaluating quality control standards

24

 

5. Firm's documentation of quality control

25

 

 

 

 

 

 

 

 

 

 

 

 

A summary of the establishment of the GCC Accounting and Auditing Organization and the products of its Activities

A summary of the establishment of the GCC Accounting and Auditing Organization and the products of its Activities

 

1.  Establishment of the GCCAAO

 

Within the frame of cooperative work among GCC countries, attention was given to the accounting and auditing profession. On 1982 the GCC supreme Council agreed to open the door for GCC professionals to practice certain professions, including accounting and auditing, within GCC countries, provided that registration and license is obtained similar to that required for their counterparts in the hosting country. This was followed by diligent studies, including :

·                    The Ministry of commerce in Saudi Arabia submitted to the commerce cooperation committee, during its third meeting on July 1984, the results of its work in the development of the profession which included : the objectives and concepts of financial accounting, the standard of presentation and general disclosure, auditing standards, internal organizations rules and bylaws. A committee consisting of specialist from member countries was formed to study those products.

·                    Upon the decision of the commerce cooperation committee in its sixth meeting in 1986, a technical committee was invited to study the proposed accounting and auditing standards prepared by the Ministry of Commerce in Saudi Arabia. The invited committee suggested that , the development of the profession should be addressed through, determination of objectives, identification of concepts , studying accounting standards, studying auditing standards and establishing unified organization rules and bylaws. The GCC Secretariat general observed that, such a program can not be implemented through that committee, and therefore, with greater reason, it should be assigned to accountants and auditors (practitioners and academics).

·                    In its ninth meeting in Riyadh on July 1987, the commerce cooperation committee approved, for guidance , the proposed unified regulation (law) for registration and licensing, submitted by the GCC Secretariat after studying the registration and licensing requirements in member countries.

·                    A committee from member countries was formed to study the decision taken by the commerce cooperation committee, accepting the proposal of the committee assigned for studying the accounting and auditing standards which requires the development of the profession to go as follow : (1) determination of objectives, (2) identification of concepts, (3) studying accounting standards, (4) studying auditing standards, (5) establishing unified organization rules and bylaws for the accounting and auditing profession in GCC countries.

·                    As a result of the encouragement from the GCC. Secretariat General, a constituent committee encompassing prominent practioners and academics  from the citizens of GCC Countries was formed to provide advice and propose any matter that may enhance the profession. In March 1990 the committee started its efforts and held many meetings with representatives of the ministries of commerce in GCC countries. As a result all parties became convinced of the significance of the objectives of the profession and it has been agreed that a professional organization is to be established under the supervision the commerce cooperation committee "Ministers of commerce in member countries". Then a proposed constitutional regulation was prepared for GCCAAO.

·                    On September 15,1998 the commerce cooperation committee approved the proposed regulations and raised it to the supreme council. In December 1998, during its summit meeting held in United Arab Emirates, the supreme council approved the regulations. The organization, as stated in the regulations, has an artificial personality, separate budget and enjoy the privileges and immunities as adopted by the GCC Council. The regulations identified the objectives, duties and membership of the organization and that it consists of general assembly, board of directors and executive staff. It also identified the technical committees, the financing and resources.

·                    In implementation of the supreme council decision regarding the first session, the Secretariat General invited the general assembly to hold the first meeting in Riyadh in May 2001. In that meeting Riyadh city has been selected as a residence, members of the board for the first session (4 years) were elected from among the representatives of member countries in the general assembly, in accordance with the categories identified in the regulations. Each country was represented by three members plus the representative of the Secretariat General. Therefore total number of members is nineteen.

·                    Immediately after the general assembly  held in May 2001, the board of directors held its first meeting and elected H.E. Abdul Aziz Al Rashed Bin Ibrahim Al– Rahshed, from Saudi Arabia, as chairman of the board and H.E Dr. Jasem Mohmed Al– Medhef, from Kuwait, as deputy chairman. The board assigned Mr. Agel Menawer Al Dhamiri, from the Secretariat General, to work as a coordinator and reporter to the board of directors.

 

Members of GCCAAO board for the first session are :

Sr.

Name

Country

1

Mohammed Jasem Al Mazki

(replaced later by Shaikh Soud Hamad Al-Qasmi)

U.A.E

2

Ahmed Jasem Al Abduly

U.A.E

3

Buty Ahmed Khadim

U.A.E

4

Ali Ahmed Radhi

Kingdom of Bahrain

5

Abbas A. Al-Mohsin Radhi

Kingdom of Bahrain

6

Dr. Jawahir Shahin Al madhaki

Kingdom of Bahrain

7

H.E. Abdul Aziz Al Rahed Ibrahim (chairman)

Saudi Arabia

8

Ali Deghileep Al-Otaibi (replaced later by

Ahmed Mohammed Al Abdul Qader)

Saudi Arabia

9

Abdul Ellah Mohammed Al obaid

Saudi Arabia

10

Nafisah Jaafer Mohammed

Sultanate of Oman

11

Salem Hameed Al khosaibi

Sultanate of Oman

12

Mansour Dirweesh Al raeasi

Sultanate of Oman

13

Salah Ganim Al Ali

Qatar

14

Ali Sultan Al Hajri

Qatar

15

Hosain Faraj Ibrahim

Qatar

16

Dr. Jasem Mohammed Al Medhef (Deputy chairman)

Kuwait

17

Hamad Abdullah Al Ganim

Kuwait

18

Abdul Latif Ahmed Al Ahmed

Kuwait

19

Saleh Abdul Rahman AL-Semail (replaced later by Hassan Mohammed Al Obaidley)

GCC Secretariat General

 

2.  GCCAAO Products :

2.1   The Strategic Plan :

In its first meeting , held in May 2001, the board began studying the ways through which GCCAAO objectives can be realized. Sub-committees from among its members were formed including the financing committee and the budget committee.

However, these committees did not reach a suitable vision because no information were available regarding the excepted  financing. As a result the board decided to prepare a strategic plan in accordance with the experienced planning methodology. The plan included, documentation of the current status of the constituents of the profession, analyzing it, follow–up and evaluation and cost. It aims to provide a clear vision to the concerned parties and users of the service in order to obtain their support. The board authorized its chairman and some of its members to assign a well– known consultation parties to carry out this job.

The board was not able to assign a consultant firm with a reasonable cost, therefore it formed a team using its members and the voluntary efforts of  Mr. Yousef Al– Mobarak SOCAP Secretary General in addition to efforts, against limited costs, of Dr. Osama Bin Fahad Al– Hezan, head of the department of financial sciences of Prince Sultan University and Mr. fahad Bin Abdulla Al Rashed, the financial manager of Al– Riyadh construction Company. The board required its chairman and its member Mr. Aqel Al–Dhamiri to provide them with assistant as needed.

 

With the assistant of the GCC Secretariat general, SOCPA and Al Rashed Firm (Consultants, CPAs and auditors) the strategic plan and its implementation programs was prepared.

 

The board reviewed, amended and approved the plan and assigned Dr. Osama Bin Fahd Al– Hezan to follow–up the technical aspects and Mr. Aqel Al– Dhamiri to follow–up the administrative and coordinative affairs, assisted by the  chairman as needed and by the board members, particularly in regard of distributing and returning the questionnaire in their countries.

 

The strategic plan and its implementing programs approved by the board can be seen at the organization web site (www.gccaao.org). It is focusing on the constituents of the profession in member countries compared to those in different environments, considering the differences, reasons and effects of those differences, in order to achieve consistency with regional environment and competency with the standard of other environments.

 

2.2    The constituents of the profession :

The following are the constituents of the profession (sub-objectives of the strategic plan), the consultants worked on it and the team that approved it. However, the products of their work including, the methodology followed, comparison studies and analysis and constituents reached, can be seen, in full, at the organization web site.

2.2.1  First main objective: The regulations stated "review, develop prepare and approve professional standards, particularly auditing and accounting standards and rules of ethics and professional conduct, taking in consideration, the international standards and experiences of other countries and professional organization." This is implemented by dividing the objective it to two sub-objectives, as follow :

1. First sub-objective : conceptual frame work of financial accounting (objectives and concepts) :

2.   Second Sub – objective : Financial accounting standards.

      Professor Ismail Gomaa was assigned to work on these two objectives as a consultant.

      A draft conceptual frame-work of financial accounting and draft accounting standards were prepared. A work team encompassing specialists and experts from all member countries, was formed to review the work of the consultants. This team included Mr. Ali Said Al sherhan from U.A.E, Mr. Ahmed Matar from Bahrain (Replaced later by Mr. Hamid Rahma, from Bahrain) Mr. Yousef Al–Mobarak, from Saudi Arabia, Mr Riyadh Al–Asfoor from Sultanate of Oman, Dr. Kalid Al khaater from Qatar and Dr. Wael Al Rashed from Kuwait. After studying the proposal, the board concluded to the final product and decided to distribute it as provided in paragraph 2.3 hereunder.

3.  Third sub-Objective : Auditing standards :

      Dr. Eihab Kamel Abu–Al khair was assigned as a consultant for this objective. He prepared the draft auditing standards. The same work team mentioned above review the work of this consultant. After studying the proposal, the board concluded to the final product and decided to distribute it as provided in paragraph 2.3 hereunder.

4. Forth sub-objective: Rules of ethics and professional conducts.

      Dr. Mohammed Al–Sehali was assigned as consultant for this objective. Draft rules of ethics and professional conducts were prepared. After studying the proposal, the board concluded to the final product and decided to distribute it as provided in paragraph 2.3 hereunder.

2.2.2  Second main objective : The regulation stated "Development and unification of the means regulating the profession, including a proposal to amend, develop and unify the regulations and laws organizing the profession and licensing requirements needed to practice the profession". It is implemented through the following two sub-objectives :

1.   First sub-objective : specify, review and evaluate the regulations and laws organizing the profession.

2.  Second sub-objectives : prepare a draft unified regulations (law) for practicing the accounting and auditing profession in member countries :

      Mr. Abdulla Al Ahmadi was assigned as consultant for these two objectives, and a draft unified regulation (law) for practicing the accounting and auditing profession in member countries was prepared. After studying the proposal, the board concluded to the final product and decided to distribute it as provided in paragraph 2.3 hereunder.

2.2.3       Third main objective : The regulations states "establish the necessary rules for fellowship examination and conducting it, including the professional, academic and practical aspects of the accounting and auditing profession". This is implemented under the title (establishing the general rules for fellow ship examination its material, contents and requirements for sitting to exam).

Dr. Osama Bin Fahad Al–Haizan, assisted by Mr. Amin Bin Fahd Al Shedi, was assigned as consultant for this objective. A draft of the general rules for followship examination, its material  contents and requirements for sitting to exam, was prepared. After studying the proposal, the board concluded to the final product and decided to distribute it as provided in paragraph 2.3 hereunder.

2.2.4       Forth main objective : The regulations states "promote professional practice and prepare and conduct the continuous education program related to the profession" It was implemented under the title (training and continuous education).

Dr. Aiman Al Khabari was assigned as consultant for this objective. A draft of the general rules for training and continuous education was prepared. After studying the proposal, the board concluded to the final product and decided to distribute it as provided in paragraph 2.3 hereunder.

2.2.5       Fifth main objective : The regulation states "establish proper organization for the field monitoring of the practicing of CPAs and the follow–up and evaluation of professional performance". It is implemented through the following two sub-objectives :

1.      First sub-objective : establish proper organization for field monitoring, propose and approve the standards and programs for monitoring professional performance.

2.      Second sub-objective : establish procedural guidances for the teams reviewing accounting firms :

Mr. Abdul Aziz Al–fraih was assigned as consultant to work on these two objectives. A draft for organization of field monitoring, standards and programs for monitoring, professional performance and guidance for the review of accounting firms was prepared. After studying the proposal, the board concluded to the final product and decided to distribute it as provided in paragraph 2.3 hereunder.

2.2.6       Main objectives : (the sixth, seventh and eighth) : for the sixth main objective the regulations states "prepare and encourage researches, studies, translation, publication of books, periodics and bulletins concerning the auditing and accounting profession and related subjects to academically and professionally enrich the accounting conception", for the seventh main objective the regulations states “coordination with societies, practitioners and other” concerned with the development of the accounting and auditing profession and strive with them to support and develop its status " and for the eighth main objective the regulations states "unification of accounting and monitoring terms".

These objectives were implemented through the following :

1.      Establishing the studies and information center.

Dr. Tawfiq Al Rebia, assisted by Dr. Mohammed Al Sehali and Mr. Abdul Aziz Al Newaiser, was assigned to set up alternatives for establishing the center, define requirements needed to enrich the accounting conception and professional practicing and to find the relation between such practicing and the education programs and curricula. The team was also required to develop the organization web site, where madam Jawhra Al–Gewaiz has provided considerable assistant. The board looked into the proposal, approved it and assigned one of its members to follow–up with executive staff the establishment of the center.

2.      Issuance of a periodic bulletin :

Dr.Assem Al-Said was assigned to issue a quarterly bulletin and the first issue has appeared and can be seen on the organization's  web site.

2.2.7                                  Membership :

It is implemented under the title (study for organizing membership, specifying conditions and criteria for obtaining membership of the organization and determing membership fees :

Dr. Suliman Al Towajri was assigned as a consultant to this objective. Proposed conditions and criteria for obtaining membership and membership fees was prepared. After studying the proposal, the board decided to form a sub-committee from its members to studying the proposal, the proposal of consultant in connection with the financing resources in general and the relation of GCCAAO with national organizations and societies.

2.3         Board study and conclusion with respect to the constituents :

In its meeting held in Muscat from the first to the fourth of June 2003, the board approved the conceptual frame work of financial accounting (objectives and concepts) as it is considered as a base for looking effectively and competently into other constituents. It also concluded to the final texts for other products mentioned above. By this point GCCAAO has achieved most  of the objectives provided in its regulations.

The board decided to distribute these constituents among accountants, auditors, universities, capital markets, concerned governmental bodies, and users of financial reports including users of financial statements issued annually by business enterprises, and requested them to provide GCCAAO with their comments before the end of the year 2003. The board shall look into the comments that will be received and shall approve those constituents in its final form during its meeting decided to be held by the end of year 2003.

2.4         Temporary and permanent residence :

The GCC Secretariat General has hosted GCCAAO from the day of starting its work until moving to the temporary residence received from Saudi  Government after being furnished and equipped. The government of Saudi Arabia approved an amount for building the permanent residence. It will be designed in coordination with the Ministry of Finance in Saudi Arabia and construction will start in 2004.

2.5         The financial, administrative and technical Rules :

The board approved the financial and administrative rules and bylaws regulating the work of the technical committees. It also identified the number and categories of members for each technical committee.

2.6         The executive manager and the administrative staff :

During the meeting held in Muscat (1-4 June 2003), the board selected Dr. Osama Bin Fahad Al-Hezan as executive manager for GCCAAO, authorized to assign the administrative staff as work progresses.

 

3.  The future :

       For the near future the organization focuses on achieving consistency between realizing its objectives and obtaining adequate financing, beside assurance of the implementation and development of the constituents of the profession.

3.1  Realization of Objectives :

The constituents mentioned in (1) and (2) above were realized with a very low cost. No major cost, such as salaries of the executive manager and the administrative staff, was incurred. The work was done by voluntary contribution from the board members and nominal compensation for the coordinator unit the executive manager is assigned on 01.08.2003. In addition the GCC secretariat general provided the administrative support and SOCPA provided the technical support. All documents, informations and studies concerning the constituents of the profession in Saudi Arabia were provided by SOCPA to the consultants and experts.

However, on preparing the plan for remaining period of the year  2003 and on updating the five year plan to include the period (2004-2008), the costs of the administrative staff and compensation of technical committee members as stated in the regulation, were added. The following table indicate members of the technical committees :

 

 

Name of Committee

Sectors

 

 

Total

Practicing members

Financial statements preparers (Accountants)

University and Higher Instates staff

Gover-nment

Private Sector

Accounting standards

4

3

3

3

2

15

Auditing standards

3

3

3

2

2

13

Professional Ethics

2

-

2

1

1

6

Examinations

3

-

3

1

1

8

Nomination

2

1

1

1

1

6

Quality Review

3

1

2

1

1

8

Training and Continuous Education

2

-

2

1

1

6

Researchs and Publication

1

-

1

1

1

4

Consulting Services

2*

1

1

1

1

6

Total

22

9

18

12

11

72

*  Members are from those working in the field of consultation.

3.1               Financing :

This is the most difficult and most risky aspect with respect to the future of the organization. Although most of the government responsibles and the public sector, including the financial and professional bodies,  are convinced of the significance of the work carried out by the organization with respect to those who benefit from its services and with respect to the economic as a whole, considering the last events that caused the failure of some of the largest companies in the world, however no adequate financing is provided for the organization in order carry out its mission and in order to put these countries aside from any disaster.

The organization concluded, that the best way is to prepare its strategic plan, as that prepared for the last period depending on objectives connected to costs and financing means, and raise it to the ministerial committee before its meeting in October 2003. A comprehensive report on the products shall be attached, in compliance with Article 4 of the Regulations which states (The GCC commerce cooperation committee shall supervise the organization through the periodic reports raised to it by the board of the organization).

By that, the ministerial committee will have clear vision about the objectives that the organization can realize if adequate financing is provided. The committee will take its decision in consistency with the plans and aspirations of GCC countries in this area.

 

This summary is prepared on :

Saturday 11.06.1424 H

Corresponding to 09.08.2003

 

 

 

 

 

 

 

 

 

Section one

 

Definition, Objective and Scope of Quality Control

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Draft

 

Quality Control Standards

 Quality control : objective and scope

 

 

1.  Definition :

     Quality control refers to the administrative organization in the accounting firm and all policies and procedures which the firm has adopted for the purpose of reasonably ensuring that firms personnel are in compliance with professional standards and related regulations relevant to professional practice when rendering professional services to clients including professional conduct rules and ethics and the firms compliance with regulations governing  the profession.

 

2.      Objective :

Quality control aims at providing reasonable assurance that professional standards and related regulations governing the provision of professional services to clients are adhered to.

 

3.      Scope  :

The scope includes auditing and accounting services provided by the accounting firm.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Section Two

 

Quality control standards for the accounting firm

 

 

Quality control standards for the accounting firm

 

 

1. Objectives of quality control standards :

The quality control standards aim at the following :

1.1   Determine objective of quality control for the accounting firm and its elements to assist the CPA in designing an adequate quality control system for his firm in order to achieve the objectives stipulated by the quality control standards.

1.2    Determine scope of services of the accounting firm for which quality control standards would be applicable .

1.3   Identify those factors that has to be considered when designing quality control system for the accounting firm to assist the CPA in designing an appropriate quality control system for his firm.

1.4   Provide the review team with a basis for evaluating the quality control system for the accounting firm being reviewed, and to determine appropriateness, adequacy and effectiveness of the quality control.

1.5  Provide the review team with a basis to assist it in rendering practical advice to the accounting firm being reviewed to improve on the quality control .

 

2.      Responsibility for compliance with quality control standards for the accounting firm:

The quality control standards are applicable to all accounting firms, regardless of its legal form, number of owners or size. The responsibility for compliance is that of the owners.

 

3.      Quality control standards  and its elements :

3.1 Independence and compliance with professional rules of conduct and ethics.

3.1.1 The accounting  firm must establish appropriate policies and procedures to provide reasonable assurance that firm's personnel are independent from clients to the extent required by the applicable standards and regulations.

3.1.2 The firm, in establishing its policies and procedures, has to endeavor to achieve the following to the extent appropriate to its circumstances..

3.1.2.1 Assigning an individual for providing consultation and resolving all matters arising with respect to independence.

3.1.2.2  Inform firms personnel periodically of  firms policies and procedures as they  relate to independence.

 3.1.2.3 Emphasize the importance of independence of its requirements and the compliance with the professional rules of conduct and ethics through training and supervision over engagements.

 3.1.2.4  Inform the firms personnel periodically of firms policies and procedures as they relate to independence.

3.1.2.5 Periodic confirmation of compliance with firms policies related to independence by firms  personnel.

3.1.2.6  Ensuring that joint auditors or those co-operating  with the firm are in compliance with the independence requirements of the related clients as per the organization's requirements.

3.1.2.7  Avoidance of allowing fees of material amount to be overdue taking the form a loan.  If such situation exists, the firm must assess the effect on firms independence and document basis for conclusion in working papers.

 

3.2  Assignment of personnel to engagements :

3.2.1  The firm must establish appropriate policies and procedures to provide reasonable assurance that the engagement is being carried out by personnel who possess adequate experience and training and appropriate qualifications as required by the engagement, taking in consideration the nature and extent of supervision to be provided.

3.2.2   When establishing its policies and procedures, the firm must endeavor to achieve the following to the extent appropriate to its circumstances :

3.2.2.1  Assigning the responsibility of personnel assignment to engagements and scheduling thereof in a specific person or in specific role.

3.2.2.2   Planning the firms requirements of the different levels of personnel and update such requirements when accepting new engagements that could have significant impact on available human resources.

3.2.2.3  Time planning of engagements per  different levels of  personnel  and scheduling of engagement and personnel for a reasonable prospective period.

3.2.2.4  Ensuring availability of professional skills and expertise at the right time before accepting the engagement.

3.2.2.5  Ensuring reasonable rotation of personnel on different engagements to attain independence and effectiveness.

3.2.26   Provide on – the – job training to assistants.

3.2.2.7  Ensure independence of personnel assigned to engagements.

3.2.2.8  Approval of personnel assigned to the engagement by the in-charge partner.

3.3  Consultation  :

3.3.1  The firm must establish appropriate policies and procedures to provide reasonable assurance that consultation is made available to firms is personnel by individuals who possess the appropriate knowledge and qualification, good judgment and experience. It should be noted that arrangements regarding consultation depend on various factors such as size of the firm, size of the engagement and degree of complexity, level of knowledge, experience and judgment of firms personnel.

3.3.2  The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances :

3.2.2.1  Determine cases or subjects requiring consultations and the acceptable sources for consultation and inform firms personnel of the same.

            3.2.2.2  Encourage firms personnel to consult with those sources.

3.3.2.3 Arrange with appropriate outside sources in case internal sources are not available.

3.3.2.4 Provide for the appropriate references and assist firms personnel in obtaining the same.

3.3.2.5 Document the consultation efforts and opinion to be approved by the in-charge partner.

           3.3.2.6  Document considerations for not accepting the consultant’s opinion.

3.4  Supervision :

3.4.1 The firm must establish appropriate policies and procedures for planning, execution and supervision of engagements in such a way that provide reasonable assurance that work carried out is in accordance with the quality standards approved by the firm. The responsibility for establishing appropriate policies and procedures to plan, execute and supervise engagements is independent from the responsibility of the team assigned to plan, execute and supervise a specific engagement.

3.4.2 The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances.

3.4.2.1 Clearly determine the responsibilities for planning, execution and supervision of the engagement.

3.4.2.2  Invite participation of assigned team in planning the engagement.

3.4.2.3 Determine factors , data and information  to be considered when planning the engagement.

3.4.2.4 Preparation and approval of the engagement plan.

3.4.2.5 Determine those circumstances allowing for deviation from plan.

3.4.2.6 Control and supervision over field work.

3.4.2.7 Documentation of work executed.

3.4.2.8 Review of work carried out by engagement personnel.

3.4.2.9 Review of findings / results and verifying adequacy and effectiveness of evidences gathered and consistency of report with the results of work carried out.

3.4.2.10 Review of audit report and financial statements to verify consistency with applicable professional standards.

3.4.2.11  Documentation of the different levels of planning, supervision and review.

3.4.2.12 Communicating the firms policies and procedures regarding planning , execution, supervision and review of engagements to firms personnel.

3.4.2.13 Establishing appropriate procedures to reconcile the differing professional view points amongst members of the team of  the engagement.

 

 

3.5  Hiring :

3.5.1   The firm must establish appropriate hiring policies and procedures to provide reasonable assurance that the individuals being hired possess  adequate qualifications to carry out the required work. The firm has to establish appropriate policies and procedure to ensure compliance with the requirements of applicable regulations regarding hiring specific percentage of nationals as part of its technical man- power.

3.5.2  The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances.  

3.5.2.1 Hiring in accordance to a plan which stipulate the firms personnel requirements at different levels of qualification , experience and characteristics    needed in the candidates.

3.5.2.2  Endeavoring to increase the percentage of nationals amongst  the technical staff in the firm.

3.5.2.3  Verification of the candidates background and their qualifications to ensure compatibility with firms requirements.

3.6  Professional and training of personnel :

3.6.1 The firm must establish appropriate policies and procedures for professional development and training of personnel, in such a way that provide reasonable assurance that the firms personnel obtain the required knowledge to allow them discharge their responsibilities. On-job-training and continuing professional education are considered to be very basic requirements for providing the firms personnel, at different levels, with needed knowledge.

3.6.2  The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances.

3.6.2.1  Complies with the continuing professional education requirements (CPEs).

3.6.2.2  Attain a high degree in the quality and appropriateness of CPE.

3.6.2.3  Attain an appropriate level of on-job-training.

3.6.2.4 Assist the firms personnel in selecting the training courses appropriate to the firms needs in the circumstances.

3.6.2.5 Provide the firms personnel with information on any recent changes in areas related to the profession.

3.7  Personnel performance evaluation and promotion :

3.7.1   The firm must establish appropriate policies and procedures for personnel performance evaluation and promotion to provide a reasonable assurance that those being promoted possess the required qualifications to fulfill the responsibilities  they will be called on to assume.

3.7.2   The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances :

3.7.2.1 Inform the firms personnel of the policies and procedures related to performance evaluation and to promotion.

3.7.2.2 Comply with objective measures (criteria) for personnel performance evaluation.

3.7.2.3   Evaluate personnel performance periodically.

3.7.2.4   Inform the staff of his performance evaluation results, and provide means for him to improve his performance .

3.7.2.5   Consistent application of policies and procedures related to performance evaluation and promotion decisions.

3.8  Acceptance and continuance of clients :

3.8.1 The firm must establish appropriate policies and procedures for acceptance and continuance of clients to provide a reasonable assurance to mitigate the  probability of engagement with a client who lacks integrity.

3.8.2  The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances.

3.8.1.1 Clarity of procedures related to evaluation of current or prospective clients.

3.8.1.2 Designating individuals to evaluate and make recommendations as to whether a prospective or current client should be accepted or continued.

3.8.1.3 State the reasons that cause rejection of a prospective  client of discontinuing the relation with a current client.

3.8.1.4 Inform firms personnel of the policies and procedures related to client’s acceptance and continuity .

3.9  Compliance with the CAPs regulations, its by-laws and other regulations related to the CPA work :

3.9.1 The firm must establish appropriate policies and procedures to provide reasonable assurance that the firm and its personnel are in compliance with the CPAs regulations, its bylaws and other regulations and by-laws related to the provision of accounting and auditing services.                 

3.9.2 The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances.

3.9.2.1 Inform the firms personnel of the regulation requirements as they relate to the CPA's practice.

3.9.2.2 Assigning the responsibility of compliance follow-up, interpretation and consultation including for outside sources.

3.9.2.3 Determining the degree of compliance periodically and approving a specific  plan to achieve  the required degree of compliance.

 

 

3.10  Internal periodic review (Monitoring) :

3.10.1 The firm must adopt appropriate policies and procedures for internal periodic review to provide reasonable assurance that the firm quality control system is adequate and the firms quality control policies and procedures are adhered to at all professional levels. The firms responsibility for setting internal periodic review policies and procedures is separate from its responsibility for setting supervision policies and procedures or the responsibility of a team assigned to perform specific engagement, to plan , supervise and review the results of that engagement.

3.10.2 The firm when establishing its policies and procedures should endeavor to achieve the following to the extent appropriate to its circumstances.

3.10.2.1 Monitoring scope covers all element of quality control.

3.10.2.2 Monitoring scope covers all accounting and auditing services provided by the firm to its clients, to which firm name is associated through reports prepared subject to professional standards.

3.10.2.3  Monitoring scope covers all licensed CPAs working in the firm who have actually signed reports in the period subject to review.

3.10.2.4 Monitoring scope includes an adequate sample for all engagements performed during the period under review in order to achieve reasonable confidence in the review conclusions :

3.10.2.5  Using monitoring as a means for evaluating firms system of quality control, find out deficiencies in the system and take suitable action to improve its efficiency.

3.10.2.6 Using monitoring as a means to improve the effectiveness and performance of firms personnel.

3.10.2.7 Documentation of the monitoring and its conclusions without violating the CPA responsibility to maintain the confidentiality of information obtained from clients.

3.10.2.8 Maintain monitoring conclusions until the firm is subject to the following monitoring.

 

4.      Major factors to be considered when designing or evaluating the firms quality control standards:

Due to differences between accounting firms, the nature of the quality control standards amongst those firms might be affected by various factors that must be considered when designing or evaluating the firms standards for quality control. These major factors include :

4.1  The organization structure of the firm and the extent of centralization in the decision making process as it relates to the professional services.

4.2  The nature of services provided by the firm and the size and degree of  complexity of engagements.

4.3   Size of the firm and branches (if any) and the extent of authority extended to those  branches in respect of professional services.

 4.4   Consideration related to cost / benefit of quality controls.

Despite of the above mentioned and due to the public interest requirements as they relate to the CPAs work, the quality control standards must include the elements specified by the standards contained herewith and the firms policies and procedures should be adequate enough to achieve an acceptable degree of compliance with professional standards and other related regulatory requirements as they relate to professional  work.

5.      Documentation of firms quality control:

The firm must document its policies and procedures which  constitute its quality control standards.