Quality control policies and procedures and their implementation by Maltese audit firms : an evaluation

Abstract

Purpose: The objectives of the study are aimed at identifying quality control policies and procedures (QCPP hereunder) in terms of ISQCl, that are implemented by local Audit firms, together with practical issues and difficulties that requirements exert. Differences amongst the continuum of various audit firm types were also identified. Design: Literature on the subject was collected from various sources with particular emphasis on the quality standard ISQCl. A Quality Control Interview Schedule was developed, following the structure of the named standard, for the sake of consistency. These are Leadership responsibilities for quality within the firm, Acceptance and continuance of client relationships, Human Resources, Engagement Performance and Monitoring. Ten interviews were held with a number of audit firms which were classified into three groups: Big 4 audit firms, Second-tier audit firms (audit firms which are members of a global network of firms, i.e. similar to Big 4 networks but on a smaller scale), and third-tier audit firms (firms which are purely locally based). The data collected is mainly of qualitative nature with some quantitative, on which statistical inference was applied. Findings: Larger firms have the potential to perform quality audits in compliance with the requirements of standards because they have greater global resources at their disposal. However, the same firms have greater risk exposure to manage because they often audit public interest entities. However, third-tier firms seem to be forced into non-compliance because of difficulties that may be faced when attempting to apply the new QCPP, especially the extensive documentation requirements, the engagement performance and the monitoring exercise. Findings of this research clearly indicate that many on the requirements present significant implementations and compliance problems, especially for the third-tier firms. Cost and capacity are the central concerns. QCPP as requested by ISQCI may also be deemed to be focused on the audits/assurance of public interest entities and do not appear to accommodate smaller and medium sized audit firms that provide audit/assurance services to non-public interest entities Value: The significance of the study is the identification of the consequences which the requirements of ISQCI exert on the accounting profession in Malta. Possible weaknesses and implementation difficulties where recognized which could be of direct relevance to the regulator (Malta Institute of Accountants). Also, the study purports a continuum of firms, with different structures which cannot be placed on the same level plane when introducing the Quality Assurance Regime.