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FRAMEWORK ON

THE PICPA VOLUNTARY QUALITY ASSURANCE


REVIEW (VQAR) PROGRAM

Objectives of the PICPA Voluntary Quality Assurance Review


Program
Rationale of the Program
As part of the PICPAs over-all mission of promoting, upholding, and maintaining
high standards in the accountancy profession and to serve the best interest of the
members and the stakeholders, which can be achieved through, among others, a
committed leadership, effective professional development programs, and strict
implementation of professional ethics, PICPA initiates this Voluntary Quality
Assurance Review Program for audit practitioners.
Under the IFAC Statement of Membership Obligations 1 Quality Assurance, PICPA,
being a member body of IFAC, shall assist practitioners in understanding the
objectives of quality control and implementing and maintaining appropriate systems
of quality control. To meet this obligation, PICPA is hereby implementing a voluntary
quality review program that will enable practitioners to obtain an independent,
confidential assessment of their quality control policies and procedures, apart from
any formal quality assurance review system. (see IFAC SMO 1.23-24)
Specific Objectives of the Program
The program has the objectives to provide the practitioners, with a/an:

Understanding of the requirement of the International Standards on


Quality Control 1 (ISQC 1) and International Standards on Auditing 220
(ISA 220);
Capability to implement a quality assurance program within their
respective practices that is compliant with the requirements of ISQC 1 and
ISA 220;
Ability to document compliance with quality assurance program in their
practice; and
Adequate preparation for the mandatory independent quality assurance
review.

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Scope of the Program:


The PICPA VQARP is a PICPA-initiated quality assurance review for
practitioners who will voluntarily submit themselves to a quality review to
have a reasonable assurance that they are in compliance with the
requirements of ISQC 1 and ISA 220.

Definition of Terms:
PICPA Philippine Institute of Certified Public Accountant
VQARP PICPA Voluntary Quality Assurance Review Program
QAR or Review or Assignment PICPA Quality Assurance Review
Director QAR Director
Division QAR Division
Team QAR Team
Reviewer or Examiner a Team or an individual assigned to do a QAR
Leader QAR Team Leader
Practitioner A sole public practitioner, a partner affiliated with an auditing
firm, or an auditing firm composed of a number of partners
Engagementthe practitioners engagement which is the subject of a review
Code of EthicsIFAC Code of Ethics
Report the QAR Report prepared by the Team after a Review
Inspection/Fieldwork QAR procedures done at the practitioners premises

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ISQC 1/PSQC 1 International/Philippine Standard on Quality Control 1


ISA 220/PSA 220 International/Philippine Standard on Auditing 220

I.ORGANIZATION OF VQAR DIVISION


Composition of PICPA VQAR Division
The PICPA VQAR Division shall be composed of a QAR Director, a support staff, and
a pool of Certified QAR Examiners.
The PICPA QAR Director who is a full-time PICPA employee shall be a suitably
qualified CPA
professional and shall be given the responsibility for managing QARs, to ensure that
all QARs are
consistent with applicable professional standards, laws and regulations. (1.51)
The QAR Director reports directly to the Executive Director and shall ensure the
availability of appropriate expertise and adequate financial and other resources to
enable the timely and effective performance of QARs.

Certified QAR Examiners


The pool of QAR examiners shall be:

CPAs preferably from the education sector, who are PICPA-members in good
standing,
not currently engaged in public practice,
have finished the Training Module for QAR Examiners and have passed a
written examination for Certified QAR Examiners, and
have undergone a satisfactory evaluation by the QAR Director. (1.32(a)
(b).1.52
contracted by the Division on a per review basis, and shall not be full-time
employees of PICPA

CPAs in other sectors (i.e. commerce and industry and government) who meet
equivalent qualifications, training, certification and evaluation requirements shall
also be qualified as Certified QAR Examiners.
AQAR team shall be organized by the Director for every review and shall be
composed of an appropriate number of examiners to accomplish the review within a
reasonable time. The designated team leader shall estimate the number of
manhours to complete the review, and the budget, for final approval of the QAR
Director.

QAR Team and Leader


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The QAR Director shall select and organize the QAR team composed of a leader and
members for each
review on the basis of meritocracy. In forming and selecting the team for each
assignment the Director
shall be guided by the following considerations:
a.

understanding of the applicable professional standards and regulatory


and legal
requirements;

b.

understanding and practical experience on audit engagements and


quality assurance through appropriate training and participation;

c.

appropriate technical knowledge, including knowledge on relevant


information technology.

d.

knowledge of specific industries;

e.

ability to apply professional judgment;

f.

satisfactory performance in previous QARs (1.53)

To establish independence, the Leader and team members must not have a financial
or professional interest in the practitioner and the engagements that will be
examined. The leader or member of the QAR Team of the previous three
consecutive QARs of the practitioner shall not be part of the current team, to
establish a cool-off period.
Depending on the size and complexity of the practitioner under review, the Director
shall assign a
team leader and a number of member/s for each review. The QAR team leader
shall:
a.

be a PICPA member in good standing,(1.57)

b.

have relevant experience in quality reviews, assurance and related


undertaking,

c.

be a Certified QAR Examiner;

c.

supervise the conduct of the QAR;

d.

communicate directly with the practitioner; and

e.

be responsible for preparing the main QAR report and other applicable
QAR-related documents.(1.55)

II. SUBJECT OF REVIEW


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Definition of Practitioner
The subject of the QAR, herein called as Practitioner shall either be an individual
practicing as a sole owner of a practice, an individual practitioner (i.e. partner)
belonging to an auditing firm, or an auditing firm consisting of a number of partners
who voluntarily subjects his/their practice to a QAR, for a consideration and as
provided for in this Framework.
Levels and Objectives of Review
For each QAR engagement, quality assurance is addressed at two levels: the
practitioner level and the engagement level. (1.3). At the practitioner level, the
adequacy of the quality control policies and procedures are reviewed to determine
whether they comply with ISQC 1. At the engagement level, selected engagements
are reviewed to determine whether the selected engagements have complied with
professional standards, regulatory requirements and the practitioners policies and
procedures.

Period Covered Under Review


Audit engagements of financial statements subject to selection for QAR are those
completed and issued audits of financial statements with fiscal-year periods ending
during the QAR period. If a more recent auditors report has been issued during the
QAR, consideration is given to reviewing that audit. (1.41)
If, during or after a QAR period, a practitioner under review has (a) made a
significant acquisition of all or a portion of anothers practice, or (b) has divested
itself of a significant portion of its practice, before commencing the QAR the
Reviewer shall consult with the QAR Director on the scope of the QAR or other
actions that may be taken.(1.42).
Jurisdiction
Engagements of practitioners to be chosen for VQAR shall be limited to those within
the Philippine
jurisdiction only, and for non-public interest entities (non-PIEs).

II. PREPARATION FOR REVIEW


Prior to the commencement of the review the practitioner:

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preferably, shall have attended a training on the QAR module for


Practitioners(1.24). If an auditing firm subjects itself to a QAR, all partners of
the firm shall have attended the training.
if the practitioner did not attend training on the QAR module for Practitioners,
they should have read and understand the PICPA VQAR Peer Review Checklist
(Phase II) and signify their readiness for the VQAR.
shall have signified his written intention to undertake the voluntary QAR (QAR
Form ______),
and the QAR Director shall have signed a standard engagement letter (QAR
Form ____) laying the terms, conditions and preparations for the QAR.
has duly paid the corresponding fee, as agreed based on the estimated
manhours to accomplish the review, as approved by the QAR Director.
shall be notified of the identity of the QAR Team assigned to him.
shall secure a written consent of the client/s for the engagement/s duly
selected for review.

For each review assignment, the reviewer shall sign a standard contract (QAR Form
_____) laying the terms of for remuneration, timeline, deliverables, and an
undertaking of confidentiality and non-competition. The Team shall consider the
fundamental principles set out in the Code of Ethics. These include integrity,
objectivity, professional competence and due care, confidentiality and professional
behavior.
III. REVIEW PROCESS AND DOCUMENTATION
Understanding the Practitioners Policies and Procedures
In performing a VQAR, the Reviewer shall obtain a sufficient understanding of:

The nature and extent of the practitioners audit practice and the
methodologies used;
The design of the system of quality control of the practitioner;
The practitioners ethical and independence policies and procedures ;
and
The practitioners training policies and procedures; (1.46)

Planning the Review


To understand the practitioner and its policies and procedures on quality control and
to prepare for inspection, the Reviewer performs the following procedures:
a. A notification letter (QARP Form __) together with the questionnaires (Peer
Review Checklist ____) are sent to the practitioner to be reviewed. The
information covered by Section __ of QARP Form __, together with the
attachments and the answered questionnaires shall be sent back to the
Division within one (1) week from receipt thereof.
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b. If deemed necessary, a preliminary meeting date will be set and confirmed


with the practitioner. The Team members will attend and document the
preliminary meeting, including the arrangements for workspace, computer
and administrative assistance, the practitioners contact person and the
personnel who are needed for the inspection.
c. Based on the information obtained from Section __ of QARP Form __ and/or
preliminary meeting, engagements to be reviewed are selected, and
inspection date is set.
d. The Team who will do the inspection shall be given a briefing about the
practitioner, the focus of the inspection, the timeline and their respective
assignments.
e. A day before the start of the inspection, the practitioner shall be informed of
the list of the selected audit engagements. Also, the preparations made at
the practitioners end are checked: working space, audit files, availability of
management, the person responsible for the quality control and the partners
and personnel involved in the engagements to be reviewed.

Inspection Procedures
To evaluate the quality control policies and procedures as to their conformity and
compliance with
ISQC 1 and ISA 220 and regulatory and policies at the practitioners level and
selected engagements,
the Reviewer shall perform the following procedures:
a.

On the first day of the inspection, a meeting is conducted, using QARP


Form __, in coordination with the contact person, of all practitioners
personnel involved, to briefly discuss the QAR process, as this applies to
the practitioner, the final timeline, the target date of closing meeting,
expected feedback and other matters. This will also be an opportunity for
the introduction of all participants and familiarization with the
practitioners facilities.

b. All requirements shall be rechecked if met including the audit files of the
engagements to be reviewed.
c. All matters obtained during the inspection are documented. The
inspection is performed, using Peer Review Checklist Form ____ for the
practitioner level review. Compliance with ISQC 1 is determined through
reviews of administrative files and engagements, inquiry with personnel
and observation.

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The purpose of the practitioner level review is to assess the appropriateness


of the
policies and procedures and the degree of compliance with
them in each of the following
areas:
Leadership responsibilities for quality
Ethical requirements
Human resources
Client acceptance and continuance
Engagement performance
Monitoring
Documentation
d. The inspection is performed using Peer Review Checklist Form __for the
engagement level review. The evaluation consists of a review of the
auditors report, the financial statements and underlying working papers,
and discussions with the partner and members of the engagement team.
The review of the audit working papers of the practitioner shall include
evaluating:

the existence and effectiveness of the system of quality control


implemented by the
practitioner, and the performance of the audit;

compliance with professional standards and regulatory and legal


requirements related to the engagement;

the sufficiency and appropriateness of evidence documented in the


working papers; and
based on the above, whether the audit reports are appropriate in
the circumstances.

For subsequent reviews, the Reviewer should also obtain the practitioner's most
recent QAR report and documentation regarding any litigation that the practitioner
has been involved in since the last QAR.
Documentation
The Team shall maintain documentation that supports the work performed,
including findings and recommendations.
The Team shall document matters that:

Provide evidence supporting the QAR report; and


Establish the QAR was carried out in accordance with the guidelines
established by the Division
During the QAR, the Team:

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documents the planning of the QAR, the scope of work performed,


the conclusions reached, and comments made to the practitioner or
partner that were not deemed sufficiently significant to be included
as a finding;
evaluates the nature, cause, pattern, pervasiveness, and
significance of any deficiencies in the design of the practitioners
system of quality control, and in the practitioners compliance with
its system;
evaluates the nature, cause, pattern, pervasiveness, and
significance of any deficiencies in the performance of an
engagement; and
summarizes findings.(1.49)

Summarizing and Communicating the Findings


To summarize findings, the Team shall perform documentation of consolidated
results of QAR
observations, findings, conclusion and recommendation, by performing the following
procedures:

On the last day of the review, the practitioner and engagement level review
findings and results are consolidated to assist in preparing for the closing
meeting and drafting the Leaders Report, using QARP Form ___.

Closing meeting with the audit teams reviewed shall be held and findings,
comments and observations shall be reviewed, and any exceptions are
cleared.

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REPORTING
The Team shall hold a closing meeting with the practitioner to discuss the results,
findings,and recommendations for corrective actions, if any.

Communication and Documentation of QAR Results


The QAR Report summarizes the results of the QAR and represents the official
written summary of the observations, findings and any recommendations of the
Team.
The Report shall be prepared by the Leader based on the results of the review as
documented in the various forms and questionnaires. Any reference to specific
names of engagements shall be avoided in the Report.
A template, intended to present a suggested style and format to achieve a certain
degree of uniformity, shall be used as a guide in drafting the Report. It is not
intended to inhibit the Leader from including any comments he considers to be
appropriate.

Documenting the Report on Practitioner Level Review


The Reviewer shall issue a report enumerating the Reviewer's findings and
recommendations, if any on the QAR, in accordance with the ISQC 1 and the ISA
220.

Documenting the Report on Engagement Level Review


The Reviewer shall issue a report on the findings and recommendations, if any on
eachof the audit engagements reviewed by the Team, in accordance with ISA 220.

Reporting to Practitioner
a. Within fifteen (15) days after the closing meeting with the reviewed
practitioner, the QAR Report (QARP Form __) is drafted, reviewed and sent to
the practitioner.
b. TheDraft Report is submitted to the Director for review and approval.
c. The approved Report as signed by Leader, is addressed and sent to the
reviewed practitioners management.
Contents of the QAR Report
The QAR Team Leader shall issue a written report to the reviewed upon completion
of each QAR assignment. The report shall include the following portions:

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An introductory paragraph that:


a) a Voluntary QAR was conducted,
b) identifies the reviewed practitioner; and
c) specifies the period covered by the QAR.

The objective of the review.

The coverage and scope of the review.

A summary of the QAR results


a) results/findings of the practitioner level review; and
b) results/findings of the engagement level review;

Recommendations for areas of improvement at both the practitioner level


and the engagement level.

Response of Practitioner
The reviewed practitioner shall provide a timely written response to the findings and
recommendations of the QAR report, including planned actions and expected time
of completion or implementation. The response shall be addressed to the QAR
Director through the Leader, not later than fifteen (15) days after receipt of the
Report. The response to the Report (QARP Form ___) should address all matters
contained in the report and should present the Teams comments, observations, and
findings and the practitioners response with action steps to be taken.
A template, intended to achieve a certain degree of uniformity in style and format,
shall be used as a guide for the reviewed practitioner.

Corrective Measures
After receiving the practitioners response the QAR Director, through the QAR Team
Leader shall
recommend the following possible corrective measures that the reviewed
practitioner may apply to his
practice:
requiring revisions or additions to quality control policies and procedures or
audit methodology;
requiring additional CPD;
requiring additional QARs;
POST-REVIEW
Ownership and Custody of the Working Papers

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All findings from the review shall be documented properly and the working papers
shall be the property of the Division. Archives of the working papers postengagement shall be in the custody of the Division.
Consistent with the practice as applied to audits of financial statements and as
required by professional
standards, regulation and law, the timeframe of retaining documentation of
accomplished QARs shall
be long enough to allow PICPA or its oversight body, if any, to maintain appropriate
oversight of the QAR
process. (1.50)
Confidentiality
The QAR team shall follow confidentiality requirements similar to those established
for professional
accountants performing audits of financial statements. As stated in the Code of
Ethics or relevant national ethical requirements, and where not forbidden by law,
practitioners under review shall be exempted from professional client confidentiality
requirements concerning audit engagement working papers for the purpose of
QARs. (1.66)

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