Revised APES 320 Dec 2015

APES 320 Quality Control for Firms

[Supersedes APES 320 Quality Control for Firms issued in May 2009]
Prepared and issued by

Accounting Professional & Ethical Standards Board Limited
REVISED: December 2015
Copyright © 2015 Accounting Professional & Ethical Standards Board Limited (“APESB”). All rights reserved. Apart from fair
dealing for the purpose of study, research, criticism and review as permitted by the Copyright Act 1968, no part of these
materials may be reproduced, modified, or reused or redistributed for any commercial purpose, or distributed to a third party
for any such purpose, without the prior written permission of APESB.
Any permitted reproduction including fair dealing must acknowledge APESB as the source of any such material reproduced
and any reproduction made of the material must include a copy of this original notice.
APES 320 Quality Control for Firms is based on the International Standard on Quality Control (ISQC 1),Quality Control for
Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements
(2009) of the Handbook of the International Quality Control, Auditing, Review, Other Assurance, and Related Services
Pronouncements of the International Auditing and Assurance Standards Board, published by the International Federation of
Accountants (IFAC) in April 2009 and as amended, and is used with permission of IFAC. International Standard on Quality
Control (ISQC 1), Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance
and Related Services Engagements © April 2009 by the International Federation of Accountants.
Contents
Paragraphs
Scope and application ............................................................................................................... 1

Definitions................................................................................................................................... 2
Objective……………………………………….......................................................................... 3-5
Applying and complying with relevant requirements ................................................................. 6-9
Elements of a system of quality control ................................................................................. 10-13
Leadership responsibilities for quality within a Firm ............................................................... 14-18
Relevant Ethical Requirements .............................................................................................. 19-37
Acceptance and continuance of Client relationships and specific Engagements .................. 38-46
Human resources ................................................................................................................... 47-57
Engagement performance .................................................................................................... 58-105
Monitoring ........................................................................................................................... 106-123
Documentation of the system of quality control .................................................................. 124-129
Effective Date ............................................................................................................................ 130
Conformity with International Pronouncements
Appendix 1: Application requirements for Firms

Appendix 2: Summary of revisions to the previous APES 320 (Issued in May 2009)
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1 Scope and application

1.1 The objectives of APES 320 Quality Control for Firms are to specify the mandatory obligations
of a Firm in respect of establishing and maintaining a system of quality control designed to
provide it with Reasonable Assurance that the:
• Firm and its Personnel are complying with Professional Standards, Relevant Ethical
Requirements and applicable legal and regulatory requirements; and
• reports issued by the Firm or Engagement Partners are appropriate in the circumstances.
1.2 Accounting Professional & Ethical Standards Board Limited (APESB) has revised professional
standard APES 320 Quality Control for Firms (the Standard). Systems of quality control in
compliance with this Standard were required to be established by Firms by 1 January 2010.
This Standard supersedes APES 320 issued in May 2009 and Firms are required to
incorporate appropriate amendments to their systems of quality control by 1 April 2016. Earlier
adoption of this Standard is permitted.
1.3 APES 320 sets the standards for Members in Public Practice to establish and maintain a
system of quality control in their Firms in respect of the provision of quality and ethical
Professional Services. The mandatory requirements of this Standard are in bold-type,
preceded or followed by discussion or explanations in normal type. APES 320 should be read
in conjunction with other professional duties of Members, and any legal obligations that may
apply.
1.4 Members in Public Practice in Australia shall follow the mandatory requirements of
APES 320.
1.5 Members in Public Practice practising outside of Australia shall follow the provisions of
APES 320 to the extent to which they are not prevented from so doing by specific
requirements of local laws and/or regulations.
1.6 Members in Public Practice shall be familiar with relevant Professional Standards and
guidance notes when providing Professional Services. All Members shall comply with
the fundamental principles outlined in the Code.
1.7 The Standard is not intended to detract from any responsibilities which may be imposed by law
or regulation.
1.8 All references to Professional Standards, guidance notes and legislation are references to
those provisions as amended from time to time.
1.9 In applying the requirements outlined in APES 320, Members in Public Practice should be
guided not merely by the words but also by the spirit of the Standard and the Code.
1.10 In this Standard, Firms that have an Assurance Practice are required to apply the whole of
APES 320 as applicable to their Assurance Practice and Assurance Engagements. Firms that
do not have an Assurance Practice, or the non-assurance parts of Firms with an Assurance
Practice, are required to apply all paragraphs of APES 320 where applicable other than those
boxed and designated ‘Assurance Practices only’. The application requirements are
summarised in the flow chart in Appendix 1 to the Standard.
1.11 A Firm’s Personnel may be required to comply with additional standards and guidance
regarding quality control procedures at the Engagement level. For example in respect of
Assurance Engagements, Auditing Standard ASA 220 Quality Control for an Audit of a
Financial Report and Other Historical Financial Information (or equivalent predecessor ASA),
issued by the Auditing and Assurance Standards Board establishes standards and provides
guidance on quality control procedures for audits at the Engagement level.
1.12 In this Standard, unless otherwise specified, words in the singular include the plural and vice
versa, words of one gender include another gender, and words referring to persons include
corporations or organisations, whether incorporated or not.
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2. Definitions
For the purpose of this Standard:
(a) Date of Report means the date selected by a Member in Public Practice to date a report.
(b) Engagement Documentation means the record of work performed, results obtained, and
conclusions the Member in Public Practice reached (terms such as “working papers” or
“workpapers” are sometimes used).
(c) Engagement Quality Control Review means a process designed to provide an objective
evaluation, on or before the Date of Report, of the significant judgements the Engagement Team
made and the conclusions it reached in formulating the report. The Engagement Quality Control
Review process is for audits of financial statements of Listed Entities, and those other
Engagements, if any, for which the Firm has determined an Engagement Quality Control Review
is required.
(d) Engagement Quality Control Reviewer means a Partner, other person in the Assurance
Practice, Suitably Qualified External Person, or a team made up of such individuals, none of
whom is part of the Engagement Team, with sufficient and appropriate experience and authority
to objectively evaluate the significant judgements the Engagement Team made and the
conclusions it reached in formulating the report.
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(e) Engagement Team means all Partners and Staff performing the Engagement, and any
individuals engaged by the Firm or a Network Firm who perform procedures on the Engagement.
This excludes external experts engaged by the Firm or Network Firm.
(f) Firm means:

• A sole practitioner, partnership, corporation or other entity of professional accountants;
• An entity that controls such parties, through ownership, management or other means;
• An entity controlled by such parties, through ownership, management or other means; or
• An Auditor-General’s office or department.
(g) Inspection means in relation to completed Engagements, procedures designed to provide

evidence of compliance by Engagement Teams with the Firm’s quality control policies and
procedures.
(h) Listed Entity means an entity whose shares, stock or debt are quoted or listed on a recognised
stock exchange, or are marketed under the regulations of a recognised stock exchange or other
equivalent body.
(i) Monitoring means a process comprising an ongoing consideration and evaluation of the Firm’s
system of quality control, including a periodic Inspection of a selection of completed
Engagements, designed to provide the Firm with Reasonable Assurance that its system of
quality control is operating effectively.
(j) Network means a larger structure:

(i) That is aimed at co-operation; and
(ii) That is clearly aimed at profit or cost-sharing or shares common ownership, control or
management, common quality control policies and procedures, common business strategy,
the use of a common brand-name, or a significant part of professional resources.
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The definition of Engagement Team in the Code does not exclude individuals within the Client’s internal audit function who
provide direct assistance on an Audit Engagement as the AUASB has prohibited the use of direct assistance in Auditing and
Assurance Standard ASA 610 Using the Work of Internal Auditors (November 2013).
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(k) Network Firm means a Firm or entity that belongs to a Network.
(l) Partner means any individual with authority to bind the Firm with respect to the performance of a
Professional Services Engagement.
(m) Personnel means Partners and Staff.
(n) Reasonable Assurance means in the context of this Standard, a high, but not absolute, level of
assurance.
(o) Relevant Ethical Requirements means ethical requirements to which the Engagement Team
and Engagement Quality Control Reviewer are subject, which ordinarily comprise Parts A and B
of the Code.
(p) Staff means professionals, other than Partners, including any experts the Firm employs.
(q) Suitably Qualified External Person means an individual outside the Firm with the competence
and capabilities to act as an Engagement Partner, for example a Partner of another Firm, or an
employee (with appropriate experience) of either a professional accountancy body whose
members may perform audits and reviews of historical financial information, or other assurance
or related services Engagements, or of an organisation that provides relevant quality control
services.
AUST 2.1
For the purpose of this Standard:
(a) Assurance Engagement means an Engagement in which a Member in Public Practice aims to
obtain sufficient appropriate evidence in order to express a conclusion designed to enhance the
degree of confidence of the intended users other than the responsible party about the subject
matter information (that is, the outcome of the measurement or evaluation of an underlying
subject matter against criteria).
This includes an Engagement in accordance with the Framework for Assurance Engagements
issued by the AUASB or in accordance with specific relevant standards, such as International
Standards on Auditing, for Assurance Engagements.
(b) Assurance Practice means the assurance division or section of a Firm, encompassing every
Assurance Engagement conducted by the Firm, whether or not required to be conducted by a
Registered Company Auditor and whether or not conducted by an individual auditor, an audit
Firm or an audit company.
(c) Client means an individual, firm, entity or organisation to whom or to which Professional
Activities are provided by a Member in Public Practice in respect of Engagements of either a
recurring or demand nature.
(d) Code means APES 110 Code of Ethics for Professional Accountants.
(e) Engagement means an agreement, whether written or otherwise, between a Member in Public
Practice and a Client relating to the provision of Professional Services by a Member in Public
Practice. However, consultations with a prospective Client prior to such an agreement are not
part of an Engagement.
(f) Engagement Partner means the Partner or other person in the Firm who is responsible for the
Engagement and its performance, and for the report that is issued on behalf of the Firm, and
who, where required, has the appropriate authority from a professional, legal or regulatory body.
In public sector audit organisations, the term includes a suitably qualified person to whom the
Auditor General has delegated Engagement Partner responsibilities.
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(g) Independence is:

• Independence of mind – the state of mind that permits the expression of a conclusion without
being affected by influences that compromise professional judgement, thereby allowing an
individual to act with integrity, and exercise objectivity and professional scepticism.
• Independence in appearance – the avoidance of facts and circumstances that are so
significant that a reasonable and informed third party would be likely to conclude, weighing all
the specific facts and circumstances, that a Firm’s, or a member of the Engagement Team’s,
integrity, objectivity or professional scepticism has been compromised.
(h) Key Audit Partner means the Engagement Partner, the individual responsible for the
Engagement Quality Control Review, and other audit Partners, if any, on the Engagement Team
who make key decisions or judgements on significant matters with respect to the audit of the
financial statements on which the Firm will express an opinion. Depending upon the
circumstances and the role of the individuals on the audit, “other audit Partners” may include, for
example, audit Partners responsible for significant subsidiaries or divisions.
(i) Member means a member of a Professional Body that has adopted this Standard as applicable
to their membership, as defined by that Professional Body.
(j) Member in Public Practice means a Member, irrespective of functional classification (e.g.
audit, tax, or consulting) in a Firm that provides Professional Services. This term is also used to
refer to a Firm of Members in Public Practice and means a practice entity and a participant in
that practice entity as defined by the applicable Professional Body.
(k) Professional Activity means an activity requiring accountancy or related skills undertaken by a
Member, including accounting, auditing, taxation, management consulting, and financial
management.
(l) Professional Bodies means Chartered Accountants Australia and New Zealand, CPA Australia
and the Institute of Public Accountants.
(m) Professional Services means Professional Activities performed for Clients.
(n) Professional Standards means all standards issued by Accounting Professional & Ethical
Standards Board Limited and all professional and ethical requirements of the applicable
Professional Body.
Objective
3. A Firm shall establish and maintain a system of quality control designed to provide it with
Reasonable Assurance that the Firm and its Personnel comply with Professional
Standards and applicable legal and regulatory requirements and that reports issued by
the Firm or Engagement Partners are appropriate in the circumstances.
4. A system of quality control consists of policies designed to achieve the objectives set out in
paragraph 3 and the procedures necessary to implement and monitor compliance with those
policies.
5. The nature and extent of the policies and procedures developed by an individual Firm to comply
with this Standard will depend on various factors such as the size and operating characteristics
of the Firm, and whether it is part of a Network.
AUST 5.1 The policies and procedures developed by a Firm need not be complex or time-consuming to be
effective. This Standard describes responsibilities for several different roles and functions within
the Firm, including overall quality control and Monitoring. For a small Firm, it may be necessary
for one person to perform more than one of these functions. In some circumstances, it may be
appropriate to use the services of a Suitably Qualified External Person. When a Firm decides to
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use such a person, care should be taken to establish the legal responsibilities of the parties and
to safeguard Client confidentiality.
Applying and complying with relevant requirements
6. Personnel within a Firm responsible for establishing and maintaining the Firm’s system
of quality control shall have an understanding of the entire text of this Standard,
including its application and other explanatory material, to understand its objective and
to apply its requirements properly.
7. A Firm shall comply with each requirement of this Standard unless, in the circumstances
of the Firm, the requirement is not relevant to the services provided by the Firm.
Considerations specific to smaller Firms
8. This Standard does not call for compliance with requirements that are not relevant, for example,
in the circumstances of a sole practitioner with no Staff. Requirements in this Standard such as
those for policies and procedures for the assignment of appropriate Personnel to the
Engagement Team (see paragraph 56), for review responsibilities (see paragraph 63), and for
annual communication of the results of Monitoring to Engagement Partners within a Firm (see
paragraph 117), are not relevant in the absence of Staff.
9. The requirements are designed to enable a Firm to achieve the objective stated in this
Standard. The proper application of the requirements is therefore expected to provide a
sufficient basis for the achievement of the objective. However, because circumstances
vary widely and all such circumstances cannot be anticipated, the Firm shall consider
whether there are particular matters or circumstances that require the Firm to establish
policies and procedures in addition to those required by this Standard to meet the stated
objective.
Elements of a system of quality control
10. A Firm shall establish and maintain a system of quality control that includes policies and
procedures that address each of the following elements:
(a) Leadership responsibilities for quality within the Firm.
(b) Relevant Ethical Requirements.
(c) Acceptance and continuance of Client relationships and specific Engagements.
(d) Human resources.
(e) Engagement performance.
(f) Monitoring.
11. A Firm shall document its policies and procedures and communicate them to the Firm’s
Personnel.
12. In general, communication of quality control policies and procedures to Firm’s Personnel
includes a description of the quality control policies and procedures and the objectives they are
designed to achieve, and the message that each individual has a personal responsibility for
quality and is expected to comply with these policies and procedures. Encouraging Firm’s
Personnel to communicate their views or concerns on quality control matters recognises the
importance of obtaining feedback on the Firm’s system of quality control.
13. Documentation and communication of policies and procedures for smaller Firms may be less
formal and extensive than for larger Firms.
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Leadership responsibilities for quality within a Firm
14. A Firm shall establish policies and procedures designed to promote an internal culture
recognising that quality is essential in performing Engagements. Such policies and
procedures shall require the Firm’s chief executive officer (or equivalent) or, if
appropriate, the Firm’s managing board of Partners (or equivalent), to assume ultimate
responsibility for the Firm’s system of quality control.
15. The Firm’s leadership and the examples it sets significantly influence the internal culture of the
Firm. The promotion of a quality-oriented internal culture depends on clear, consistent and
frequent actions and messages from all levels of the Firm’s management that emphasise the
Firm’s quality control policies and procedures, and the requirement to:
(a) Perform work that complies with Professional Standards and applicable legal and regulatory
requirements; and
(b) Issue reports that are appropriate in the circumstances.
Such actions and messages encourage a culture that recognises and rewards high quality work.
These actions and messages may be communicated by, but are not limited to, training seminars,
meetings, formal or informal dialogue, mission statements, newsletters, or briefing memoranda.
They may be incorporated in the Firm’s internal documentation and training materials, and in
Partner and Staff appraisal procedures such that they will support and reinforce the Firm’s view
on the importance of quality and how, practically, it is to be achieved.
16. Of particular importance in promoting an internal culture based on quality is the need for a Firm’s
leadership to recognise that the Firm’s business strategy is subject to the overriding requirement
for the Firm to achieve quality in all the Engagements that the Firm performs. Promoting such an
internal culture includes:
(a) Establishment of policies and procedures that address performance evaluation,
compensation, and promotion (including incentive systems) with regard to its Personnel, in
order to demonstrate the Firm’s overriding commitment to quality;
(b) Assignment of management responsibilities so that commercial considerations do not
override the quality of work performed; and
(c) Provision of sufficient resources for the development, documentation and support of its
quality control policies and procedures.
17. A Firm shall establish policies and procedures such that any person or persons assigned
operational responsibility for the Firm’s system of quality control by the Firm’s chief
executive officer or managing board of Partners has sufficient and appropriate
experience and ability, and the necessary authority, to assume that responsibility.
18. Sufficient and appropriate experience and ability enables the person or persons responsible for
the Firm’s system of quality control to identify and understand quality control issues and to
develop appropriate policies and procedures. Necessary authority enables the person or
persons to implement those policies and procedures.
Relevant Ethical Requirements
19. A Firm shall establish policies and procedures designed to provide it with Reasonable
Assurance that the Firm and its Personnel comply with Relevant Ethical Requirements.
20. Ethical requirements are contained in the Professional Standards. The Code establishes the
fundamental principles of professional ethics, which include:
(a) Integrity;
(b) Objectivity;
(c) Professional competence and due care;
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(d) Confidentiality; and

(e) Professional behaviour.
21. Part B of the Code illustrates how the conceptual framework is to be applied in specific
situations. It provides examples of safeguards that may be appropriate to address threats to
compliance with the fundamental principles and also provides examples of situations where
safeguards are not available to address the threats.
22. The fundamental principles are reinforced in particular by:

• The leadership of the Firm;
• Education and training;
• Monitoring; and
• A process for dealing with non-compliance.
23. In complying with the requirements in paragraphs 19, 24–26, 29 and 31, the definitions of “Firm”,
“Network” and “Network Firms” used in the Relevant Ethical Requirements apply in so far as is
necessary to interpret those ethical requirements.
Independence
Assurance that the Firm, its Personnel and, where applicable, others subject to
Independence requirements (including Network Firm’s Personnel) maintain Independence
where required by Relevant Ethical Requirements. Such policies and procedures shall
enable the Firm to:
(a) Communicate its Independence requirements to its Personnel and, where applicable,
others subject to them; and
(b) Identify and evaluate circumstances and relationships that create threats to
Independence, and to take appropriate action to eliminate those threats or reduce
them to an acceptable level by applying safeguards, or, if considered appropriate, to
withdraw from the Engagement, where withdrawal is possible under applicable law or
regulation.
Assurance Practices only
25. A Firm shall establish policies and procedures that require:

(a) Engagement Partners to provide the Firm with relevant information about Client
Engagements, including the scope of services, to enable the Firm to evaluate the
overall impact, if any, on Independence requirements;
(b) Personnel to promptly notify the Firm of circumstances and relationships that create
a threat to Independence so that appropriate action can be taken; and
(c) The accumulation and communication of relevant information to appropriate
Personnel so that:
(i) the Firm and its Personnel can readily determine whether they satisfy
Independence requirements;
(ii) the Firm can maintain and update its records relating to Independence; and
(iii) the Firm can take appropriate action regarding identified threats to
Independence that are not at an acceptable level.
Assurance that it is notified of breaches of Independence requirements, and to enable it
to take appropriate actions to resolve such situations. The policies and procedures shall
include requirements for:
(a) Personnel to promptly notify the Firm of Independence breaches of which they
become aware;
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(b) The Firm to promptly communicate identified breaches of these policies and
procedures to:
(i) The Engagement Partner who, with the Firm, needs to address the breach; and
(ii) Other relevant Personnel in the Firm and, where appropriate, the Network, and
those subject to the Independence requirements who need to take appropriate
action; and
(c) Prompt communication to the Firm, if necessary, by the Engagement Partner and the
other individuals referred to in subparagraph 26(b)(ii) of the actions taken to resolve
the matter, so that the Firm can determine whether it should take further action.
AUST 27. Guidance on threats to Independence and safeguards, including application to specific
situations, is set out in the Code. The Code also requires threats to Independence that are
not clearly insignificant to be documented and include a description of the threats identified
and the safeguards applied to eliminate or reduce the threats to an acceptable level.
AUST 28. A Firm receiving notice of a breach of Independence policies and procedures should
promptly communicate relevant information to Engagement Partners, others in the Firm as
appropriate and, where applicable, experts contracted by the Firm and Network Firm
Personnel, for appropriate action. Appropriate action by the Firm and the relevant
Engagement Partner should include applying appropriate safeguards to eliminate the
threats to Independence or to reduce them to an acceptable level, or withdrawing from the
Engagement.
29. At least annually, a Firm shall obtain written confirmation of compliance with its policies
and procedures on Independence from all Firm Personnel required to be independent by
Relevant Ethical Requirements.
30. Written confirmation may be in paper or electronic form. By obtaining confirmation and taking
appropriate action on information indicating non-compliance, the Firm demonstrates the
importance that it attaches to Independence and makes the issue current for, and visible to, it’s
Personnel.
31. A Firm shall establish policies and procedures:

(a) Setting out criteria for determining the need for safeguards to reduce the familiarity
threat to an acceptable level when using the same senior Personnel on an Assurance
Engagement over a long period of time; and
(b) Requiring, for audits of financial statements of Listed Entities, the rotation of the
Engagement Partner and the individuals responsible for Engagement Quality Control
Review, and where applicable, others subject to rotation requirements, after a
specified period in compliance with Relevant Ethical Requirements.
32. The Code discusses the familiarity threat that may be created by using the same senior
Personnel on an Assurance Engagement over a long period of time and the safeguards that
might be appropriate to address such threats.
33. Determining appropriate criteria to address familiarity threats may include matters such as:
(a) the nature of the Engagement, including the extent to which it involves a matter of public
interest; and
(b) the length of service of the senior Personnel on the Engagement.
Examples of safeguards include rotating the senior Personnel or requiring an Engagement
Quality Control Review.
34. The Code recognises that the familiarity threat is particularly relevant in the context of financial
statement audits of Listed Entities. For these audits, the Code requires the rotation of Key Audit
Partners after a pre-defined period, normally no more than five years, and provides related
standards and guidance.
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Considerations specific to public sector organisations
35. Statutory measures may provide safeguards for the Independence of public sector auditors.
However, threats to Independence may still exist regardless of any statutory measures designed
to protect their Independence. Therefore, in establishing the policies and procedures required by
paragraphs 19, 24–26, 29 and 31, public sector auditors should have regard to the public sector
mandate and address any threats to Independence in that context.
36. Listed Entities as referred to in paragraphs 31 and 34 are not common in the public sector.
However, there may be other public sector entities that are significant due to size, complexity or
public interest aspects, and which consequently have a wide range of stakeholders. Therefore,
there may be instances when a Firm determines, based on its quality control policies and
procedures, that a public sector entity is significant for the purposes of expanded quality control
procedures.
37. In the public sector, legislation may establish the appointments and terms of office of the auditor
with Engagement Partner responsibility. As a result, it may not be possible to comply strictly with
the Engagement Partner rotation requirements envisaged for Listed Entities. Nonetheless, for
public sector entities considered significant, as noted in paragraph 36, it may be in the public
interest for public sector audit organisations to establish policies and procedures to promote
compliance with the spirit of rotation of Engagement Partner responsibility.
Acceptance and continuance of Client relationships and specific

Engagements
38. A Firm shall establish policies and procedures for the acceptance and continuance of
Client relationships and specific Engagements, designed to provide the Firm with
Reasonable Assurance that it will only undertake or continue relationships and
Engagements where the Firm:
(a) Is competent to perform the Engagement and has the capabilities, including time and
resources, to do so;
(b) Can comply with Relevant Ethical Requirements; and
(c) Has considered the integrity of the Client and does not have information that would
lead it to conclude that the Client lacks integrity.
39. Consideration of whether the Firm has the competence, capabilities and resources to undertake
a new Engagement from a new or an existing Client involves reviewing the specific requirements
of the Engagement and the existing Partner and Staff profiles at all relevant levels, and including
whether:
• Firm’s Personnel have knowledge of relevant industries or subject matters;
• Firm’s Personnel have experience with relevant regulatory or reporting requirements, or the
ability to gain the necessary skills and knowledge effectively;
• The Firm has sufficient Personnel with the necessary competence and capabilities;
• Experts are available, if needed;
• Individuals meeting the criteria and eligibility requirements to perform Engagement Quality
Control Review are available, where applicable; and
• The Firm is able to complete the Engagement within the reporting deadline.
40. With regard to the integrity of a Client, matters to consider include, for example:
• The identity and business reputation of the Client’s principal owners, key management,
related parties and those charged with its governance.
• The nature of the Client’s operations, including its business practices.
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• Information concerning the attitude of the Client’s principal owners, key management and
those charged with its governance towards such matters as aggressive interpretation of
accounting standards and the internal control environment.
• Whether the Client is aggressively concerned with maintaining the Firm’s fees as low as
possible.
• Indications of an inappropriate limitation in the scope of work.
• Indications that the Client might be involved in money laundering or other criminal activities.
• The reasons for the proposed appointment of the Firm and non-reappointment of the
previous Firm.
• The identity and business reputation of related parties.
The extent of knowledge a Firm will have regarding the integrity of a Client will generally grow
within the context of an ongoing relationship with that Client.
41. Sources of information on such matters obtained by the Firm may include the following:
• Communications with existing or previous providers of professional accountancy services to
the Client in accordance with Relevant Ethical Requirements, and discussions with other third
parties.
• Inquiry of other Firm’s Personnel or third parties such as bankers, legal counsel and industry
peers.
• Background searches of relevant databases.
42. A Firm shall establish policies and procedures that require:

(a) The Firm to obtain such information as it considers necessary in the circumstances
before accepting an Engagement with a new Client, when deciding whether to
continue an existing Engagement, and when considering acceptance of a new
Engagement with an existing Client.
(b) If a potential conflict of interest is identified prior to accepting an Engagement from a
new or an existing Client or during the conduct of an Engagement, the Firm to
determine whether it is appropriate to accept or continue the Engagement.
(c) If issues have been identified, and the Firm decides to accept or continue the Client
relationship or a specific Engagement, the Firm to document how the issues were
resolved.
43. Deciding whether to continue a Client relationship includes consideration of significant matters
that have arisen during the current or previous Engagements, and their implications for
continuing the relationship. For example, a Client may have started to expand its business
operations into an area where the Firm does not possess the necessary expertise.
44. A Firm shall establish policies and procedures on continuing an Engagement and the
Client relationship, addressing the circumstances where the Firm obtains information that
would have caused it to decline the Engagement had that information been available
earlier. Such policies and procedures shall include consideration of:
(a) The professional and legal responsibilities that apply to the circumstances, including
whether there is a requirement for the Firm to report to the person or persons who
made the appointment or, in some cases, to regulatory authorities; and
(b) The possibility of withdrawing from the Engagement or from both the Engagement
and the Client relationship.
45. Policies and procedures on withdrawal from an Engagement or from both the Engagement and
the Client relationship should address issues that include the following:
• Discussing with the appropriate level of the Client’s management and those charged with its
governance the appropriate action that the Firm might take based on the relevant facts and
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circumstances.
• If the Firm determines that it is appropriate to withdraw, discussing with the appropriate level
of the Client’s management and those charged with its governance withdrawal from the
Engagement or from both the Engagement and the Client relationship, and the reasons for
the withdrawal.
• Considering whether there is a professional, legal or regulatory requirement for the Firm to
remain in place, or for the Firm to report the withdrawal from the Engagement, or from both
the Engagement and the Client relationship, together with the reasons for the withdrawal, to
regulatory authorities.
• Documenting significant matters, consultations, conclusions and the basis for the
conclusions.
Consideration specific to public sector audit organisations
46. In the public sector, auditors may be appointed in accordance with statutory procedures.
Accordingly, certain of the requirements and considerations regarding the acceptance and
continuance of Client relationships and specific Engagements as set out in paragraphs 38-45
may not be relevant. Nonetheless, establishing policies and procedures as described may
provide valuable information to public sector auditors in performing risk assessments and in
carrying out reporting responsibilities.
Human resources
Assurance that it has sufficient Personnel with the competence, capabilities and
commitment to ethical principles necessary to:
(a) Perform Engagements in accordance with Professional Standards and applicable
legal and regulatory requirements; and
(b) Enable the Firm or Engagement Partners to issue reports that are appropriate in the
circumstances.
48. Personnel issues relevant to a Firm’s policies and procedures related to human resources
include, for example:
• Recruitment.
• Performance evaluation.
• Capabilities, including time to perform assignments.
• Competence.
• Career development.
• Promotion.
• Compensation.
• The estimation of Personnel needs.
Effective recruitment processes and procedures help the Firm select individuals of integrity who
have the capacity to develop the competence and capabilities necessary to perform the Firm’s
work and possess the appropriate characteristics to enable them to perform competently.
49. Competence can be developed through a variety of methods, including the following:
• Professional education.
• Continuing professional development, including training.
• Work experience.
• Coaching by more experienced Staff, for example, other members of the Engagement Team.
• Independence education for Personnel who are required to be independent.
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50. The continuing competence of a Firm’s Personnel depends to a significant extent on an

appropriate level of continuing professional development so that Personnel maintain their
knowledge and capabilities. Effective policies and procedures should emphasise the need for
continuing training for all levels of the Firm’s Personnel, and should provide the necessary
training resources and assistance to enable Personnel to develop and maintain the required
competence and capabilities.
51. A Firm may use a Suitably Qualified External Person, for example, when internal technical and
training resources are unavailable.
52. Performance evaluation, compensation and promotion procedures give due recognition and
reward to the development and maintenance of competence and commitment to ethical
principles. Steps a Firm may take in developing and maintaining competence and commitment to
ethical principles include:
(a) Making Personnel aware of the Firm’s expectations regarding performance and ethical
principles;
(b) Providing Personnel with evaluation of, and counseling on, performance, progress and
career development; and
(c) Helping Personnel understand that advancement to positions of greater responsibility
depends, among other things, upon performance quality and adherence to ethical
principles, and that failure to comply with the Firm’s policies and procedures may result in
disciplinary action.
53. The size and circumstances of a Firm will influence the structure of the Firm’s performance
evaluation process. Smaller Firms, in particular, may employ less formal methods of evaluating
the performance of their Personnel.
Assignment of Engagement Teams
54. A Firm shall assign responsibility for each Engagement to an Engagement Partner and
shall establish policies and procedures requiring that:
(a) The identity and role of the Engagement Partner are communicated to key members
of Client management and those charged with governance;
(b) The Engagement Partner has the appropriate competence, capabilities and authority
to perform the role; and
(c) The responsibilities of the Engagement Partner are clearly defined and
communicated to that Partner.
55. Policies and procedures may include systems to monitor the workload and availability of
Engagement Partners so as to enable these individuals to have sufficient time to adequately
discharge their responsibilities.
56. A Firm shall establish policies and procedures to assign appropriate Personnel with the
necessary competence and capabilities to:
(a) Perform Engagements in accordance with Professional Standards and applicable
legal and regulatory requirements; and
(b) Enable the Firm or Engagement Partners to issue reports that are appropriate in the
circumstances.
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57. A Firm’s assignment of Engagement Teams and the determination of the level of supervision
required, include for example, consideration of the Engagement Team’s:
• Understanding of, and practical experience with, Engagements of a similar nature and
complexity through appropriate training and participation;
• Understanding of Professional Standards and applicable legal and regulatory requirements;
• Technical knowledge and expertise, including knowledge of relevant information technology;
• Knowledge of relevant industries in which the Clients operate;
• Ability to apply professional judgement; and
• Understanding of the Firm’s quality control policies and procedures.
Engagement performance
Assurance that Engagements are performed in accordance with Professional Standards
and applicable legal and regulatory requirements, and that the Firm or the Engagement
Partner issue reports that are appropriate in the circumstances. Such policies and
procedures shall include:
(a) Matters relevant to promoting consistency in the quality of Engagement
performance;
(b) Supervision responsibilities; and
(c) Review responsibilities.
59. A Firm promotes consistency in the quality of Engagement performance through its policies and
procedures. This is often accomplished through written or electronic manuals, software tools or
other forms of standardised documentation, and industry or subject matter-specific guidance
materials. Matters addressed may include:
• How Engagement Teams are briefed on the Engagement to obtain an understanding of the
objectives of their work.
• Processes for complying with applicable Engagement standards.
• Processes of Engagement supervision, Staff training and coaching.
• Methods of reviewing the work performed, the significant judgements made and the form of
report being issued.
• Appropriate documentation of the work performed and of the timing and extent of the review.
• Processes to keep all policies and procedures current.
60. Appropriate teamwork and training assist less experienced members of an Engagement Team to
clearly understand the objectives of the assigned work.
61. Engagement supervision includes the following:

• Tracking the progress of the Engagement;
• Considering the competence and capabilities of individual members of the Engagement
Team, whether they have sufficient time to carry out their work, whether they understand
their instructions and whether the work is being carried out in accordance with the planned
approach to the Engagement;
• Addressing significant matters arising during the Engagement, considering their significance
and modifying the planned approach appropriately; and
• Identifying matters for consultation or consideration by more experienced Engagement Team
members during the Engagement.
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62. A review consists of consideration of whether:

(a) The work has been performed in accordance with Professional Standards and applicable
legal and regulatory requirements;
(b) Significant matters have been raised for further consideration;
(c) Appropriate consultations have taken place and the resulting conclusions have been
documented and implemented;
(d) There is a need to revise the nature, timing and extent of work performed;
(e) The work performed supports the conclusions reached and is appropriately documented;
(f) The evidence obtained is sufficient and appropriate to support the report; and
(g) The objectives of the Engagement procedures have been achieved.
63. A Firm’s review responsibility policies and procedures shall be determined on the basis
that work of less experienced team members is reviewed by more experienced
Engagement Team members.
Consultation
Assurance that:
(a) Appropriate consultation takes place on difficult or contentious matters;
(b) Sufficient resources are available to enable appropriate consultation to take place;

(c) The nature and scope of, and conclusions arising from, such consultations are
documented and agreed by both the individual seeking consultation and the
individual consulted; and
(d) Conclusions resulting from consultations are implemented.
65. Consultation includes discussion at the appropriate professional level, with individuals within or
outside the Firm who have specialised expertise.
66. Consultation uses appropriate research resources as well as the collective experience and
technical expertise of the Firm. Consultation helps to promote quality and improves the
application of professional judgement. Appropriate recognition of consultation in the Firm’s
policies and procedures helps to promote a culture in which consultation is recognised as a
strength and encourages Personnel to consult on difficult or contentious matters.
67. Effective consultation on significant technical, ethical and other matters within the Firm, or where
applicable, outside the Firm can only be achieved when those consulted:
• Are given all the relevant facts that will enable them to provide informed advice; and
• Have appropriate knowledge, seniority and experience,
and when conclusions resulting from consultations are appropriately documented and
implemented.
68. A Firm needing to consult externally, for example, a Firm without appropriate internal resources
may take advantage of advisory services provided by:
• Other Firms;
• Professional and regulatory bodies; or
• Commercial organisations that provide relevant quality control services.
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Before contracting for such services, consideration of the competence and capabilities of the
external provider helps the Firm to determine whether the external provider is suitably qualified
for that purpose.

69. Documentation of consultations with other professionals that involve difficult or contentious
matters that is sufficiently complete and detailed contributes to an understanding of:
(a) The issue on which consultation was sought; and
(b) The results of the consultation, including any decisions taken, the basis for those decisions
and how they were implemented.
Engagement Quality Control Review
70. A Firm shall establish policies and procedures requiring, for appropriate Engagements,
an Engagement Quality Control Review that provides an objective evaluation of the
significant judgements made by the Engagement Team and the conclusions reached in
formulating the report. Such policies and procedures shall:
(a) Require an Engagement Quality Control Review for all audits of financial statements
of Listed Entities;
(b) Set out criteria against which all other audits and reviews of historical financial
information, and other assurance and related services Engagements shall be
evaluated to determine whether an Engagement Quality Control Review should be
performed; and
(c) Require an Engagement Quality Control Review for all Engagements, if any, meeting
the criteria established in compliance with subparagraph 70(b).
71. Criteria for determining which Engagements other than audits of financial statements of Listed
Entities are to be subject to an Engagement Quality Control Review may include, for example:
• The nature of the Engagement, including the extent to which it involves a matter of public
interest.
• The identification of unusual circumstances or risks in an Engagement or class of
Engagements.
• Whether laws or regulations require an Engagement Quality Control Review.
Nature, timing and extent of the Engagement Quality Control Review
72. A Firm shall establish policies and procedures setting out the nature, timing and extent of
an Engagement Quality Control Review. Such policies and procedures shall require that
the Engagement report not be dated until the completion of the Engagement Quality
Control Review.
73. A Firm shall establish policies and procedures to require the Engagement Quality Control
Review to include:
(a) Discussion of significant matters with the Engagement Partner;
(b) Review of the financial statements or other subject matter information and the
proposed report;
(c) Review of selected Engagement Documentation relating to significant judgements
the Engagement Team made and the conclusions it reached; and
(d) Evaluation of the conclusions reached in formulating the report and consideration of
whether the proposed report is appropriate.
74. An Engagement report is not dated until the completion of the Engagement Quality Control
Review. However, documentation of the Engagement Quality Control Review may be completed
after the Date of Report.
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75. Conducting the Engagement Quality Control Review in a timely manner at appropriate stages
during the Engagement allows significant matters to be promptly resolved to the Engagement
Quality Control Reviewer’s satisfaction on or before the Date of Report.
76. The extent of the Engagement Quality Control Review may depend, among other things, on the
complexity of the Engagement, whether the entity is a Listed Entity, and the risk that the report
might not be appropriate in the circumstances. The performance of an Engagement Quality
Control Review does not reduce the responsibilities of the Engagement Partner.
77. For audits of financial statements of Listed Entities, a Firm shall establish policies and
procedures to require the Engagement Quality Control Review to include consideration of
the following:
(a) The Engagement Team’s evaluation of the Firm’s Independence in relation to the
specific Engagement;
(b) Whether appropriate consultation has taken place on matters involving differences
of opinion or other difficult or contentious matters, and the conclusions arising from
those consultations; and
(c) Whether documentation selected for review reflects the work performed in relation
to significant judgements and supports the conclusions reached.
78. Other matters relevant to evaluating the significant judgements made by the Engagement Team
that may be considered in an Engagement Quality Control Review of an audit of financial
statements of a Listed Entity include:
• Significant risks identified during the Engagement and the responses to those risks.
• Judgements made, particularly with respect to materiality and significant risks.
• The significance and disposition of corrected and uncorrected misstatements identified during
the Engagement.
• The matters to be communicated to management and those charged with governance and,
where applicable, other parties such as regulatory bodies.
These other matters, depending of the circumstances, may also be applicable for Engagement
Quality Control Reviews for audits of financial statements of other entities as well as reviews of
financial statements and other assurance and related services Engagements.
Considerations specific to public sector audit organisations
79. Although not referred to as Listed Entities, as described in paragraph 36, certain public sector
entities may be of sufficient significance to warrant performance of an Engagement Quality
Control Review.
Criteria for the eligibility of Engagement Quality Control Reviewers
80. A Firm shall establish policies and procedures to address the appointment of
Engagement Quality Control Reviewers and establish their eligibility through:
(a) The technical qualifications required to perform the role, including the necessary
experience and authority; and
(b) The degree to which an Engagement Quality Control Reviewer can be consulted on
the Engagement without compromising the reviewer’s objectivity.
81. What constitutes sufficient and appropriate technical expertise, experience and authority
depends on the circumstances of the Assurance Engagement. For example, the Engagement
Quality Control Reviewer for an audit of the financial statements of a Listed Entity is likely to be
an individual with sufficient and appropriate experience and authority to act as an audit
Engagement Partner on audits of financial statements of Listed Entities.
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82. The Engagement Partner may consult the Engagement Quality Control Reviewer during the
Engagement, for example, to establish that a judgement made by the Engagement Partner will
be acceptable to the Engagement Quality Control Reviewer. Such consultation avoids
identification of differences of opinion at a late stage of the Engagement and need not
compromise the Engagement Quality Control Reviewer’s eligibility to perform the role. Where the
nature and extent of the consultations become significant the reviewer’s objectivity may be
compromised unless care is taken by both the Engagement Team and the reviewer to maintain
the reviewer’s objectivity. Where this is not possible, another individual within the Firm or a
Suitably Qualified External Person should be appointed to take on the role of either the
Engagement Quality Control Reviewer or the person to be consulted on the Engagement.
83. A Firm shall establish policies and procedures designed to maintain the objectivity of the
Engagement Quality Control Reviewer.
84. Such policies and procedures should provide that the Engagement Quality Control Reviewer:
(a) Where practicable, is not selected by the Engagement Partner;
(b) Does not otherwise participate in the Engagement during the period of review;
(c) Does not make decisions for the Engagement Team; and
(d) Is not subject to other considerations that would threaten the reviewer’s objectivity.
85. It may not be practicable, in the case of Firms with few Partners, for the Engagement Partner not
to be involved in selecting the Engagement Quality Control Reviewer. Suitably Qualified External
Persons may be contracted where sole practitioners or small Firms identify Engagements
requiring Engagement Quality Control Reviews. Alternatively, some sole practitioners or small
Firms may wish to use other Firms to facilitate Engagement Quality Control Reviews. Where a
Firm contracts Suitably Qualified External Persons, the Firm should follow the requirements and
guidance in paragraphs 80-83 and 87.
Considerations specific to public sector audit organisations
86. In the public sector, a statutorily appointed auditor (for example, an Auditor General, or other
suitably qualified person appointed on behalf of the Auditor General) may act in a role equivalent
to that of Engagement Partner with overall responsibility for public sector audits. In such
circumstances, where applicable, the selection of the Engagement Quality Control Reviewer
should include consideration of the need for Independence from the audited entity and the ability
of the Engagement Quality Control Reviewer to provide an objective evaluation.
87. A Firm’s policies and procedures shall provide for the replacement of the Engagement
Quality Control Reviewer where the reviewer’s ability to perform an objective review may
be impaired.
Documentation of the Engagement Quality Control Review
88. A Firm shall establish policies and procedures on documentation of the Engagement
Quality Control Review which require documentation that:
(a) The procedures required by the Firm’s policies on Engagement Quality Control
Review have been performed;
(b) The Engagement Quality Control Review has been completed on or before the Date
of Report; and
(c) The reviewer is not aware of any unresolved matters that would cause the reviewer to
believe that the significant judgements the Engagement Team made and the
conclusions it reached were not appropriate.
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Differences of opinion
89. A Firm shall establish policies and procedures for dealing with and resolving differences
of opinion within the Engagement Team, with those consulted and, where applicable,
between the Engagement Partner and the Engagement Quality Control Reviewer.
90. Such policies and procedures shall require that:

(a) Conclusions reached be documented and implemented; and
(b) The report not be dated until the matter is resolved.
91. Effective procedures encourage identification of differences of opinion at an early stage, provide
clear guidelines as to the successive steps to be taken thereafter, and require documentation
regarding the resolution of the differences and the implementation of the conclusions reached.
92. Procedures to resolve such differences may include consulting with another practitioner or Firm,
or a professional or regulatory body.
Engagement Documentation
Completion of the assembly of final Engagement files
93. A Firm shall establish policies and procedures for Engagement Teams to complete the
assembly of final Engagement files on a timely basis after the Engagement reports have
been finalised.
94. Law or regulation may prescribe the time limits by which the assembly of final Engagement files
for specific types of Engagement is to be completed. Where no such time limits are prescribed in
law or regulation, paragraph 93 requires the Firm to establish time limits that reflect the need to
complete the assembly of final Engagement files on a timely basis. In the case of an audit, for
example, such a time limit would ordinarily not be more than 60 days after the date of the
auditor’s report.
95. Where two or more different reports are issued in respect of the same subject matter information
of an entity, a Firm’s policies and procedures relating to time limits for the assembly of final
Engagement files address each report as if it were for a separate Engagement. This may, for
example, be the case when the Firm issues an auditor’s report on a component’s financial
information for group consolidation purposes and, at a subsequent date, an auditor’s report on
the same financial information for statutory purposes.
Confidentiality, safe custody, integrity, accessibility and retrievability of Engagement Documentation
96. A Firm shall establish policies and procedures designed to maintain the confidentiality,
safe custody, integrity, accessibility and retrievability of Engagement Documentation.
97. Relevant Ethical Requirements establish an obligation for the Firm’s Personnel to observe at all
times the confidentiality of information contained in Engagement Documentation, unless specific
Client authority has been given to disclose information, or there is a legal duty to do so. Specific
laws or regulations may impose additional obligations on the Firm’s Personnel to maintain Client
confidentiality, particularly where data of a personal nature are concerned.
98. Whether Engagement Documentation is in paper, electronic or other media, the integrity,
accessibility or retrievability of the underlying data may be compromised if the documentation
could be altered, added to or deleted without the Firm’s knowledge, or if it could be permanently
lost or damaged. Accordingly, controls that the Firm designs and implements to avoid
unauthorised alteration or loss of Engagement Documentation may include those that:
• Enable the determination of when and by whom Engagement Documentation was created,
changed or reviewed;
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• Protect the integrity of the information at all stages of the Engagement, especially when the
information is shared within the Engagement Team or transmitted to other parties via the
Internet;
• Prevent unauthorised changes to the Engagement Documentation; and
• Allow access to the Engagement Documentation by the Engagement Team and other
authorised parties as necessary to properly discharge their responsibilities.
99. Controls that the Firm designs and implements to maintain the confidentiality, safe custody,
integrity, accessibility and retrievability of Engagement Documentation may include the following:
• The use of a password among Engagement Team members to restrict access to electronic
Engagement Documentation to authorised users.
• Appropriate back-up routines for electronic Engagement Documentation at appropriate
stages during the Engagement.
• Procedures for properly distributing Engagement Documentation to the team members at the
start of Engagement, processing it during Engagement, and collating it at the end of
Engagement.
• Procedures for restricting access to, and enabling proper distribution and confidential storage
of, hardcopy Engagement Documentation.
100. For practical reasons, original paper documentation may be electronically scanned for inclusion
in Engagement files. In such cases, the Firm’s procedures designed to maintain the integrity,
accessibility, and retrievability of the documentation may include requiring the Engagement
Teams to:
• Generate scanned copies that reflect the entire content of the original paper documentation,
including manual signatures, cross-references and annotations;
• Integrate the scanned copies into the Engagement files, including indexing and signing off on
the scanned copies as necessary; and
• Enable the scanned copies to be retrieved and printed as necessary.
There may be legal, regulatory or other reasons for a Firm to retain original paper documentation
that has been scanned.
Retention of Engagement Documentation
101. A Firm shall establish policies and procedures for the retention of Engagement
Documentation for a period sufficient to meet the needs of the Firm or as required by law
or regulation.
102. The needs of a Firm for retention of Engagement Documentation, and the period of such
retention, will vary with the nature of the Engagement and the Firm’s circumstances, for
example, whether the Engagement Documentation is needed to provide a record of matters of
continuing significance to future Engagements. The retention period may also depend on other
factors, such as whether local law or regulation prescribes specific retention periods for certain
types of Engagements, or whether there are generally accepted retention periods in the
jurisdiction in the absence of specific legal or regulatory requirements.
103. In the specific case of audit Engagements, the retention period would ordinarily be no shorter
than seven years from the date of the auditor’s report, or, if later, the date of the group auditor’s
report.
104. Procedures that a Firm adopts for retention of Engagement Documentation include those that
enable the requirements of paragraph 101 to be met during the retention period, for example to:
• Enable the retrieval of, and access to, the Engagement Documentation during the retention
period, particularly in the case of electronic documentation since the underlying technology
may be upgraded or changed over time;
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• Provide, where necessary, a record of changes made to Engagement Documentation after

the Engagement files have been completed; and
• Enable authorised external parties to access and review specific Engagement Documentation
for quality control or other purposes.
Ownership of Engagement Documentation
105. Unless otherwise specified by law or regulation, Engagement Documentation is the property of a
Firm. The Firm may, at its discretion, make portions of, or extracts from, Engagement
Documentation available to Clients, provided such disclosure does not undermine the validity of
the work performed, or, in the case of Assurance Engagements, the Independence of the Firm
or its Personnel.
Monitoring
Monitoring a Firm’s quality control policies and procedures
106. A Firm shall establish a Monitoring process designed to provide it with Reasonable
Assurance that the policies and procedures relating to the system of quality control are
relevant, adequate, and operating effectively. This process shall:
(a) Include an ongoing consideration and evaluation of the Firm’s system of quality
control, including, on a cyclical basis, Inspection of at least one completed
Engagement for each Engagement Partner;
(b) Require responsibility for the Monitoring process to be assigned to a Partner or
Partners or other persons with sufficient and appropriate experience and authority in
the Firm to assume that responsibility; and
(c) Require that those performing the Engagement or the Engagement Quality Control
Review are not involved in inspecting the Engagements.
107. The purpose of Monitoring compliance with quality control policies and procedures is to provide
an evaluation of:
• Adherence to Professional Standards and applicable legal and regulatory requirements;
• Whether the system of quality control has been appropriately designed and effectively
implemented; and
• Whether the Firm’s quality control policies and procedures have been appropriately applied,
so that reports that are issued by the Firm or Engagement Partners are appropriate in the
circumstances.
108. Ongoing consideration and evaluation of the system of quality control include matters such as
the following:
• Analysis of:
• New developments in Professional Standards and applicable legal and regulatory
requirements, and how they are reflected in the Firm’s policies and procedures where
appropriate;
• Written confirmation of compliance with policies and procedures on Independence;
• Continuing professional development, including training; and

• Decisions related to acceptance and continuance of Client relationships and specific
Engagements.
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• Determination of corrective actions to be taken and improvements to be made in the system,

including the provision of feedback into the Firm’s policies and procedures relating to
education and training.
• Communication to appropriate Firm’s Personnel of weaknesses identified in the system, in
the level of understanding of the system, or compliance with it.
• Follow-up by appropriate Firm’s Personnel so that necessary modifications are promptly
made to the quality control policies and procedures.
AUST109. In determining the scope of the Inspections, Firms may take into account quality reviews
conducted by the Professional Bodies or regulator.
Inspection cycle policies and procedures may, for example, specify a cycle that spans three years.
The manner in which the Inspection cycle is organised, including the timing of selection of individual
Engagements, depends on many factors, such as the following:
• The size of the Firm.
• The number and geographical location of offices.
• The results of previous Monitoring procedures.
• The degree of authority both Personnel and offices have (for example, whether individual
offices are authorised to conduct their own Inspections or whether only the head office may
conduct them).
• The nature and complexity of the Firm’s practice and organisation.
• The risks associated with the Firm’s Clients and specific Engagements.
110. The Inspection process includes the selection of individual Assurance Engagements, some of which
may be selected without prior notification to the Engagement Team. In determining the scope of the
Inspections, the Firm may take into account the scope or conclusions of an independent external
Inspection program such as conducted by the Professional Bodies or regulator. However, an
independent external Inspection program does not act as a substitute for the Firm’s own internal
Monitoring program.
111. In the case of small Firms, Monitoring procedures may need to be performed by individuals who are
responsible for design and implementation of the Firm’s quality control policies and procedures, or
who may be involved in performing the Engagement Quality Control Review. A Firm with a limited
number of persons may choose to use a Suitably Qualified External Person or another Firm to carry
out Engagement Inspections and other Monitoring procedures. Alternatively, the Firm may establish
arrangements to share resources with other appropriate organisations to facilitate Monitoring
activities.
Evaluating, communicating and remedying identified deficiencies
112. A Firm shall evaluate the effect of deficiencies noted as a result of the Monitoring process
and determine whether they are either:
(a) Instances that do not necessarily indicate that the Firm’s system of quality control is
insufficient to provide it with Reasonable Assurance that it complies with Professional
Standards and applicable legal and regulatory requirements, and that the reports issued
by the Firm or Engagement Partners are appropriate in the circumstances; or
(b) Systemic, repetitive or other significant deficiencies that require prompt corrective
action.
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113. A Firm shall communicate to relevant Engagement Partners and other appropriate Personnel
deficiencies noted as a result of the Monitoring process and recommendations for
appropriate remedial action.
114. The reporting of identified deficiencies to individuals other than the relevant Engagement Partners
need not include an identification of the specific Assurance Engagements concerned, although
there may be cases where such identification may be necessary for the proper discharge of the
responsibilities of the individuals other than the Engagement Partners.
115. Recommendations for appropriate remedial actions for deficiencies noted shall include one
or more of the following:
(a) Taking appropriate remedial action in relation to an individual Assurance Engagement
or member of Personnel;
(b) The communication of the findings to those responsible for training and professional
development;
(c) Changes to the quality control policies and procedures; and
(d) Disciplinary action against those who fail to comply with the policies and procedures of
the Firm, especially those who do so repeatedly.
116. A Firm shall establish policies and procedures to address cases where the results of the
Monitoring procedures indicate that a report may be inappropriate or that procedures were
omitted during the performance of the Assurance Engagement. Such policies and
procedures shall require the Firm to determine what further action is appropriate to comply
with relevant Professional Standards and applicable legal and regulatory requirements and
to consider whether to obtain legal advice.
117. A Firm shall communicate at least annually the results of the Monitoring of its system of
quality control to Engagement Partners and other appropriate individuals within the Firm,
including the Firm’s chief executive officer or, if appropriate, its managing board of Partners.
This communication shall be sufficient to enable the Firm and these individuals to take
prompt and appropriate action where necessary in accordance with their defined roles and
responsibilities. Information communicated shall include the following:
(a) A description of the Monitoring procedures performed.
(b) The conclusions drawn from the Monitoring procedures.
(c) Where relevant, a description of systemic, repetitive or other significant deficiencies and
of the actions taken to resolve or amend those deficiencies.
118. Some Firms operate as part of a Network and, for consistency, may implement some of their
Monitoring procedures on a Network basis. Where Firms within a Network operate under
common Monitoring policies and procedures designed to comply with this Standard, and
these Firms place reliance on such a Monitoring system, the Firm’s policies and procedures
shall require that:
(a) At least annually, the Network communicate the overall scope, extent and results of the
Monitoring process to appropriate individuals within the Network Firms; and
(b) The Network communicate promptly any identified deficiencies in the system of quality
control to appropriate individuals within the relevant Network Firm or Firms so that the
necessary action can be taken,
in order that Engagement Partners in the Network Firms can rely on the results of the
Monitoring process implemented within the Network, unless the Firms or the Network advise
otherwise.
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Complaints and allegations
Assurance that it deals appropriately with:
(a) Complaints and allegations that the work performed by the Firm fails to comply with
Professional Standards and applicable legal and regulatory requirements; and
(b) Allegations of non-compliance with the Firm’s system of quality control.
As part of this process, the Firm shall establish clearly defined channels for Firm’s
Personnel to raise any concerns in a manner that enables them to come forward without
fear of reprisals.
120. Complaints and allegations (which do not include those that are clearly frivolous) may originate
from within or outside the Firm. They may be made by Firm’s Personnel, Clients or other third
parties. They may be received by Engagement Team members or other Firm’s Personnel.
121. Policies and procedures established for the investigation of complaints and allegations may
include for example, that the Partner supervising the investigation:
• Has sufficient and appropriate experience;
• Has authority within the Firm; and
• Is otherwise not involved in the Engagement.
The Partner supervising the investigation may involve legal counsel as necessary.
122. If during the investigations into complaints and allegations, deficiencies in the design or
operation of the Firm’s quality control policies and procedures or non-compliance with the
Firm’s system of quality control by an individual or individuals are identified, the Firm shall
take appropriate actions as set out in paragraph 115.
123. It may not be practicable, in the case of Firms with few Partners, for the Partner supervising the
investigation not to be involved in the Engagement. These small Firms and sole practitioners may
use the services of a Suitably Qualified External Person or another Firm to carry out the
investigation into complaints and allegations.
Documentation of the system of quality control

124. A Firm shall establish policies and procedures requiring appropriate documentation to
provide evidence of the operation of each element of its system of quality control.
125. The form and content of documentation evidencing the operation of each of the elements of the
system of quality control is a matter of judgement and depends on a number of factors, including
the following:
• The size of the Firm and the number of offices.
• The nature and complexity of the Firm’s practice and organisation.
For example, large Firms may use electronic databases to document matters such as
Independence confirmations, performance evaluations and the results of Monitoring Inspections.
126. Appropriate documentation relating to Monitoring should include, for example:

• Monitoring procedures, including the procedure for selecting completed Engagements to be
inspected.
• A record of evaluation of:
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• Adherence to Professional Standards and applicable legal and regulatory requirements;

• Whether the system of quality control has been appropriately designed and effectively
implemented; and
• Whether the Firm’s quality control policies and procedures have been appropriately
applied, so that reports that are issued by the Firm or Engagement Partners are
appropriate in the circumstances.
• Identification of the deficiencies noted an evaluation of their effect, and the basis for
determining whether and what further action is necessary.
127. Smaller Firms may use more informal methods in the documentation of their systems of quality
control such as manual notes, checklists and forms.
128. A Firm shall establish policies and procedures that require retention of documentation for
a period of time sufficient to permit those performing Monitoring procedures to evaluate
the Firm’s compliance with its system of quality control, or for a longer period if required
by law or regulation.
129. A Firm shall establish policies and procedures requiring documentation of complaints
and allegations and the responses to them.
Effective Date
130. Systems of quality control in compliance with this Standard were required to be established by
Firms by 1 January 2010. This Standard supersedes APES 320 issued in May 2009 and Firms
are required to incorporate appropriate amendments to their systems of quality control by 1 April
2016. Firms should consider the appropriate transitional arrangements for Engagements in
process at that date.
26
Conformity with International Pronouncements

APES 320 and ISQC 1
APES 320 incorporates ISQC 1 ‘Quality Control for Firms that Perform Audits and Reviews of
Financial Statements, and Other Assurance and Related Services Engagements’ issued by the
IAASB. Words have only been changed where there is a need to accommodate Australian legislation
and environment, and to fit within the structure of APES 320. These changes do not affect the
substance of the requirements. Where paragraphs of APES 320 have no equivalent in the
corresponding international standard, they are denoted with the letters “AUST” before the paragraph
number.
Compliance with ISQC 1
The basic principles and essential procedures of APES 320 and ISQC 1 are consistent except for:
• The addition of paragraphs prefixed as AUST in APES 320; and

• The ‘Scope and application section’ included in APES 320 in accordance with APESB’s drafting
conventions.
27
Appendix 1
Application requirements for Firms
The application requirements for Firms are summarised in the flow chart below.
Does the Firm conduct any Assurance

Engagements?
YES NO
The Firm is deemed to have an

Assurance Practice. Every Assurance
Engagement must be categorised as
forming part of the Assurance Practice.
Apply the whole of APES 320 to Apply APES 320 excluding

the Assurance Practice of the boxed ‘Assurance Practices
Firm. only’ paragraphs to the Firm.
Apply APES 320 excluding boxed

‘Assurance Practices only’ paragraphs to
the rest of the Firm.
28
Appendix 2
Summary of revisions to the previous APES 320 (Issued in May 2009)

APES 320 Quality Control for Firms was originally issued in May 2006 and revised in May 2009.
APES 320 has been revised by APESB in December 2015. A summary of the revisions is given in
the table below.
Table of revisions*
Paragraph affected How affected
1.1 Added
1.2 – Paragraph 1.1 in existing APES 320 relocated Amended
1.12 Added
2 – Definition of Engagement Quality Control Review Amended
2 – Definition of Engagement Team Amended
2 – Definition of Network Amended
2 – Definition of Network Firm Amended
2 – Definition of Relevant Ethical Requirements Amended
2 – Definition of Assurance Engagement Amended
2 – Definition of Client Amended
2 – Definition of Independence Amended
2 – Definition of Member Amended
2 – Definition of Member in Public Practice Amended
2 – Definition of Professional Activity Added
2 – Definition of Professional Bodies Amended
2 – Definition of Professional Services Amended
2 – Definition of Professional Standards Amended
130 Amended
* Refer Technical Update 2015/13
29

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APES 320 Quality Control for Firms

APES 320 Quality Control for Firms

Prepared and issued by

REVISED: December 2015

Scope and application ............................................................................................................... 1

Conformity with International Pronouncements

Appendix 1: Application requirements for Firms

1 Scope and application

For the purpose of this Standard:

(f) Firm means:

(g) Inspection means in relation to completed Engagements, procedures designed to provide

(j) Network means a larger structure:

(k) Network Firm means a Firm or entity that belongs to a Network.

(m) Personnel means Partners and Staff.

For the purpose of this Standard:

(g) Independence is:

(m) Professional Services means Professional Activities performed for Clients.

Applying and complying with relevant requirements

Considerations specific to smaller Firms

Elements of a system of quality control

Considerations specific to smaller Firms

Leadership responsibilities for quality within a Firm

Relevant Ethical Requirements

(d) Confidentiality; and

22. The fundamental principles are reinforced in particular by:

Assurance Practices only

25. A Firm shall establish policies and procedures that require:

31. A Firm shall establish policies and procedures:

Considerations specific to public sector organisations

Acceptance and continuance of Client relationships and specific

42. A Firm shall establish policies and procedures that require:

Consideration specific to public sector audit organisations

50. The continuing competence of a Firm’s Personnel depends to a significant extent on an

Considerations specific to smaller Firms

Assignment of Engagement Teams

61. Engagement supervision includes the following:

62. A review consists of consideration of whether:

Assurance Practices only

Considerations specific to smaller Firms

Assurance Practices only

Engagement Quality Control Review

Nature, timing and extent of the Engagement Quality Control Review

Considerations specific to public sector audit organisations

Criteria for the eligibility of Engagement Quality Control Reviewers

Considerations specific to smaller Firms

Considerations specific to public sector audit organisations

Documentation of the Engagement Quality Control Review

90. Such policies and procedures shall require that:

Completion of the assembly of final Engagement files

Confidentiality, safe custody, integrity, accessibility and retrievability of Engagement Documentation

Retention of Engagement Documentation

• Provide, where necessary, a record of changes made to Engagement Documentation after

Ownership of Engagement Documentation

Monitoring a Firm’s quality control policies and procedures

• Continuing professional development, including training; and

• Determination of corrective actions to be taken and improvements to be made in the system,

Assurance Practices only

Considerations specific to smaller Firms

Evaluating, communicating and remedying identified deficiencies