Circular 157: Direct Inspection Procedures for Audit Service Quality

Circular 157: Direct Quality Control Process of Audit Services (illustrative image)

Circular 157/2014/TT-BTC stipulates the periodic direct inspection process of audit service quality in four stages as follows:

1. Inspection Preparation Stage

- Selection of the audit firm to be inspected;- Formation of the Inspection Team;- Notification to the audit firm to be inspected;- Development of a detailed inspection plan: The Head of the Inspection Team must develop a detailed plan suitable to the subject being inspected;- Members of the Inspection Team must sign a written commitment regarding independence and confidentiality with the subject being inspected.

2. Inspection Execution Stage

Step 1: System Inspection. System inspection procedures include:

- Understanding the nature and scope of activities of the audit firm to be inspected to consider factors affecting the quality of audit services through interviews with the Board of Directors and related individuals of the audit firm or by reviewing organizational and operational documents of the firm;- Understanding the development, dissemination, and implementation of policies and procedures for quality control of audit services of the audit firm. Comparing the design and implementation of these policies and procedures at the audit firm with the requirements of professional standards, laws, and related regulations. Commenting on the methods for identifying and mitigating risks of non-compliance with professional standards, laws, and related regulations within that system;- System risk assessment;- Selecting high-risk audit service contract files to check for compliance with professional standards, laws, and related regulations, and the quality control policies and procedures of the audit firm;- Interviewing professional staff at various levels and those responsible in the audit firm to assess their understanding and compliance with the firm's quality control policies and procedures;- Checking and collecting appropriate evidence to evaluate whether the audit firm has fully established and complied with their quality control policies and procedures;- Checking and collecting other appropriate evidence such as administrative records, personnel files, and records of communications with consultants on technical and professional ethics issues;- Evaluating the development, dissemination, and implementation of the audit firm's quality control policies and procedures for audit services;- Preparing an Evaluation Table on the quality control system of the audit firm's audit services and discussing to reach an agreement with the audit firm being inspected. Based on the evaluation of the quality control system of audit services and professional judgment to conclude and grade the quality control system of audit services of the audit firm.

Step 2: Technical Inspection. Technical inspection procedures include:

- Inspecting the audit methodology applied by the audit firm and checking sample audit files as guided by the firm;- Selecting audit service contract files and inspecting whether practicing auditors and the audit firm comply with professional standards, laws, and related regulations during the provision of audit services. The selection of audit service contracts for inspection is specified and guided in the direct inspection process guidelines issued by the inspection agency;- Performing procedures to determine whether the audited firm has evaluated risks for each selected audit service contract, performed necessary inspection procedures related to high-risk areas, and recorded these procedures in the audit files;- Evaluating the appropriateness of the inspection scope based on achieved results to determine if additional procedures are necessary;- Inspecting the adequacy of audit evidence gathered to base evaluations for each procedure documented in the audit files for each contract. Paying special attention to critical procedures such as risk assessment, inventory checks, confirmation letters, provisions, and the appropriateness of the audit opinion;- Checking and collecting sufficient appropriate evidence to consider and evaluate whether practicing auditors and the audit firm have gathered sufficient appropriate audit evidence as the basis for issuing the audit opinion;- Preparing an Evaluation Table for each selected audit service contract, discussing results with the practicing auditor and the responsible management team member for the audit service contract. Based on the evaluation results for each audit service contract file and professional judgment to conclude and grade the quality of each audit service contract file.

3. Inspection Conclusion Stage

After completing the direct inspection, the Inspection Team must draft the Inspection Result Report, discuss the draft Inspection Result Report with the audit firm’s management. The inspected audit firm, the Head of the Inspection Team, and the members of the Inspection Team must sign the Inspection Result Report immediately after finishing the inspection. If there are unsettled contents, the inspected audit firm must clearly state them in the Inspection Result Report.

In cases of detecting administrative violations by the inspected subject, the Inspection Team must prepare and send an Administrative Violation Report to the competent authority for administrative penalties as prescribed by law.

4. Post-Inspection Stage

- Handling remaining issues regarding differing opinions about the inspection results (if any);- The audit firm must send a Report on corrective measures for errors and implementation of the Inspection Team's recommendations to the inspection agency as prescribed;- The inspection agency drafts a Comprehensive Report on inspection results and a Comprehensive Report on violations detected during the inspection.

For details, refer to Circular 157/2014/TT-BTC effective from October 23, 2014.

Ty Na

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