HKSA 220 - Quality Management for an Audit

HKSA 220 (Revised) - Quality Management for an Audit of Financial Statements

INTRODUCTION

Scope of this HKSA (Paragraph 1)

HKSA 220 (Revised) deals with the specific responsibilities of the auditor regarding quality management at the engagement level for an audit of financial statements, and the related responsibilities of the engagement partner. This standard is to be read in conjunction with relevant ethical requirements.

Key Scope Elements:

Applies to all audits of financial statements

Includes audits of group financial statements

Addresses engagement-level quality management

Covers engagement partner responsibilities

Must be read with relevant ethical requirements

The Firm's System of Quality Management and Role of Engagement Teams (Paragraphs 2-9)

Under HKSQM 1, the objective of the firm is to design, implement and operate a system of quality management that provides reasonable assurance that:

Objective Component	Description
(a) Professional Standards Compliance	The firm and its personnel fulfill responsibilities in accordance with professional standards and applicable legal and regulatory requirements
(b) Appropriate Reports	Engagement reports issued are appropriate in the circumstances

Premise of HKSA 220 (Paragraph 3):

This HKSA is premised on the basis that the firm is subject to HKSQMs or to local requirements that are at least as demanding.

Engagement Team Responsibilities (Paragraph 4):

The engagement team, led by the engagement partner, is responsible for:

Implementing firm's responses to quality risks that are applicable to the audit engagement using information communicated by, or obtained from, the firm

Determining whether to design and implement responses at the engagement level beyond those in the firm's policies or procedures, given the nature and circumstances of the audit engagement

Communicating to the firm information from the audit engagement that is required to be communicated by the firm's policies or procedures to support the design, implementation and operation of the firm's system of quality management

Quality Audit Engagement (Paragraph 6):

A quality audit engagement is achieved through:

Planning and performing the engagement

Reporting on it in accordance with professional standards and applicable legal and regulatory requirements

Exercising professional judgment

Exercising professional skepticism

Professional Skepticism and Judgment (Paragraph 7):

Professional judgment is exercised in making informed decisions about courses of action appropriate to manage and achieve quality

Professional skepticism supports the quality of judgments made by the engagement team

Appropriate exercise of professional skepticism may be demonstrated through actions and communications

Actions may include specific steps to mitigate impediments such as unconscious bias or resource constraints

Scalability (Paragraph 8):

The requirements are intended to be applied in the context of the nature and circumstances of each audit:

Scenario	Application
Audit carried out entirely by engagement partner	Some requirements not relevant (conditional on involvement of other team members)
Audit not carried out entirely by engagement partner or more complex	Engagement partner may assign design or performance of procedures, tasks or actions to other team members

Engagement Partner's Ultimate Responsibility (Paragraph 9):

The engagement partner remains ultimately responsible, and therefore accountable, for compliance with the requirements of this HKSA.

Critical Rule: The term "the engagement partner shall take responsibility for..." is used for requirements that the engagement partner is permitted to assign the design or performance of procedures, tasks or actions to appropriately skilled or suitably experienced members of the engagement team. For other requirements, this HKSA expressly intends that the requirement or responsibility be fulfilled by the engagement partner.

Effective Date (Paragraph 10)

This HKSA is effective for audits of financial statements for periods beginning on or after 15 December 2022.

OBJECTIVE (Paragraph 11)

The objective of the auditor is to manage quality at the engagement level to obtain reasonable assurance that quality has been achieved such that:

(a) The auditor has fulfilled the auditor's responsibilities, and has conducted the audit, in accordance with professional standards and applicable legal and regulatory requirements; AND

(b) The auditor's report issued is appropriate in the circumstances.

DEFINITIONS (Paragraph 12)

Term	Definition
Engagement partner	The partner or other individual, appointed by the firm, who is responsible for the audit engagement and its performance, and for the auditor's report that is issued on behalf of the firm, and who, where required, has the appropriate authority from a professional, legal or regulatory body
Engagement quality review	An objective evaluation of the significant judgments made by the engagement team and the conclusions reached thereon, performed by the engagement quality reviewer and completed on or before the date of the engagement report
Engagement quality reviewer	A partner, other individual in the firm, or an external individual, appointed by the firm to perform the engagement quality review
Engagement team	All partners and staff performing the audit engagement, and any other individuals who perform audit procedures on the engagement, excluding an auditor's external expert and internal auditors who provide direct assistance on an engagement
Firm	A sole practitioner, partnership or corporation or other entity of professional accountants, or public sector equivalent
Network firm	A firm or entity that belongs to the firm's network
Network	A larger structure: (i) aimed at cooperation, AND (ii) clearly aimed at profit or cost-sharing or shares common ownership, control or management, common quality management policies or procedures, common business strategy, the use of a common brand name, or a significant part of professional resources
Partner	Any individual with authority to bind the firm with respect to the performance of a professional services engagement
Personnel	Partners and staff in the firm
Professional standards	Hong Kong Standards on Auditing (HKSAs) and relevant ethical requirements
Relevant ethical requirements	Principles of professional ethics and ethical requirements applicable to professional accountants when undertaking the audit engagement. Ordinarily comprise the provisions of the HKICPA's Code of Ethics for Professional Accountants (Code) related to audits of financial statements, together with local requirements that are more restrictive
Response (in relation to a system of quality management)	Policies or procedures designed and implemented by the firm to address one or more quality risk(s): (i) Policies are statements of what should, or should not, be done; (ii) Procedures are actions to implement policies
Staff	Professionals, other than partners, including any experts the firm employs

Engagement Team - Detailed Explanation (A15-A22):

The engagement team may be organized in various ways:

Members may be located together or across different geographic locations

May be organized in groups by activity performed

Any individual who performs audit procedures on the audit engagement is a member of the engagement team

Inclusions in Engagement Team:

Personnel from the firm

Individuals from network firms who perform audit procedures

Individuals from non-network firms or other service providers who perform audit procedures

Individuals from service delivery centers who perform audit procedures

Individuals with expertise in specialized areas of accounting or auditing who perform audit procedures

Exclusions from Engagement Team:

Auditor's external expert

Internal auditors providing direct assistance

Engagement quality reviewer and individuals performing the engagement quality review

Individuals whose involvement is limited to consultation

REQUIREMENTS

Leadership Responsibilities for Managing and Achieving Quality on Audits (Paragraphs 13-15)

Paragraph 13 - Overall Responsibility:

The engagement partner shall take overall responsibility for managing and achieving quality on the audit engagement, including:

Taking responsibility for creating an environment that emphasizes the firm's culture and expected behavior of engagement team members

Being sufficiently and appropriately involved throughout the audit engagement

Having the basis for determining whether significant judgments made and conclusions reached are appropriate

Paragraph 14 - Creating the Environment:

The engagement partner shall take responsibility for clear, consistent and effective actions that reflect the firm's commitment to quality, including emphasizing:

Emphasis Area	Description
(a) Team responsibility	All engagement team members are responsible for contributing to the management and achievement of quality at the engagement level
(b) Professional ethics	The importance of professional ethics, values and attitudes to the members of the engagement team
(c) Open communication	The importance of open and robust communication within the engagement team, and supporting the ability of team members to raise concerns without fear of reprisal
(d) Professional skepticism	The importance of each engagement team member exercising professional skepticism throughout the audit engagement

Paragraph 15 - Assignment of Procedures:

If the engagement partner assigns the design or performance of procedures, tasks or actions to other members of the engagement team, the engagement partner shall continue to take overall responsibility through:

Direction of those members

Supervision of those members

Review of their work

Relevant Ethical Requirements, Including Those Related to Independence (Paragraphs 16-21)

Paragraph 16 - Understanding Requirements:

The engagement partner shall have an understanding of the relevant ethical requirements, including those related to independence, that are applicable given the nature and circumstances of the audit engagement.

Paragraph 17 - Team Awareness:

The engagement partner shall take responsibility for other members of the engagement team having been made aware of relevant ethical requirements and the firm's related policies or procedures, including those that address:

(a) Identifying, evaluating and addressing threats to compliance with relevant ethical requirements, including those related to independence

(b) Circumstances that may cause a breach of relevant ethical requirements, including those related to independence, and the responsibilities of members of the engagement team when they become aware of breaches

(c) The responsibilities of members of the engagement team when they become aware of an instance of non-compliance with laws and regulations by the entity

Paragraph 18 - Evaluating Threats:

If matters come to the engagement partner's attention that indicate that a threat to compliance with relevant ethical requirements exists, the engagement partner shall:

Evaluate the threat through complying with the firm's policies or procedures

Use relevant information from the firm, the engagement team or other sources

Take appropriate action

Paragraph 19 - Alert for Breaches:

The engagement partner shall remain alert throughout the audit engagement, through observation and making inquiries as necessary, for breaches of relevant ethical requirements or the firm's related policies or procedures by members of the engagement team.

Paragraph 20 - Information from Other Sources:

If matters come to the engagement partner's attention through the firm's system of quality management, or from other sources, that indicate that relevant ethical requirements have not been fulfilled, the engagement partner, in consultation with others in the firm, shall take appropriate action.

Paragraph 21 - Prior to Dating Auditor's Report:

Prior to dating the auditor's report, the engagement partner shall take responsibility for determining whether relevant ethical requirements, including those related to independence, have been fulfilled.

Acceptance and Continuance of Client Relationships and Audit Engagements (Paragraphs 22-24)

Paragraph 22 - Following Firm Policies:

The engagement partner shall determine that:

The firm's policies or procedures for the acceptance and continuance of client relationships and audit engagements have been followed

Conclusions reached in this regard are appropriate

Paragraph 23 - Using Information:

The engagement partner shall take into account information obtained in the acceptance and continuance process in:

Planning and performing the audit engagement in accordance with the HKSAs

Complying with the requirements of this HKSA

Paragraph 24 - New Information:

If the engagement team becomes aware of information that may have caused the firm to decline the audit engagement had that information been known by the firm prior to accepting or continuing, the engagement partner shall communicate that information promptly to the firm, so that the firm and the engagement partner can take the necessary action.

Information that may assist in determining appropriateness of conclusions (A51):

Integrity and ethical values of principal owners, key management and those charged with governance

Whether sufficient and appropriate resources are available to perform the engagement

Whether management and those charged with governance have acknowledged their responsibilities

Whether the engagement team has the competence and capabilities, including sufficient time

Whether significant matters from current or previous engagement have implications for continuing

Engagement Resources (Paragraphs 25-28)

Paragraph 25 - Sufficient and Appropriate Resources:

The engagement partner shall determine that sufficient and appropriate resources to perform the engagement are assigned or made available to the engagement team in a timely manner, taking into account:

The nature and circumstances of the audit engagement

The firm's policies or procedures

Any changes that may arise during the engagement

Paragraph 26 - Competence and Capabilities:

The engagement partner shall determine that members of the engagement team, and any auditor's external experts and internal auditors who provide direct assistance who are not part of the engagement team, collectively have the appropriate competence and capabilities, including sufficient time, to perform the audit engagement.

Paragraph 27 - Insufficient Resources:

If the engagement partner determines that resources assigned or made available are insufficient or inappropriate, the engagement partner shall take appropriate action, including communicating with appropriate individuals about the need to assign or make available additional or alternative resources.

Paragraph 28 - Using Resources Appropriately:

The engagement partner shall take responsibility for using the resources assigned or made available to the engagement team appropriately, given the nature and circumstances of the audit engagement.

Types of Resources (A60):

Resource Type	Examples
Human resources	Engagement team members, auditor's external experts, internal auditors providing direct assistance
Technological resources	Automated tools and techniques, IT applications, communication tools
Intellectual resources	Audit methodologies, implementation tools, auditing guides, model programs, templates, checklists, forms

Competence and Capabilities Considerations (A72):

The engagement partner may take into consideration:

Understanding of, and practical experience with, audit engagements of similar nature and complexity

Understanding of professional standards and applicable legal and regulatory requirements

Expertise in specialized areas of accounting or auditing

Expertise in IT used by the entity or automated tools/techniques

Knowledge of relevant industries

Ability to exercise professional skepticism and professional judgment

Understanding of the firm's policies or procedures

Engagement Performance (Paragraphs 29-38)

Direction, Supervision and Review (Paragraphs 29-34)

Paragraph 29 - Overall Responsibility:

The engagement partner shall take responsibility for the direction and supervision of the members of the engagement team and the review of their work.

Paragraph 30 - Nature, Timing and Extent:

The engagement partner shall determine that the nature, timing and extent of direction, supervision and review is:

(a) Planned and performed in accordance with the firm's policies or procedures, professional standards and applicable legal and regulatory requirements

(b) Responsive to the nature and circumstances of the audit engagement and the resources assigned or made available to the engagement team by the firm

Paragraph 31 - Review of Audit Documentation:

The engagement partner shall review audit documentation at appropriate points in time during the audit engagement, including audit documentation relating to:

Documentation Type	Description
(a) Significant matters	Matters that are significant to the audit
(b) Significant judgments	Including those relating to difficult or contentious matters identified during the audit engagement, and the conclusions reached
(c) Other relevant matters	Other matters that, in the engagement partner's professional judgment, are relevant to the engagement partner's responsibilities

Paragraph 32 - Sufficient Appropriate Audit Evidence:

On or before the date of the auditor's report, the engagement partner shall determine, through review of audit documentation and discussion with the engagement team, that sufficient appropriate audit evidence has been obtained to support the conclusions reached and for the auditor's report to be issued.

Paragraph 33 - Review of Financial Statements and Auditor's Report:

Prior to dating the auditor's report, the engagement partner shall review:

The financial statements

The auditor's report, including, if applicable, the description of the key audit matters and related audit documentation

To determine that the report to be issued will be appropriate in the circumstances

Paragraph 34 - Review of Communications:

The engagement partner shall review, prior to their issuance, formal written communications to:

Management

Those charged with governance

Regulatory authorities

Direction (A85):

Direction of the engagement team may involve informing members of their responsibilities, such as:

Contributing to the management and achievement of quality at the engagement level

Maintaining a questioning mind and being aware of unconscious or conscious auditor biases

Fulfilling relevant ethical requirements

Responsibilities of respective partners when more than one partner is involved

Responsibilities of respective engagement team members to perform audit procedures

Understanding the objectives of the work to be performed

Addressing threats to the achievement of quality

Supervision (A86):

Supervision may include:

Tracking the progress of the audit engagement

Taking appropriate action to address issues arising during the engagement

Identifying matters for consultation or consideration by more experienced team members

Providing coaching and on-the-job training

Creating an environment where team members raise concerns without fear of reprisals

Review (A88):

Review of the engagement team's work consists of consideration of whether:

The work has been performed in accordance with firm policies, professional standards and applicable requirements

Significant matters have been raised for further consideration

Appropriate consultations have taken place and conclusions documented and implemented

There is a need to revise the nature, timing and extent of work performed

The work performed supports the conclusions reached and is appropriately documented

The evidence obtained is sufficient and appropriate

The objectives of the audit procedures have been achieved

Consultation (Paragraph 35)

The engagement partner shall:

(a) Take responsibility for the engagement team undertaking consultation on:

(i) Difficult or contentious matters and matters on which the firm's policies or procedures require consultation

(ii) Other matters that, in the engagement partner's professional judgment, require consultation

(b) Determine that members of the engagement team have undertaken appropriate consultation during the audit engagement, both within the engagement team, and between the engagement team and others at the appropriate level within or outside the firm

(c) Determine that the nature and scope of, and conclusions resulting from, such consultations are agreed with the party consulted

(d) Determine that conclusions agreed have been implemented

Examples of When Consultation May Be Appropriate (A99):

Issues that are complex or unfamiliar

Significant risks

Significant transactions outside the normal course of business

Limitations imposed by management

Non-compliance with laws or regulations

Engagement Quality Review (Paragraph 36)

For audit engagements for which an engagement quality review is required, the engagement partner shall:

(a) Determine that an engagement quality reviewer has been appointed

(b) Cooperate with the engagement quality reviewer and inform other members of the engagement team of their responsibility to do so

(c) Discuss significant matters and significant judgments arising during the audit engagement, including those identified during the engagement quality review, with the engagement quality reviewer

(d) Not date the auditor's report until the completion of the engagement quality review

Critical Rule: The engagement partner is precluded from dating the engagement report until notification has been received from the engagement quality reviewer that the engagement quality review is complete.

Differences of Opinion (Paragraphs 37-38)

Paragraph 37 - Following Firm Policies:

If differences of opinion arise within the engagement team, or between the engagement team and the engagement quality reviewer or individuals performing activities within the firm's system of quality management, including those who provide consultation, the engagement team shall follow the firm's policies or procedures for dealing with and resolving such differences of opinion.

Paragraph 38 - Engagement Partner Responsibilities:

The engagement partner shall:

(a) Take responsibility for differences of opinion being addressed and resolved in accordance with the firm's policies or procedures

(b) Determine that conclusions reached are documented and implemented

(c) Not date the auditor's report until any differences of opinion are resolved

Monitoring and Remediation (Paragraph 39)

The engagement partner shall take responsibility for:

(a) Obtaining an understanding of the information from the firm's monitoring and remediation process, as communicated by the firm including, as applicable, the information from the monitoring and remediation process of the network and across the network firms

(b) Determining the relevance and effect on the audit engagement of the information referred to in paragraph 39(a) and take appropriate action

(c) Remaining alert throughout the audit engagement for information that may be relevant to the firm's monitoring and remediation process and communicate such information to those responsible for the process

Considerations for Information from Monitoring (A111):

The engagement partner may consider:

Remedial actions designed and implemented by the firm to address identified deficiencies

Whether additional remedial actions are needed at the engagement level

Examples of additional actions: needing an auditor's expert, enhancing direction/supervision/review in areas where deficiencies have been identified

Important Note (A112): An identified deficiency in the firm's system of quality management does not necessarily indicate that an audit engagement was not performed in accordance with professional standards and applicable legal and regulatory requirements, or that the auditor's report was not appropriate in the circumstances.

Taking Overall Responsibility for Managing and Achieving Quality (Paragraph 40)

Prior to dating the auditor's report, the engagement partner shall determine that the engagement partner has taken overall responsibility for managing and achieving quality on the audit engagement. In doing so, the engagement partner shall determine that:

(a) The engagement partner's involvement has been sufficient and appropriate throughout the audit engagement such that the engagement partner has the basis for determining that the significant judgments made and the conclusions reached are appropriate given the nature and circumstances of the engagement

(b) The nature and circumstances of the audit engagement, any changes thereto, and the firm's related policies or procedures have been taken into account in complying with the requirements of this HKSA

Indicators that Engagement Partner May Not Have Been Sufficiently Involved (A115):

Lack of timely review by the engagement partner of audit engagement planning

Evidence that those to whom tasks were assigned were not adequately informed

Lack of evidence of the engagement partner's direction and supervision of other team members and review of their work

Documentation (Paragraph 41)

In applying HKSA 230, the auditor shall include in the audit documentation:

(a) Matters identified, relevant discussions with personnel, and conclusions reached with respect to:

(i) Fulfillment of responsibilities relating to relevant ethical requirements, including those related to independence

(ii) The acceptance and continuance of the client relationship and audit engagement

(b) The nature and scope of, and conclusions resulting from, consultations undertaken during the audit engagement and how such conclusions were implemented

(c) If the audit engagement is subject to an engagement quality review, that the engagement quality review has been completed on or before the date of the auditor's report

Documentation Approaches (A118):

Method	Example
Direction documentation	Signoffs of the audit plan and project management activities
Communication evidence	Minutes from formal meetings of the engagement team
Involvement evidence	Agendas from discussions, signoffs, records of time spent
Review evidence	Signoffs by engagement partner and other team members

KEY TAKEAWAYS SUMMARY TABLE

Area	Key Requirement	Critical Date
Leadership	Engagement partner takes overall responsibility for managing and achieving quality	Throughout engagement
Ethical Requirements	Engagement partner determines fulfillment prior to dating auditor's report	Before dating auditor's report
Acceptance/Continuance	Follow firm policies; communicate new information promptly	Before and during engagement
Resources	Determine sufficient and appropriate resources assigned/made available	Throughout engagement
Direction/Supervision/Review	Engagement partner responsible; responsive to nature and circumstances	Throughout engagement
Consultation	Required for difficult/contentious matters	As needed
Engagement Quality Review	Not date report until EQR completed	Before dating auditor's report
Differences of Opinion	Not date report until resolved	Before dating auditor's report
Monitoring	Obtain understanding of firm's monitoring process	Throughout engagement
Overall Responsibility	Determine sufficient and appropriate involvement	Before dating auditor's report
Documentation	Include matters on ethics, acceptance/continuance, consultations, EQR completion	On or before report date

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