According to ISQC 1 it is the objective of the firm to establish and maintain a system of quality control to provide it with reasonable assurance that:
- The firm and its personnel comply with professional standards and applicable legal and regulatory requirements; and
- Reports issued by the firm or engagement partners are appropriate in the circumstances.
Beside ISQC 1 there can be local quality control standards as well by the bodies regulating the auditor’s work in specific jurisdiction with almost similar objectives to be achieved.
Although there are many elements and aspects of audit firm and auditor’s work get included but the foremost is the auditor’s report. To ensure whether objectives of the audit have been achieved or not we have the techniques called hot file review (aka hot review) and cold file review (aka cold review).
Hot file review: Hot file review or hot review is conducted usually conducted during the audit and/or audit work is completed but before the auditor’s report is issued. This in nature is a detailed review that is conducted with an aim to find out if there s any weakness in application of audit procedures or if the results have been misinterpreted. Hot reviews are usually carried out usually by the senior the audit team or someone with the same authority who is not connected with the engagement. Such reviews mostly include meetings with audit team personnel and their individual work so that both work and the skills of members are improved by pointing out discrepancies and providing recommendations.
Cold file review: Cold file review or cold review is an objective evaluation on the date of auditor’s report and is performed by the auditor i.e. partner himself when all the audit work has been concluded and the required sufficient appropriate audit evidence has been obtained and conclusions drawn and reported. This review usually take place when the auditor’s report is signed off . The purpose of this review is to ensure compliance with relevant auditing standards and to analyze weaknesses in the way whole audit work is conducted and how it can be improved for next similar assignments by updating firm’s quality control standards, training the staff etc.