Decision No. 44 of 2006

Dated 18/4/2006

Regarding the Quality Control Standard for Firms and Individuals Performing Audits and Limited Reviews of Historical Financial Information

Chairman of the Capital Market Authority

Having reviewed the Law on Joint Stock Companies, Companies with Limited Partnerships, and Limited Liability Companies issued under Law No. 159 of 1981 and its Executive Regulations;

And the Capital Market Law issued under Law No. 95 of 1992 and its Executive Regulations;

And Presidential Decree No. 51 of 1997 regarding the regulations governing the management of the Cairo and Alexandria Stock Exchanges and their financial affairs;

And the approval of the Authority's Board of Directors in its meeting No. 6 of 2006 dated 26/7/2006 to adopt the registration controls for the register of accountants of companies listed on the exchange (Official Schedule 1, Unofficial Schedule 1), as well as companies operating in the securities field and investment certification;

And the Authority's Board of Directors Decision No. 96 of 2006 dated 22/8/2006 regarding the registration controls for the register of accountants with the Authority.

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Decided

Article (1)

The attached Quality Control Standard for Firms and Individuals Performing Audits and Limited Reviews of Historical Financial Information and other related assurance and services tasks shall be applied as of 1/1/2007.

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Article (2)

In application of Article (6) of Decision No. 96 of 2006 dated 22/8/2006, all accountants registered in the Authority's register of accountants are required to apply this Standard.

Article (3)

All accountants registered in the Authority's register of accountants are required to submit all documents and certificates enabling the Authority to verify compliance with the Quality Control Standard, within a maximum of two weeks from the date of the request or according to the time limit set by the Authority.

Article (4)

The competent authorities shall implement this Decision according to their respective jurisdictions.

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Dr. Hany Serieddin
Chairman of the Board of Directors

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Egyptian Quality Control Standard

Quality Control for Firms Performing Audits and Limited Reviews of Historical Financial Information and Other Related Assurance and Services Tasks

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Contents

• Introduction ..... 3
• Definitions ..... 3
• Elements of the Quality Control System ..... 4
• Leadership Responsibilities for Quality within the Firm ..... 5
• Ethical Requirements ..... 6
• Acceptance and Continuance of Client Relationships and Specific Engagements ..... 7
• Human Resources ..... 9
• Engagement Performance ..... 10
• Monitoring ..... 14
• Documentation ..... 17

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Introduction

1. This Standard aims to establish standards and provide guidance regarding the responsibilities of any audit firm concerning its quality control system for audits and limited reviews of historical financial information and other related assurance and services tasks. The Egyptian Quality Control Standard shall be read together with both Part (A) and Part (B) of the General Code of Ethics and Professional Conduct for Accountants and Auditors.

2. Other standards and guidance issuances address the responsibilities of firm personnel regarding quality control procedures for specific types of engagements. For example, Egyptian Auditing Standard No. (220) "Quality Control for an Audit of Historical Financial Information" establishes standards and provides guidance regarding quality control procedures for audits of historical financial information.

3. The firm shall establish a quality control system designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and regulatory requirements, and that reports issued by the firm or independent responsible parties are appropriate for the circumstances.

4. The quality control system may consist of policies designed to achieve the objectives outlined in paragraph 3 above, and procedures necessary to implement compliance with those policies and monitor them.

5. The Egyptian Quality Control Standard applies to all firms. The nature of the policies and procedures adopted by each firm to comply with the Egyptian Quality Control Standard requires multiple elements such as the size of the firm, its operational characteristics, and whether it is part of a multi-office firm or not.

Definitions

6. The following are the definitions of the key terms used in the Egyptian Quality Control Standard:

(a) "Engagement Partner" - A partner or other person in the firm who is responsible for the engagement and its performance, and for the report issued by the firm, who must hold the appropriate qualification from the regulatory, legal, or professional body.

(b) "Pre-issuance Review" - A process designed to provide an objective evaluation, before the report is issued, of the significant judgments made by the engagement team and the conclusions reached in formulating the report.

(c) "Pre-issuance Reviewer" - A partner or other person in the firm, or a person from outside the firm with appropriate qualifications, or a team of individuals with appropriate expertise, competence, and authority, to objectively evaluate the significant judgments made by the engagement team and the conclusions reached in formulating the report before the report is issued.

(d) "Engagement Team" - All individuals performing the engagement, including experts engaged by the firm for matters related to the engagement.

(e) "Firm" - A sole practitioner, office, or entity of professional accountants, or any other professional accounting establishment.

(f) "Inspection" - A defined set of procedures to provide evidence of the engagement team's compliance with the firm's quality control policies and procedures when performing the engagement.

(g) "Complex Entity" - An entity whose shares, securities, or debt instruments are traded on a recognized securities market, or whose shares are traded in accordance with the regulations of a recognized securities market, or any similar body.

(h) "Monitoring" - A process involving ongoing consideration and evaluation of the firm's quality control system, including the periodic inspection of a selection of completed engagements to provide reasonable assurance that the firm's quality control system is operating effectively.

(i) "Multi-office Firm" - An entity that shares common ownership, management, and control with other firms.

(j) "Partner" - Any individual with authority to bind the firm with respect to the performance of professional services.

(k) "Personnel" - Partners and staff.

(l) "Professional Standards" - Work performance standards as specified by the Egyptian Auditing Standards Committee in the "Introduction to Egyptian Quality Control and Auditing Standards and Related Assurance Services", and other ethical and professional conduct requirements such as Part (A) and Part (B) of the General Code of Ethics and Professional Conduct for Accountants and Auditors, and other relevant local ethical and professional conduct requirements.

(m) "Appropriate Level of Assurance" - In the context of Egyptian Quality Control Standards, a high but not absolute level of assurance.

(n) "Staff" - Professionals other than partners, including any expert appointed by the firm.

(o) "Suitably Qualified External Person" - A person from outside the firm who has the capability and competence to perform the role of the engagement partner, for example, a partner from another firm, or an employee (with appropriate expertise) from a professional accounting body whose members may perform audits and limited reviews of historical financial information, or other assurance or related services tasks, or a body providing relevant quality control services.

Elements of the Quality Control System

7. The firm's quality control system shall include policies and procedures directed to each of the following elements:

(a) Leadership responsibilities for quality within the firm.

(b) Ethical requirements.

(c) Acceptance and continuance of client relationships and specific engagements.

(d) Human resources.

(e) Engagement performance.

(f) Monitoring.

8. Quality control policies and procedures shall be documented and communicated to firm personnel. This information shall describe the firm's quality control policies and procedures and the objectives they seek to achieve, and contain a message that every individual has a personal responsibility for quality and is expected to demonstrate compliance with these policies and procedures. In addition, the firm recognizes the importance of obtaining feedback from its personnel; therefore, the firm shall encourage its personnel to communicate their views or concerns regarding the firm's quality control system to firm management.

Leadership Responsibilities for Quality within the Firm

9. The firm shall establish policies and procedures to foster an internal culture based on the recognition that quality is essential to performing engagements. Those policies and procedures shall require the firm's chief executive officer (or equivalent) or, if owned by partners, the firm's partnership board (or equivalent) to take ultimate responsibility for ensuring the implementation of the quality control system within the firm.

10. Firm leadership and setting an example have a significant impact on the firm's internal culture. Developing a quality-oriented internal culture relies on clear, independent, and documented actions and messages from all levels of firm management emphasizing the firm's quality control procedures and policies and the requirements to:

(a) Perform work in compliance with professional and regulatory standards.

(b) Issue reports appropriate to the circumstances.

Such actions and messages encourage the creation of a culture that values and rewards high-quality work, which can be achieved through incentives.

Ethical Requirements

11. Firm leadership is of particular importance in recognizing that the firm's business strategy must ensure the fundamental requirement of achieving quality in the firm's internal documentation and training materials, and in partner and personnel evaluation procedures, so as to support and reinforce the firm's message regarding the importance of quality and how it can be achieved practically.

12. Any person or persons entrusted by the firm's chief executive officer or partnership board to operate the firm's quality control system must have the appropriate expertise, competence, authority, and capability to assume that responsibility.

13. The appropriate expertise and personal competence or authority of responsible persons enable them to identify and understand quality control issues and establish appropriate policies and procedures. The authority granted to the person or persons also enables them to implement those policies and procedures.

14. The firm shall establish policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with ethical and professional conduct requirements.

15. Ethical requirements typically related to audits and reviews of historical financial information and other related assurance and services tasks include paragraphs (a) and (b) of the Egyptian General Code of Ethics and Professional Conduct for Accountants and Auditors. The Egyptian General Code of Ethics and Professional Conduct for Accountants and Auditors includes fundamental ethical principles, which include:

(a) Integrity
(b) Objectivity
(c) Professional Competence and Due Care
(d) Confidentiality
(e) Professional Behavior

16. Part (B) of the Egyptian General Code of Ethics and Professional Conduct for Accountants and Auditors includes the conceptual framework that considers risks that may threaten acceptable independence and public perception. It includes:

17. The firm's policies and procedures emphasize the fundamental principles supporting them, which are in particular:

(a) Firm leadership
(b) Education and training
(c) Monitoring
(d) How to handle non-compliance.

Independence in assurance engagements is of paramount importance and is discussed separately in paragraphs "18" to "27" of this Standard. Those paragraphs shall be read together with the paragraphs of the Egyptian General Code of Ethics and Professional Conduct for Accountants and Auditors.

Independence

18. The firm shall establish policies and procedures designed to provide it with reasonable assurance that the firm and its personnel, and all subject to independence requirements (including experts engaged by the firm and personnel working with them in a multi-office firm), maintain independence as required by the Egyptian General Code of Ethics and Professional Conduct for Accountants and Auditors. Those policies and procedures shall enable the firm to:

(a) Communicate its independence requirements to its personnel and those subject to them.

(b) Identify and evaluate circumstances and relationships that may threaten independence and take appropriate action to eliminate those threats or reduce them to an acceptable level by applying safeguards or, if necessary, withdrawing from the engagement.

19. Those policies and procedures shall:

(1) Require independent partners to begin with transactions related to their clients, including the scope of services provided, to enable the firm to evaluate:

• The overall impact, if any, on independence requirements.

• Personnel who must immediately notify the firm of circumstances and relationships that threaten independence so that appropriate action can be taken.

(c) Collect and communicate information to appropriate individuals so that:

(a) The firm can maintain and update its records related to independence.

(b) The firm can take the required actions regarding independence-related threats that may be faced.

20. The firm shall establish policies and procedures designed to provide it with reasonable assurance that it is informed of breaches of independence requirements, and to enable it to take appropriate action to resolve those situations. Those policies and procedures shall be based on requirements so that:

(a) Each person subject to independence requirements notifies the firm of any independence breach of which they are aware.

(b) The firm immediately reports specific breaches of those policies and procedures to:

(1) The engagement partner who needs to discuss the breach with the firm.

(2) Other relevant personnel in the firm and those subject to independence requirements who need to take appropriate action.

(c) The engagement partner and other individuals referred to in sub-paragraph "2(b)" promptly inform the firm - if necessary - of the actions taken to resolve the problem, so that further actions can be taken.

21. Part Eight of the Egyptian General Code provides a complete list of threats to independence and safeguards against them, along with guidance on some specific situations.

22. The firm that becomes aware of a breach of its independence policies and procedures shall promptly communicate relevant information to the engagement partners and others in the firm with equivalent authority, to experts engaged by the firm, and to firm personnel, and shall take appropriate action.

The appropriate action that the firm and the concerned engagement partner may take includes applying appropriate safeguards to eliminate threats to independence or reduce them to an acceptable level, or withdrawing from the engagement. In addition, the firm provides specialized training on independence to personnel required to maintain independence.

23. The firm shall obtain annual - at least - written confirmations of compliance with its policies and procedures regarding independence from all firm personnel required to maintain independence under the Egyptian General Code of Ethics and Professional Conduct for Accountants and Auditors.