Chapter 1 : Quality Control (SQC - 1) Flashcards
Introduction & SQC 1
Why is high audit quality important?
Builds trust among stakeholders
What are auditors’ assurances relied upon by?
Industry, government, and the public
What is necessary to ensure high audit quality?
Rigorous audit processes and quality control procedures
Which standards establish frameworks for audit quality?
SQC 1 and SA-220
Where do the quality control procedures need to comply with?
Laws, regulations, and professional standards
What are some other standards that support quality control?
ICAI code of ethics, Companies Act, 2013
Which bodies review quality control?
Peer Review Board, Quality Review Board, NFRA
What does SQC 1 mandate for firms?
Establish a quality control system
What should the quality control system ensure?
Compliance with professional standards, regulations, and legal requirements
What should the system ensure about the reports issued?
Reports are appropriate for the circumstances
What firms does this standard apply to?
All firms
What are the elements of the firm’s quality control system?
Leadership responsibilities, Ethical requirements, Acceptance and continuance of client relationships and engagements, Human resources, Engagement performance
What should be done with monitoring policies and procedures?
Documented and communicated to firm personnel
What is the purpose of documenting and communicating monitoring policies and procedures?
To encourage feedback and communication on quality control matters
What is the responsibility of the firm’s top executives?
Accountable for the quality control system
What should individuals overseeing quality control possess?
Appropriate experience, ability, and authority
What should the firm’s business strategy prioritize?
Quality in all engagements
What should policies on performance evaluation, compensation, and promotion reflect?
Commitment to quality
What resources should be allocated?
For developing, documenting, and supporting quality control policies and procedures
What are some of the fundamental ethical principles that firms need to uphold?
Integrity, objectivity, competence, confidentiality, and professional behaviour.
What is the importance of independence in engagements?
Crucial; requires policies to communicate standards, identify threats, apply safeguards, and report breaches.
What should engagement partners and firm personnel do if there are circumstances threatening independence?
Notify and take appropriate action.
What is the recommendation for obtaining confirmation of compliance with independence policies?
Obtain written confirmation annually.
What is the familiarity threat mentioned in SQC 1?
Using the same senior personnel for extended periods.
What criteria should firms establish to address the threat?
Nature of engagement’s public interest and senior personnel’s tenure
What are some safeguards that firms can implement?
Rotating senior personnel or conducting engagement quality control reviews
Is there a recommendation for rotating the engagement partner?
Yes, every seven years for audits of listed entities (excluding sole practitioners)
What is the purpose of mandatory peer reviews?
Ensuring quality control and appropriate reporting
What information should firms gather before accepting or continuing an engagement?
Client, promoters, and key managerial personnel integrity; Competence to perform the engagement; Compliance with ethical requirements.
What should the firm do when accepting or continuing engagements?
Document the resolution of any identified issues.
What considerations are included in assessing client integrity?
Business reputation, operational practices, attitude towards accounting standards, internal controls, fees, scope limitations, potential involvement in criminal activities
What should precede engagement acceptance?
Conflict resolution with the client
What should policies address if crucial information is obtained later?
Professional and legal responsibilities, potential withdrawal from engagement or client relationship
What are the procedures for withdrawal from an engagement?
Discussions with client management about the firm’s action
What should be documented in regards to withdrawal from an engagement or client relationship?
Significant issues, conclusions, and reasons
What should be considered when deciding whether to report withdrawal from an engagement or client relationship to regulatory authorities?
Professional, regulatory, or legal obligations
What should firms establish policies for in regards to human resources?
Having adequate personnel with necessary capabilities, competence, and ethical commitment
What are the policies covered?
Recruitment, compensation, training, career development, and performance evaluation.
What should be emphasized regarding the firm’s personnel?
Ongoing professional development.
Who should lead each engagement?
Assigned engagement partner.
What should be communicated to client management and governance?
Identity, role, capabilities, authority, and defined responsibilities of the engagement partner.
How should engagement teams be selected and developed?
Suitable personnel selection and development
What should the firm regularly evaluate?
Partner and team performance
How is consistency in engagement performance quality ensured?
Detailed briefing, compliance with standards, supervision, training, reviewing methods, and documentation
Why is consultation crucial in resolving complex or contentious matters?
Promotes quality and enhances professional judgment
What is the purpose of consultation?
To reach conclusions and document them
What is the purpose of an Engagement Quality Control Review?
Ensure objective review before issuing the report
Who can serve as an engagement quality control reviewer?
Partner, qualified external person, or team
When are mandatory reviews required?
For audits of financial statements of listed entities
How should differences of opinion be handled?
Resolved before issuing the report
What should be done if disagreements persist?
Follow established firm procedures
How long should it typically take to complete final engagement files?
Within 60 days after the auditor’s report for audits
What do engagement documentation policies and procedures guide?
Engagement teams in timely completion of final engagement files
What are the priorities for engagement documentation?
Confidentiality, safe custody, and accessibility
What must be confirmed in the documentation for engagement quality control reviews?
Required procedures performed, review completed before report issuance, significant issues resolved
Who owns the engagement documentation?
The firm
What is the limited disclosure of engagement documentation?
To clients
How long must engagement documentation be retained?
For monitoring procedures and compliance evaluation or longer if required by law
What is the minimum retention period for audit engagement documentation?
At least 7 years
When should the firm monitor its quality control policies and procedures?
Regularly
What is necessary to evaluate the firm’s quality control system?
Periodic inspection of completed engagements
What does evaluation in monitoring engagements involve?
Assessing the quality control system
Who is responsible for monitoring engagements?
Experienced individuals within the firm
What are some tasks involved in monitoring engagements?
Handling complaints, addressing non-compliance allegations, taking corrective actions
What should be done when deficiencies in quality control policies are identified?
Immediate action should be taken
What is the importance of addressing deficiencies in quality control?
To ensure compliance with the firm’s system of quality control
What are some of the capabilities of the firm?
Personnel knowledge and experience
What types of skills are available?
skills, personnel, and experts
What does t personnel not adhere to?
quality control policies
