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Audit & Assurance > Chapter 1 : Quality Control (SQC - 1) > Flashcards

Chapter 1 : Quality Control (SQC - 1) Flashcards

Introduction & SQC 1

1
Q

Why is high audit quality important?

A

Builds trust among stakeholders

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2
Q

What are auditors’ assurances relied upon by?

A

Industry, government, and the public

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3
Q

What is necessary to ensure high audit quality?

A

Rigorous audit processes and quality control procedures

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4
Q

Which standards establish frameworks for audit quality?

A

SQC 1 and SA-220

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5
Q

Where do the quality control procedures need to comply with?

A

Laws, regulations, and professional standards

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6
Q

What are some other standards that support quality control?

A

ICAI code of ethics, Companies Act, 2013

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7
Q

Which bodies review quality control?

A

Peer Review Board, Quality Review Board, NFRA

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8
Q

What does SQC 1 mandate for firms?

A

Establish a quality control system

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9
Q

What should the quality control system ensure?

A

Compliance with professional standards, regulations, and legal requirements

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10
Q

What should the system ensure about the reports issued?

A

Reports are appropriate for the circumstances

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11
Q

What firms does this standard apply to?

A

All firms

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12
Q

What are the elements of the firm’s quality control system?

A

Leadership responsibilities, Ethical requirements, Acceptance and continuance of client relationships and engagements, Human resources, Engagement performance

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13
Q

What should be done with monitoring policies and procedures?

A

Documented and communicated to firm personnel

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14
Q

What is the purpose of documenting and communicating monitoring policies and procedures?

A

To encourage feedback and communication on quality control matters

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15
Q

What is the responsibility of the firm’s top executives?

A

Accountable for the quality control system

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16
Q

What should individuals overseeing quality control possess?

A

Appropriate experience, ability, and authority

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17
Q

What should the firm’s business strategy prioritize?

A

Quality in all engagements

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18
Q

What should policies on performance evaluation, compensation, and promotion reflect?

A

Commitment to quality

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19
Q

What resources should be allocated?

A

For developing, documenting, and supporting quality control policies and procedures

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20
Q

What are some of the fundamental ethical principles that firms need to uphold?

A

Integrity, objectivity, competence, confidentiality, and professional behaviour.

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21
Q

What is the importance of independence in engagements?

A

Crucial; requires policies to communicate standards, identify threats, apply safeguards, and report breaches.

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22
Q

What should engagement partners and firm personnel do if there are circumstances threatening independence?

A

Notify and take appropriate action.

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23
Q

What is the recommendation for obtaining confirmation of compliance with independence policies?

A

Obtain written confirmation annually.

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24
Q

What is the familiarity threat mentioned in SQC 1?

A

Using the same senior personnel for extended periods.

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25
Q

What criteria should firms establish to address the threat?

A

Nature of engagement’s public interest and senior personnel’s tenure

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26
Q

What are some safeguards that firms can implement?

A

Rotating senior personnel or conducting engagement quality control reviews

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27
Q

Is there a recommendation for rotating the engagement partner?

A

Yes, every seven years for audits of listed entities (excluding sole practitioners)

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28
Q

What is the purpose of mandatory peer reviews?

A

Ensuring quality control and appropriate reporting

29
Q

What information should firms gather before accepting or continuing an engagement?

A

Client, promoters, and key managerial personnel integrity; Competence to perform the engagement; Compliance with ethical requirements.

30
Q

What should the firm do when accepting or continuing engagements?

A

Document the resolution of any identified issues.

31
Q

What considerations are included in assessing client integrity?

A

Business reputation, operational practices, attitude towards accounting standards, internal controls, fees, scope limitations, potential involvement in criminal activities

32
Q

What should precede engagement acceptance?

A

Conflict resolution with the client

33
Q

What should policies address if crucial information is obtained later?

A

Professional and legal responsibilities, potential withdrawal from engagement or client relationship

34
Q

What are the procedures for withdrawal from an engagement?

A

Discussions with client management about the firm’s action

35
Q

What should be documented in regards to withdrawal from an engagement or client relationship?

A

Significant issues, conclusions, and reasons

36
Q

What should be considered when deciding whether to report withdrawal from an engagement or client relationship to regulatory authorities?

A

Professional, regulatory, or legal obligations

37
Q

What should firms establish policies for in regards to human resources?

A

Having adequate personnel with necessary capabilities, competence, and ethical commitment

38
Q

What are the policies covered?

A

Recruitment, compensation, training, career development, and performance evaluation.

39
Q

What should be emphasized regarding the firm’s personnel?

A

Ongoing professional development.

40
Q

Who should lead each engagement?

A

Assigned engagement partner.

41
Q

What should be communicated to client management and governance?

A

Identity, role, capabilities, authority, and defined responsibilities of the engagement partner.

42
Q

How should engagement teams be selected and developed?

A

Suitable personnel selection and development

43
Q

What should the firm regularly evaluate?

A

Partner and team performance

44
Q

How is consistency in engagement performance quality ensured?

A

Detailed briefing, compliance with standards, supervision, training, reviewing methods, and documentation

45
Q

Why is consultation crucial in resolving complex or contentious matters?

A

Promotes quality and enhances professional judgment

46
Q

What is the purpose of consultation?

A

To reach conclusions and document them

47
Q

What is the purpose of an Engagement Quality Control Review?

A

Ensure objective review before issuing the report

48
Q

Who can serve as an engagement quality control reviewer?

A

Partner, qualified external person, or team

49
Q

When are mandatory reviews required?

A

For audits of financial statements of listed entities

50
Q

How should differences of opinion be handled?

A

Resolved before issuing the report

51
Q

What should be done if disagreements persist?

A

Follow established firm procedures

52
Q

How long should it typically take to complete final engagement files?

A

Within 60 days after the auditor’s report for audits

53
Q

What do engagement documentation policies and procedures guide?

A

Engagement teams in timely completion of final engagement files

54
Q

What are the priorities for engagement documentation?

A

Confidentiality, safe custody, and accessibility

55
Q

What must be confirmed in the documentation for engagement quality control reviews?

A

Required procedures performed, review completed before report issuance, significant issues resolved

56
Q

Who owns the engagement documentation?

A

The firm

57
Q

What is the limited disclosure of engagement documentation?

A

To clients

58
Q

How long must engagement documentation be retained?

A

For monitoring procedures and compliance evaluation or longer if required by law

59
Q

What is the minimum retention period for audit engagement documentation?

A

At least 7 years

60
Q

When should the firm monitor its quality control policies and procedures?

A

Regularly

61
Q

What is necessary to evaluate the firm’s quality control system?

A

Periodic inspection of completed engagements

62
Q

What does evaluation in monitoring engagements involve?

A

Assessing the quality control system

63
Q

Who is responsible for monitoring engagements?

A

Experienced individuals within the firm

64
Q

What are some tasks involved in monitoring engagements?

A

Handling complaints, addressing non-compliance allegations, taking corrective actions

65
Q

What should be done when deficiencies in quality control policies are identified?

A

Immediate action should be taken

66
Q

What is the importance of addressing deficiencies in quality control?

A

To ensure compliance with the firm’s system of quality control

67
Q

What are some of the capabilities of the firm?

A

Personnel knowledge and experience

68
Q

What types of skills are available?

A

skills, personnel, and experts

69
Q

What does t personnel not adhere to?

A

quality control policies

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