STANDARD ON QUALITY CONTROL (SQC-1)

Introduction:

The purpose of this Standard on Quality Control (SQC) is to establish standards and provide guidance regarding a firm’s responsibilities for its system of quality control for audits and reviews of historical financial information, and for other assurance and related services engagements. This SQC is to be read in conjunction with the requirements of the Chartered Accountants Act, 1949, the Code of Ethics and other relevant pronouncements of the Institute1 (hereinafter referred to as “the Code”).

The firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and regulatory and legal requirements, and that reports issued by the firm or engagement partner(s) are appropriate in the circumstances.

What is Engagement documentation?

The record of work performed, results obtained, and conclusions the practitioner reached (terms such as “working papers” or “workpapers” are also sometimes used). The documentation for a specific engagement is assembled in an engagement file;

What is Engagement quality control review?

It is a process designed to provide an objective evaluation, before the report is issued, of the significant judgments the engagement team made and the conclusions they reached in formulating the report.

Who can be an Engagement quality control reviewer?

A partner, other person in the firm, suitably qualified external person, or a team made up of such individuals, with sufficient and appropriate experience and authority to objectively evaluate, before the report is issued, the significant judgments the engagement team made and the conclusions they reached in formulating the report. However, in case the review is done by a team of individuals, such team should be headed by a member of the Institute.

What constitutes an Engagement team?

All personnel performing an engagement, including any experts contracted by the firm in connection with that engagement. The term “engagement team” excludes individuals within the client’s internal audit function who provide direct assistance on an audit engagement when the external auditor complies with the requirements of SA 610 (Revised).

What are the Ethical Requirements of SQC-1

This SQC requires the firm to establish policies and procedures to enable it to ensure that the firm and its personnel comply with ethical requirements:

• The firm’s policies should emphasize the fundamental ethical principles as per ICAI’s code of ethics (integrity, objectivity, professional competence and due care, confidentiality and Professional behavior) which are reinforced by
• Firm leadership
• Education and training
• Monitoring
• Process for dealing with non-compliance

Conclusion:

This SQC applies to all firms. The nature of the policies and procedures developed by individual firms to comply with this SQC will depend on various factors such as the size and operating characteristics of the firm.

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