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C1 - Quality Control Notes

Chapter 1 discusses the importance of quality control in auditing, highlighting the roles of SQC 1 and SA 220 in establishing quality systems at both firm and engagement levels. It outlines key elements of a quality control system, including leadership responsibilities, ethical requirements, client acceptance, human resources, engagement performance, and quality control reviews. The chapter emphasizes that maintaining high-quality standards is essential for compliance with professional and legal requirements, and it provides guidelines for firms to ensure effective quality control mechanisms are in place.

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Yasharth Jaiswal
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0% found this document useful (0 votes)
2 views

C1 - Quality Control Notes

Chapter 1 discusses the importance of quality control in auditing, highlighting the roles of SQC 1 and SA 220 in establishing quality systems at both firm and engagement levels. It outlines key elements of a quality control system, including leadership responsibilities, ethical requirements, client acceptance, human resources, engagement performance, and quality control reviews. The chapter emphasizes that maintaining high-quality standards is essential for compliance with professional and legal requirements, and it provides guidelines for firms to ensure effective quality control mechanisms are in place.

Uploaded by

Yasharth Jaiswal
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 1 - Quality Control

Chapter 1 - Quality Control


Audit Quality
● SQC 1 and SA 220 deal with the issue of establishing quality control systems and responsibilities of
auditors.
● SQC 1 applies to all engagements, focusing on quality at firm level whereas, SA 220 deals with audit quality
at individual engagement level.
● Besides SQC 1 and SA 220, other SAs, ICAI code of ethics, and certain provisions of Companies Act, 2013
facilitate the quality control process.
● Quality control review mechanisms include Peer review Board, Quality review Board, and NFRA.

SQC 1 - Quality Control for Firms that Perform Audits and Reviews of
Historical Financial Information, and Other Assurance and Related Services
Engagements
Introduction
● Every CA Firm must have a system of quality control for audits and reviews of historical financial
information, and for other assurance and related services engagements.
● 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.
● A system of quality control consists of policies
○ designed to achieve the objectives.
● SQC 1 applies to all firms irrespective of their constitution.

Elements of a System of Quality Control


● The firm’s system of quality control should include policies and procedures addressing 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.

📚
● ​The quality control policies and procedures should be

📢
○ documented and
○ communicated to the firm’s personnel.
● Such communication
○ describes the quality control policies and procedures and (What are the Policies & Procedures)
○ the objectives they are designed to achieve, and (What objectives will be achieved)
○ includes the message
■ that each individual has a personal responsibility for quality and
■ is expected to comply with these policies and procedures. (Quality is personal responsibility
and compliance is expected)
● The firm should encourages its personnel to communicate their feedback on quality control matters and
consider feedback as an integral part of system of quality control.

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Chapter 1 - Quality Control

Leadership responsibilities for quality within the firm


● The firm’ policies and procedures must be designed to create an internal culture which promotes quality as
essential in performing engagements to achieve the following objectives
○ Perform work that complies with professional standards and regulatory and legal requirements; and
○ Issue reports that are appropriate in the circumstances.
● Such policies and procedures should require the firm’s chief executive officer (or equivalent) or, if
appropriate, the firm’s managing partners (or equivalent), to assume ultimate responsibility for the firm’s
system of quality control.
● Any person or persons assigned operational responsibility for the firm’s quality control system by the firm’s
chief executive officer or managing board of partners should have sufficient and appropriate experience and
ability, and the necessary authority, to assume that responsibility.

Key elements that highlight the importance of quality in a firm's business strategy
Of particular importance is the need for the firm’s leadership to recognize that the firm’s business strategy is
subject to the overriding requirement for the firm to achieve quality in all the engagements that the firm performs.
Accordingly:
a. The firm assigns its management responsibilities so that commercial considerations do not override the
quality of work performed;
b. The firm’s policies and procedures addressing performance evaluation, compensation, and promotion
(including incentive systems) with regard to its personnel, are designed to demonstrate the firm’s overriding
commitment to quality; and
c. The firm devotes sufficient resources for the development, documentation and support of its quality control
policies and procedures.

Ethical Requirements
● The firm should establish policies and procedures designed to provide it with reasonable assurance that the
firm and its personnel comply with relevant ethical requirements.
● Ethical requirements relating to audits and reviews of historical financial information, and other assurance
and related services engagements are contained in the Code.
● The Code establishes the fundamental principles of professional ethics, which include:
a. Integrity;
b. Objectivity;
c. Professional competence and due care;
d. Confidentiality; and
e. Professional behavior
● Fundamental principles should be emphasized by
○ Actions of the leadership of the firm
○ spreading awareness and training
○ Monitoring
○ A process for dealing with non-compliance.

Independence
Establish policies and procedures
The firm should establish policies and procedures designed to provide it with reasonable assurance that the firm
and its personnel (including experts contracted by the firm and network firm personnel), maintain independence
where required by the Code.

Role of such policies and procedures


Such policies and procedures should enable the firm to:
a. Communicate its independence requirements to its personnel and (Independence Requirement)
b. Identify and evaluate circumstances and relationships that create threats to independence, (Identification
and evaluation of threat)

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Chapter 1 - Quality Control

c. Take appropriate action to eliminate those threats or reduce them to an acceptable level by applying
safeguards, or, if considered appropriate, to withdraw from the engagement.(Action to eliminate and
reduce)

Role of such policies and procedures w.r.t breaches


● The firm should establish policies and procedures designed to provide it with reasonable assurance that it is
notified of breaches of independence requirements, and to enable it to take appropriate actions to resolve
such situations.
● The policies and procedures should include requirements for:
a. All who are subject to independence requirements to promptly notify the firm of independence
breaches of which they become aware; (All to firm - Breaches)
b. The firm to promptly communicate identified breaches of these policies and procedures to:
i. The engagement partner
ii. Other relevant personnel who need to take appropriate action; and
(Identified breaches - FIRM to EP and ORP)
c. Prompt communication to the firm, if necessary, by the engagement partner and the other
individuals of the actions taken to resolve the matter, so that the firm can determine whether it
should take further action. (EP and ORP to Firm - Actions)
● At least annually, the firm should obtain written confirmation of compliance with its policies and procedures
on independence from all firm personnel required to be independent in terms of the requirements of the
Code.
● Firm should establish criteria for determining the need for safeguards to address familiarity threats. In
determining appropriate criteria, the firm considers such matters as-
○ nature of the engagement, including the extent to which it involves a matter of public interest and
○ length of service of the senior personnel on the engagement.
● Examples of safeguards include rotating the senior personnel or requiring an engagement quality control
review
● The familiarity threat is particularly relevant in the context of FS audits of listed entities. For these audits, EP
should be rotated after a pre-defined period, normally not more than 7 years (except in cases where audit of
listed entities is conducted by a sole practitioner). However, to ensure quality control exists in such firms
and appropriate reports are issued, there is a process for mandatory peer review of such firms.

Acceptance and Continuance of Client Relationships and Specific Engagements


● The firm should establish policies and procedures for the acceptance and continuance of client
relationships and specific engagements, designed to provide it with reasonable assurance that it will
undertake or continue relationships and engagements only where it:
a. Has considered the integrity of the client and
● does not have information that would lead it to conclude that the client lacks integrity;
b. Is
● competent to perform the engagement and
● has the capabilities, time and
● resources to do so; and
c. Can comply with the ethical requirements.
● Where issues have been identified, and the firm decides to accept or continue the client relationship or a
specific engagement, it should document how the issues were resolved.

Matters to be considered with regard to integrity of the client


With regard to the integrity of a client, matters that the firm considers include, for example
● The identity and business reputation of the client's principal owners, key management, related parties and
those charged with its governance.

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Chapter 1 - Quality Control

● Information concerning the attitude of the client's principal owners, key management and those charged
with its governance towards such matters as aggressive interpretation of accounting standards and the
internal control environment.
● The nature of the client's operations, including its business practices.
● Whether the client is aggressively concerned with maintaining the firm's fees as low as possible.
● Indications of an inappropriate limitation in the scope of work.
● Indications that the client might be involved in money laundering or other criminal activities.
● The reasons for the proposed appointment of the firm and non-reappointment of the previous firm.

The extent of knowledge a firm will have regarding the integrity of a client will generally grow within the context of
an ongoing relationship with that client.

Matters the firm considers while evaluating capabilities, competence, time and resources to undertake a new
engagement from a new or an existing client.
● Firm personnel have knowledge of relevant industries or subject matters;
● Firm personnel have experience with relevant regulatory or reporting requirements, or the ability to gain the
necessary skills and knowledge effectively;
● The firm has sufficient personnel with the necessary capabilities and competence;
● Experts are available, if needed;
● Individuals meeting the criteria and eligibility requirements to perform engagement quality control review
are available, where applicable; and
● The firm would be able to complete the engagement within the reporting deadline.

Obtains information that would have caused it to decline an engagement


Where the firm obtains information that would have caused it to decline an engagement if that information had
been available earlier, policies and procedures should include consideration of:
a. The professional and legal responsibilities that apply to the circumstances, including whether there is a
requirement for the firm to report to the person or persons who made the appointment or, in some cases, to
regulatory authorities; and
b. The possibility of withdrawing from the engagement or from both the engagement and the client
relationship.

Issues that need to be addressed before deciding to withdraw


Policies and procedures on withdrawal from an engagement or from both the engagement and the client
relationship address issues that include the following:
● Discussing with the appropriate level of the client’s management and TCWG regarding the appropriate
action that the firm might take based on the relevant facts and circumstances.
● If the firm determines that it is appropriate to withdraw, discussing with the appropriate level of the client’s
management and TCWG, withdrawal from the engagement or from both the engagement and the client
relationship, and reasons for the withdrawal.
● Considering whether there is a professional, regulatory or legal requirement for the firm to remain in place,
or for the firm to report the withdrawal from the engagement, or from both the engagement and the client
relationship, together with the reasons for the withdrawal, to regulatory authorities.
● Documenting significant issues, consultations, conclusions and the basis for the conclusions.

Human Resources
● The firm should establish policies and procedures designed to provide it with
○ reasonable assurance that it has sufficient personnel with
■ capabilities,
■ competence, and
■ commitment to ethical principles
○ necessary to perform its engagements in accordance with

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Chapter 1 - Quality Control

■ professional standards and


■ regulatory and legal requirements
○ to enable the firm or engagement partners
■ to issue reports that are appropriate in the circumstances
● Such policies and procedures should address relevant HR issues including
○ recruitment,
○ compensation,
○ training,
○ career development,
○ performance evaluation etc.

Assignment of Engagement Teams


The firm should assign responsibility for each engagement to an engagement partner. The firm should establish
policies and procedures requiring that
a. The identity and role of the engagement partner are communicated to key members of the client’s
management and TCWG
b. The engagement partner has the appropriate capabilities, competence, authority and time to perform the
role; and
c. The responsibilities of the engagement partner are clearly defined and communicated to that partner.

Engagement Performance
● The firm should establish policies and procedures designed to provide it with reasonable assurance that
engagements are performed in accordance with professional standards and regulatory and legal
requirements, and that the firm or the engagement partner issues reports that are appropriate in the
circumstances.
● Through its policies and procedures, the firm seeks to establish consistency in the quality of engagement
performance. This is often accomplished through written or electronic manuals, software tools or other
forms of standardized documentation, and industry or subject matter- specific guidance materials.

Matters to be considered to ensure the achievement of objective of Engagement Performance


Matters addressed include the following-
● How engagement teams are briefed on the engagement to obtain an understanding of the objectives of
their work.
● Processes for complying with applicable engagement standards.
● Processes of engagement supervision, staff training and coaching.
● Methods of reviewing the work performed, the significant judgments made and the form of report being
issued.
● Appropriate documentation of the work performed and of the timing and extent of the review.
● Processes to keep all policies and procedures current

Consultation
The firm should establish policies and procedures designed to provide it with reasonable assurance that:
a. Appropriate consultation takes place on difficult or contentious matters;
b. Sufficient resources are available to enable appropriate consultation to take place;
c. The nature and scope of such consultations are documented; and
d. Conclusions resulting from consultations are documented and implemented.

Engagement Quality Control Review


● Significant judgments made in an engagement should be reviewed by the engagement quality control
reviewer for taking an objective view before the report is issued.
● The extent of the review depends on the complexity of the engagement and the risk that the report might
not be appropriate in the circumstances. The review does not reduce the responsibilities of EP.

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Chapter 1 - Quality Control

● EQCR is mandatory for all audits of FS of listed entities.


● In respect of other engagements, firm should devise criteria to determine cases requiring performance of
EQCR

Considerations in case of EQCR of Listed Entities


An engagement quality control review for audits of FS of listed entities includes considering the following:
1. The engagement team’s evaluation of the firm’s independence in relation to the specific engagement.
2. Significant risks identified during the engagement and the responses to those risks.
3. Judgments made, particularly with respect to materiality and significant risks.
4. Whether appropriate consultation has taken place on matters involving differences of opinion or other
difficult or contentious matters, and the conclusions arising from those consultations.
5. The significance and disposition of corrected and uncorrected misstatements identified during the
engagement.
6. The matters to be communicated to management and TCWG and, where applicable, other parties such as
regulatory bodies.
7. Whether working papers selected support the conclusions reached.
8. The appropriateness of the report to be issued.

​Engagement quality control reviewer


● Engagement quality control reviewer should be a suitably qualified external person such as a partner or
employee (who should be member of ICAI) or can be from another firm with similar background.
● It's vital to maintain the reviewer's objectivity, therefore, participation in engagement or making decisions for
engagement team is to be avoided at all costs
● However, EP can seek consultation from the reviewer during the engagement, so as not to compromise his
objectivity and eligibility to perform the role.
● Where the nature and extent of the consultations become significant, however, care is taken by both the
engagement team and reviewer to maintain the reviewer’s objectivity. Where this is not possible, another
individual within the firm or a suitably qualified external person is appointed to take on the role of either the
engagement quality control reviewer or the person to be consulted on the engagement.
● Firm policies should allow for the replacement of the engagement quality control reviewer if their ability to
provide an objective review is compromised.

Differences of Opinion
● There might be difference of opinion within
○ engagement team,
○ with those consulted and
○ between engagement partner and engagement quality control reviewer.
● The report should only be issued after resolution of such differences.
● In case, recommendations of engagement quality control reviewer are not accepted by engagement
partner and matter is not resolved to reviewer’s satisfaction, the matter should be resolved by following
established procedures of firm like by consulting with another practitioner or firm, or a professional or
regulatory body.

Engagement Documentation
● The firm should establish policies and procedures for engagement teams to complete the assembly of final
engagement files on a timely basis after the engagement reports have been finalized.
● Engagement files should be completed in not more than 60 days after date of auditor’s report.
● Where two or more different reports are issued in respect of the same subject matter information of an
entity, the firm’s policies and procedures relating to time limits for the assembly of final engagement files
should be considered for each report as if it were for a separate engagement. This may be the case when
the firm issues an auditor’s report on a component’s financial information for group consolidation purposes
and, at a subsequent date, an auditor’s report on the same financial information for statutory purposes.

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Chapter 1 - Quality Control

● The firm should establish policies and procedures designed to maintain the confidentiality, safe custody,
integrity, accessibility and retrievability of engagement documentation.
● The firm should establish policies and procedures for the retention of engagement documentation for a
period sufficient to meet the needs of the firm or as required by law or regulation.
● In the specific case of audit engagements, the retention period ordinarily is no shorter than 7 years from the
date of the auditor's report, or, if later, the date of the group auditor's report.
● Unless otherwise specified by law or regulation, engagement documentation is the property of the firm.
● The firm may, at its discretion, make portions of, or extracts from, engagement documentation available to
clients, provided such disclosure does not undermine the validity of the work performed, or, in the case of
assurance engagements, the independence of the firm or its personnel.

Policies and procedures on documentation of EQCR


a. Procedures required by the firm’s policies on EQCR have been performed.
b. EQCR has been completed before the report is issued and
c. Reviewer is not aware of any unresolved matters that would cause the reviewer to believe that the
significant judgments the engagement team made and conclusions they reached were not appropriate.

Monitoring
● The firm should ensure that policies and procedures relating to the system of quality control are relevant,
adequate, operating effectively and complied within practice.
● Such policies and procedures should include an ongoing consideration and evaluation of the firm’s system
of quality control, including a periodic inspection of a selection of completed engagements.

Factors need to be considered in monitoring the quality control of engagements within a firm
● Deciding whether the quality control system of the firm has been appropriately designed and effectively
implemented.
● Examining whether new developments in the professional standards, legal and regulatory requirements have
been reflected in the quality control policies.
● Conducting monitoring by entrusting responsibility of monitoring process to a partner or other persons with
sufficient and appropriate experience and authority in the firm.
● Dealing with complaints and allegations against the firm or any employees of it of non‒ compliance with
professional standards or appropriate regulatory requirements by a person within or outside the firm.
● Taking appropriate remedial actions against the personnel who did not conform to quality control policies.
● Taking action when deficiencies in the design or operation of the firm’s quality control policies and
procedures, or non-compliance with the firm’s system of quality control are identified

SA 220 - Quality Control for an Audit of Financial Statements


Objectives of Auditor
The objectives of the auditor is to implement quality control procedures at the engagement level that provide the
auditor with reasonable assurance that: -
a. The audit complies with professional standards and regulatory and legal requirements and
b. The auditor’s report issued is appropriate in the circumstances.

Basics
● This Standard on Auditing (SA) deals with the specific responsibilities of the auditor regarding quality
control procedures for an audit of financial statements.
● It also addresses, where applicable, the responsibilities of the engagement quality control reviewer. This SA
is to be read in conjunction with relevant ethical requirements
● Quality control systems, policies and procedures are the responsibility of the audit firm.

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● SA 220 is modelled on lines of SQC 1. It describes responsibilities of engagement partner in relation to


following matters: -
○ Leadership responsibilities for quality on audits
○ Relevant ethical requirements
○ Acceptance and continuance of client relationships and audit engagements
○ Assignment of engagement teams
○ Engagement performance
○ Monitoring

Leadership Responsibilities for Quality on Audits


The engagement partner shall take responsibility for the overall quality on each audit engagement to which that
partner is assigned. The actions of the engagement partner and his communication with the members of the
engagement team should emphasis on
1. The importance of the following in audit quality
a. Performing work that complies regulatory and legal requirements; with professional standards and
b. Complying with the firm’s quality control policies and procedures as applicable;
c. Issuing auditor’s reports that are appropriate in the circumstances; and
d. The engagement team’s ability to raise concerns without fear of reprisals; and
2. The fact that quality is essential in performing audit engagements.

Relevant Ethical Requirements


The responsibilities of an engagement partner in relation to ethical requirements in an audit engagement are as
under:
● Identifying a threat to independence regarding the audit engagement that safeguards may not be able to
eliminate or reduce to an acceptable level.
● Reporting by EP to the relevant persons within the firm to determine appropriate action, which may include
eliminating the activity or interest that creates the threat, or withdrawing from the audit engagement, where
withdrawal is legally permitted.

Acceptance and Continuance of Client Relationships and Audit Engagements


SA 220 requires the firm to obtain information before accepting an engagement. Information such as the following
assists the engagement partner in determining whether the decisions regarding the acceptance and continuance of
audit engagements are appropriate
1. The integrity of the principal owners, key management and those charged with governance of the entity.
2. Whether the engagement team is competent to perform the audit engagement and has the necessary
capabilities, including time and resources;
3. Whether the firm and the engagement team can comply with relevant ethical requirements; and
4. Significant matters that have arisen during the current or previous audit engagement, and their implications
for continuing the relationship.

If the engagement partner obtains information that would have caused the firm to decline the audit engagement
had that information been available earlier, the engagement partner shall communicate that information promptly
to the firm, so that the firm and the engagement partner can take the necessary action.

Assignment of Engagement Teams


The engagement partner shall be satisfied that the engagement team, and any auditor’s experts who are not part of
the engagement team, collectively have the appropriate competence and capabilities to:
a. Perform the audit engagement in accordance with professional standards and regulatory and legal
requirements; and
b. Enable an auditor’s report that is appropriate in the circumstances to be issued.

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Chapter 1 - Quality Control

Engagement Performance
Topics to covered
● Direction, Supervision and Performance
● Reviews
● Engagement Quality Control Review
● Consultation
● Differences of Opinion

Direction, Supervision and Performance


The engagement partner shall take responsibility for:
● The direction, supervision and performance of the audit engagement in compliance with professional
standards and regulatory and legal requirements; and
● The auditor’s report being appropriate in the circumstances.

Reviews
● The engagement partner shall take responsibility for reviews being performed in accordance with the firm’s
review policies and procedures.
● On or before the date of the auditor’s report, the engagement partner shall, through a review of the audit
documentation and discussion with the engagement team, be satisfied that sufficient appropriate audit
evidence has been obtained to support the conclusions reached and for the auditor’s report to be issued.

Consultation
The engagement partner shall:
a. Take responsibility for the engagement team undertaking appropriate consultation on difficult or
contentious matters;
b. Be satisfied that members of the engagement team have undertaken appropriate consultation during the
course of the engagement, both within the engagement team and between the engagement team and
others at the appropriate level within or outside the firm;
c. Be satisfied that the nature and scope of, and conclusions resulting from, such consultations are agreed
with the party consulted; and
d. Determine that conclusions resulting from such consultations have been implemented.

Engagement Quality Control Review


For audits of financial statements of listed entities and those other audit engagements, if any, for which the firm
has determined that EQCR is required, the engagement partner shall:
● Determine that an engagement quality control reviewer has been appointed;
● Discuss significant matters arising during the audit engagement, including those identified during EQCR,
with the engagement quality control reviewer; and
● Not date the auditor’s report until the completion of EQCR

Matters to be evaluated by EQC Reviewer


The engagement quality control reviewer shall perform an objective evaluation of the significant judgments made
by engagement team, and conclusions reached in formulating the auditor’s report. This evaluation shall involve:
● Discussion of significant matters with the engagement partner;
● Review of FS and the proposed auditor’s report;
● Review of selected audit documentation relating to the significant judgments the engagement team made
and the conclusions it reached; and
● Evaluation of the conclusions reached in formulating the auditor’s report and consideration of whether the
proposed auditor’s report is appropriate.

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Factors to be considered when performing EQCR for audits of FS of listed entities


a. The engagement team’s evaluation of the firm’s independence in relation to the audit engagement;
b. Whether appropriate consultation has taken place on matters involving differences of opinion or other
difficult matters, and the conclusions arising from those consultations;
c. Whether audit documentation selected for review reflects the work performed in relation to the significant
judgments made and supports the conclusions reached.

Differences of Opinion
● If differences of opinion arise within
○ engagement team,
○ with those consulted or, where applicable,
○ between engagement partner and engagement quality control reviewer,
● the engagement team shall follow the firm’s policies and procedures for dealing with and resolving
differences of opinion.

Monitoring
● An effective system of quality control includes a monitoring process designed to provide the firm with
reasonable assurance that its policies and procedures relating to the system of quality control are relevant,
adequate, and operating effectively.
● EP shall consider the results of the firm’s monitoring process as evidenced in the latest information
circulated by the firm and, if applicable, other network firms and whether deficiencies noted in that
information may affect the audit engagement.

Documentation
Documentation by auditor
● Issues identified with respect to compliance with relevant ethical requirements and how they were resolved.
● Conclusions on compliance with independence requirements and any relevant discussions with the firm that
support these conclusions.
● Conclusions reached regarding the acceptance and continuance of client relationships and audit
engagements.
● The nature and scope of, and conclusions resulting from, consultations undertaken during the course of the
audit engagement.

Documentation by Engagement Quality Control Reviewer


● Procedures required by the firm’s policies on EQCR have been performed;
● EQCR has been completed on or before the date of the auditor’s report; and
● Reviewer is not aware of any unresolved matters that would cause the reviewer to believe that the significant
judgments the engagement team made and the conclusions they reached were not appropriate.

SQC 1 vs SA 220
S.No SQC1 SA 220
1 It applies to entire firm and fixes the responsibility of It applies to a particular audit engagement and
firm to be assumed by CEO or managing partners engagement partner takes responsibility of the
same
2 It is applicable to audits, reviews of historical financial It is applicable to audit engagements only
Information, and other assurance and related services
engagements
3 It relates to setting up of a quality control system It deals with responsibilities of engagement teams
consisting of policies and procedures for firm as a to implement quality control procedures that are
whole. applicable to audit engagements

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4 It pertains to establishing a system of quality control It is premised on the basis that firm is subject to
designed to provide firm with a reasonable assurance SQC 1. Therefore, SQC 1 is a sine qua non for
that a firm and its personnel comply with professional applicability of SA 220. It is within overall context of
standards and regulatory and legal requirements so a firm’s system of quality control, engagement
that reports issued by firm or engagement partners are teams implement quality control procedures
appropriate in circumstances applicable to audit engagements.

Mechanisms for Review of Quality Control


Peer Review Board
Peer review Board is constituted by Council of ICAI. The main objective of Peer review Board is to ensure that, in
carrying out assurance assignments: -
● Technical, professional and ethical standards including regulatory requirements are complied with by
members of ICAI.
● Proper systems are in place including documentation thereof which amply demonstrate quality of assurance
services provided by members

Peer Review
● Peer review involves examining and assessing a Practice Unit's systems and procedures to ensure they
align with the quality standards expected by technical, professional, and ethical guidelines or regulatory
mandates.
● Peer review is meant for the purpose of enhancing the quality of professional work resulting in more reliable
and useful audit reports.
● Once a Practice Unit is subjected to Peer review, its assurance engagement records pertaining to the Peer
review period are subject to examination and review by the Peer Reviewer. On completion of this exercise, a
“peer review certificate” is issued in case of unqualified report issued by Peer Reviewer. In case of a
qualified report, it is informed to the Practice Unit that the same cannot be issued along with the reasons
therefore as well as inform about the due date for conducting a follow-on review as may be decided by the
Board.

Quality Review Board


Quality review Board has been set up by Central government. It consists of members nominated by CG and Council
of ICAI. The functions of QRB are: -
a. To make recommendations to the Council regarding the quality of services provided by the members of the
Institute;
b. To review the quality of services provided by the members of the Institute including audit services and
c. To guide the members of the Institute to improve the quality of services and adherence to the various
statutory and other regulatory requirements;

The statutory auditors in respect of the companies are identified for their audit quality review based upon
risk-based approach. The review is carried out by technical reviewers who are empanelled by QRB on engagement
basis from across the country.

National Financial Reporting Authority (NFRA)


● NFRA has been constituted in terms of Section 132(1) of Companies Act,2013. Duties of NFRA also include
the following: -
○ Monitor and enforce compliance with ASs and auditing standards
○ Oversee the quality of service of the professions associated with ensuring compliance with such
standards and suggest measures for improvement in the quality of service
● It has power to monitor and enforce compliance with ASs and auditing standards and oversee the quality of
service under section 132(2) or undertake investigation under section 132(4) of the auditors of certain class

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Chapter 1 - Quality Control

of companies. Such companies include listed companies, insurance companies, banking companies and
other companies as provided for in rule 3 of NFRA Rules,2018.
● Therefore, overseeing quality of audit services of listed companies falls under the purview of NFRA. QRB
can review quality of audit services provided by the members of the Institute only in respect of entities other
than those specified under Rule 3 of NFRA Rules, 2018 and those referred to QRB by NFRA under relevant
rules

How to get best out of this book


1. Study this book with the provided question bank.
2. After studying from this book, please attempt all the chapter wise mock tests provided with this book.
a. How to get a free chapter wise mock test and other resources and benefits that come for free with this book?
i. This book comes with a free course in which you will get
1. Self evaluated chapter wise mock tests with suggested answers.
2. Gamified MCQs Compilation.
3. Gamified Case study compilation.
4. Charts and Mind Maps for selected topics.
5. Guidance Videos For Audit.
6. Important Questions For Upcoming Exams.
7. Important updates and amendment for upcoming exams
b. How to get access to free course?
i. If you have purchased it from www.edu91.org, then check my courses tab on edu91 app or website.
ii. If you have purchased it from any other source or seller, ask them to provide your details to
edu91.org so that we can provide you the access to the free course.

Neeraj Arora | www.edu91.org 1.12

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