Significance of SQC 1 – Quality Control for Firms that Perform Audits & Reviews of Historical Financial Information and Other Assurance & Related Services Engagements

This topic is most important for Chartered Accountants firm having practice in areas of Audit, Review, Assurance services. Will it be Tax Audit, Statutory Audit, Review of quarterly results of listed entities, is worthy to note that in today’s scenario for each and every kind of Audit and Assurance assignments, CAs need to generate Unique Identification Number (UDIN), which is verifiable by ICAI as well as by other Regulatory authorities. Thus, CAs need to be more cautious about their findings and reporting requirement.

This Standard SQC 1 Standard on Quality Control, provides policies and procedures which assist CA firms to establish a control on the quality of work performed. SQC 1 should be simultaneously read with Chartered Accountants Act, 1949, the Code of Ethics alongwith other relevant pronouncements of ICAI.

SQC 1 requires a firm to establish a system of quality control that includes policies and procedures addressing each of the following six elements:

1. Leadership Responsibilities for Quality within the Firm

This element refers to leadership responsibility of firm’s top level management i.e. chief executive officer, managing partner or equivalent which should convey the promotion of quality oriented internal culture which depends on clear, consistent and frequent communication of firms quality control policies and procedures to its personnel

2. Ethical Requirements

This element addresses Code of Ethics issued by ICAI as well as other relevant pronouncements of the Institute. This element requires firm and its personnel to maintain independence in all required circumstances, perform all professional responsibilities with integrity, and maintain objectivity in discharging professional responsibilities.

3. Acceptance and Continuance of Client Relationships and Specific Engagements

This element requires firms to provide reasonable assurance of its:

  • Client’s Integrity
  • Competence to perform engagement
  • Compliance with ethical requirements

while continuing relationships and engagements with client.

4. Human Resources

This element refers to quality of human resource of the firm as part of quality control procedures. The firms should provide reasonable assurance that the firm’s personnel who performs, supervise, review should possess:

  •  Adequate capabilities,
  •  Adequate competence,
  •  Adequate commitment to ethical principles

5. Engagement Performance

This element requires Firm to provide 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.

6. Monitoring

This element requires firms to ensure that quality control policies and procedures that are implemented are relevant, adequate, operating effectively and complied with in practice. Such policies and procedures should include an ongoing consideration and evaluation of the Firm’s system of QC, including a periodic inspection of a selection of completed engagements.

Also the Report on Audit Quality Review 2018-19 present following ‘Key Takeaways for Audit Firms’ in respect of SQC 1:

  •  Improve implementation and documentation for various elements of the system of quality control as per SQC 1
  • Maintain policy & procedure to notify breaches of independence requirements
  • Provide eligibility and maintain objectivity of Engagement Quality Control Reviewer (EQCR)
  • Maintain Policies & procedures with regard to engagement performance, engagement documentation and archival process
  • Improve monitoring mechanism and take corrective action for any of the deficiency identified during inspection process and communicate to its partner

The above is small gist to understand the importance of quality control policy and procedures for CA firms in practice and industry.

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Location: Bhayandar E, Maharashtra, India
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June 2021