Quality Control (SQC-1) Requirements

• Addresses quality control for firms performing audits and reviews of historical financial information
• Applies to assurance and related services engagements

SQC-1 Requirements

• Firms must establish a QC system ensuring compliance with professional standards, legal, and regulatory requirements
• Reports issued by the firm are appropriate
• Addresses leadership responsibilities, ethical requirements, client relationships, human resources, engagement performance, and monitoring

Leadership Responsibilities

• Promote internal culture emphasizing the importance of quality in engagements
• CEO/managing partners bear ultimate responsibility for the QC system
• Individuals with operational responsibility need sufficient experience, ability, and authority

Upholding Quality

• Commercial considerations should not override the quality of work performed
• Policies demonstrate a strong commitment to quality
• Devotes sufficient resources to QC policies
• Acquire vital client information to assess Client integrity, promoter and KPM standing, competence, commitment, time and resources, and ethics

Independence

• Enable communication of independence requirements to personnel
• Identify and evaluate circumstances creating threats to independence
• Take action to eliminate threats or reduce them to acceptable levels
• Notify the firm of circumstances creating independence threats
• Obtain annual written confirmation of compliance with independence requirements
• Policies reduce familiarity threats, like EP rotation every 7 years for listed entities

Ethical Requirements

• Policies should assure firm and personnel comply with ethical standards
• Covers integrity, objectivity, professional competence, confidentiality, and professional behavior
• Actions of leadership, awareness, training, monitoring, and non-compliance process should emphasize the principles

Client Acceptance and Continuance

• Acquire client information regarding integrity, competence, and ethics
• Policies for withdrawal should discuss actions with management, reasons for withdrawal, requirements to report withdrawal, and documentation

Factors for Integrity

• Focus on identity, reputation, nature of operations, attitude towards matters like aggressive interpretations of accounting standards, fee concerns, scope limitations, and potential involvement in criminal activity

Aspects of Human Resources

• Sufficient personnel with capabilities, competence and ethics
• Communication of EP role, EP capabilities and authority, and clear responsibilities of EP are important

Important Aspects of Engagement Performance

• Direction, supervision, review, consultation, differences of opinion, EQCR, and documentation

Review Considerations

• Work adheres to standards, matters are raised, consultations occur, NTE is revised if needed, work supports conclusions, evidence is sufficient, objectives are achieved

Consultation

• Consultation occurs on difficult matters with specialized expertise
• Complete and proper documentation is maintained
• Report issuance awaits resolution

EQCR Procedures

• Mandatory for listed companies, completed before engagement
• Suitably qualified EQ reviewing team of professionals avoids prior ET involvement

EQCR: Listed Entities

• EQC Review team is objectively determined; participation in engagement or decision-making avoids costs
• Policies provide for replacement of EQC reviewers

EQCR Concerns

• ET evaluation of independence
• Significant risks and responses
• Judgments on materiality and significant risks
• Consultation on opinion differences
• Significance and disposition of errors
• Items for management and TCWG
• Work performed and conclusions reached based on review

Engagement Documentation

• Policies ensure timely assembly of files
• Files are ready no more than 60 days after the auditor's report date
• Policies maintain confidentiality, safe custody, integrity, accessibility and retrievability
• Documentation belongs to the firm unless otherwise specified or regulated
• Documentation retention is for a sufficient period and ordinarily no shorter than 7 years

Aspects of Monitoring

• Ensures QC policies are relevant, adequate, effective, and followed

Concerns for Monitoring

• System design, incorporation of new information, assigning monitoring to qualified personnel, handling complaints, and taking action on non-conformance or deficiencies are major monitoring factors

Handling Complaints

• Policies address failures to meet standards and Q.C system non-compliance
• Complaints may arise from the firm or outside the firm
• Investigation of complaints must align with policies and must be documented
• Appropriate action should be taken based on findings

Objective of SA-220

• Implement QC policies to ensure audit compliance and appropriate reporting
• Firms are subject to SQC 1

Independence Considerations

• Form conclusions, obtain information, identify & evaluate information and determine if it's a threat

Considerations for Client Relationship maintenance

• Follow procedures, determine conclusions and communicate that to the firm

EP Responsibilities

• Direction, supervision, audit performance, report issuance, review, and difficult matter consultations are important

EQCR Requirements

• An EQC reviewer has been appointed
• Discuss significant issues
• Finalize details after EQCR completion

EQC Reviewer Tasks

• Review significant judgments, conclusions, discuss matters, and consider appropriateness

SA-220: Additional Considerations

• ET's evaluation on independence
• Consultation on differences and review of documents

Relative to SQC 1

• SQC 1 applies to audits, reviews of historical financial information and other assurance
• SA 220 applies to audit engagements only