## Quality Control for Firms — SQC-1
SQC-1 applies to all audit firms irrespective of their constitution (sole practitioner, partnership, LLP, etc.).
### Objective
Establish a Quality Control System (QCS) to provide Reasonable Assurance (RA) that:
1. Firm and personnel comply with Professional Standards (PS) and Regulatory & Legal Requirements (RLR)
2. Reports issued by the Engagement Partner (EP) are appropriate
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### Six Elements of SQC-1
#### 1. Leadership
- Firm creates internal culture where quality is essential
- CEO / Managing Partner (MP) has ultimate responsibility for quality control
- Must have relevant seniority, authority, and ability
#### 2. Ethical Requirements
- P&P to ensure compliance with ICAI Code of Ethics
- Independence must be observed in all engagements
- Process:
1. Communicate independence requirements
2. Identify circumstances creating threats
3. Eliminate threats — if not possible → withdraw
4. Obtain annual declaration of independence compliance
5. All breaches of independence must be notified to the firm
#### 3. Acceptance & Continuance of Client Relationships
Factors to evaluate before accepting:
- Integrity of client promoters/key owners
- Firm's capabilities and competence
- Compliance with ethical requirements
IMNAMI-T — Evaluate client integrity by checking:
| Letter | Factor |
|---|---|
| I | Identity & business reputation of promoters/key owners |
| M | Nature of client operations |
| N | Attitude towards accounting standards, control environment |
| A | Maintaining firm's fees unreasonably low |
| M | Money laundering / illegal activities involved |
| I | Inappropriate limitation on scope of work |
| T | The reason for non-reappointment of retiring auditor |
Conflict of interest discovered post-acceptance: Communicate to appointing persons + regulatory authority; withdraw if possible.
#### 4. Human Resources
- P&P to ensure sufficient personnel with capabilities, competence, and commitment to ethical principles
- Addresses: recruitment, training, compensation, career development
#### 5. Engagement Performance
Engagement Quality Control Review (EQCR):
| Feature | Detail |
|---|---|
| Purpose | Review significant judgements BEFORE audit report is issued |
| Listed companies | Mandatory |
| Others | Firm devises its own criteria |
| Effect on EP | Does NOT reduce EP's responsibilities |
| Differences of opinion | Must be resolved before report is issued; follow firm's procedures (e.g., consult another practitioner or professional body) |
Engagement Documentation:
| Aspect | Audit Engagements | Other Engagements |
|---|---|---|
| Assembly deadline | 60 days after date of auditor's report | Within appropriate limits |
| Retention period | 7 years after date of auditor's report | Per firm QC policies or law |
Additional rules:
- Where two or more reports issued: 60-day rule applies separately to each
- P&P must ensure: confidentiality, safe custody, integrity, accessibility, retrievability
- ED is property of the firm (firm may share portions with clients at its discretion)
EQCR Documentation must record:
1. Procedures required by EQCR policies were performed
2. EQC completed before report is issued
3. Reviewer is unaware of any unresolved matters
#### 6. Monitoring
- QC policies must be: relevant, adequate, operating effectively, and complied with
- Includes ongoing consideration and periodic inspection of completed engagements