## SQC 1: Firm-Level Quality Control — Leadership Responsibilities

### Scope

SQC 1 applies to all engagements undertaken by the firm — not just audit engagements.

### Core Requirement

Firms must establish policies and procedures that promote an internal culture recognising that quality is essential in performing all engagements.

### Who Bears Ultimate Responsibility?

Role	Responsibility
CEO / Managing Partners	Ultimate responsibility for the firm's system of quality control
Persons assigned operational responsibility	Must have sufficient experience, ability, and necessary authority

### Why Leadership Matters

The example set by firm leadership creates an inner culture that recognises high quality audit work. Culture flows top-down — if leadership prioritises quality, engagement teams follow.

### Engagement Quality Control Review (EQCR)

Aspect	Detail
Purpose	Objective review of significant judgments before the report is issued
Mandatory for	All audits of financial statements of listed entities
Other engagements	Firm devises its own criteria to determine when EQCR is required

Worked example

### Example 1

Q21 (MD 4 – 4 Marks): SQC 1 requires assumption of leadership responsibilities for quality within the firm. Are these required for audit engagements only? Who assumes such responsibilities?

Answer:

No — SQC 1 requires quality leadership for ALL engagements, not just audits.
The firm's CEO or managing partners hold ultimate responsibility for the firm's system of quality control.
Persons assigned operational responsibility must have sufficient and appropriate experience, ability, and necessary authority.
The example set by firm's leadership encourages an internal culture that recognises high quality work.

### Example 2

Q24 (MD 1 – 3 Marks): Why is EQCR required? For which engagements is it mandatory? What is the approach for other engagements?

Answer:

Why: Significant judgments in an engagement should be reviewed objectively by an EQCR reviewer before the report is issued.
Mandatory: All audits of financial statements of listed entities.
Other engagements: Firm should devise criteria to determine which other engagements require EQCR.

⚠️ Common exam mistakes

Saying SQC 1 applies only to audit engagements — it applies to ALL professional engagements of the firm
Confusing who holds 'ultimate' responsibility (CEO/Managing Partners) with 'operational' responsibility (persons assigned by CEO/MPs)
Stating EQCR is mandatory only for listed entities without mentioning that firms can extend it to other engagements via their own criteria

Reference: SQC 1 — SQC 1 — Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements

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SQC 1 — Firm-Level Quality Control and Leadership Responsibilities

Worked example

⚠️ Common exam mistakes