Quality Control for Firms that Perform Audit and Reviews of Historical Financial Information and other Assurance and Related Services Engagements
Introduction:- The purpose of SQC 1 Standard on Quality Control is to offer guidance with respect to the responsibilities of a firm for the system of quality control for its audits and reviews and various other assurance and related services engagements.
The key idea is that a firm form a system of quality control intended for providing reasonable assurance that a firm and its employees adhere to the professional standards and legal and regulatory requirements and also that reports which are issued by such firm or its engagement partners are apt in the circumstances.
The nature of a firm’s system including procedures and policies developed and employed by it depends on the operating characteristics and size of the firm, and also whether such firm is a part of any network.
According to SQC 1, the policies and procedures involving the system of quality control are required to address the following elements:
Responsibilities of the leadership for quality within a firm:- With the emphasized idea of promoting the internal culture which is based on the recognition that the quality is essential and paramount in executing any engagement.
For ensuring such kind of culture, the firm’s CEO or equivalent for assuming the eventual responsibility and, among others, provide:-
- a) informal discussions
- b) internal memos
- c) newsletters
- d) education and training
- e) monitoring
- f) processes to deal with any non-compliance
With the underlined notion that a firm and the employees adhere to the related ethical requirements as provided in the Code of Ethics, together with:-
- a) Objectivity
- b) Integrity,
- c) Confidentiality,
- d) Professional competence,
- e) Due diligence,
- f) Professional behaviour.
Acceptance and continuance of client relationships and specific engagements
With the emphasized idea of a rational assurance for continuing with relationship and engagement if and where the firm A has measured and considered the integrity of its client:-
- Identifying the business reputation of the owner, KMP (Key Management Personnel) and others associated with the governance of such business
- Nature of the business operations, along with the business practices
- Attitude towards the issues such as good governance, internal control environment and accounting standards
- Reasons for such proposed appointment of firm and non-reappointment of the firm been engaged previously
- Whether the owner/KMP (Key Management Personnel) are specifically concerned with keeping firm’s fee to the lowest as possible
- Whether the firm is competent for performing such engagement and has the time, capabilities, and resources in doing so:-
- a) The firm has sufficient competent personnel
- b) Personnel are equipped with the required knowledge of relevant subject matter and industries
- c) Have ability and experience for gaining experience with related reporting and regulatory requirements
- d) Accessibility of subject matter experts, if required
- e) Ability of completing such engagement within the respective deadline
Can the firm comply with related ethical requirements?
- Conflict of interest –perceived or actual
Human resources:-The SQA requires a firm to have policies and procedures in place for enabling it to guarantee the firm has adequate personnel with
- a) Competence
- b) Capabilities
- c) Commitment to ethical principles for enabling the firm to deliver the engagements
The policies employed by the firm should address the following issues
- a) Recruitment
- b) Capabilities, competence
- c) Performance evaluation
- d) Career development, compensation, promotion
- e) Estimate of personnel requirements
The firm’s performance compensation, evaluation and promotion procedures provide due reward and recognition to the maintenance and development of competence and commitment to the ethical principles.
Especially, the firm
- a) Makes the personnel conscious of firm’s expectations with respect to the performance and also the ethical principles
- b) Offers the personnel with evaluation of, and counselling on, progress, career development and performance
- c) Assists the personnel in understanding that progression to higher positions with greater responsibility is based on, inter alia, upon the quality of performance and observance to the ethical principles, and failing to comply with the procedures and policies of the firm might result in disciplinary actions.
With the key idea that there’s uniformity in quality and engagements are executed as per the professional standards and legal and regulatory requirements and the reports issued by the firm are appropriate
Assigning the responsibility to the engagement partner(s) with definite roles and responsibilities, authority and time frame to complete the assignment
Processes to comply with relevant engagement standards
Process for resolution of any differences in opinion among the team or otherwise
The process of evaluating work performed, noteworthy judgments made and form of the report that is being issued
Monitoring:-The firm must have policies and procedures in place for providing reasonable assurance that policies and procedures with respect to the system of quality control are adequate, relevant, compiled within the practice and is operating effectively.
The policies and procedures must include a continuing consideration and evaluation of quality control system, including a recurring examination of the selection of completed engagements.
Adhering professional standards and legal and regulatory requirements.
Whether the quality control policies and procedures of the firm is implemented effectively and applied appropriately.Communicating appropriate stakeholders in the firm about the flaws identified in such system.
Determining required corrective action to improve the system, including feedback.
Corrective as well as disciplinary actions against those not comply with the quality control system, particularly those failing frequently.
Documentation of equivalent importance is the documentation at each and every stage of the activities. A firm must have policies and procedures in place necessitating appropriate documentation for providing evidence of the operation of every element of the system of quality control.