5 Purpose of introduction SQC 1 Quality control for Firms that Perform Audit and Reviews of Historical Financial Information, and other Assurance and Related Services EngagementsPurpose of introductionThere was no guidelines to the firms responsibilities for its system of quality control for the services provided by them.There has been different standards issued a on different aspects. Hence, there is need of one standard which correlate and harmonize each standard.SQC – 1 took birth to mitigate the above requirements.This standard will play a role as Mother Standard.
6 Scope and Applicability The standard is to apply on Chartered Accountant Firms and Proprietorship.This will cover all the services falling under the engagement Standards.The effective date of the standard is April 1, 2009.
7 Objective of the Standard The firm should establish a system of quality control designed to provide it with reasonable assurance thatThe firm and its personnel comply with professional standards and regulatory and legal requirements andThat the Reports issued by the firm or engagement partner(s) are appropriate in the circumstances.
8 Elements of a system of quality control Leadership ResponsibilitiesEthical RequirementsAcceptance and Continuance of client relationships and specific engagements.Human resourceEngagement PerformanceMonitoring
9 Leadership Responsibilities for quality within the firm CEO or managing partner of the firm should establish policies and procedures designed to promote an internal culture based on the recognition that the quality is essential.Any person(s) assigned the operational responsibilities should be sufficient and appropriate experience and ability and the necessary authority to assume the responsibility.
10 Ethical RequirementsThe policies and procedure of the firm should be designed to provide reasonable assurance that the firm and its personnel comply relevant ethical requirement as prescribed in Chartered Accountants Act, These includesIntegrityObjectivityProfessional Competence and due careConfidentiality andProfessional Behavior.(ICPOP)
11 Ethical Requirements cont… Policies and procedure of firm should emphasize on following principalsThe leadership of the firmEducation and TrainingMonitoringA Process of Dealing with non compliancesIndependence
12 Ethical Requirements cont… Independence - The standard has laid down detailed guidelines to ensure the independence of the firm, personnel or others as required by the code. These can be summarized as followsPolicies designed by the firm should containCommunication of independence requirement to personnel or others,identity and removal of threats to independenceThe policy designed by the firm should requireThe engagement Partner should provide relevant information about the engagement to firm.The accumulation and communication of relevant information to appropriate personnel so that threats of independence can be readily identified and resolved.At least annually, the firm should obtain written confirmation of compliance with its policies and procedure on independence from all firm personnel required to be independent.
13 Ethical Requirements cont… The standard discusses familiarity threats that arises when the firm uses the same senior personnel on assurance engagement for a long period of time. The firm should reduce this threats to acceptable level. In case of audit of listed companies, engagement partner should be rotated after a pre-defined period not more than 7 years.
14 Can comply with the ethical requirements Acceptance and continuance of client relationships and specific requirementsThe policies and procedure of the firm should be such that it ensure thatIt has considered the integrity of the client and does not have information that would lead to conclude that the client lacks integrityIs competent to perform the engagement and has capabilities, time and resources to do soCan comply with the ethical requirements
15 Acceptance and continuance of client relationships and specific requirements cont. Examples of matters that should be ensured to check integrity of the clientBusiness reputation of clients Key management Personnel (KMPs), Owners, related parties etc.The nature of the client businessAttitude of KMPs etc. towards such matters as aggressive interpretation of Accounting Standards and internal control Environment.Whether the client is aggressively concerned with maintaining the firms fees as low as possible.Indications of an inappropriate limitation of scope of work.Information that the client might be involved in money laundering or other criminal activities.The reason for proposed appointment of firm and non reappointment of previous firm.
16 Human ResourceThe policies and procedure of the firm should ensure that it has sufficient personnel with the capabilities, competence and commitment to ethical principles necessary to perform its engagements in accordance with the legal requirements and to enable the firm to issue reports that is appropriate in the circumstances.These policies should coverRecruitmentPerformance evaluationCapabilitiesCompetenceCareer DevelopmentPromotionCompensation andEstimation of personnel needs.
17 Human Resource cont.Capabilities and competencies can be developed throughProfessional EducationContinuing Professional Development, including trainingWork ExperienceCoaching by more experienced staff.The standard requires that each engagement should be assigned to engagement partner having such capability. The role and responsibilities of such partner should be defined and communicated to the client.Assignment should be given to staff having appropriate capabilities, competence and time to perform the engagement in accordance with professional standards and regulatory and legal requirement.
18 Human Resource cont.The policies and procedure of the firm should also ensureEngagement performanceConsultationStrategy in case of Differences of opinion within the engagement teamEngagement quality control ReviewEngagement DocumentationConfidentiality, integrity, accessibility and retrievability of engagement documentationRetention of Engagement Documentation as per requirement of law or regulation.
19 MonitoringThe policies and procedure relating to system of quality control of the firm should be relevant, adequate, operating effectively and complied with in practice.Such policies and procedure should include ongoing consideration and evaluation of the firm’s system of quality control, including periodic inspection of selected engagement.Deficiencies observed as a result of monitoring process should beEvaluatedCommunicated to engagement partnerNecessary remedial action should be taken as per the nature of the deficiency.
20 RENUMBERING AND REARRANGEMENT OF EXISTING STANDARDS
21 Engagement and other Quality control Standards Standards on quality controlSQC 1 ‘Quality control for firms that perform Audit and reviews of historical financial information and other Assurance and Related ServicesAudit and Reviews of Historical Financial InformationAssurance Engagements other than Audits or Reviews of Historical Financial InformationRelated Services
22 Audit and Reviews of Historical Financial Information Standards on Auditing (SAs) – to 999Standards on Review Engagements (SREs) 2000 to 2699Standards on AuditingIntroductory Matters to 199General Principles and Responsibilities to 299Risk Assessment and Response to Assessed Risks to 499Audit Evidence to 599Using works of others to 699Audit conclusions and Reporting to 799Specialized Areas to 899Standards on Review Engagements
23 Audit and Reviews of Historical Financial Information cont… Introductory Matters (drafted)General Principles and ResponsibilitiesSANAMEAASSA 200Basic Principles Governing an AuditAAS 1SA 200AObjective and Scope of the Audit of Financial StatementsAAS 2SA 210Terms of Audit EngagementAAS 26SA 220Quality control for Audit workAAS 17SA 230DocumentationAAS 3SA 240The auditor’s responsibilities to consider Fraud and Error in an Audit of Financial Statements (revised as ‘The auditor’s responsibilities relating to Fraud in an Audit of Financial Statements’)AAS 4SA 250Consideration of Laws and Regulations in an Audit of Financial StatementsAAS 21SA 260Communication of Audit Matters with those charged with governanceAAS 27SA 299Responsibility of Joint AuditorsAAS 12
24 Audit and Reviews of Historical Financial Information cont… Risk Assessment and Responses to Assessed RisksSANameAASSA 300Audit Planning (revised as planning an audit of financial statements)AAS 8SA 310Knowledge of the BusinessAAS 20SA 315Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its EnvironmentNewSA 320Audit MaterialityAAS 13SA 330The Auditor Responses to Assessed RisksSA 400Risks Assessments and Internal ControlAAS 6SA 401Audit in a computer Information Systems EnvironmentAAS 29SA 402Audit Considerations Relating to Entities Using Service OrganisationsAAS 24
25 Audit and Reviews of Historical Financial Information cont… Audit EvidenceSANameAASSA 500Audit EvidenceAAS 5SA 501Audit Evidence – Additional Considerations for specific itemsAAS 34SA 505External ConfirmationsAAS 30SA 510Initial Engagements – Opening BalancesAAS 22SA 520Analytical ProceduresAAS 14SA 530Audit SamplingAAS 15SA 540Auditing of Accounting EstimatesAAS 18SA 550Related PartiesAAS 23SA 560Subsequent EventsAAS 19SA 570Going ConcernAAS 16SA 580Representation by management (revised Written Representations)AAS 11
26 Audit and Reviews of Historical Financial Information cont… Using work of othersAudit Conclusions and ReportingSpecialized Areas (drafted)SANameAASSA 600Using the work of another AuditorAAS 10SA 610Relying on the work of an Internal AuditorAAS 7SA 620Using the work of an ExpertAAS 9SANameAASSA 700The Auditor’s Report on Financial StatementsAAS 28SA 710ComparativesAAS 25
27 Audit and Reviews of Historical Financial Information cont… Standards on Review EngagementsSRE 2400 Engagement to Review Financial Statements (AAS 33)
28 Standards on Assurance Engagements (SAEs) 3000 to 3699 Assurance Engagements other than Audits or Reviews of Historical StatementsStandards on Assurance Engagements (SAEs) to 3699SAE 3400 The examination of Prospective Financial Statements (AAS 35)
29 Standards on Related Services (SRSs) 4000 to 4699 SRS 4400 Engagement to perform Agreed upon procedures Regarding Financial Statements (AAS 32)SRs4410 Engagements to compile Financial Information (AAS 31)
30 Revision of Existing Standard and insertion of new Standards
31 Revision of Existing Standard and insertion of new Standards Standards that has been revisedSA 240 (AAS 4) Auditor’s Responsibility to consider Fraud and Error in an audit to Financial Statements (Revised as “Auditor’s Responsibilities Relating to Fraud in an audit of Financial Statements”)SA 300 (AAS 8) Audit Planning (Revised as “Planning an Audit of Financial Statements)SA 580 (AAS 11) Representation by Management (Revised as “Written Representations)New Standards IntroducedSA 315 Identifying and assessing the Risks of Material Misstatement through understanding the Entity and its environment.SA 330 The Auditor Responses to an Assessed Risks.