Quality control for firms that perform audits and reviews of historical financial information, and other assurance and related services engagements
Objective of SQC–1 is to provide the firm with reasonable assurance that its personnel comply with applicable professional standards as well as regulatory and legal requirements, and that reports issued by the firm or engagement partner(s) are appropriate in the circumstances.
Elements of System of Quality Control
Leadership responsibilities for quality within the firm.
The firm should establish policies and procedures designed to promote an internal culture based on recognition that quality is essential in performing engagements. Such policies and procedures should require the firm’s chief executive officer (or equivalent) or, if appropriate, the firm’s managing partners (or equivalent), to assume ultimate responsibility for the system of quality control
Any person or persons assigned operational responsibility for the firm’s quality control system by the chief executive officer or managing board of partners should have sufficient and appropriate experience and ability, and the necessary authority, to assume that responsibility
The firm should establish policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with relevant ethical requirements.
The firm’s policies and procedures should emphasize the fundamental principles, which are reinforced in particular by (a) the leadership of the firm, (b) education and training, (c) monitoring, and (d) a process for dealing with non– compliance.
Acceptance and continuance of client relationships and specific engagements
The acceptance and continuance of Quality Control policies are designed to provide the firm with reasonable assurance that it will undertake or continue relationships and engagements only where it:
(a) has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity;
(b) is competent to perform the engagement and has the capabilities, time and resources to do so
(c) can comply with the ethical requirements.
The Firm should obtain such information as it considers necessary before accepting an engagement with a new client; when deciding whether to continue an existing client relationship and/or engagement; and when considering acceptance of a new engagement with an existing client. Where issues have been identified, and the firm decides to accept or continue the client relationship or a specific engagement, it should document how the issues were resolved.
Where the firm obtains information that would have caused it to decline an engagement if that information had been available earlier, policies and procedures on the continuance of the engagement and the client relationship should be considered
The Firm’s policies and procedures should be designed to provide it with reasonable assurance that it has sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary to perform its engagements in accordance with professional standards and regulatory and legal requirements to enable the Firm or engagement partners to issue reports that are appropriate in the circumstances
Policies and procedures related to human resources normally address the personnel issues like Recruitment, Performance evaluation, Capabilities, Competence, Career development, Promotion, Compensation, the estimation of personnel needs, Engagement performance
Monitoring The firm should establish policies and procedures designed to provide it with reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate, operating effectively and complied with in practice. Such policies and procedures should include an ongoing consideration and evaluation of the firm’s system of quality control, including a periodic inspection of a selection of completed engagements. The purpose of monitoring compliance with quality control policies and procedures is to ensure
- Adherence to professional standards and regulatory and legal requirements system
- Appropriate designing and effective implementation of quality control
- That the firm’s quality control policies and procedures have been appropriately applied