Advanced Auditing, Assurance and Professional Ethics · Quality Control

SQC 1: Acceptance, Human Resources and Engagement Performance

Updated 5 October 2026 · Fact-checked

Under SQC 1, a firm must set policies for accepting and continuing clients, hiring and assigning competent people, and performing engagements consistently. You answer questions by naming the element, stating the SQC 1 requirement, applying case facts, and concluding what the firm should do.

Understand Acceptance, Human Resources and Engagement Performance

SQC 1 asks every audit firm to run a quality control system. Three elements of that system work together: acceptance and continuance of client relationships and specific engagements, human resources, and engagement performance. Think of them as the entry gate, the people, and the delivery.

Acceptance comes first. The firm should take on or keep a client only if it is competent to do the work, has the time and resources, can comply with ethical requirements, and has considered the integrity of the client. If the firm finds a problem later, it must consider what action is appropriate, including consulting and, where needed, withdrawing. Withdrawal also raises professional and legal considerations, so the firm should take advice where required.

Human resources covers recruitment, performance evaluation, capabilities, competence, commitment to ethics, career development, promotion, compensation and the estimation of personnel needs. It also covers assignment of engagement teams. The firm assigns an engagement partner and makes the identity and role of that partner known to key members of client management and those charged with governance. Team members should have the competence, capabilities and time to do the work.

Engagement performance is about getting consistent quality. The firm sets policies on consistency of work, supervision, and review. It also sets policies on consultation and on differences of opinion. Consultation should happen on difficult or contentious matters, with enough resources and with the results documented and agreed. If opinions differ within the team or with the EQC reviewer, the matter must be resolved before the report is issued.

In a case question, the examiner hides one weak point in the facts. It may be a doubtful client, a junior team on a complex job, or a partner who ignores a consultation. Your job is to spot it and link it to the right element.

Key rules to remember

Acceptance and continuance: core conditions: Accept or continue only if the firm (1) is competent, has the capabilities, time and resources; (2) can comply with ethical requirements; (3) has considered the client's integrity and found no information that leads to the conclusion that the client lacks integrity; Learn these as three tests: competence, ethics, integrity. Integrity is judged on available information, not proof of dishonesty.
If information arises after acceptance: Information that would have led to refusal had it been known earlier → firm considers action, including consultation with professional or legal advisers and possible withdrawal; Withdrawal is considered, not automatic. The firm decides based on the facts and the legal position.
Human resources: policies cover: Recruitment, performance evaluation, capabilities, competence, commitment to ethical principles, career development, promotion, compensation, estimation of personnel needs; Use this list to structure a short answer on the human resources element.
Assignment of engagement partner: Firm assigns responsibility for each engagement to an engagement partner; identity and role are communicated to key management members and those charged with governance; the partner must have appropriate competence, capabilities and authority; The role is communicated. The partner's accountability for quality is central.
Engagement team assignment: Assign appropriate staff, with the competence and capabilities, and sufficient time, to perform engagements in accordance with professional standards and legal requirements; Link the complexity of the job to the experience level of the team.
Engagement performance: policy areas: Consistency of quality → supervision → review → consultation → differences of opinion; Use this sequence as the skeleton of any answer on this element.
Differences of opinion: Policies for dealing with and resolving differences of opinion within the engagement team, with those consulted, and between the engagement partner and the EQC reviewer; conclusions documented and implemented; report not dated until resolved; The report must not be dated until the matter is resolved.

How to solve Acceptance, Human Resources and Engagement Performance questions

Use this method for any case or descriptive question on acceptance, human resources or engagement performance.

1Read the facts and underline the red flags: client conduct, team experience, time pressure, missing review or ignored advice.
2Name the SQC 1 element involved. A fact may touch more than one element, so say so.
3State the SQC 1 requirement in one or two plain sentences, without quoting.
4Apply the requirement to the facts. Name the specific lapse, such as no integrity check or junior-only team.
5Say what the firm should do: decline, consult, reassign, add review, resolve the difference, or consider withdrawal.
6Add the documentation point where it fits, such as recording consultation conclusions.
7Conclude in one line that answers the exact question asked.

Quickest way: Element-Test-Action shortcut

When to use it: Use when you have under five minutes for a case-based MCQ or a short written part.

Spot the element: gate (acceptance), people (human resources) or delivery (engagement performance).
Apply the matching test. For acceptance, check competence, ethics and integrity. For people, check competence and time. For delivery, check supervision, review, consultation and differences.
Pick the action that fits: decline, reassign, consult, escalate, or document.
In MCQs, reject options that skip the process, such as continuing without review or ignoring a difference of opinion.

Common mistakes in Acceptance, Human Resources and Engagement Performance

Treating integrity of the client as proved only by past wrongdoing.
Students look for a clear fraud fact instead of the wider information the firm has gathered.
Fix: Say the firm considers the client's integrity using the information available, including owners, management and business practices, and acts if it concludes integrity is lacking.
Writing that the firm must automatically withdraw when new adverse information appears.
The word withdrawal sticks in memory and the nuance is lost.
Fix: Write that the firm considers appropriate action, including consulting and possibly withdrawing, and takes advice on professional and legal responsibilities.
Confusing the engagement partner assignment with EQC reviewer appointment.
Both are partner-level roles that appear near each other in the standard.
Fix: The engagement partner is responsible for the engagement. The EQC reviewer is an independent person who evaluates significant judgments before the report is issued.
Ignoring time and resources when judging team assignment.
Students focus on qualifications and forget capacity.
Fix: Always test both competence and available time. A skilled team with no time still fails the requirement.
Dating the report while a difference of opinion is still open.
Students think only about deadlines in a case.
Fix: State that the report is not dated until the difference is resolved and the conclusions are documented.
Listing the elements without applying them to the facts.
Students memorise the list and write it out in full.
Fix: Choose only the relevant element, state the requirement, and link it to named facts in the case.

Worked examples

Example 1

M/s Rao & Co. is asked to audit a new listed manufacturing client. The firm has never audited this industry and has two audit assistants free for only one week. Preliminary enquiries show the promoter was earlier removed from another company's board for alleged diversion of funds. The partner wants to accept to win a large fee. Advise the firm under SQC 1.

Show the solution

Element: acceptance and continuance of client relationships and specific engagements.
Requirement: the firm accepts only if it is competent and has the capabilities, time and resources, can comply with ethical requirements, and has considered the client's integrity.
Competence and resources: the firm has no industry experience and only limited staff time for a listed client. The first test is not met.
Integrity: the promoter's removal for alleged diversion of funds is adverse information. The firm must consider it seriously before acceptance and make further enquiries.
Fee motive: a large fee does not override the conditions. Accepting for fees alone breaches the quality policy.
Action: the firm should decline unless it can obtain industry expertise and enough resources, and unless further enquiries remove the integrity concern. The conclusions should be documented.

Answer: Rao & Co. should not accept at present. It fails the competence and resources test and has an unresolved integrity concern. It may reconsider only if it secures the expertise and time and its enquiries resolve the integrity issue, with the decision documented.

Example 2

During the audit of a mid-sized company, the engagement partner and the senior manager disagree on whether a large contingent liability needs adjustment. The partner wants to sign the report tomorrow because of the filing deadline. The firm's policy requires consultation on contentious matters. No consultation has taken place. What should the firm do under SQC 1?

Show the solution

Element: engagement performance, specifically consultation and differences of opinion.
Requirement: the firm's policies require consultation on difficult or contentious matters, with sufficient resources, and documentation of the results.
Application: the contingent liability is contentious and the policy requires consultation. The partner's plan skips it.
Differences: the disagreement within the team must be resolved under the firm's policy. Conclusions should be documented and implemented.
Report: the report must not be dated until the matter is resolved. The deadline does not change this.
Action: consult with the competent person or body, record the conclusions, resolve the difference, and then issue the report. If more time is needed, request the extension or discuss it with the client.

Answer: The firm should consult on the contingent liability and resolve the difference of opinion first, document the conclusions, and only then date the report. The filing deadline does not justify skipping these steps.

Exam tips

In case MCQs, find the single fact that breaks a requirement, then choose the option that corrects that exact lapse.
In written answers, use the sequence requirement, application, action. Marks go to application of facts.
Do not quote SQC 1 paragraph numbers unless you are sure of them. Clear plain wording earns the marks.
Remember the three acceptance tests: competence, ethics and integrity. Add time and resources under competence.
Link this topic with leadership and EQC review when the case involves a listed client or a significant judgment.

Practice questions from Quality Control

Acceptance, Human Resources and Engagement Performance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Acceptance, Human Resources and Engagement Performance: frequently asked questions

What does SQC 1 say about accepting a new client?

The firm should accept or continue a relationship only if it is competent, has the capabilities, time and resources, can comply with ethical requirements, and has considered the client's integrity. It should gather suitable information before deciding. The decision and key conclusions should be documented.

What should an audit firm do if it finds integrity concerns after acceptance?

It should consider the appropriate action, which may include consulting professional or legal advisers and possibly withdrawing from the engagement or the client relationship. Withdrawal is not automatic. The firm decides based on the facts and its professional and legal responsibilities.

How are engagement teams assigned under SQC 1?

The firm assigns an engagement partner and appropriate staff who have the competence, capabilities and time to do the work. The partner's identity and role are communicated to key members of client management and those charged with governance. Team choice should match the engagement's nature and complexity.

What happens if there is a difference of opinion during an audit?

The firm's policies require the difference to be resolved, whether it is within the team, with those consulted, or between the engagement partner and the EQC reviewer. Conclusions are documented and implemented. The report is not dated until the matter is resolved.