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CA Final · Advanced Auditing, Assurance and Professional Ethics · Quality Control

Desai & Co., a CA firm, has policies that require an engagement quality control review for all audits of listed entities. It now has two engagements: (1) the audit of Rajan Foods Ltd., a listed company, and (2) the audit of Lotus Traders Pvt. Ltd., an unlisted company whose lenders are highly sensitive to the audit opinion. The firm's policies set no criteria for non-listed engagements. Which conclusion is correct under SQC 1?

The firm's policies are deficient. SQC 1 requires review for all listed-entity audits, but it also requires criteria for evaluating every other engagement to decide whether review is needed, and review for those meeting the criteria. Review is not mandated for every audit, yet the absence of criteria is a gap.

  1. AOnly engagement (1) needs review, and the firm has no further obligation for engagement (2)
  2. BBoth engagements need review because SQC 1 requires it for every audit
  3. CNeither needs review if the engagement partner is a senior member
  4. DThe firm's policies are deficient because they must also set criteria against which other engagements are evaluated to decide whether review is needed, and review must be performed for engagements meeting those criteriaCorrect

Explanation

SQC 1 requires review for all audits of listed entities. It also requires the firm to set criteria against which all other audits, reviews and assurance or related services engagements are evaluated, and to require review for those meeting the criteria. Option A is wrong because it leaves non-listed engagements with no criteria. Option B is wrong because SQC 1 does not mandate review for every audit.

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