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

Kapoor & Co. is auditing Veda Textiles Ltd, a listed entity. The firm's manual sets criteria for deciding which non-listed audits need an engagement quality control review. A partner argues that because Veda Textiles is listed, the firm may apply those criteria to decide whether a review is needed for it. Which conclusion is correct under SQC 1?

A review is mandatory for all audits of listed entities. The firm's own criteria are used only to decide whether other audits, reviews of historical financial information, and other assurance and related services engagements need a review. Listed status therefore removes discretion.

  1. AThe criteria decide it, as the review is needed only if the engagement is high risk
  2. BThe review is needed only if the audit fees exceed a limit set by the firm
  3. CA review is required for all audits of listed entities, and the criteria apply to other engagementsCorrect
  4. DThe review is needed only if the previous auditor had qualified the report

Explanation

SQC 1 requires the firm's policies to mandate an engagement quality control review for all audits of financial statements of listed entities. The firm's own criteria apply only to other audits, reviews and assurance or related services engagements. Applying the criteria to a listed entity wrongly makes the review discretionary.

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