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

Kapoor & Co. is drafting its quality control manual. The managing partner says the firm will perform an EQCR for listed-company audits and will decide case by case, without any written criteria, whether to perform it for other engagements. Which conclusion is correct under SQC 1?

The approach is deficient. SQC 1 requires an EQCR for listed-entity audits and also requires the firm to set out criteria for evaluating all other engagements to decide whether an EQCR is needed, and to apply it to engagements meeting those criteria. Case-by-case decisions without criteria do not comply.

  1. AThe approach is acceptable because only listed-entity audits need an EQCR and no criteria are needed for others
  2. BThe approach is deficient because the firm must set out criteria against which all other engagements are evaluated to determine whether an EQCR is neededCorrect
  3. CThe approach is acceptable if the managing partner records reasons after each engagement
  4. DThe approach is deficient because EQCR must be performed on every engagement the firm undertakes

Explanation

SQC 1 requires an EQCR for all audits of listed entities. It also requires the firm to set out criteria against which all other audits, reviews and assurance or related services engagements are evaluated, and to require an EQCR for those meeting the criteria. Option D is wrong because EQCR is not required for every engagement, only listed audits and those meeting the criteria.

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