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

Mehta & Associates, a CA firm, is auditing the financial statements of Sundaram Textiles Ltd, a listed company. The engagement partner proposes to sign and issue the audit report on 10 May and to complete the engagement quality control review the following week, since the review is only an internal formality. What is the correct position under SQC 1?

The report must not be issued until the engagement quality control review is complete. SQC 1 requires the firm's policies to mandate completion of the review before the report is issued, and listed entity audits always require such a review, whatever the opinion.

  1. AThe report can be issued first, because the review is an internal matter of the firm
  2. BThe report may be issued if the reviewer gives verbal clearance after issue
  3. CThe review is needed only if the audit report is modified
  4. DThe report should not be issued until the engagement quality control review is completeCorrect

Explanation

SQC 1 requires the firm's policies to require completion of the engagement quality control review before the report is issued. It also requires such a review for all audits of financial statements of listed entities. Issuing first and reviewing later defeats the purpose of an objective evaluation of the significant judgments made. The option tying the review to a modified report is wrong because listed entity audits need it regardless of the opinion.

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