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

Mehta & Iyer, a CA firm, is auditing the financial statements of Sundaram Textiles Ltd., a company whose shares are listed on the BSE. The engagement partner proposes to issue the audit report immediately, and to have the engagement quality control review done the following week since the review is only a formality. Under SQC 1, what is the correct conclusion?

The engagement quality control review must be completed before the audit report is issued. SQC 1 requires such a review for all audits of listed entities, so Mehta & Iyer cannot sign the report first and review it later, and partner experience or an unmodified report does not remove the requirement.

  1. AThe report may be issued first, provided the review is completed within a reasonable period afterwards
  2. BThe engagement quality control review must be completed before the report is issued, and it is required for audits of listed entitiesCorrect
  3. CThe review is needed only if the audit report is modified
  4. DThe review is optional for a listed entity if the engagement partner has more than ten years' experience

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 policies must also require the review to be completed before the report is issued. Issuing first and reviewing later therefore breaches the standard, so the first option is wrong.

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