Skip to content

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

Rao & Co. is auditing a listed entity. The firm's quality control manual says an engagement quality control review is performed only when the engagement partner considers the client risky. Which statement best reflects the requirement of SQC 1?

The manual is deficient. SQC 1 requires firm policies to mandate an engagement quality control review for all audits of financial statements of listed entities. Partner discretion based on perceived risk can apply only to other engagements, where the firm must set criteria for deciding on a review.

  1. AThe manual is deficient, because a review must be required for all audits of financial statements of listed entitiesCorrect
  2. BThe manual is acceptable, because the firm may decide on a case-by-case basis even for listed entities
  3. CThe manual is acceptable if the firm has fewer than five partners
  4. DThe manual is deficient only if the listed entity has a modified opinion

Explanation

SQC 1 requires the firm's policies to require an engagement quality control review for all audits of financial statements of listed entities. Discretion based on the partner's view of risk is permitted only for other engagements, where the firm sets criteria to decide whether a review is needed. So a manual that leaves listed entities to partner discretion is non-compliant.

Did you get it right without looking?

One question tells you little. A timed set on Quality Control shows your real accuracy, how long you take and where you lose marks.

Practise Quality ControlFree diagnostic mock

More Quality Control questions