Page 10 - CA Final PARAM Digital Book.

QNO Consultation with EQCR Reviewer New Course – (SM23)
127.450 TITANIUM CNO-- SQC.340

PQR & Associates are statutory auditors of a listed company. There arose an issue during the course of
audit relating to related party transactions. The engagement partner wants to consult engagement quality
control reviewer on this matter during the course of audit process itself. Can he consult with engagement
quality control reviewer? Discuss.
1. SQC 1: Reference to SQC 1, its full name & its requirement have Quality Control System.
2. Concept: CNO SQC.340 Who can become Engagement Quality Control Reviewer?
Not a Team Member & No Participation:
The engagement quality control reviewer should be a qualified external individual, such as a partner or
employee who is a member of ICAI, or someone from another firm with a similar background.

The reviewer must maintain objectivity and should not participate in the engagement or make decisions
for the engagement team.
Consultation: The engagement partner can consult the reviewer during the engagement, provided it does
not compromise the reviewer's objectivity and eligibility.
Substitution: If the consultations become significant and objectivity cannot be maintained, another
individual within the firm or a qualified external person should be appointed as either the engagement
quality control reviewer or the person to be consulted on the engagement.
The firm's policies should include provisions for replacing the engagement quality control reviewer if their
ability to perform an objective review is compromised.

3. Case Discussion: Discuss given case.
4. Conclusion: It is necessary to maintain objectivity of reviewer. Participation in engagement or making
decisions for the engagement team should be avoided. Engagement partner may consult engagement
quality control reviewer during the engagement without compromising objectivity.

Examples of the matters to be considered with regard to the Old Course – (M19R, N19E)
QNO
127.500 integrity of a client by the firm as per the requirements of SQC 1
TITANIUM CNO— SQC.160
CA M is introduced to a prospective client in a social function. He assures to visit office of CA M very soon
in relation to professional work. During discussions over a cup of coffee next week, it transpires that there
was a search by Enforcement Directorate in his premises about a month back resulting in recovery of huge
sum of cash. The income tax department had also searched his premises in relation to bogus capital gains
on penny stocks. Lamenting poor quality of services provided by his present auditor, he offers
appointment as tax auditor of his five family-owned firms to CA M in lieu of handsome fees. What are the
factors to be evaluated by CA M if he wants to take up the engagement?
Answer Part I -- Relevant Standards & Laws
▪ SQC 1
Part II -- Requirements of Relevant Standards & Laws
➢ As per SQC 1, the firm should obtain such information as it considers necessary in the circumstances
before accepting an engagement with a new client, when deciding whether to continue an existing
engagement, and when considering acceptance of a new engagement with an existing client. Where
issues have been identified, and the firm decides to accept or continue the client relationship or a
specific engagement, it should document how the issues were resolved.

With regard to the integrity of a client, matters that the firm considers include, for example:
• The identity and business reputation of the client’s principal owners, key management,
related parties and those charged with its governance
• The nature of the client’s operations, including its business practices.
• Information concerning the attitude of the client’s principal owners, key management and
those charged with its governance towards such matters as aggressive interpretation of
accounting standards and the internal control environment.
• Whether the client is aggressively concerned with maintaining the firm’s fees as low as
possible

www.auditguru.in PARAM 1.3 | P a g e