Page 8 - CA Final PARAM Digital Book.

Part 1- SQC 1

QNO Applicability of SQC 1 New Course – (SM23)
127.050 TITANIUM CNO-- SQC.020
Beta Private Limited has approached a firm of Chartered accountants to assist them in preparation of
financial statements and issue a compilation report in this regard. Does CA firm have responsibility in
relation to quality control for above said engagement? Discuss with reasons.
Answer 1. SQC 1: Reference to SQC 1, its full name & its requirement have Quality Control System.
2. Concept: CNO SQC.020 Audit Quality

Importance: High audit quality is crucial for the auditing profession as it develops trust among users of
financial information, including industry, government, and the public who rely on auditors' assurance.
Compliance & Reporting: The firm, along with its personnel, must adhere to professional standards,
regulatory and legal requirements, and ensure reports issued by the firm or engagement partners are
contextually appropriate.
Standards: SQC 1 and SA-220 are standards that address the establishment of quality control systems and
auditors' responsibilities. SQC 1 applies to all engagements and focuses on quality at the firm level, while
SA- 220 deals with audit quality at the individual audit engagement level.
Additional Documents: Other Standards on Auditing, the Code of Ethics issued by ICAI, and certain
provisions of the Companies Act, 2013, also facilitate the quality control process.
Review Mechanisms: Quality control is reviewed through mechanisms like the Peer Review Board, Quality
Review Board, and the National Financial Reporting Authority (NFRA).

3. Case Discussion: Discuss given case.
4. Conclusion: Compilation Engagement Falls under “related services”. SQC 1 is applicable to all
engagements, including those of “related services”. So, Firm has responsibility to develop & implement
Quality Control system for compilation Engagement.

QNO Leadership Responsibilities for Quality New Course – (SM23)
127.100 TITANIUM CNO-- SQC.080
ABC & Associates, Chartered Accountants has a policy to accept the clients wherein the risk evaluation is
conducted with respect to the Company and the promoter. XYZ Limited approached ABC & Associates.
Promoter of XYZ Limited is a close associate and family friend of Mr. A, Managing Partner of ABC &
Associates. XYZ Limited is in news in the previous year for certain inquiries from the regulatory authorities
in relation to certain matters. The existing auditor of XYZ Limited has resigned and has created a casual
vacancy. XYZ Limited is ready to offer 25% more than the existing fees and has approached ABC &
Associates for appointment as Auditor. Mr. A has strong recommendation to the Firm to accept the audit.

What is your understanding of the functioning of the tone at the top of the Firm ABC & Associates,
Chartered Accountants? What are the considerations one should exercise to uphold Firm?
Answer The given situation indicates that proposed client is a new one whose promoter is close associate and family
friend of managing partner of M/s ABC & Associates. However, previous auditor of proposed client has

resigned and company is offering hike in audit fees in comparison to audit fees paid to previous auditor.
Besides, there are also regulatory inquires against the company. In spite of all this, managing partner of firm
Mr. A has recommended for acceptance of offered audit of the company.

www.auditguru.in PARAM 1.1 | P a g e