Page 9 - CA Final PARAM Digital Book.

It reflects poorly regarding functioning at top of the firm as regards to quality control. SQC 1 requires that
firm should establish a system of quality control designed to provide it with reasonable assurance that firm
and its personnel comply with professional standards and legal and regulatory requirements. It further
requires that firm’s business strategy is subject to overriding requirement of firm to achieve quality in all
engagements. However, in the given situation, commercial considerations seem to be overriding factor.

The managing partner of firm is close associate and family friend of promoter. The matter should have been
brought to knowledge of firm in accordance with requirements of SQC 1 as it involves issue of independence
of managing partner of the firm with respect to proposed audit engagement. Further, matters of inquiries
from regulators and resignation of previous auditor raise question about integrity of the proposed client.
SQC 1 further requires firm to consider before acceptance of an engagement that client does not lack
integrity. All these factors need to be taken into consideration before accepting engagement.

Overall, such a situation reflects lack of proper establishment of quality control framework at top of the firm.
Following considerations should be taken into account while upholding quality of firm: -

(i) The firm assigns its management responsibilities so that commercial considerations do not override
quality of work performed.
(ii) The firm’s policies and procedures in relation to its personnel are designed to demonstrate its
overriding commitment to quality.
(iii) The firm devotes sufficient resources for development and documentation of its quality control
policies and procedures.
(iv) A firm before accepting an engagement should acquire vital information about the client. Such an
information should help firm to decide about integrity of Client, promoters and key managerial
personnel, competence (including capabilities, time and resources) to perform engagement and
compliance with ethical requirements.

QNO Ethical Requirements (Principles) New Course – (SM23)
127.150 TITANIUM CNO-- SQC.100
MNP & Co., a firm of auditors, is appointed by a bank to conduct stock audit of a borrower. It deputes one
of its paid Chartered accountant employees, Sudhanshu, to conduct above said stock audit. He leverages
it as an opportunity to prevail upon the client to get the accounts audited from their firm. He also assures
the client of a clean stock audit report without adverse comments as a quid pro quo. Is approach of
Sudhanshu proper? How does it reflect upon quality control system of firm?
1. SQC 1: Reference to SQC 1, its full name & its requirement have Quality Control System.
2. Concept: CNO-SQC.100 Ethical Requirements
1. Policies & Procedures for Ethical Compliance: The firm should establish policies and procedures to
ensure compliance with the Code of Ethics issued by ICAI.
2. Fundamental Principles: The Code outlines key principles of professional ethics including integrity,
objectivity, professional competence, due care, confidentiality and professional behaviour. These
principles should be emphasized through leadership actions, awareness and training, monitoring, and a
process for dealing with non-compliance.
3A. Independence: The firm should maintain independence in all assurance engagements as per the
Code. Policies and procedures should be in place to communicate independence requirements, identify
and evaluate threats to independence, and take appropriate action.
3B. Mechanism for Information Sharing: A mechanism should exist for engagement partners to provide
relevant information about client engagements and for personnel to notify the firm of threats to
independence.
3C. Annual Confirmation: The firm should obtain annual written confirmation of compliance with its
independence policies and procedures from all relevant personnel.

3. Case Discussion: Discuss given case.
4. Conclusion: No proper Policies & Procedures to maintain Ethics & independence documented &
communicated .CA firms employees are not aware of ethics & independence. There is breach of Code
of Ethics We should advice to Consider & improve above issues. Not to make such unethical offers.

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