Page 11 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

(CNO-SQC.120) Addressing Familiarity Threat in Assurance Engagements
1. Familiarity Threat: SQC 1 emphasizes the familiarity threat, which arises when the same senior personnel
are used for assurance engagements over an extended period. This could impair the quality of the engagement.
2. Safeguard Criteria: The firm should establish criteria for determining the need for safeguards to address the
familiarity threat. These criteria should consider the nature of the engagement, including its public interest,
and the length of service of the senior personnel. Examples of safeguards include rotating the senior personnel
or requiring an engagement quality control review.
2A. Audit Rotation: The familiarity threat is particularly relevant in financial statement audits of listed
entities. For these audits, the engagement partner should be rotated after a pre-defined period, typically not
more than seven years. No rotation if auditor is sole practitioner.
2B. Mandatory Peer Review: To ensure quality control and the issuance of appropriate reports, firms must
undergo mandatory peer review.
2C. EQCR: Engagement Quality Control Review

(CNO-SQC.140) Acceptance and Continuance of Client Relationships and Specific Engagements

1. Integrity: Before accepting an engagement, a firm must gather vital information about the client, including
the integrity of the client, promoters, and key managerial personnel.
2A. Competence: The firm needs to assess the client's competence, including their capabilities, time, and
resources to perform the engagement.
2B. Ethics: The firm should evaluate the compliance with ethical requirements.
3A. Decision-Making: The firm should obtain all necessary information before accepting a new client,
deciding to continue an existing engagement, or accepting a new engagement with an existing client. If any
issues are identified, the firm must decide whether to accept or continue the client relationship or specific
engagement.
3B. Documentation: The firm should document how these issues were resolved, ensuring transparency and
accountability in the acceptance and continuance of client relationships and specific engagements.

(CNO-SQC.160) Assessing Client Integrity: Key Considerations for Firms

(Shortcut: SAR ki Integrity)
Scope & Legality: Detection of any limitations in the scope of work or indications of involvement in illegal
activities.
Accounting Attitude & Fee Concern: Assessment of the client's approach towards accounting standards,
internal controls, and their focus on minimizing the firm's fees.
Appointment Reasoning: Analysis of the reasons for the firm's appointment and the non-reappointment of
the previous firm.
Identity & Operations: Evaluation of the client's principal owners, key management, related parties,
governance, and the nature of their operations and business practices.
Relationship Evolution: Recognition that the firm's understanding of the client's integrity develops over time
through the ongoing relationship.

(CNO-SQC.180) Key Considerations Whether firm has Capabilities, Competence, time & Resources

(Shortcut: Reach DECK then decide)
Regulations: Firm personnel should have experience with the applicable regulatory and reporting
requirements related to the engagement. They should be familiar with the relevant laws, regulations, and
standards that govern the industry or subject matter.

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