Page 9 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

01 QUALITY CONTROL

Case Study – CA Jagriti

Workload: Jagriti, an employee at a Chartered Accountants firm, is burdened with a heavy workload due to
the firm's rapid growth and addition of new clients without proper background checks.
Inexperience: The firm is accepting audits from companies with complex operations, despite lacking prior
experience in such audits and not hiring experienced staff to handle this work.
Misrepresentation: Jagriti discovered discrepancies in the audit reports, such as a report referring to "profit"
when the audited financial statements showed a "loss", and a report mentioning a "cash flow statement" for
a small company that didn't require one according to the Companies Act, 2013.
Quality Control: The firm lacks a proper quality control system, leading to these lapses and potential
regulatory troubles.
Resolution: Jagriti has decided to address these issues with the senior partner, emphasizing the need for an
effective quality control system to ensure compliance with professional standards and legal regulations.

(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).

SQC 1

QUALITY CONTROL FOR FIRMS THAT PERFORM AUDITS AND REVIEWS OF HISTORICAL FINANCIAL
INFORMATION, AND OTHER ASSURANCE AND RELATED SERVICES ENGAGEMENTS

(CNO-SQC.040) – Introduction

Requirement: SQC 1 mandates that a firm should establish a quality control system to ensure compliance
with professional standards, regulatory and legal requirements, and to ensure that reports issued are
appropriate in the circumstances.
Applicability: This quality control standard applies to all firms, regardless of their constitution.

(CNO-SQC.060) Elements of System of Quality Control

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