Question

Statement on Quality Control Standards No. 8 describes the purpose and system of quality control for auditing firms. Identify and briefly discuss the six (6) elements of a system of quality control outlined in SQCS 8.

Answer 1

The firm must establish and maintain a system of quality control. The system of quality control should include policies and procedures addressing each of the following elements:

a.Leadership responsibilities for quality within the firm (the tone at the top):- The firm should establish policies and procedures designed to promote an internal culture based on the recognition that quality is essential in performing engagements. The firm should establish policies and procedures designed to provide it with reasonable assurance that any person or persons assigned operational responsibility for the firm's system of quality control by the firm's leadership has sufficient and appropriate experience and ability, and the necessary authority, to assume that responsibility

b. Relevant ethical requirements:- The firm should maintain independence when required by relevant ethical requirements, communicate its independence requirements to its personnel, identify and evaluate circumstances and relationships that create threats to independence and to take appropriate action to eliminate those, personnel to promptly notify the firm of independence breaches of which they become aware. At least annually, the firm should obtain written confirmation of compliance with its policies and procedures on independence from all firm personnel required to be independent by the requirements set forth in the "Independence Rule" (ET sec. 1.200.001) and related interpretations of the AICPA Code of Professional Conduct and the rules of state boards of accountancy and applicable regulatory agencies.

c. Acceptance and continuance of client relationships and specific engagements:- The firm should establish policies and procedures for the acceptance and continuance of client relationships and specific engagements, designed to provide the firm with reasonable assurance that it will undertake or continue relationships and engagements only when the firm is competent to perform the engagement and has the capabilities, including time and resources, to do so; can comply with legal and relevant ethical requirements; and has considered the integrity of the client and does not have information that would lead it to conclude that the client lacks integrity.

d. Human resources :- The firm should establish policies and procedures designed to provide it with reasonable assurance that it has sufficient personnel with the competence, capabilities, and commitment to ethical principles necessary to perform engagements in accordance with professional standards and applicable legal and regulatory requirements and enable the firm to issue reports that are appropriate in the circumstances. That personnel selected for advancement have the qualifications necessary for fulfilment of the responsibilities that they will be called on to assume. The firm should assign Engagement team.

e. Engagement performance:-  The firm should assurance that appropriate consultation takes place on difficult or contentious issues. Determine whether an engagement quality control review should be performed and their criteria. Resolve differences of opinion within the engagement team; with those consulted, and report the same. Complete the assembly of final engagement files on a timely basis after the engagement reports have been released.

f. Monitoring:- This process should include an ongoing consideration and evaluation of the firm's system of quality control, including inspection or a periodic review of engagement documentation, reports, and clients' financial statements for a selection of completed engagements. Evaluating, Communicating, and Remedying Identified Deficiencies.