SA 220*

QUALITY CONTROL FOR AN AUDIT OF

FINANCIAL STATEMENTS
(Effective for all audits relating to
accounting periods beginning on or after April 1, 2010)

Contents
Paragraph(s)
Introduction
Scope of this SA .................................................................................... 1-4
Effective Date ........................................................................................... 5
Objective ................................................................................................. 6
Definitions ............................................................................................... 7
Requirements
Leadership Responsibilities for Quality on Audits .................................... 8
Relevant Ethical Requirements ............................................................ 9-11
Acceptance and Continuance of Client Relationships
and Audit Engagements ..................................................................... 12-13
Assignment of Engagement Teams ....................................................... .14
Engagement Performance ................................................................ 15-22
Monitoring .............................................................................................. 23
Documentation .................................................................................. 24-25
Application and Other Explanatory Material
System of Quality Control and Role of Engagement Teams ........... A1-A2
Leadership Responsibilities for Quality on Audits .................................. A3
Relevant Ethical Requirements ........................................................ A4-A7
Acceptance and Continuance of Client Relationships
and Audit Engagements ................................................................... A8-A9
Assignment of Engagement Teams ............................................. A10-A12
Engagement Performance ........................................................... A13-A31

* Published in March, 2010 issue of the Journal.

Handbook of Auditing Pronouncements-I.A

Monitoring .................................................................................... A32-A34

Documentation ..................................................................................... A35
Modifications vis-à-vis ISA 220, “Quality Control for an Audit of Financial
Statements”

Standard on Auditing (SA) 220, “Quality Control for an Audit of Financial

Statements” should be read in the context of the “Preface to the Standards on
Quality Control, Auditing, Review, Other Assurance and Related Services1”,
which sets out the authority of SAs and SA 200, “Overall Objectives of the
Independent Auditor and the Conduct of an Audit in Accordance with Standards
on Auditing”2.

1 Published in the July, 2007 issue of the Journal.

2 Published in the March, 2010 issue of the Journal.

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Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the specific responsibilities of the
auditor regarding quality control procedures for an audit of financial statements. It
also addresses, where applicable, the responsibilities of the engagement quality
control reviewer. This SA is to be read in conjunction with relevant ethical
requirements.
System of Quality Control and Role of Engagement Teams
2. Quality control systems, policies and procedures are the responsibility of
the audit firm. Under SQC 1, the firm has an obligation to establish and maintain
a system of quality control to provide it with reasonable assurance that:
(a) The firm and its personnel comply with professional standards and
regulatory and legal requirements; and
(b) The reports issued by the firm or engagement partners are appropriate in
the circumstances3.
This SA is premised on the basis that the firm is subject to SQC 1. (Ref: Para.
A1)
3. Within the context of the firm’s system of quality control, engagement teams
have a responsibility to implement quality control procedures that are applicable
to the audit engagement and provide the firm with relevant information to enable
the functioning of that part of the firm’s system of quality control relating to
independence.
4. Engagement teams are entitled to rely on the firm’s system of quality
control, unless information provided by the firm or other parties suggests
otherwise. (Ref: Para. A2)
Effective Date
5. This SA is effective for audits of financial statements for periods beginning
on or after April 1, 2010.
Objective
6. The objective of the auditor is to implement quality control procedures at
the engagement level that provide the auditor with reasonable assurance that:

3 Standard on Quality Control (SQC) 1, “Quality Control for Firms that Perform Audits and Reviews
of Historical Financial Information, and Other Assurance and Related Services Engagements”,
paragraph 10.

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(a) The audit complies with professional standards and regulatory and legal
requirements; and
(b) The auditor’s report issued is appropriate in the circumstances.
Definitions
7. For purposes of the SAs, the following terms have the meanings attributed
below:
(a) Engagement partner – the partner or other person in the firm who is a
member of the Institute of Chartered Accountants of India and is in full time
practice and is responsible for the engagement and its performance, and
for the report that is issued on behalf of the firm, and who, where required,
has the appropriate authority from a professional, legal or regulatory body.
(b) Engagement quality control review – a process designed to provide an
objective evaluation, before the report is issued, of the significant
judgments the engagement team made and the conclusions they reached
in formulating the report.
(c) Engagement quality control reviewer – a partner, other person4 in the firm,
suitably qualified external person, or a team made up of such individuals,
with sufficient and appropriate experience and authority to objectively
evaluate, before the report is issued, the significant judgments the
engagement team made and the conclusions they reached in formulating
the report. However, in case the review is done by a team of individuals,
such team should be headed by a member of the Institute.
(d) Engagement team – all personnel performing an engagement, including
any experts contracted by the firm in connection with that engagement. The
term “engagement team” excludes individuals within the client’s internal
audit function who provide direct assistance on an audit engagement when
the external auditor complies with the requirements of SA 610(Revised)5.
(e) Firm – a sole practitioner/proprietor, partnership, or any such entity of
professional accountants, as may be permitted by law.
(f) Inspection – in relation to completed engagements, procedures designed to
provide evidence of compliance by engagement teams with the firm’s
quality control policies and procedures.

4 Such other person should be a member of the Institute of Chartered Accountants of India.
5 SA 610(Revised), “Using the Work of Internal Auditors”, establishes limits on the use of direct
assistance. It also acknowledges that the external auditor may be prohibited by law or regulation
from obtaining direct assistance from internal auditors. Therefore, the use of direct assistance is
restricted to situations where it is permitted.

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(g) Listed entity – an entity whose shares, stock or debt are quoted or listed on
a recognized stock exchange, or are traded under the regulations of a
recognized stock exchange or other equivalent body.
(h) Monitoring – a process comprising an ongoing consideration and evaluation
of the firm’s system of quality control, including a periodic inspection of a
selection of completed engagements, designed to enable the firm to obtain
reasonable assurance that its system of quality control is operating
effectively.
(i) Network firm – A firm or entity that belongs to a network.
(j) Network – A larger structure:
(i) That is aimed at cooperation, and
(ii) That is clearly aimed at profit or cost-sharing or shares common
ownership, control or management, common quality control
policies and procedures, common business strategy, the use of a
common brand name, or a significant part of professional
resources.
(k) Partner – any individual with authority to bind the firm with respect to the
performance of a professional services engagement.
(l) Personnel – partners and staff.
(m) Professional Standards – Engagement Standards, as defined in the
“Preface to the Standards on Quality Control, Auditing, Review, Other
Assurance and Related Services”, issued by the Institute of Chartered
Accountants of India and relevant ethical requirements as contained in the
Code of Ethics issued by the Institute.
(n) Relevant ethical requirements – Ethical requirements to which the
engagement team and engagement quality control reviewer are subject,
which ordinarily comprise the Code of Ethics of the Institute of Chartered
Accountants of India related to an audit of financial statements.
(o) Staff – professionals, other than partners, including any experts which the
firm employs.
(p) Suitably qualified external person – an individual outside the firm with the
capabilities and competence to act as an engagement partner, for example
a partner or an employee6 (with appropriate experience) of another firm.
Requirements

6 Such employee should be a member of the Institute of Chartered Accountants of India.

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Leadership Responsibilities for Quality on Audits

8. The engagement partner shall take responsibility for the overall quality on
each audit engagement to which that partner is assigned. (Ref: Para. A3)
Relevant Ethical Requirements
9. Throughout the audit engagement, the engagement partner shall remain
alert, through observation and making inquiries as necessary, for evidence of
non-compliance with relevant ethical requirements by members of the
engagement team. (Ref: Para. A4-A5)
10. If matters come to the engagement partner’s attention through the firm’s
system of quality control or otherwise that indicate that members of the
engagement team have not complied with relevant ethical requirements, the
engagement partner, in consultation with others in the firm, shall determine the
appropriate action. (Ref: Para. A5)
Independence
11. The engagement partner shall form a conclusion on compliance with
independence requirements that apply to the audit engagement. In doing so, the
engagement partner shall:
(a) Obtain relevant information from the firm and, where applicable, network
firms, to identify and evaluate circumstances and relationships that create
threats to independence;
(b) Evaluate information on identified breaches, if any, of the firm’s
independence policies and procedures to determine whether they create a
threat to independence for the audit engagement; and
(c) Take appropriate action to eliminate such threats or reduce them to an
acceptable level by applying safeguards, or, if considered appropriate, to
withdraw from the audit engagement, where withdrawal is permitted by law
or regulation. The engagement partner shall promptly report to the firm any
inability to resolve the matter for appropriate action. (Ref: Para. A5-A7)
Acceptance and Continuance of Client Relationships and Audit
Engagements
12. The engagement partner shall be satisfied that appropriate procedures
regarding the acceptance and continuance of client relationships and audit
engagements have been followed, and shall determine that conclusions reached
in this regard are appropriate. (Ref: Para. A8-A9)
13. If the engagement partner obtains information that would have caused the
firm to decline the audit engagement had that information been available earlier,

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the engagement partner shall communicate that information promptly to the firm,
so that the firm and the engagement partner can take the necessary action. (Ref:
Para. A9)
Assignment of Engagement Teams
14. The engagement partner shall be satisfied that the engagement team, and
any auditor’s experts who are not part of the engagement team, collectively have
the appropriate competence and capabilities to:
(a) Perform the audit engagement in accordance with professional standards
and regulatory and legal requirements; and
(b) Enable an auditor’s report that is appropriate in the circumstances to be
issued. (Ref: Para. A10-A12)
Engagement Performance
Direction, Supervision and Performance
15. The engagement partner shall take responsibility for:
(a) The direction, supervision and performance of the audit engagement in
compliance with professional standards and regulatory and legal
requirements; and (Ref: Para. A13-A15, A20)
(b) The auditor’s report being appropriate in the circumstances.
Reviews
16. The engagement partner shall take responsibility for reviews being
performed in accordance with the firm’s review policies and procedures. (Ref:
Para. A16-A17, A20)
17. On or before the date of the auditor’s report, the engagement partner shall,
through a review of the audit documentation and discussion with the engagement
team, be satisfied that sufficient appropriate audit evidence has been obtained to
support the conclusions reached and for the auditor’s report to be issued. (Ref:
Para. A18-A20)
Consultation
18. The engagement partner shall:
(a) Take responsibility for the engagement team undertaking appropriate
consultation on difficult or contentious matters;
(b) Be satisfied that members of the engagement team have undertaken
appropriate consultation during the course of the engagement, both within
the engagement team and between the engagement team and others at
the appropriate level within or outside the firm;

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(c) Be satisfied that the nature and scope of, and conclusions resulting from,
such consultations are agreed with the party consulted; and
(d) Determine that conclusions resulting from such consultations have been
implemented. (Ref: Para. A21-A22)
Engagement Quality Control Review
19. For audits of financial statements of listed entities, and those other audit
engagements, if any, for which the firm has determined that an engagement
quality control review is required, the engagement partner shall:
(a) Determine that an engagement quality control reviewer has been
appointed;
(b) Discuss significant matters arising during the audit engagement, including
those identified during the engagement quality control review, with the
engagement quality control reviewer; and
(c) Not date the auditor’s report until the completion of the engagement quality
control review. (Ref: Para. A23-A25)
20. The engagement quality control reviewer shall perform an objective
evaluation of the significant judgments made by the engagement team, and the
conclusions reached in formulating the auditor’s report. This evaluation shall
involve:
(a) Discussion of significant matters with the engagement partner;
(b) Review of the financial statements and the proposed auditor’s report;
(c) Review of selected audit documentation relating to the significant
judgments the engagement team made and the conclusions it reached; and
(d) Evaluation of the conclusions reached in formulating the auditor’s report
and consideration of whether the proposed auditor’s report is appropriate.
(Ref: Para. A26-A27, A29-A31)
21. For audits of financial statements of listed entities, the engagement quality
control reviewer, on performing an engagement quality control review, shall also
consider the following:
(a) The engagement team’s evaluation of the firm’s independence in relation to
the audit engagement;
(b) Whether appropriate consultation has taken place on matters involving
differences of opinion or other difficult or contentious matters, and the
conclusions arising from those consultations; and
(c) Whether audit documentation selected for review reflects the work
performed in relation to the significant judgments made and supports the

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conclusions reached. (Ref: Para. A28-A31)

Differences of Opinion
22. If differences of opinion arise within the engagement team, with those
consulted or, where applicable, between the engagement partner and the
engagement quality control reviewer, the engagement team shall follow the firm’s
policies and procedures for dealing with and resolving differences of opinion.
Monitoring
23. An effective system of quality control includes a monitoring process
designed to provide the firm with reasonable assurance that its policies and
procedures relating to the system of quality control are relevant, adequate, and
operating effectively. The engagement partner shall consider the results of the
firm’s monitoring process as evidenced in the latest information circulated by the
firm and, if applicable, other network firms and whether deficiencies noted in that
information may affect the audit engagement. (Ref: Para A32-A34)
Documentation
24. The auditor shall document:
(a) Issues identified with respect to compliance with relevant ethical
requirements and how they were resolved.
(b) Conclusions on compliance with independence requirements that apply to
the audit engagement, and any relevant discussions with the firm that
support these conclusions.
(c) Conclusions reached regarding the acceptance and continuance of client
relationships and audit engagements.
(d) The nature and scope of, and conclusions resulting from, consultations
undertaken during the course of the audit engagement. (Ref: Para. A35)
25. The engagement quality control reviewer shall document, for the audit
engagement reviewed, that:
(a) The procedures required by the firm’s policies on engagement quality
control review have been performed;
(b) The engagement quality control review has been completed on or before
the date of the auditor’s report; and
(c) The reviewer is not aware of any unresolved matters that would cause the
reviewer to believe that the significant judgments the engagement team
made and the conclusions they reached were not appropriate.
***

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Application and Other Explanatory Material

System of Quality Control and Role of Engagement Teams (Ref: Para. 2)
A1. SQC 1 deals with the firm’s responsibilities to establish and maintain its
system of quality control for audit engagements. The system of quality control
includes policies and procedures that address each of the following elements:
 Leadership responsibilities for quality within the firm;
 Relevant ethical requirements;
 Acceptance and continuance of client relationships and specific
engagements;
 Human resources;
 Engagement performance; and
 Monitoring.
Reliance on the Firm’s System of Quality Control (Ref: Para. 4)
A2. Unless information provided by the firm or other parties suggest otherwise,
the engagement team may rely on the firm’s system of quality control in relation
to, for example:
 Competence of personnel through their recruitment and formal training.
 Independence through the accumulation and communication of relevant
independence information.
 Maintenance of client relationships through acceptance and continuance
systems.
 Adherence to regulatory and legal requirements through the monitoring
process.
Leadership Responsibilities for Quality on Audits (Ref: Para. 8)
A3. The actions of the engagement partner and appropriate messages to the
other members of the engagement team, in taking responsibility for the overall
quality on each audit engagement, emphasise:
(a) The importance to audit quality of:
(i) Performing work that complies with professional standards and
regulatory and legal requirements;
(ii) Complying with the firm’s quality control policies and procedures as
applicable;
(iii) Issuing auditor’s reports that are appropriate in the circumstances;
and

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(iv) The engagement team’s ability to raise concerns without fear of

reprisals; and
(b) The fact that quality is essential in performing audit engagements.
Relevant Ethical Requirements
Compliance with Relevant Ethical Requirements (Ref: Para. 9)
A4. The Code of Ethics issued by the Institute of Chartered Accountants of
India establishes the fundamental principles of professional ethics, which include:
(a) Integrity;
(b) Objectivity;
(c) Professional competence and due care;
(d) Confidentiality; and
(e) Professional behavior.
Definition of “Firm”, “Network” and “Network Firm” (Ref: Para. 9-11)
A5. The definitions of “firm”, “network” or “network firm” in relevant ethical
requirements may differ from those set out in this SA. For example, the Code of
Ethics of the Institute of Chartered Accountants of India (ICAI) defines the
“Network Firm” as:
“Networking amongst two or more firms under common control, ownership
or management with the firm or having affiliation with an accounting entity
or any entity that a reasonable and informed third party having knowledge
of all relevant information would reasonably conclude as being part of the
firm nationally”.
In complying with the requirements in paragraphs 9-11, the definitions
used in the relevant ethical requirements apply in so far as is necessary
to interpret those ethical requirements.
Threats to Independence (Ref: Para. 11(c))
A6. The engagement partner may identify a threat to independence regarding
the audit engagement that safeguards may not be able to eliminate or reduce to
an acceptable level. In that case, as required by paragraph 11(c), the
engagement partner reports to the relevant person(s) within the firm to determine
appropriate action, which may include eliminating the activity or interest that
creates the threat, or withdrawing from the audit engagement, where withdrawal
is legally permitted.
A7. In case of certain entities, such as, Central/State governments and related

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government entities (for example, agencies, boards, commissions), statutory

measures may provide safeguards for the independence of auditors of certain
entities. However, such auditors or audit firms carrying out audits on behalf of the
statutory auditor may, depending on the terms of the applicable legal or
regulatory framework, need to adapt their approach in order to promote
compliance with the spirit of paragraph 11. This may include, where the auditor’s
applicable law or regulation does not permit withdrawal of the auditor from the
engagement, disclosure through a public report, of circumstances that have
arisen that would, have otherwise lead the auditor to withdraw.
Acceptance and Continuance of Client Relationships and Audit
Engagements (Ref: Para. 12)
A8. SQC 1 requires the firm to obtain information considered necessary in the
circumstances before accepting an engagement with a new client, when deciding
whether to continue an existing engagement, and when considering acceptance
of a new engagement with an existing client7. Information such as the following
assists the engagement partner in determining whether the conclusions reached
regarding the acceptance and continuance of client relationships and audit
engagements are appropriate:
 The integrity of the principal owners, key management and those charged
with governance of the entity;
 Whether the engagement team is competent to perform the audit
engagement and has the necessary capabilities, including time and
resources;
 Whether the firm and the engagement team can comply with relevant
ethical requirements; and
 Significant matters that have arisen during the current or previous audit
engagement, and their implications for continuing the relationship.
A9. In case of certain entities, such as, Central/State governments and related
government entities (for example, agencies, boards, commissions), auditors may
be appointed in accordance with statutory procedures. Accordingly, certain of the
requirements and considerations regarding the acceptance and continuance of
client relationships and audit engagements as set out in paragraphs 12, 13 and
A7 may not be relevant. Nonetheless, information gathered as a result of the
process described may be valuable to the auditors of such entities in performing
risk assessments and in carrying out reporting responsibilities.
Assignment of Engagement Teams (Ref: Para. 14)

7 SQC 1, paragraph 28.

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A10. An engagement team also includes a member using expertise in a

specialised area of accounting or auditing, whether engaged or employed by the
firm, if any, who performs audit procedures on the engagement.
A11. When considering the appropriate competence and capabilities expected of
the engagement team as a whole, the engagement partner may take into
consideration such matters as the team’s:
 Understanding of, and practical experience with, audit engagements of a
similar nature and complexity through appropriate training and participation.
 Understanding of professional standards and regulatory and legal
requirements.
 Technical expertise, including expertise with relevant information
technology and specialised areas of accounting or auditing.
 Knowledge of relevant industries in which the client operates.
 Ability to apply professional judgment.
 Understanding of the firm’s quality control policies and procedures.
A12. In case of certain entities, such as, Central/State governments and related
government entities (for example, agencies, boards, commissions), additional
appropriate competence may include skills that are necessary to discharge the
terms of the audit mandate in a particular jurisdiction. Such competence may
include an understanding of the applicable reporting arrangements, including
reporting to the legislature or other governing body or in the public interest. The
wider scope of audit of such entities may include, for example, some aspects of
performance auditing or a comprehensive assessment of compliance with
legislative authorities and preventing and detecting fraud and corruption.
Engagement Performance
Direction, Supervision and Performance (Ref: Para. 15(a))
A13. Direction of the engagement team involves informing the members of the
engagement team of matters such as:
 Their responsibilities, including the need to comply with relevant ethical
requirements, and to plan and perform an audit with professional skepticism
as required by SA 2008.
 Responsibilities of respective partners where more than one partner is
involved in the conduct of an audit engagement.

8 SA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Standards on Auditing”, paragraph 15.

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 The objectives of the work to be performed.

 The nature of the entity’s business.
 Risk-related issues.
 Problems that may arise.
 The detailed approach to the performance of the engagement.
Discussion among members of the engagement team allows less experienced
team members to raise questions with more experienced team members so that
appropriate communication can occur within the engagement team.
A14. Appropriate teamwork and training assist less experienced members of the
engagement team to clearly understand the objectives of the assigned work.
A15. Supervision includes matters such as:
 Tracking the progress of the audit engagement.
 Considering the competence and capabilities of individual members of the
engagement team, including whether they have sufficient time to carry out
their work, whether they understand their instructions, and whether the
work is being carried out in accordance with the planned approach to the
audit engagement.
 Addressing significant matters arising during the audit engagement,
considering their significance and modifying the planned approach
appropriately.
 Identifying matters for consultation or consideration by more experienced
engagement team members during the audit engagement.
Reviews
Review Responsibilities (Ref: Para. 16)
A16. Under SQC 1, the firm’s review responsibility policies and procedures are
determined on the basis that work of less experienced team members is
reviewed by more experienced team members9.
A17. A review consists of consideration whether, for example:
 The work has been performed in accordance with professional standards
and regulatory and legal requirements;
 Significant matters have been raised for further consideration;
 Appropriate consultations have taken place and the resulting conclusions

9 SQC 1, paragraph 50.

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have been documented and implemented;

 There is a need to revise the nature, timing and extent of work performed;
 The work performed supports the conclusions reached and is appropriately
documented;
 The evidence obtained is sufficient and appropriate to support the auditor’s
report; and
 The objectives of the engagement procedures have been achieved.
The Engagement Partner’s Review of Work Performed (Ref: Para. 17)
A18. Timely reviews of the following by the engagement partner at appropriate
stages during the engagement allow significant matters to be resolved on a
timely basis to the engagement partner’s satisfaction on or before the date of the
auditor’s report:
 Critical areas of judgment, especially those relating to difficult or
contentious matters identified during the course of the engagement;
 Significant risks; and
 Other areas the engagement partner considers important.
The engagement partner need not review all audit documentation, but may do
so. However, as required by SA 230, the partner documents the extent and
timing of the reviews10.
A19. An engagement partner taking over an audit during the engagement may
apply the review procedures as described in paragraphs A17 to review the work
performed to the date of a change in order to assume the responsibilities of an
engagement partner.
Considerations Relevant Where a Member of the Engagement Team with
Expertise in a Specialised Area of Accounting or Auditing Is Used (Ref:
Para. 15-17)
A20. Where a member of the engagement team with expertise in a specialised
area of accounting or auditing is used, direction, supervision and review of that
engagement team member’s work may include matters such as:
 Agreeing with that member the nature, scope and objectives of that
member’s work; and the respective roles of, and the nature, timing and
extent of communication between that member and other members of the
engagement team.

10 SA 230, “Audit Documentation”, paragraph 9(c).

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 Evaluating the adequacy of that member’s work including the relevance and
reasonableness of that member’s findings or conclusions and their
consistency with other audit evidence.
Consultation (Ref: Para. 18)
A21. Effective consultation on significant technical, ethical, and other matters
within the firm or, where applicable, outside the firm can be achieved when those
consulted:
 Are given all the relevant facts that will enable them to provide informed
advice; and
 Have appropriate knowledge, seniority and experience.
A22. It may be appropriate for the engagement team to consult outside the firm,
for example, where the firm lacks appropriate internal resources. They may take
advantage of advisory services provided by other firms, professional and
regulatory bodies, or commercial organisations that provide relevant quality
control services.
Engagement Quality Control Review
Completion of the Engagement Quality Control Review before Dating of the
Auditor’s Report (Ref: Para. 19(c))
A23. SA 700 requires the auditor’s report to be dated no earlier than the date on
which the auditor has obtained sufficient appropriate evidence on which to base
the auditor’s opinion on the financial statements11. In cases of an audit of
financial statements of listed entities or when an engagement meets the criteria
for an engagement quality control review, such a review assists the auditor in
determining whether sufficient appropriate evidence has been obtained.
A24. Conducting the engagement quality control review in a timely manner at
appropriate stages during the engagement allows significant matters to be
promptly resolved to the engagement quality control reviewer’s satisfaction on or
before the date of the auditor’s report.
A25. Completion of the engagement quality control review means the completion
by the engagement quality control reviewer of the requirements in paragraphs
20-21, and where applicable, compliance with paragraph 22. Documentation of
the engagement quality control review may be completed after the date of the
auditor’s report as part of the assembly of the final audit file. SA 230 establishes
requirements and provides guidance in this regard12.

11 SA 700, “Forming an Opinion and Reporting on Financial Statements”, paragraph 41.

12 SA 230, paragraphs 14-16 and A21-A24.

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Nature, Extent and Timing of Engagement Quality Control Review (Ref: Para.
20)
A26. Remaining alert for changes in circumstances allows the engagement
partner to identify situations in which an engagement quality control review is
necessary, even though at the start of the engagement, such a review was not
required.
A27. The extent of the engagement quality control review may depend, among
other things, on the complexity of the audit engagement, whether the entity is a
listed entity, and the risk that the auditor’s report might not be appropriate in the
circumstances. The performance of an engagement quality control review does
not reduce the responsibilities of the engagement partner for the audit
engagement and its performance.
Engagement Quality Control Review of Listed Entities (Ref: Para. 21)
A28. Other matters relevant to evaluating the significant judgments made by the
engagement team that may be considered in an engagement quality control
review of a listed entity include:
 Significant risks identified during the engagement in accordance with SA
31513, and the responses to those risks in accordance with SA 33014,
including the engagement team’s assessment of, and response to, the risk
of fraud in accordance with SA 24015.
 Judgments made, particularly with respect to materiality and significant
risks.
 The significance and disposition of corrected and uncorrected
misstatements identified during the audit.
 The matters to be communicated to management and those charged with
governance and, where applicable, other parties such as regulatory bodies.
These other matters, depending on the circumstances, may also be applicable
for engagement quality control reviews for audits of financial statements of other
entities.
Considerations Specific to Smaller Entities (Ref: Para. 20-21)
A29. In addition to the audits of financial statements of listed entities, an
engagement quality control review is required for such audit engagements also

13 SA 315, “Identifying and Assessing the Risks of Material Misstatement Through Understanding
the Entity and Its Environment”.
14 SA 330, “The Auditor’s Responses to Assessed Risks”.

15 SA 240, “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements”.

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Handbook of Auditing Pronouncements-I.A

that meet the criteria established by the firm that subjects engagements to an
engagement quality control review. In some cases, none of the firm’s audit
engagements may meet the criteria that would subject them to such a review.
Considerations Specific to Central/State Governments and Related Government
Entities (Ref: Para. 20-21)
A30. In case of certain entities, such as, Central/State governments and related
government entities (for example, agencies, boards, commissions), a statutorily
appointed auditor (for example, an Auditor General, or other suitably qualified
person appointed on behalf of the Auditor General), may act in a role equivalent
to that of engagement partner with overall responsibility for certain entities audits.
In such circumstances, where applicable, the selection of the engagement quality
control reviewer includes consideration of the need for independence from the
audited entity and the ability of the engagement quality control reviewer to
provide an objective evaluation.
A31. Certain entities, such as, Central/State governments and related
government entities (for example, agencies, boards, commissions), may not
necessarily be listed entities yet may be significant due to size, complexity or
public interest aspects, and which consequently have a wide range of
stakeholders. Examples include state owned corporations and public utilities.
Ongoing transformations within the certain entities may also give rise to new
types of significant entities. There are no fixed objective criteria on which the
determination of significance is based. Nonetheless, auditors of such entities
evaluate which of these entities may be of sufficient significance to warrant
performance of an engagement quality control review.
Monitoring (Ref: Para. 23)
A32. SQC 1 requires the firm to establish a monitoring process designed to
provide it with reasonable assurance that the policies and procedures relating to
the system of quality control is relevant, adequate and operating effectively16.
A33. In considering deficiencies that may affect the audit engagement, the
engagement partner may have regard to measures the firm took to rectify the
situation that the engagement partner considers are sufficient in the context of
that audit.
A34. A deficiency in the firm’s system of quality control does not necessarily
indicate that a particular audit engagement was not performed in accordance
with professional standards and regulatory and legal requirements, or that the
auditor’s report was not appropriate.

16 SQC 1, Paragraph 86.

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Documentation
Documentation of Consultations (Ref: Para. 24(d))
A35. Documentation of consultations with other professionals that involve difficult
or contentious matters that is sufficiently complete and detailed contributes to an
understanding of:
 The issue on which consultation was sought; and
 The results of the consultation, including any decisions taken, the basis for
those decisions and how they were implemented.
Modifications vis-à-vis ISA 220, “Quality Control for an
Audit of Financial Statements”
Deletion
Paragraphs A7, A9, A12, A30 and A31 of the Application Section of ISA 220
dealt with the application of the requirements of ISA 220 to the audits of public
sector entities. Since as mentioned in the “Preface to the Standards on Quality
Control, Auditing, Review, Other Assurance and Related Services”, the
Standards issued by the Auditing and Assurance Standards Board, apply equally
to all entities, irrespective of their form, nature and size, a specific reference to
applicability of the Standard to public sector entities has been deleted.
Further, it is also possible that these requirements may also exist in case of non
public sector entities pursuant to a requirement under the statute. Accordingly,
the spirit of paragraphs A7, A9, A12, A30 and A31 has, accordingly, been made
more generic in its application.

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