SQC 1 requires every firm that performs audits and reviews of historical financial information to establish and maintain a system of quality control covering six elements — leadership responsibilities, ethical requirements, client and engagement acceptance and continuance, human resources, engagement performance, and monitoring — documented in firm-wide policies and procedures, not left to each partner to interpret individually on their own engagements.
The six elements, and what each actually has to produce
| Element | What it has to produce |
|---|---|
| Leadership responsibilities for quality | Policies showing the firm's leadership takes ultimate responsibility for quality, not just that a quality statement exists on paper |
| Relevant ethical requirements | Policies to obtain confidence that the firm and its personnel comply with independence and other ethical requirements, with a process to identify threats and apply safeguards |
| Acceptance and continuance of client relationships and engagements | A defined process — covering integrity of the client, competence/capability/resources, and compliance with ethical requirements — before accepting a NEW client or continuing an existing one |
| Human resources | Policies for recruitment, performance evaluation, capabilities, competence, career development and assignment of engagement teams |
| Engagement performance | Policies for direction, supervision and review consistent with professional standards — the firm-wide basis SA 220 then applies on each engagement |
| Monitoring | An ongoing process to evaluate whether the firm's quality control policies are relevant, adequate, and operating effectively — including periodic inspection of completed engagements |
What 'monitoring' specifically has to include
- 01An ongoing evaluation of the quality control system itselfNot just whether individual engagements pass review, but whether the policies as designed are actually adequate.
- 02Periodic inspection of a selection of completed engagementsReviewed by someone not involved in the engagement, or the engagement partner for it, to maintain objectivity.
- 03A process for evaluating the effect of deficiencies foundIncluding whether a deficiency is isolated or indicates a systemic problem requiring policy change, and whether remedial action on a specific completed engagement is needed.
- 04Communicating monitoring results, at least annually, to engagement partners and relevant firm personnelFindings aren't kept only at the top — the standard requires the information to reach the people whose engagements are affected.
Common practice, not a requirement
This is also the system an ICAI peer reviewer checks for existence and operation — a firm's SQC 1 documentation and monitoring records are typically the first thing requested at the start of a peer review.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Audit workflow & automationSA 220: quality control responsibilities on an individual audit engagementSQC 1 builds the firm's quality system. SA 220 is what the engagement partner has to personally do with it on this specific file, this specific year.
- Audit workflow & automationICAI peer review: what it actually checks, and how a firm preparesA peer review doesn't re-audit the client. It checks whether the firm's own system — documentation, quality control, independence — would have caught a problem if there was one.
- Audit documentationReviewing and signing off audit working papersWhat a reviewer is responsible for, a defensible review order, writing points that get cleared properly, and why approval must lapse when the paper changes.
- Internal audit & IFCInternal audit checklist for CA firms taking on the mandateHow to scope a new internal audit mandate: the risk-based plan, coverage across the year rather than one visit, typical areas covered, and the reporting rhythm an audit committee expects.
Free tools, no signup
Each one reads a file entirely in your browser — or, for two of them, just answers a few questions — and nothing is ever uploaded.
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- Sample size calculatorStatistical sample size for a test of controls or a substantive test of detail.