QC Guide—Orientation
IFAC SMP Committee
An Introduction to the Guide to
Quality Control for Small- and
Medium-Sized Practices
April 2012

QC Guide—Orientation
Contents
• International Standard on Quality Control (ISQC) 1
• The QC Guide
– Structure and Content
– Chapters
– Appendices
– Sample Manuals
• IFAC Resources

International Standard on Quality Control (ISQC) 1
• ISQC 1, paragraph 11
– The objective of the firm is to establish and maintain a system of quality
control to provide it with reasonable assurance that:
• The firm and its personnel comply with professional standards and applicable
legal and regulatory requirements; and
• Reports issued by the firm or engagement partners are appropriate in the
circumstances.
• Applying ISQC 1 proportionately to the size and
complexity of the firm is key to its efficient
implementation

The QC Guide
Published
August 2011

The QC Guide
• Helps SMPs apply ISQC 1 proportionately and efficiently
• Provides practical guidance, but is no substitute for:
– Reading and understanding ISQC 1 (itself, a requirement of ISQC 1)
– Using professional judgment
• Helps firms develop a system of quality control
• Promotes consistent application of quality control
requirements within audit, review, and other assurance
and related service engagements
• May serve as a reference document for training within a
firm

QC Guide
Structure and Content

QC Guide
Structure and Content
• Modular approach to the elements of ISQC 1
– Chapter 1: Leadership Responsibilities for Quality Within the Firm
– Chapter 2: Relevant Ethical Requirements
– Chapter 3: Acceptance and Continuance of Client Relationships and
Specific Engagements
– Chapter 4: Human Resources
– Chapter 5: Engagement Performance
– Chapter 6: Monitoring
– Chapter 7: Documentation
• ―Helpful Hints‖

QC Guide
Structure and Content
• Case study—M.M. and Associates
– Fictional sole practitioner employing four staff
– Performs review engagements and a small number of audits
– Illustrates the value of a system of quality control and how its elements
may be applied to practical situations
• Sample forms and checklists
• Two sample Quality Control Manuals
– Sole practitioner
– 2-5 partner firm

QC Guide
Chapters

Chapter 1
Leadership Responsibilities for Quality Within Firm
• The Leadership Responsibility Pyramid

Chapter 1
Leadership Responsibilities for Quality Within Firm
• Develop a culture of quality from top down
• Ultimate responsibility is with the firm’s managing board
• Underpinned by partner commitment to the firm’s quality
control policies and procedures
• Operational responsibilities for elements of the QC system
assigned to those with:
– Sufficient and appropriate experience; and
– The necessary authority
• Commercial considerations should not override
management responsibilities for quality (for example, in
performance evaluations, setting compensation, etc.)

Chapter 2
Relevant Ethical Requirements
• Embed within the firm the fundamental principles of
professional ethics:
– Integrity
– Objectivity
– Professional competence and due care
– Confidentiality
– Professional behavior
• Establish processes to identify and deal with non-
adherence to the fundamental principles

Chapter 2
Relevant Ethical Requirements
• Independence—required on all assurance engagements
• Understand the threats and safeguards to independence,
set out in the IESBA Code of Ethics
• Maintain policies and procedures to enable threats to
independence to be identified, documented, and managed
appropriately, including:
– Firm level—annual written confirmations from all partners and professional
staff
– Engagement level—written confirmation by engagement team
• Identify and manage conflicts of interest
• Establish confidentiality procedures

Chapter 3
Acceptance and Continuance of Client
Relationships and Specific Engagements

Chapter 3
Acceptance and Continuance of Client
Relationships and Specific Engagements
• Ensure the firm has the competence and capability, can
comply with ethical requirements, and considers the
client’s integrity when deciding to accept or continue the
engagement
… and document risks and (any) safeguards
• Withdrawal from engagements and/or client relationships
… and document underlying factors

Chapter 4
Human Resources

Chapter 4
Human Resources
• Need sufficient personnel in the firm with the competence,
capabilities, and commitment to ethical principles
necessary to do the work
• Focus on recruitment and retention relative to the needs of
the firm and its clients
• Ensure that staff and partners are appropriately trained
and developed and that their competence is maintained
• Assign engagement teams with the necessary
competence and capabilities to do the work
• Establish a disciplinary process

Chapter 5
Engagement Performance
• Policies and procedures should ensure consistent quality
output across the firm
• Engagement partner has defined responsibilities
• Establish:
– Effective planning, supervision, and review procedures
– Consultation procedures—when, who, how, etc.—including
external sources if necessary
– Procedures for resolving differences of opinion

Chapter 5
Engagement Performance
• Engagement quality control reviews (EQCR)
– Required for all audits of listed entities
– Establish criteria for other engagements where EQCR would be desirable
(e.g., high risk)
– Defined minimum scope
• Appoint suitable EQCR reviewer—internal or external
– Technically capable
– Necessary experience and authority
– Objective

Chapter 6
Monitoring
• Establish a monitoring program over the firm’s system of
quality control
• Inspection procedures:
– Consider nature and extent, but ensure coverage of at least one
engagement per partner at least every 3 years
– External inspections may be desirable (e.g., fresh perspective or sharing
of ideas) or necessary (if no suitable internal resource)
– Formal reporting
• Communicate deficiencies and take remedial actions
• Establish procedures for dealing with complaints and
allegations

Chapter 7
Documentation
• Required of:
– The firm’s quality control policies and procedures
– Engagement files
– Engagement quality control reviews
• File access and retention

QC Guide
Appendices

QC Guide
Appendices (extracts)

QC Guide
Using the Appendices
• Eight appendices, each of which may serve as a practice
aid for firms to use within their quality control systems
• May be adapted as appropriate, for example, to conform
with:
– Regulatory and professional requirements in the applicable
jurisdiction; and
– The policies and procedures of the firm

QC Guide
Sample Manuals

QC Guide
Sample Manuals

QC Guide
Using the Sample Manuals
• Determine the leadership positions that apply, or ought to
apply, within the firm, for example:
– Managing Partner
– Ethics Leader
– Human Resources
• Assign responsibility for all key, relevant quality control
functions, ensuring those assigned have sufficient and
appropriate experience, ability, and authority to carry out
such responsibilities.
• Select from policies (where presented) or modify the
policies as appropriate.

QC Guide
Using the Sample Manuals
• Ensure engagement templates are updated to reflect the
policies in the manual.
• Ensure agreement by all partners (if a partnership).
• Present the manual to all partners and staff, preferably in a
seminar environment.
• Provide the manual to new staff and perform a follow-up
interview to ensure it has been read and understood.
• Review and update the manual as new standards or new
firm policies are developed (suggested annually).

IFAC Resources

SMP Committee Home Page
www.ifac.org/smp
Access QC Guide
and Implementation
Resources from here

IFAC Resources
• Guide to Quality Control for Small- and Medium-Sized
Practices
– www.ifac.org/publications-resources/guide-quality-control-small-and-
medium-sized-practices-third-edition-0
• For ISQC 1, clarified ISAs, and related implementation
resources, see IAASB Clarity Center:
– www.ifac.org/auditing-assurance/clarity-center
• Tips for Cost-Effective ISQC 1 Application article
– www.ifac.org/publications-resources/tips-cost-effective-isqc-1-application

IFAC Resources
• Good practice guidance paper, Client Acceptance and
Continuance
– www.ifac.org/publications-resources/client-acceptance-and-continuance
• Policy Position Paper 2, Promoting a Single Set of
Auditing Standards for All Audits, Including of Small- and
Medium-Sized Entities
– www.ifac.org/publications-resources/single-set-auditing-standards-audits-
small-and-medium-sized-entities
• Links to other implementation resources
– www.ifac.org/relevant-links-implementation

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