1. M/S NK & Co, Chartered Accountants were appointed as Statutory Auditors of Fresh Juice Limited for the FY 2020-2021. The previous year's audit was conducted by M/s. LP & Associates. After the audit was completed and report submitted, it was found that closing
balances of last financial year ie, 2019-20 were incorrectly brought forward. It was found that
M/s NK & Co. did not apply any audit procedures to ensure that correct opening balances have been brought forward to the current period.

Accordingly, a complaint was filed against NK & Co. in relation to this matter. You are required to inform what policies are required to be implemented by NK & Co. for dealing with such complaints and allegations as required by Standard on Quality Control (SQC).

                                                                                                                (Jan. 21-New Syllabus (5 Marks)
                                                                                                                  Time Allowed: 8 Minutes


Ans.: Complaints and Allegations:

As required by SQC-1 "Quality Control for Firms that Perform Audits & Reviews of Historical
Financial Information, and Other Assurance & Related Services Engagements" the firm should
establish policies and procedures designed to provide it with reasonable assurance that it deals appropriately with:

(a) Complaints and allegations that the work performed by the firm fails to comply with
professional standards and regulatory and legal requirements; and

(b) Allegations of non-compliance with the firm's system of quality control. 

  • Complaints and allegations (which do not include those that are clearly frivolous) may originate from within or outside the firm. They may be made by firm personnel, clients or other third parties. They may be received by engagement team members or other firm personnel.
  • As part of this process, the firm establishes clearly defined channels for firm personnel to raise any concerns in a manner that enables them to come forward without fear of reprisals.
  • The firm investigates such complaints and allegations in accordance with established policies and procedures. The investigation is supervised by a partner with sufficient and appropriate experience and authority within the firm but who is not otherwise involved in the engagement, and includes involving legal counsel as necessary. Small firms and sole practitioners may use the services of a suitably qualified external person or another firm to carry out the investigation. Complaints, allegations and the responses to them are documented.
  • Where the results of the investigations indicate deficiencies in the design or operation of the firm's quality control policies and procedures, or non-compliance with the firm's system of quality control by an individual or individuals, the firm shall take appropriate action.