Published: April 7, 2026 | Category: Template | Read Time: 6 minutes | Author: CORAA Team
How to Use This Template
This template documents your audit firm's quality management system per SQM1 requirements. SQM1's mandatory effective date was originally set for 1 April 2026, but ICAI deferred it indefinitely at its March 2026 Council meeting — SQC 1 continues to apply until a new date is announced.
Key Points:
- Document at firm level (applies to all service offerings)
- Five of SQM1's eight quality management components are addressed here
- Review and update annually (or when standards change)
- File in firm's quality management repository
- Reference in audit files as control framework
SQM1 Quality Management File Template
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SQM1 QUALITY MANAGEMENT FILE (FIRM LEVEL)
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FIRM NAME: [Your firm name]
PREPARED BY: [Quality partner name]
APPROVAL DATE: [Date approved]
EFFECTIVE DATE: [Deferred indefinitely by ICAI, March 2026 — SQC 1 applies until a new date is announced]
NEXT REVIEW DATE: [Specify: Annual]
═══════════════════════════════════════════════════════════════
QUALITY OBJECTIVE #1: COMPETENCE
Objective: Team members have skills & experience to perform
quality work. Continuing education maintained. New standards
training provided annually.
─────────────────────────────────────────────────────────────
1.1 TEAM MEMBER QUALIFICATION REQUIREMENTS
Partner Level:
- Minimum: 10 years audit experience
- Qualification: CA (India) + Advanced certifications
- Continuing Education: 40 hours/year minimum
- Industry Expertise: At least one specialized area
Manager Level:
- Minimum: 5 years audit experience
- Qualification: CA (India)
- Continuing Education: 30 hours/year minimum
- Competency: Revenue, leases, RP, internal controls
Senior Level:
- Minimum: 2 years audit experience
- Qualification: CA (India) or final year
- Continuing Education: 20 hours/year
- Competency: ISA procedures, documentation
Junior Level:
- Qualification: CA intermediate + on-job training
- Mentoring: Assigned senior mentor
- Training: 15 hours/year minimum
─────────────────────────────────────────────────────────────
1.2 CONTINUING EDUCATION PROGRAM
Annual Training Topics (Mandatory):
☐ New ISA/Ind AS standards (4 hours)
☐ SQM1 requirements (2 hours)
☐ Firm-specific procedures (3 hours)
☐ Technical updates (audit risk, technology) (3 hours)
☐ Ethics & professional conduct (2 hours)
☐ Client-specific (industry, risk) (varies)
Total: 40 hours/year for partners; 30 hours managers; 20 hours seniors
Documentation:
- CPE hours logged in [system/spreadsheet]
- Certificates maintained
- Annual review by quality partner
─────────────────────────────────────────────────────────────
1.3 NEW STANDARDS TRAINING
Timing: Within 60 days of standard issuance
Who: All audit staff
How: In-person workshop + reference guide
Topics: New requirements + implementation guidance
Recent Examples:
☐ SQM1 (mandatory date deferred indefinitely by ICAI, March 2026)
☐ Ind AS 116 Leases (Implemented April 1, 2019)
☐ Ind AS 115 Revenue (Implemented April 1, 2018)
─────────────────────────────────────────────────────────────
1.4 ROLE-SPECIFIC COMPETENCY
Specialized Areas:
**Revenue Recognition**
- Partners: Advanced Ind AS 115 knowledge
- Managers: Complex revenue testing procedures
- Seniors: Revenue testing, RP identification
**Leases (Ind AS 116)**
- Partners: ROU calculation, classification
- Managers: Lease identification, testing
- Seniors: ROU testing, documentation
**Related Parties (Ind AS 24)**
- Partners: RP transaction judgment
- Managers: RP identification, arm's length testing
- Seniors: GL analysis, transaction documentation
**Continuous Audit**
- Partners: Tool evaluation, oversight
- Managers: Tool deployment, rule design
- Seniors: Monitoring, exception investigation
─────────────────────────────────────────────────────────────
1.5 COMPETENCY MONITORING
Annual Competency Assessment:
- CPE hours completed: [Tracked]
- New standards training: [Confirmed]
- Client feedback: [Assessed]
- Workpaper quality: [Reviewed by partner]
- NFRA inspection findings: [Monitored]
Action Plan (if deficiencies identified):
- Deficiency: [Specific area]
- Training Required: [Type & hours]
- Timeline: [By date]
- Assessment: [How will improvement be measured?]
═══════════════════════════════════════════════════════════════
QUALITY OBJECTIVE #2: INDEPENDENCE & INTEGRITY
Objective: No independence impairments. Conflicts of interest
identified & managed. Professional skepticism maintained.
─────────────────────────────────────────────────────────────
2.1 INDEPENDENCE PROCEDURES
Partner Rotation Policy:
- Individual auditor rotation: Every 5 years (Companies Act 2013 §139(2))
- Audit firm rotation: Every 10 years (Companies Act 2013 §139(2))
- EQR rotation: Every [specify] years
- Documentation: Rotation schedule maintained
Related Party Screening:
- Annual screening: All team members
- Relationship: Financial interest, family, business
- Process: Questionnaire + review
- Escalation: [Name] reviews results
Financial Interest Monitoring:
- No direct investments in audit clients
- No indirect interests (spouse, family members)
- Process: Annual certification
- Responsibility: [Title] confirms
─────────────────────────────────────────────────────────────
2.2 CONFLICT OF INTEREST MANAGEMENT
Identification:
- At client acceptance: Initial conflict check
- At continuance: Annual conflict re-assessment
- During engagement: Mid-year review (if needed)
- Tools: [Software/spreadsheet] used for tracking
Resolution Process:
- Conflict Identified: ☐ Yes ☐ No
- If Yes, evaluation options:
☐ Decline engagement / Resign
☐ Withdraw audit team member
☐ Implement safeguards (if acceptable)
Documentation: Conflict resolution file maintained
─────────────────────────────────────────────────────────────
2.3 PROFESSIONAL SKEPTICISM
Definition: Questioning mindset when evaluating evidence;
challenging assumptions; not assuming good faith
Implementation:
- Partner expectation: Challenge audit findings
- Manager expectation: Review procedures critically
- Senior expectation: Investigate unusual transactions
- Firm culture: Value skepticism; reward issue identification
Monitoring:
- EQR process: Verifies skepticism applied
- Inspection review: NFRA assesses skepticism
- Workpaper review: Evidence of questioning attitude
─────────────────────────────────────────────────────────────
2.4 INTEGRITY & ETHICAL CONDUCT
Code of Ethics:
- Firm Code of Conduct: [Reference document]
- ICAI Code of Ethics: [Reference]
- Firm values: Integrity, honesty, confidentiality
Training:
- Annual ethics training: All staff
- Topic: Professional conduct, confidentiality, independence
- Responsibility: [Title] delivers training
Monitoring:
- Confidentiality breaches: [Report to]
- Ethical issues: [Escalation path]
- Investigations: [Process]
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QUALITY OBJECTIVE #3: ENGAGEMENT PERFORMANCE
Objective: Audit procedures performed per ISAs. Audit evidence
sufficient & appropriate. ISA standards fully complied with.
─────────────────────────────────────────────────────────────
3.1 AUDIT PROCEDURES STANDARD
Requirement: All audits performed per ISA standards
(or equivalent).
Firm Audit Manual:
- Current standard: ISAs (latest edition)
- Contents: Risk assessment, planning, evidence gathering
- Procedures: Step-by-step for each audit area
- Documentation: Requirements for each step
- Location: [System/folder]
Procedure Coverage:
☐ Planning & Risk Assessment (ISA 315, ISA 320)
☐ Significant Judgments (ISA 330, Revenue, Leases, RP)
☐ Fraud Risk Procedures (ISA 240)
☐ Going Concern (ISA 570)
☐ Related Parties (ISA 550)
☐ Management Override (ISA 240)
☐ Group Audits (ISA 600, if applicable)
─────────────────────────────────────────────────────────────
3.2 AUDIT EVIDENCE REQUIREMENTS
Sufficiency:
- Quantity: Adequate volume for conclusion
- Quality: Appropriate type (direct > indirect)
- Relevance: Evidence addresses audit objective
- Documentation: Source documented in workpapers
Procedures by Area:
- Revenue: 100% GL scan + sample testing
- Leases: Comprehensive identification + ROU testing
- Related Parties: Systematic identification + arm's length
- Bank/Cash: Reconciliation + confirmations
- Inventory: Count observations + cutoff testing
- Receivables: Confirmations + aging analysis
─────────────────────────────────────────────────────────────
3.3 WORKPAPER STANDARDS
Every workpaper must document:
- Objective: What procedure is testing?
- Procedure: How was procedure performed?
- Results: What did procedure show?
- Conclusion: What does this mean?
- Partner Approval: Reviewed & approved?
Format Requirements:
☐ Workpaper header (client, area, date, preparer)
☐ Objective clearly stated
☐ Procedure steps documented
☐ Results summarized
☐ Conclusion with audit significance
☐ Partner approval with date/initials
☐ Cross-reference to related workpapers
─────────────────────────────────────────────────────────────
3.4 ISA COMPLIANCE CHECKLIST
Per-Engagement Verification:
☐ All ISA procedures performed
☐ Sufficient evidence gathered
☐ Significant judgments documented
☐ Going concern assessed
☐ Fraud risk procedures completed
☐ Related party transactions tested
☐ Management override procedures performed
☐ Subsequent events reviewed
☐ Audit report supported by evidence
☐ Management letter items documented
Review: Partner signs completion checklist
═══════════════════════════════════════════════════════════════
QUALITY OBJECTIVE #4: ACCEPTANCE & CONTINUANCE
Objective: Only acceptable clients accepted. No major red flags
(fraud risk, money laundering). Annual continuance assessed.
─────────────────────────────────────────────────────────────
4.1 CLIENT ACCEPTANCE PROCEDURES
New Client Acceptance:
Step 1: Know Your Client (KYC)
- Obtain background information
- Check regulatory filings
- Verify business legitimacy
- Assess management integrity
Step 2: Conflict Check
- Related parties identified
- No conflicts of interest
- Documentation: Conflict assessment form
Step 3: Red Flag Assessment
- Money laundering risk: ☐ Low ☐ Medium ☐ High
- Fraud indicators: ☐ None ☐ Some ☐ Significant
- Regulatory concerns: ☐ None ☐ Pending ☐ Active
- Going concern risk: ☐ Low ☐ Medium ☐ High
Step 4: Acceptance Decision
- Decision: ☐ Accept ☐ Decline
- Responsible: Partner
- Documentation: Acceptance memo filed
Red Flags - DECLINE if:
☐ Management fraud indicators strong
☐ Involvement in money laundering, sanctions
☐ Significant regulatory violations
☐ Going concern with weak management response
☐ Multiple prior audit firms (pattern of issues)
─────────────────────────────────────────────────────────────
4.2 CLIENT CONTINUANCE PROCEDURES
Annual Continuance Assessment:
Timing: Prior to audit commencement each year
Assessment Elements:
☐ Management integrity maintained
☐ No new red flags identified
☐ No compliance failures during prior year
☐ No NFRA or regulatory issues
☐ Client relationship remains acceptable
☐ Audit risk manageable
Continuance Decision:
☐ Reappoint as auditor (continue)
☐ Conditional reappointment (conditions listed)
☐ Resign / Decline reappointment (see below)
Resignation / Decline:
- Reason: [Specific issue identified]
- Effective Date: [Date]
- Communication: [To whom & when?]
- Documentation: [Resignation memo filed]
─────────────────────────────────────────────────────────────
4.3 TERMINATION CRITERIA
Terminate engagement (resign) if:
☐ Management dishonesty identified
☐ Regulatory violation discovered
☐ Client pressure to override procedures
☐ Audit risk exceeds firm's ability
☐ Client disputes escalate beyond resolution
☐ NFRA investigation / enforcement
Process:
- Reason documented
- Partner approval required
- Client notified (formal communication)
- Transition: Prior year workpapers provided
- Regulatory reporting: [If required by law]
═══════════════════════════════════════════════════════════════
QUALITY OBJECTIVE #5: MONITORING
Objective: Quality issues identified throughout year (not just
post-engagement). Corrective actions implemented. Real-time
escalation process in place.
─────────────────────────────────────────────────────────────
5.1 REAL-TIME QUALITY MONITORING
Ongoing Monitoring (During engagement):
Monthly Review:
- EQR process: Started? ☐ Yes ☐ No
- Major findings: Any material issues? ☐ Yes ☐ No
- Procedures: On track with plan? ☐ Yes ☐ No
- Issues: Escalated if needed? ☐ Yes ☐ No
Escalation Process:
- Issue Identified: [Description]
- Severity: ☐ Minor ☐ Moderate ☐ Significant
- Escalation: To [Title]
- Resolution: [Action taken]
- Timeline: [Target completion date]
─────────────────────────────────────────────────────────────
5.2 QUALITY EXCEPTIONS TRACKING
Exceptions Log (Monthly):
- Issue: [What went wrong?]
- Root Cause: [Why did it happen?]
- Severity: ☐ Minor ☐ Moderate ☐ Significant
- Corrective Action: [What's the fix?]
- Responsible: [Who implements?]
- Target Date: [By when?]
- Status: ☐ Open ☐ Complete
Examples of Exceptions:
- Workpaper missing or incomplete
- ISA procedure not performed
- Audit evidence insufficient
- Significant judgment not documented
- EQR not completed
- Independence issue
- Disclosure error
─────────────────────────────────────────────────────────────
5.3 CORRECTIVE ACTION PROCESS
When Exception Identified:
Step 1: Root Cause Analysis
- What went wrong?
- Why did it happen?
- Is this a systemic issue?
Step 2: Corrective Action
- Immediate fix: Address current engagement issue
- Systemic fix: Update procedures if pattern identified
- Training: Provide additional training if needed
Step 3: Implementation & Follow-Up
- Responsible party: [Title]
- Target date: [By date]
- Verification: How will we confirm fix worked?
Step 4: Documentation
- Exception memo filed
- Corrective action documented
- Follow-up verification recorded
─────────────────────────────────────────────────────────────
5.4 NFRA COMPLIANCE MONITORING
NFRA Inspection Preparation:
Annual Audit of Compliance:
- SQM1 procedures followed? ☐ Yes ☐ No
- Quality objectives documented? ☐ Yes ☐ No
- EQR completed? ☐ Yes ☐ No
- Exceptions tracked & resolved? ☐ Yes ☐ No
- File completeness checked? ☐ Yes ☐ No
- ISA compliance verified? ☐ Yes ☐ No
Action Items (if deficiencies noted):
- Deficiency: [Specific area]
- Action Required: [What needs to be fixed?]
- Timeline: [By date]
- Responsible: [Who?]
─────────────────────────────────────────────────────────────
5.5 MONITORING DOCUMENTATION
Quality Management Metrics (Annual):
- Total engagements: [Number]
- Exceptions identified: [Number] ([%])
- Exceptions resolved: [Number]
- Unresolved: [Number]
- Average resolution time: [Days]
Trends to Monitor:
- Exception types: Any patterns?
- Root causes: Systemic issues?
- Teams: Any individuals with higher exceptions?
- Procedures: Any audit areas with quality issues?
Action Plan (Based on Trends):
- Trend identified: [Specific issue]
- Root cause: [Why is this happening?]
- Corrective action: [What's the fix?]
- Implementation: [By date]
- Measurement: [How will we know it worked?]
═══════════════════════════════════════════════════════════════
ANNUAL QUALITY MANAGEMENT REVIEW
─────────────────────────────────────────────────────────────
Quality Management File Update:
Annual Review Performed? ☐ Yes ☐ No
Reviewed By: [Title] ___________________
Date: _______________
Changes Made (if any):
☐ Competence requirements updated
☐ Independence procedures enhanced
☐ Procedures updated per new standards
☐ Acceptance/continuance criteria refined
☐ Monitoring process improved
New Items to Document:
- New standard implementations: [List]
- Process improvements: [List]
- Training programs: [List]
- Monitoring results: [Summary]
Approval:
Quality Management Partner: ___________________________
Partner Approval Date: _________________________________
═══════════════════════════════════════════════════════════════
END OF QUALITY MANAGEMENT FILE
Key Implementation Points
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Firm-Wide Document: This QM file applies to all service offerings (audits, reviews, compilations, agreed-upon procedures).
-
Update Annually: Review QM file each year (or when standards change, NFRA findings occur, or process improvements needed).
-
Real-Time Monitoring: Monitor quality throughout the year, not just at year-end. Escalate issues immediately.
-
Evidence of Compliance: Keep this QM file accessible. NFRA will request it during inspections.
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Train Your Team: All staff must understand these quality objectives and how they apply to their work, as part of the firm's full eight-component SQM1 system.
Related Resources
- SQM1 & EQR FAQs: Transition, Requirements & Documentation
- EQR Review Memo Template: SQM2 Compliance
- SQC 1 vs. SQM1: Transition Guide
About CORAA
CORAA helps Indian audit firms build SQM1-compliant quality management systems. Download templates and implement these quality objectives now — ICAI deferred the original mandatory date indefinitely in March 2026, with a new date yet to be announced.
Learn more: Visit our website
Sources
Topics
SQM1 templatequality managementquality objectivesfirm complianceaudit standards
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