SDC & Associates, a medium-sized audit firm, is appointed as an auditor of Neuronix Ltd., a listed pharmaceutical company engaged in extensive…

As per SQC 1, "Quality Control for firms that perform audits and reviews of historical financial information, and other assurance and related services engagements", CA Rashi, as the engagement partner, is required to evaluate whether the firm has the capabilities, competence, time and resources to undertake an engagement, following matters have to be taken into consideration: - Firm personnel have knowledge of relevant industries or subject matters;Firm personnel have experience with relevant regulatory or reporting requirements, or the ability to gain the necessary skills and knowledge effectively;The firm has sufficient personnel with the necessary capabilities and competence;Experts are available, if needed;Individuals meeting the criteria and eligibility requirements to perform engagement quality control review are available, where applicable; andThe firm would be able to complete the engagement within the reporting deadline. Under SA 220, “Quality Control for an audit of financial statements”, the responsibility of an engagement partner in this regard in an audit engagement is on lines of SQC 1 which requires the firm should obtain such information as it considers 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 client. Information like integrity of principal owners, competence of engagement team and consideration of necessary capabilities including time and resources, compliance with relevant ethical requirements and significant matters arisen during current or previous audit engagement and their implications assist the engagement partner in determining whether the conclusions reached regarding the acceptance and continuance of client relationships and audit engagements are appropriate. In the given case: SDC & Associates lacks experience in pharmaceutical R&D audits, a highly regulated and technical field.The previous auditor's withdrawal citing scope limitations is a warning sign that must be evaluated.The engagement team lacks relevant expertise, and there is pressure from the managing partner to proceed regardless.Proceeding without addressing these issues would violate the requirements of SQC 1 and SA 220. CA Rashi must not proceed with the engagement unless satisfied that all conditions under SQC 1 and SA 220 are met. She should: Assess the firm's capability and consider engaging external experts.Understand the reason for previous auditor's withdrawal.Ensure that a qualified EQCR reviewer is appointed and review is completed before issuing the audit report. This will help maintain audit quality, ensure compliance with professional standards, and protect the firm from regulatory repercussions.