At least annually, the individual assigned ultimate responsibility and accountability for the CPA firm's system of quality management is required to perform an evaluation of the system. This evaluation should result in a conclusion about whether the system provides reasonable assurance that its objectives are being achieved. This conclusion should be based primarily on:
- The absence of any litigation or regulatory inquiries against the firm.
- A survey of engagement partners' satisfaction with the firm's policies.
- The information obtained from the firm's monitoring and remediation process. (correct answer)
- The firm's profitability and growth compared to its competitors.
Explanation: The correct answer is C. The annual evaluation of the system of quality management must be evidence-based. The primary source of this evidence is the firm's own monitoring and remediation process, which includes inspections of completed engagements and other reviews. This information provides direct insight into how the system is designed and operating. A and D are not reliable indicators of quality; a firm could be profitable or avoid litigation through luck rather than a good system. B is subjective and may not reflect the actual effectiveness of the system.