The American Institute of CPAs (AICPA) on Thursday released a discussion paper seeking input from CPAs, regulators, financial statement users, and others in the profession on how better audit performance of private entities can be achieved.
The discussion paper summarizes a new multifaceted effort, Enhancing Audit Quality (EAQ), that the AICPA launched in May. AICPA President and CEO Barry Melancon said the goal of the initiative is to align the objectives of all audit-related AICPA efforts and collectively improve the quality of audit services delivered by the profession.
“EAQ is a holistic effort to consider auditing of private entities – including private companies, not-for-profit organizations, employee benefit plans, and governmental entities – through multiple touch points, especially where quality issues have emerged,” he said in a written statement.
The initiative consists of a two-phase approach. The first phase involves planned and proposed efforts that will immediately improve audit quality. Some of these efforts have already been approved by certain AICPA boards or committees and are underway, while others are ideas for exploration and comment.
The second phase centers around the transformation of the current peer review program for firms’ accounting and auditing engagements into a practice-monitoring process that marries technology with human oversight. It also makes a closer, more real-time connection among a firm’s accounting and auditing engagements, the AICPA, and the individuals performing the practice monitoring.
The discussion paper outlines the near- and longer-term plans and proposals that address quality issues related to financial statement audits of private entities. The AICPA is encouraging stakeholders to answer or comment on questions that accompany the efforts and ideas highlighted in the report. Those interested have until November 7 to provide their comments on the AICPA Community website. Comments can also be submitted during the comment period via email or letter to [email protected].
The AICPA noted that specific proposals and exposure drafts will be developed after the comment period ends and released for public comment, where applicable.
What Is Being Considered?
The following are the more significant changes and efforts that are highlighted in the discussion paper.
Competence and due care: Align the CPA exam with real-world practice for newly licensed CPAs; ensure that all CPAs who perform financial statement audits adhere to the requirements in the AICPA Code of Professional Conduct, including, but not limited to, competence and due care.
Auditing and quality control standards: Monitor the use of the AICPA Auditing Standards Board’s new clarified auditing standards to ensure they are being consistently understood and implemented to achieve high-quality audits; identify and better understand where and how audit issues occur and their root causes so revisions can be made to the appropriate standards and/or guidance; consider whether more specificity is needed in the quality control standards to drive quality performance.
Guidance, tools, learning, and resources: Enhance curricula, content, and methods of instruction to support the major topical areas the profession serves, including, but not limited to, challenging areas, such as employee benefit plan audits, governmental audits, and financial reporting; release a rigorous, profession-wide competency framework that has been validated by experts and regulators from around the globe; develop additional individual and suites of resources or educational courses based upon areas of concern uncovered in peer reviews.
Practice monitoring (peer review): Perform more extensive peer review procedures on high-risk and complex areas and engagements; address the risks posed by low-volume auditors of high-risk and complex engagements by requiring the firm – in all cases where material nonconformity with applicable professional standards is noted – to engage a third party to perform pre- or post-issuance reviews of those engagements in the future with periodic reporting to a peer review report acceptance body; evaluate firms’ engagements in “new” industries promptly, rather than waiting for their next peer review.
Ethics enforcement: Use publicly available information to proactively identify deficient audits (including governmental single audits and employee benefit plan audits) and require members to correct the deficiencies; consider sanctions, including admonishment, suspension, or expulsion from AICPA membership, when a firm has failed to provide the AICPA Peer Review Program with a complete list of engagements that should be subject to review. (The AICPA’s action would be reported to the appropriate regulators.)
“Integrity and objectivity are core values for the CPA profession,” said Bill Balhoff, AICPA chairman of the board of directors. “Additionally, CPAs focus heavily on providing quality services for clients, including audit services. Consistently performing high-quality audits is dependent upon adequate education and training, compliance with auditing and quality control standards, and experience working in specialized areas. Through the EAQ, the AICPA will reinforce the quality of audit services for private entities and address any issues that may be identified.”