Can a Sole Practitioner Meet Quality Control Standards?

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The AICPA apparently believes a sole practitioner can comply with quality control standards for an accounting and auditing practice.  In its practice aid, Establishing and Maintaining a System of Quality Control for a CPA Firm's Accounting and Auditing Practice, it has included a section entitled, "System of Quality Control for a CPA Firm's Accounting Practice--Sole Practitioner." 

This practice aid, which has been revised for Statement on Quality Control Standards No. 7, A Firm's System of Quality Control, identifies policies and procedures for each of the six elements of quality control: 1) Leadership Responsibilities, 2) Relevant Ethical Requirements, 3) Acceptance and Continuance of Clients, 4) Human Resources, 5) Engagement Performance and 6) Monitoring.

We sole practitioners can easily modify this document by inserting our name wherever reference is made to "Sole Practitioner, CPA" and we will have our very own quality control document!  But is that all there is to it? Not quite.  SQCS No. 7 requires documentation of compliance with a firm's quality control policies and procedures.  Required documentation is not just independence forms in administrative files that evidence compliance.  It includes engagement documentation that demonstrates on-the-job application of policies and procedures. A table in the back of the practice aid identifies the likely location of the compliance documentation.

There are, however, several questions this practice aid doesn't answer.  Here are a few of the questions a sole practitioner may ask, along with some practical answers.

  1. How can a sole practitioner hold a planning meeting and "brainstorm" potential risks of misstatements due to error or fraud? My tongue-in-cheek answer is that we can just talk to ourselves a little more than usual!  Coming back to earth, a sole practitioner can plan an engagement effectively by considering "what could go wrong?" issues while completing a planning document or memorandum.  Documenting the potential risks and planned audit responses before fieldwork begins demonstrates compliance with audit standards, whether done by an engagement team or by a sole practitioner.
  2. How can a sole practitioner comply with the requirement to review audit documentation when he/she has performed and documented the auditing procedures?  The first step is to perform thorough self-review throughout the engagement and/or as the final step before report issuance. The second step is documenting the self-review by completing an Engagement Review Checklist  or writing a memorandum describing the self-review process and the responses to any findings.
  3. How can the sole practitioner find time to monitor quality control and perform the required "inspections" of engagements?  When an auditor plans an engagement, one of the first steps is reviewing the prior year's audit documentation.  This review can be considered the sole practitioner's annual inspection of engagements.  With reference to a peer review procedural checklist, a sole practitioner can monitor his/her own quality control procedures.  Documenting findings and any necessary corrective actions can demonstrate monitoring of quality control procedures for a few, or even all, of a sole practitioners attest engagements.
  4. How can a sole practitioner prevent  independence impairment from occurring due to a "familiarity threat" described in the AICPA's Conceptual Framework for AICPA Independence Standards? In close or longstanding relationships with attest clients, there is a risk a CPAs objectivity and professional skepticism may decrease.  In these circumstances, engagement documentation should be prepared that records the details of all research and the use of outside consultants to solve accounting, auditing and reporting problems. 

The answer to my headline question is absolutely!  By documenting compliance with quality control procedures in administrative files, and in engagement files as work is being performed, a sole practitioner can effectively and efficiently comply with quality control standards. Post a comment or email me (larry@cpafirmsupport.com) your questions about quality control standards for sole practitioners.

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Hi Larry, I am currently working on my dissertation on Audit Quality of Sole Practitioners in a community in the Philippines. I was wondering if you would have a template questionnaire which I can refer to.

Rosario C.. Manahan
Holy Angel University

Angeles City, Philippines