SQCS No. 7 requires all CPA firms performing audits to establish and maintain a system of quality control to provide reasonable assurance of compliance with the requirements of applicable auditing standards. A firm’s quality control policies and procedures must be evidenced in a quality control document and in administrative and engagement files.
In the early years of implementation, most of us thought of a system of quality control as just a compliance function requiring more policies, more documentation and more work. Actually, a quality control system that is uniquely designed for the nature and size of a CPA firm’s practice, and that is integrated into its accounting and auditing practice, can actually save time and reduce costs!
To illustrate let’s consider some of the policies for one of the most important elements of a quality control system, leadership involvement. The engagement leader is the pinnacle of a quality control system. The leader’s involvement on an engagement during the planning, performance and completion phases not only assures compliance with the auditing standards, it can ensure the engagement is completed in the most efficient manner. Here are some examples of a leader’s involvement on an audit engagement and the related benefits:
1. Delivering the engagement letter. The engagement leader should deliver the engagement letter before the in-charge accountant begins work. The contents of the letter, changes in operating and accounting methods, any fraud issues and going concern problems are a few of the items that should be discussed with the client. Information obtained by the leader should be documented for use by the in-charge accountant while planning the engagement.
2. Preplanning meeting. During the leader’s meeting with the in-charge accountant before engagement planning begins, the leader should discuss current client events, information obtained when delivering the engagement letter and anticipated audit strategies. This communication will enable the in-charge to plan the engagement with current information and an understanding of the leader’s expectations.
3. Brainstorming/Planning Meeting. This meeting should be attended by all engagement personnel, including the leader. The leader should guide the meeting, the risk evaluation, the formulation of the audit strategy and the design of the audit plan. As the engagement team begins fieldwork, each person can complete their assignments in the ways expected by the leader.
In each of these circumstances, the leader is carrying out quality control policies and procedures. The leader has obtained first-hand information from the client, has provided supervision of the in-charge accountant and controlled the engagement planning process. Without this involvement, considerable time may be wasted by ineffective planning activities, performing unnecessary fieldwork and preparing improper audit documentation. On top of all this, ineffective leader involvement throughout the engagement will cause review and wrap-up time to sky rocket!
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