When the first quality control standard was issued by the AICPA in the 1980s, most of the requirements were viewed by CPA firms as a compliance function. Most documentation prepared by CPA firms was included in administrative files; little documentation appeared in engagement files. SQCS No. 7 made it clear that documentation of quality control standard’s requirements should be included in both administrative and engagement files.
Actually the purpose of the quality control standards has always been two-fold; to improve both the quality and the efficiency of attest engagements. Not only does the timely performance of the requirements of quality control standards facilitate compliance with auditing standards, it enables an audit team to maximize time savings on engagements!
From the Engagement Performance section of the AICPA’s practice aid, Establishing and Maintaining a System of Quality Control for a CPA Firm’s Accounting and Auditing Practice, here are a few of the policies and procedures that should be evidenced in engagement documentation files:
Assigning responsibilities to appropriate personnel during the planning phase:
• Developing or updating background information on the client and the engagement.
• Considering client significance to the firm.
• Developing a planning document that includes the following:
— Proposed work programs tailored to the specific engagement.
— Staffing requirements and the need for specialized knowledge.
— Consideration of the economic conditions affecting the client and its industry and their potential effect on the conduct of the engagement.
— The risks, including fraud considerations, affecting the client and the engagement and how the risks may affect the procedures performed.
— A budget that allocates sufficient time for the engagement to be performed in accordance with professional standards and the firm’s quality control policies and procedures.
The engagement is performed, supervised, documented, and reported (or communicated) in accordance with the requirements of professional standards, applicable regulators, and the firm:
• Providing adequate supervision during the course of an engagement, including briefing the engagement team on the objectives of their work. The training, ability, and experience of the personnel are considered when assigning supervisors to the engagement.
• Requiring that a written work program be used in all engagements.
• Addressing significant issues arising during the engagement, considering their significance, and appropriately modifying the planned approach.
• Adhering to the guidelines set forth by the firm for the form and content of documentation of the work performed and conclusions reached. Such documentation includes standardized forms, checklists, and questionnaires used in the performance of engagements and explanations, when required, of how the firm integrates such aids into engagements.
• Requiring engagement documentation in accordance with professional standards, applicable regulatory requirements, and the firm’s policies.
Finally, significant time savings from good engagement documentation of quality control standards occur during peer reviews and internal inspections between peer review years. When compliance with the quality control standards are documented during engagement performance and thoroughly reviewed by the engagement leader, it isn’t necessary to spend time preparing for the peer review and the completion of the peer review will take less time. Findings from internal inspections should fewer and the inspections also should take less time. The bottom line is that a good quality control system for a CPA firm can make a major contribution to firm and engagement profitability.
For a more detailed study of quality control policies and procedures, my live and on-demand webcast, Saving Time with Quality Control, is available by clicking the applicable box on the left side of our website, www.cpafirmsupport.com.