The AICPA Code of Professional Conduct requires firms providing auditing, attestation, and accounting and review services to adopt a system of quality control.
A quality control system consists of policies and procedures designed, implemented, and maintained to ensure that the firm complies with professional standards and appropriate legal and regulatory requirements, and that any reports issued are appropriate in the circumstances.
Statements on Quality Control Standards (SQCS) are issued by the Auditing Standards Board to provide guidance with respect to quality control.
The six interrelated elements of quality control are:
Human resources: This element encompasses criteria for recruitment and hiring, determining capabilities and competencies, assigning personnel to engagements, professional development, and performance evaluation, compensation, and advancement.
Engagement/client acceptance and continuance: Policies and procedures should be established for deciding whether to accept or continue a client relationship and whether to perform a specific engagement.
Leadership responsibilities: The firm's leadership bears ultimate responsibility for the firm's quality control system, and should create a culture that emphasizes quality. The "tone at the top" influences attitudes throughout the firm.
Performance of the engagement: Policies and procedures should be established to: (a) achieve a consistently high level of performance; (b) ensure that the engagement is appropriately supervised, and that work is appropriately reviewed; (c) maintain confidentiality, safe custody, integrity, accessibility, retrievability, and retention of engagement documentation; (d) Allow consultation with experts inside or outside the firm with respect to complex, unfamiliar, unusual, difficult, or contentious issues; (e) provide a means to resolve differences of opinion; and (f) establish and follow guidelines with respect to determining when an engagement quality control review should be performed.
Monitoring: Policies and procedures should be established to provide the firm with reasonable assurance that its quality control system is relevant, adequate, operating effectively, and complied with in practice.
Ethical requirements: Policies and procedures should be established to provide the firm with reasonable assurance that personnel maintain independence (in fact and in appearance) in all required circumstances, perform all professional responsibilities with integrity, and maintain objectivity in discharging professional responsibilities.
The nature and extent of a firm's quality control policies and procedures depend on: (a) the firm's size; (b) its organizational structure; (c) the nature and complexity of its practice; (d) the degree of operating autonomy allowed its personnel and its individual offices; and (e) cost-benefit considerations.
Quality control policies and procedures should be communicated to firm personnel. Communication should include procedures and objectives, and should emphasize personal responsibility and the importance of feedback. Written communication is not required, but it can be helpful.
The firm should document its quality control policies and procedures. The extent of documentation may vary based on the size, structure, and nature of the firm. Documentation should be retained for a sufficient period of time.
Generally accepted auditing standards and quality control standards are not synonymous. GAAS relate to the conduct of each individual audit engagement, whereas quality control standards relate to the conduct of all professional activities of the firm's practice as a whole. The quality control standards of a firm affect both the performance of each audit and the performance of the audit practice as a whole.
All work performed on the audit should be reviewed to determine whether the work was adequately performed and documented and to evaluate the results of the work relative to the conclusion to be presented in the audit report. The partner with final responsibility for the audit may delegate some of the review responsibility to other members of the audit team, consistent with the firm's system of quality control. Work should be reviewed by members of the audit team who are senior to those who performed the work.
The auditor has specific responsibilities regarding quality control procedures when performing engagements for non issuers in accordance with U.S. GAAS. Such engagements include non issuer financial statement audits, reviews of the interim financial statements of nonissuers, and government financial audits performed in accordance with GAAS. As part of a firm's system of quality control, engagement teams have a responsibility to implement quality control procedures that are applicable to the engagement. Engagement teams should also provide the firm with information related to the independence of the engagement team.
PCAOB standards require an engagement quality review and concurring approval of audit report issuance for all audits of issuers and for each engagement to review the interim financial statements of an issuer. Many firms also require engagement quality reviews for nonissuer audits.
Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?
Which of the following is not true about the relationship between quality control standards and professional standards such as GAAS?