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Quality control for the small firm.

Quality Control for the Small Firm

Does the quality of accounting work correlate with the size of the accounting firm? Some recent studies have suggested that small public accounting firms tend to perform lower quality accounting work than larger firms. While such findings are debatable, they suggest a need for small accounting firms to identify specific problem areas and investigate possible solutions to ensure the highest possible image of professionalism and competency regardless of size.

The AICPA Statement on Quality Control Standards provides guidance regarding independence, personnel assignment, consultation, supervision, hiring, professional development, advancement, client retention and inspection. However, the text is directed toward accounting firms in general. Small accounting firms, due to size, have their own unique quality control concerns.

Based on discussions with small firm personnel and a thorough review of the accounting literature, the following quality control suggestions and caveats that compliment the AICPA Statement on Quality Control Standards may provide additional help to small accounting firms.

1. Don't accept a job you aren't qualified to perform or which is more than you can handle efficiently and effectively. Low-quality work reflects not only on the professional who provides the service, but also on the entire profession. Because small accounting firms have few associates, each employee must be able to handle a greater variety of assignments than in large accounting firms with many employees. The large firms can allow the employees to specialize in a limited number of areas (industries and/or accounting functions). A one-owner accounting firm would have to be proficient in all areas of accounting to handle all engagements.

A possible solution might be a working relationship with another accounting firm to provide the necessary expertise when needed. The working relationship could be with a larger accounting firm possessing the skills most lacking in the small firm. Help can also be obtained through an association with faculty from local universities. With such an arrangement, jobs too large and those requiring expertise outside the realm of the small accounting firm can be accepted by the small firm with the knowledge that help will be available.

In addition to or in lieu of the above suggestion, a small firm may want to specialize and/or limit the number of services provided. Accounting firms that spent less than 10% of their time on audits were found to have a greater number of deficiencies. Specialization, however, would mean the small accounting firm would have to turn down business not in its area of expertise. Many small accounting firms are reluctant to do this because it means a loss of revenue. On the other hand, specialization can be a positive element which brings with it new clients.

2. Stay up-to-date. Continuing professional education for accountants and non-accountant employees is imperative. There is a mandatory minimum of CPE required for CPAs, but this is normally not enough. The field of accounting is constantly changing; therefore, it is necessary to keep abreast of the changes. The accountant must also avoid the temptation to meet CPE requirements by only taking tax updates. Although an accountant's tax practice may be the most significant portion of his or her practice, all areas of the firm's scope of services must constantly be updated.

The CPE must not be proportional to the billings of the firm. Staying up-to-date can be accomplished by attending formal continuing education seminars, completing home courses, keeping your library current and staying active in accounting organizations.

National and state societies offer continuing professional education courses and materials. Many established accounting firms also host CPE seminars, as do many local universities. Maintaining an up-to-date library, including accounting periodicals, and using the material is most effective. Active participation in accounting organizations generates discussion on current and new accounting issues.

3. Don't undercharge for services. Many firms, in the attempt to increase business, underbid jobs. Human nature tends to equate effort to fees, and the tendency to cut corners is tempting when the revenue does not justify the time. Keep in mind, however, that quality generates long-term business, while cutting out necessary steps will result in the loss of clients as well as the potential of issuing an incorrect opinion.

4. Use checklists. Obtain or prepare checklists detailing the necessary steps for an audit, review and compilation. Checklists can be used to ensure that all the vital steps of an engagement have been completed. It's a good way to double check to make sure all procedures have been completed. A number of accounting associations have checklists available at nominal cost.

5. Assure adequate review of your work. A small accounting firm doesn't have the several levels of employees used by large firms for quality control. A large accounting firm would have an audit reviewed by several accountants prior to issuance of an audit report. A small firm must find other ways of assuring quality.

One possible solution would be for several small firms to agree to review each other's work. A couple of hours at a partner level hourly rate would be a small price to pay to increase the quality of work. Such a relationship could generate new ideas and be an ongoing education for those involved.

Every accounting practitioner should maintain a professional attitude that encompasses the services he or she performs. Quality control is especially difficult for small accounting firms. However, with the appropriate effort and dedication, even the smallest firms can consistently perform high quality work.

Richard E. Coppage, DBA, CPA, CMA, is an associate professor of accounting at the University of Louisville. He has published in the Journal of Accountancy, CPA Journal and Tax Adviser, among others. His research has been cited in the Wall Street Journal on a number of occasions. He is a member of numerous professional organizations. Patricia Miller Selvy, ABD, CPA is an assistant professor of accounting at Bellarmine College. She received her ABD from Georgia State University. She is a member of AICPA and the Kentucky Society of CPAs.
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Title Annotation:accounting firms
Author:Coppage, Richard E.; Selvy, Patricia Miller
Publication:The National Public Accountant
Date:Oct 1, 1990
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