Quality review standards interpretations.
AMENDED INTREPRETATION NO. 1 --REVIEWS Of SOLE PRACTITIONERS WHO AUDIT HISTORICAL OR PROSPECTIVE FINANCIAL STATEMENTS
.01 Standards for Performing and Reporting on Quality Reviews requires firms that perform audits of historical or prospective financial stataements to have on-site quality reviews (AICPA Quality Review Program Manual, QRP section 3000.04). The review should provide the reviewer with a reasonable basis for expressing an opinion on whether during the year under review the reviewed firm's system of quality control for its accounting and auditing practice met the objectives of quality control standards established by the AICPA and was being complied with in order to provide the reviewed firm with reasonable assurance of conforming with professional standards.
.02 To achieve those objectives, the reviewer is required to test administrative and personnel files; review selected engagements, including the relevant working paper files and reports; interview firm personnel; access other evidential matter, as appropriate; and communicate his or her conclusions to senior members of the reviewed firm at an exit conference. It was contemplated that these procedures would be performed in the most practicable, costeffective manner during a visit to the reviewed firm and, thus, the term "on-site quality reviews" was used in the Standards. However, many sole practitioners believe that their reviews could be carried out at less cost if they were permitted to send the required files, reports, and other evidential matter to the reviewer.
.03 A review conducted at the reviewer's office or another agreed-upon location can achieve the objectives of an on-site quality review and can be described as such in the reviewer's report provided that (1) the reviewed firm is a sole practitioner with four or fewer professional staff; (2) the sole practitioner holds one or more meetings, by telephone or in person, with the reviewer to discuss the firm's responses to the quality control policies and procedures questionnaire, engagement findings, and the reviewer's conclusions on the review; and (3) in addition to materials outlined in the "Instructions to Firms Having an On-Site Quality Review" (see QRP section 4100.07), the sole practitioner sends the following materials to the reviewer prior to the review:
a. All documentation related to the resolution of independence questions (a) identified during the year under review with respect to any audit or accounting client or (b) related to any of the audit or accounting clients selected for review, no matter when the question was identified if the matter still exists during the review period.
b. The most recent independence confirmations received from other firms of CPAs engaged to perform segments of engagements on which the sole practitioner acted as principal auditor or accountant.
c. The most recent representations received from all professional staff concerning their compliance with applicable independence requirements.
d. Documentation, if any, of consultations with outside parties during the year under review in connection with audit or accounting services provided to any client.
e. A list of relevant technical publications used as research materials, as referred to in question B.4 of the Questionnaire (see QRP sections 4200.02. B.4 and 4300.02. C .4).
f. A list of audit and accounting materials, if any, identified in response to the questions in the "Supervision" section of the Questionnaire (see QRP section 4200.02. C).
g. CPE records sufficient to demonstrate compliance by the CPAs in the firm with state and AICPA continuing professional education requirements.
h. The relevant worldng paper files and reports on the engagements selected for review.
i. Any other evidential matter requested by the reviewer.
.04 In the event that deficiencies are noted during the review of selected engagements, the scope of the review may have to be expanded before the review can be completed.
.05 A sole practitioner and the reviewer should mutually agree on the appropriateness and efficiency of this approach to the quality review.
INTREPRETATION NO. 7-SELECTION OF SEC ENGAGEMENTS IN ON-SITE QUALITY REVIEWS
.01 Question--Firms that audit one or more SEC clients as defined by Council in an implementing resolution under bylaw section 2.3.5 may enroll in the quality review program only when they have resigned, declined to stand for re-election, or been dismissed as auditor of all such clients. In that event, should one or more of such engagements be selected for review in the firm's on-site quality review?
.02 Interpretation--The Standards for Performing and Reporting on Quality Reviews states that "greater weight should be given to audit engagements... in which there is a significant public interest, such as publicly held clients, financial and lending institutions, and brokers and dealers in securities." This guidance applies to all SEC audit engagements carried out during the year under review, whether or not the entities involved remain clients of the firms.
.03 In addition, the reviewer should satisfy himself or herself that the SEC has been notified by appropriate filings of Form 8-Ks that the firm has resigned, declined to stand for re-election, or been dismissed as auditor of the SEC clients that were clients at any time since the date of the firm's last peer review or quality review or during the year under review if the reviewed firm has not previously had a review.
The following revised definition of "firm" was adopted by the American Institute pf CPA's professional ethics executive committee pursuant to the adoption of new Ethics Rule 505 (see J of A, June 92, page 143): 92.05. Firm--A form of organization permitted by state law or regulation whose characteristics conform to resolutions of Council that is engaged in the practice of public accounting, including the individual owners thereof.
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|Publication:||Journal of Accountancy|
|Date:||Jul 1, 1992|
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