Establishing and Maintaining a System of Quality Control for a CPA Firm's Accounting and Auditing Practice - Practice Aid

This AICPA Audit and Accounting Practice Aid updates the 2004 edition of Establishing and Maintaining a System of Quality Control for a CPA Firm’s Accounting and Auditing Practice. This Practice Aid is intended to help practitioners better understand and apply Statement on Quality Control Standards (SQCS) No 7. SQCS No. 7 is included as Appendix A of this Practice Aid. This version of the Practice Aid, prepared by the Quality Control Standards Task Force, has been revised to incorporate new policies and procedures that a firm should consider including in its system of quality control to be responsive to the issuance of SQCS No. 7.

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CHAPTER 1: OVERVIEW OF STATEMENTS ON QUALITY CONTROL STANDARDS

1.01 The objectives of a system of quality control are to provide a CPA firm with reasonable assurance that the firm and its personnel comply with professional standards and applicable regulatory and legal requirements, and that the firm or engagement partners issue reports that are appropriate in the circumstances. Statement on Quality Control Standards (SQCS) No. 7, A Firm’s System of Quality Control (AICPA, Professional Standards, vol. 2, QC sec. 10), was issued by the Auditing Standards Board of the AICPA in October 2007 and is effective for a firm’s accounting and auditing practice as of January 1, 2009. This standard supersedes all previously issued SQCSs.

1.02 A system of quality control consists of policies designed to achieve the objectives of the system and the procedures necessary to implement and monitor compliance with those policies. The nature, extent, and formality of a firm’s quality control policies and procedures will depend on various factors such as the firm’s size; the number and operating characteristics of its offices; the degree of authority allowed to, and the knowledge and experience possessed by, firm personnel; and the nature and complexity of the firm’s practice.

COMMUNICATION OF QUALITY CONTROL POLICIES AND PROCEDURES

1.03 The firm should communicate its quality control policies and procedures to its personnel. Most firms will find it appropriate to communicate their policies and procedures in writing and distribute, or make available electronically, them to all professional personnel.

1.04 Effective communication includes the following:

• A description of quality control policies and procedures and the objectives they are designed to achieve
• The message that each individual has a personal responsibility for quality
• A requirement for each individual to be familiar with and to comply with these policies and procedures

Effective communication also includes procedures for personnel to communicate their views or concerns on quality control matters to the firm’s management.

ELEMENTS OF A SYSTEM OF QUALITY CONTROL

1.05 A firm’s system of quality control should include policies and procedures that address each of the following elements of quality control identified in SQCS No. 7:

• Leadership responsibilities for quality within the firm (the “tone at the top”)
• Relevant ethical requirements
• Acceptance and continuance of client relationships and specific engagements
• Human resources
• Engagement performance
• Monitoring

1.06 The elements of quality control are interrelated. For example, a firm continually assesses client relationships to comply with relevant ethical requirements, including independence, integrity, and objectivity, and policies and procedures related to the acceptance and continuance of client relationships and specific engagements. Similarly, the human resources element of quality control encompasses criteria related to professional development, hiring, advancement, and assignment of firm personnel to engagements, all of which affect policies and procedures related to engagement performance. In addition, policies and procedures related to the monitoring element of quality control enable a firm to evaluate whether its policies and procedures for each of the other five elements of quality control are suitably designed and effectively applied.

1.07 If a firm merges, acquires, sells, or otherwise changes a portion of its practice, the surviving firm evaluates and, as necessary, revises, implements, and maintains firm-wide quality control policies and procedures that are appropriate for the changed circumstances.

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