Proposed statements on quality control standards : System of quality control for a CPA firm's accounting and auditing practice, and Monitoring a CPA firm's accounting and auditing practice ;System of quality control for a CPA firm's accounting and auditing practice;Monitoring a CPA firm's accounting and auditing practice; Exposure draft (American Institute of Certified Public Accountants), 1995, Aug. 18
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The Auditing Standards Board (ASB) is considering the issuance of two Statements on Quality Control Standards (SQCSs) to provide a CPA firm with improved guidance for establishing a quality control system for its accounting and auditing practice. The AICPA Division for CPA Firms SEC Practice Section Peer Review Committee and Private Companies Practice Section Peer Review Committee and the AICPA Peer Review Board (collectively the AICPA practice-monitoring committees) have observed that there is a diversity in practice and existing guidance does not address a number of issues CPA firms should consider in establishing a quality control system and suggested the ASB perform a comprehensive review of the existing quality control standard. The proposed standards have been developed based on the recommendations of the Joint Task Force on Quality Control Standards, which was formed to develop general guidance for a system of quality control. In addition to ASB representation, the task force is composed of representatives of the AICPA practice-monitoring committees, the AICPA Management Consulting Services Executive Committee, the AICPA Personal Financial Planning Executive Committee and the AICPA Tax Executive Committee. Although the latter three committees have representatives on the joint task force, the system of quality control described in the exposure drafts would be required only for a firm's accounting and auditing practice. The AICPA practice-monitoring committees have reviewed the exposure drafts and have advised the ASB that, although modifications will need to be made to their peer review programs, these changes are not expected to result in an expansion of peer review to services provided beyond a firm's accounting and auditing practice. The proposed general standard redefines a firm's accounting and auditing practice to include all audit, attest, and accounting and review services for which professional standards have been established by the ASB or the Accounting and Review Services Committee under rules 201 and 202 of the AICPA Code of Professional Conduct. The definition of a firm's accounting and auditing practice would include engagements performed under Statements on Standards for Attestation Standards issued by the ASB. These standards had not been issued when SQCS No. I, System of Quality Control for a CPA Firm, was promulgated. While not establishing any new elements of quality control, the proposed standards would replace the nine specific elements discussed in SQCS No. 1 with five broad elements. While many aspects of the previous nine elements have been retained, the following discussion highlights significant changes: 1. Independence, Integrity, and Objectivity â€” This element replaces the SQCS No. 1 element of Independence. It provides added emphasis on the importance of these matters to a firm's quality control system and provides a description of the concept of independence. 2. Personnel Management â€” This element combines the previous four elements of Hiring, Advancement, Assigning Personnel to Engagements, and Professional Development to emphasize their interrelationship, since the goal of each is to have personnel performing, supervising, and reviewing work who possess the characteristics of integrity, objectivity, competence, experience, intelligence, and motivation. This element adds a requirement for firms to establish policies and procedures to meet the continuing professional education requirements of the AICPA and regulatory agencies such as state boards of accountancy and the U.S. General Accounting Office. 3. Acceptance and Continuance of Clients and Engagements â€” SQCS No. 1 limited the Acceptance and Continuance of Clients element to a discussion of the need to consider the integrity of management in the acceptance and continuance of clients. This element has been broadened to include consideration of the acceptance of client engagements (as opposed to a client relationship) to ensure a firm has in place policies and procedures to provide reasonable assurance that the firm will undertake only those engagements that can be completed with professional competence. A requirement has also been included that policies and procedures provide for obtaining an understanding with the client regarding the nature, scope, and limitations of the services to be performed. 4. Engagement Performance â€” The practice-monitoring committees have found that practitioners often confused the existing Supervision element with the supervision requirements of the first standard of field work under generally accepted auditing standards. The retitled element includes the SQCS No. 1 elements of Supervision and Consultation and discusses a firm's need to establish policies and procedures to cover planning, performing, supervising, reviewing, documenting, and communicating the results of each engagement in accordance with applicable professional standards. 5. Monitoring â€” This element encompasses and expands the prior Inspection element. Inspection has been deemed to be a retroactive evaluation of compliance with professional standards and review of the continuing appropriateness of a firm's quality control 990 policies and procedures and the firm's compliance with them. Monitoring involves an ongoing consideration and evaluation relating to the design and application of each of the other elements of quality control. The proposed monitoring standard describes how inspection procedures contribute to the monitoring function. It also describes other procedures or activities that can contribute to the monitoring function. These proposed Statements would supersede SQCS No. 1 and its interpretations in their entirety. Issuance of the proposed Statements would also require the Guide Quality Control Policies and Procedures for CPA Firms: Establishing Quality Control Policies and Procedures (AICPA, Professional Standards, vol. 2, QC sec. 90) to be updated. As a result of the issuance of these Statements and updating the Guide, firms with well-established quality control systems should not have to make significant modifications to their policies and procedures.
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American Institute of Certified Public Accountants. Auditing Standards Board, "Proposed statements on quality control standards : System of quality control for a CPA firm's accounting and auditing practice, and Monitoring a CPA firm's accounting and auditing practice ;System of quality control for a CPA firm's accounting and auditing practice;Monitoring a CPA firm's accounting and auditing practice; Exposure draft (American Institute of Certified Public Accountants), 1995, Aug. 18" (1995). Statements of Position. 615.