By Robert C. Thompson, CPA, Dennis, Gartland & Niergarth, and member of the MACPA Peer Review Task Force
Quality control standards continue to generate questions and confusion regarding monitoring and the peer review process, despite the fact that Statement of Quality Control Standard No. 3, Monitoring a CPA Firm’s Accounting and Auditing Practice, went into effect ten years ago. This is the fifth and final Q&A article in a series highlighting frequent inquiries addressed by the MACPA Peer Review Task Force. Links to all previous articles are found below.
Q – What are the most common deficiencies related to monitoring found in peer reviews?
A – The most common deficiencies found in peer reviews are failure to implement the firm’s monitoring policies and procedures, ranging from a complete absence of monitoring activity to a failure to extend monitoring to non-audit services (e.g., compilations and reviews). Other problem areas include failure to perform annual inspections, including the functional elements of quality control as required by the firm’s policies and procedures, and failure to properly document compliance with the firm’s policies and procedures.
Q – What will our peer review report say if we have weaknesses in our monitoring function?
A – If there are no comments in the Letter of Comments (LOC) and you have marginal performance or marginal documentation related to monitoring, then the peer reviewer will discuss the monitoring issue at the exit conference. If there was no monitoring performed and/or documented, then you will receive an LOC reporting the lack of documentation or performance of monitoring unless you also have deficiencies resulting in a modified or adverse report. If such deficiencies are reported, then an additional deficiency will be noted in the modified/adverse report for the lack of documentation or performance of monitoring.
Links to previous Peer Review Q&A articles:
Nov/Dec 2007
http://leadersedge.michcpa.org/novdec07/pm_prqa.asp
Sep/Oct 2007
http://leadersedge.michcpa.org/sepoct07/lr_prqa.asp
Jul/Aug 2007
http://leadersedge.michcpa.org/julaug07/lr_prqa.asp
May/Jun 2007
http://leadersedge.michcpa.org/mayjun07/lr_Peerreview.asp