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 third Q&A article in a series highlighting frequent inquiries addressed by the MACPA Peer Review Task Force. Additional questions on monitoring will be addressed in future issues of Leaders’ Edge.

Q – We purchase practice aids from a third party. How does this affect our monitoring function?

A – Confirming that audit programs and other practice aids comply with professional standards is a significant component of the monitoring function. Therefore, it is important for the firm to verify that they comply with professional standards by obtaining the vendor’s peer review report covering the items being used and to test the firm’s use of third party practice aids to make sure the version used is up-to-date, and they are implemented as intended.

Q – Who is qualified to perform our monitoring procedures?

A – The ultimate responsibility for the quality of the firm’s A&A practice rests with the firm’s owners. The persons selected to implement the monitoring function should have substantial knowledge, experience and authority within the firm to identify issues, recommend improvements and follow through on implementation.

Q – We frequently perform pre-issuance or post-issuance reviews. Do we still need to perform an inspection?

A – Inspection procedures may be performed at fixed times covering specified periods, as part of ongoing quality control procedures or a combination thereof. Documented pre-issuance or post-issuance review procedures may constitute inspection procedures provided they are conducted by (or under the supervision of) appropriate management-level individuals who are not directly associated with the performance of the engagement.

Further, the reviews must be sufficiently comprehensive to enable the firm to assess compliance with professional standards and the firm’s quality control policies and procedures. Findings indicating a need for changes to or improved compliance with policies and procedures must be periodically summarized and communicated so the systemic causes are identified and appropriate action taken on a timely basis.

Q – We have a limited number of management-level individuals. How can we comply with this requirement?

A – In small firms with a limited number of qualified management-level individuals, post-issuance reviews by the person with final responsibility for the engagement may constitute inspection procedures provided the other provisions listed above are followed. However, it is often difficult to monitor one’s own compliance and maintain an attitude of continual improvement. Accordingly, you may find it beneficial to engage a qualified individual from outside the firm to perform inspection procedures.

Q – Are there special considerations for sole practitioners?

A – Where monitoring is being performed by the same person who is also responsible for compliance, a critical review of his/her own performance, assessment of his/her strengths and weaknesses, and maintenance of an attitude of continual improvement are crucial. Changes in conditions may indicate the need for another qualified person to monitor the sole practitioner’s quality control policies and procedures. In either case, a written summary report should be prepared on the scope and results of the monitoring procedures and the corrective actions the firm plans to take.

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