Contents:

Introduction
Engagement Planning
Engagement Performance
Engagement Review
Financial Statement Presentation and Disclosures
Accountant / Auditor Reports
Reference Sources
Consultation Circumstances
Consultation Documentation

Peer Review Guide > Sample Recommendations for Strengthening Quality

Peer Review Guide > Sample Recommendations for Strengthening Quality

Introduction:

The suggestions in this section show ways you can revise your policies and procedures to improve engagement performance. Other alternatives may also exist that are more appropriate for your firm.

In terms of quality control, engagement performance covers the collective policies or procedures to follow when performing an engagement, whether the engagement is performed by only one person or several. The policies may be formal (as written in a quality control document) or informal (i.e. not written, but generally understood.)

Engagement performance relates meeting the requirements of professional standards, regulatory requirements and the firm’s own standards of quality. This area can be divided into five major subgroups: planning, performance, supervision, review, and communication of the engagement results, which entails financial statement presentation, disclosure, and reporting.

A firm must also have a system for managing and using the firm’s technical reference base. This system, also referred to as consultation, includes your library as well as available human resources (staff, firm owners, members of other firms, technical hot lines, etc.) Good consultation policies allow your firm to find proper answers to questions that arise during engagements. Effective policies assure you that new or unusual situations will be recognized, researched and resolved so that engagements conform to proper professional standards. Policies may be informal (i.e. not written, but generally understood) or formal (as written in a quality control document.)

Engagement Planning:

1. Review policies and procedures with firm personnel.
2. Develop guidelines for owner involvement in planning the engagement (e.g. extent of participation and approval of audit plan).
3. Develop workpaper and procedure requirements for planning areas such as risk assessment, materiality, analytical procedures, and internal control and consideration of fraud.
4. Prepare time budgets, if practical to do so.
5. Establish requirements for using and modifying work programs.
6. Conduct a pre-audit conference with members of the engagement team.
7. Review planning workpapers before fieldwork starts.
8. Update the permanent file before fieldwork starts.

Engagement Performance

1. Review general policies and procedures with members of the firm.
2. Develop and use standard workpaper formats.
3. Establish documentation standards for specific engagement areas.
4. Develop guidelines for on-the-job supervision.
5. Conduct periodic staff meeting to review recent technical pronouncements.
6. Review accounting and auditing guides that apply to the industries in which you practice.
7. Review the proper ways to complete checklists used by the firm.
8. Ask members of the firm to give an in-firm presentation about various areas of engagement performance.

Engagement Review

1. Review or establish procedures to be performed when reviewing workpapers, reports, financial statements and disclosures.
2. Establish guidelines for documenting the review process.
3. Establish procedures for circumstances when a person must review their own work. (One common solution is to set the work aside for a few days and approach the engagement with the frame of mind of an independent reviewer.
4. Adopt a second person review, if practical or appropriate to do so.
5. Adopt a policy of preparing a disclosure checklist prior to the review.
6. Foster a consistent philosophy toward engagement review (i.e., it applies to everyone.)

Financial Statement Presentation and Disclosures:

1. Review illustrative financial statements in audit and accounting guides for any presentation or disclosure requirements that might not be included in the firm’s pro forma financial statements.
2. Identify circumstances when a financial disclosure checklist should be used.
3. Establish when a disclosure checklists should be used.
4. Assign responsibility for maintaining current checklists.
5. Require that the financial statement disclosure checklist be reviewed as part of the engagement review.
6. Review the proper method of completing a disclosure checklist with firm members, including how to resolve and answer unfamiliar questions on the checklist.
7. Require checklist preparers to consult with another member of the firm (or other appropriate individual) when a question arises as to the applicability of a disclosure.
8. Establish a policy of monitoring recent pronounce for applicability.
9. Distinguish between circumstances when a disclosure element is not present (i.e., not applicable) and when it is present, but not material. Make the distinction on your disclosure checklist.

Accountant / Auditor Reports:

1. Adopt the use of reporting checklists.
2. Periodically review the types of reports commonly issued by the firm.
3. Provide examples of various reports for use by firm members.
4. Establish guidelines for communicating reportable conditions in audit engagements.
5. Compare reports used by the firm to examples in the professional literature.
6. Determine that the firm has complied with all current reporting requirements for specialized engagements, such as engagements subject to Government Audit Standards.

Reference Sources:

1. Review the library for current content on a regular basis.
2. Assign updating responsibilities to a specific person.
3. Call the AICPA Technical Hotline for assistance with technical questions.
4. Subscribe to a subscription service for references related to your firm’s practice areas.
5. Maintain current editions of industry audit and accounting guides.
6. Identify individuals (within the firm) who are specialists in particular areas.
7. Create a list of knowledgeable individuals (outside the firm) with whom you can consult.
8. Establish criteria for circumstances that require outside consultation or concurrence in complex areas.

Consultation Circumstances

1. Give firm members examples of situations requiring consultation.
2. Foster a positive attitude in the firm where personnel are encouraged to ask questions.
3. Inform staff of consultation requirements.
4. Network with other practitioners with similar practices.
5. Encourage upward communication of possible consultation situations.
6. Stress the importance of consultation in unusual situations.

Consultation Documentation:

1. Remind staff of the importance of documentation.
2. Develop guidelines for the content of consultation results.
3. Require documentation of consultations.
4. Maintain a file or a database of consultation results for use in similar client circumstances.
5. Show firm personnel how to integrate consultation results into engagement workpapers.

© 1998-2001, Duane Reyhl, CPA
  E-mail: dreyhl@reyhl.com

Updated: October 26, 2003