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System Reviews
Reports:
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LOC Findings:
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- Monitoring  

Engagement Review
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Report Review
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LOR Samples
 - System reviews
 - Engagement reviews

Updated 2/13/2005

m01
Back to Monitoring Index

Symptom: Departures from standards not identified and corrected on a timely basis
System Cause: Lack of effective monitoring policies and procedures

Comment - The firm's quality control policies and procedures do not require that inspections or post-issuance review procedures be performed as part of its monitoring procedures. If an adequate inspection or post-issuance review procedures had been performed, many of the departures from professional standards noted during the review could have been identified and corrected on a timely basis.

Recommendation - The firm should revise its quality control policies and procedures to require that inspections or post-issuance review procedures be performed. The inspections or post-issuance review procedures should address each element of quality control, including engagement performance. The quality control policies and procedures should also require the preparation of a written communication that summarize any deficiencies identified and document the actions taken or planned to prevent similar deficiencies from occurring in the future.

m02
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Symptom: Departures from standards not identified and corrected on a timely basis
System Cause: Did not follow policy to perform annual inspection or post-issuance review

Comment - The firm's policies and procedures require the firm to perform inspections or post-issuance review procedures. However, during our review, we noted that the firm did not perform annual inspections or post-issuance review procedures as required by the firm's policy. Had an adequate and timely inspection had been performed or had sufficient post-issuance review procedures been completed during the year, many of the departures from professional standards that were noted during our review would have been identified, communicated to other members of the firm and corrected.

Recommendation - The firm should comply with its policies and procedures regarding inspections and post-issuance review procedures.

m03
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Symptom: Results of inspection or post-issuance review are not summarized
System Cause: Policy does not require summarization of inspection results

Comment - The firm's inspection and post-issuance review procedures policies and procedures require neither the preparation of memoranda summarizing the results of the inspection program or post-issuance review procedures nor the implementation of corrective actions. As a result, the firm did not document its monitoring of the actions taken in response to findings.

Recommendation - The firm should revise its quality control policies and procedures to require the preparation of an inspection or post-issuance review memorandum summarizing findings, indicating recommended corrective actions, and setting timetables for completing the corrective actions. At a minimum, the memorandum should be distributed to key management personnel.

m04
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Symptom: Inspection did not detect deficiencies expected to be detected
System Cause: Policy does not include all procedures required for an inspection

Comment - Although the firm's quality control policies and procedures require an annual inspection, the procedures are informal and do not include a consideration of all elements of quality control. Specifically, some administrative tests are not performed and the tests of engagements are not as complete as they should be. As a result, while the firm detected some of the deficiencies noted during the review, others were not detected. If a more comprehensive inspection had been performed, many of the minor departures from professional standards noted during the review could have been identified and corrected on a timely basis.

Recommendation - The firm should revise its quality control policies and procedures to expand the nature of the annual inspection performed. The firm's inspections should address each of the elements of quality control in addition to engagements. The quality control policies and procedures should also require the preparation of written inspection reports that summarize the deficiencies identified and document the actions taken or planned to prevent similar deficiencies from occurring in the future.

m05
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Symptom: Specialized industry considerations not covered in inspection
System Cause: Policy does not require inspectors to have specialized industry knowledge

Comment - The firm's inspection policies and procedures omit specialized industry knowledge as criteria in selecting inspectors. As a result, a manager reviewed several engagements in a specialized industry with which the manager had little knowledge and failed to identify several omitted procedures. Our review of engagements in this industry, however, did not disclose any significant departures form professional standards.

Recommendation - The firm should revise its quality control policies and procedures to include technical expertise and relevant specialized industry knowledge as a criteria in selecting inspectors. In doing so, the firm can implement appropriate corrective actions for inspection findings.

m06
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Symptom: Inspection did not detect engagement deficiencies expected to be detected
System Cause: Policy does not require the use of any practice aids to assist with engagement review portion of inspection

Comment - Although the firm's quality control policies and procedures require inspection procedures or post-issuance review procedures, the procedures for tests of engagements are informal and do not include the use of any reference materials when performing a review of engagement workpapers, reports or financial statements. As a result, the firm did not detect most of the deficiencies noted during the review.

Recommendation - The firm should expand its quality control policies and procedures for inspection or post-issuance review procedures to include the use of current and comprehensive practice aids when performing inspection or post-issuance review procedures related to engagement performance. This reference material should allow the firm to address the relevant aspects of reporting, financial statement presentation and disclosure and workpaper sufficiency. Finally, the inspection or post-issuance review procedures should include the preparation of written summary of any deficiencies identified and documents the actions taken or planned to prevent similar deficiencies from occurring in the future.

m07
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Symptom: Inspections not performed timely
System Cause: Firm did not comply with its policy

Comment - The firm's policies and procedures require the firm to perform annual internal inspections. However, during our review, we noted that the firm did not perform timely annual inspections as required by the firm's policy.

Recommendation - The firm should comply with its policies and procedures regarding the performance of timely annual inspections. One way to accomplish this would be to calendar the commencement of the inspection for a specific date and schedule specific individuals who will be responsible for performing the inspection.

m08
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Symptom: Performance not monitored for all industries in which the firm practices
System Cause: Monitoring procedures are sufficiently comprehensive

Comment - As part of its monitoring procedures, the firm requires pre-issuance reviews of each report, the accompanying financial statements, and the related working papers for engagements in specialized industries by both the engagement owner and an owner who is not associated with the engagement. However, the firm does not monitor performance on engagements in other industries of its practice.

Recommendation - The firm should revise its quality control policies and procedures to make sure pre-issuance reviews encompass engagements in each industry in which the firm practices or monitor compliance with the firm's policies and procedures through periodic inspections on these engagements.

m09
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Symptom: Post-issuance monitoring findings not communicated to the firm
System Cause: Current policy does not provide for communication of findings

Comment - The firm's quality control policies and procedures provide for a post-issuance review of engagements to serve as one of its monitoring procedures to provide evidence that the firm's system of quality control is suitably designed. However, we noted that the firm's policy does not identify a mechanism for timely communication to the firm's personnel regarding any findings resulting from the monitoring procedures.

Recommendation - The firm should develop a procedure to ensure that all staff are informed timely of the results of the monitoring procedures, appropriate actions are planned to implement corrective measures, and appropriate personnel charged with the responsibility of ensuring the planned actions are taken.

m10
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Symptom: Noncompliance with firm policies and procedures not timely communicated
System Cause: Ineffective post-issuance review procedures

Comment - The firm's policies and procedures require that the firm's post-issuance review be sufficiently comprehensive to enable the firm to assess compliance with all applicable professional standards and the firm's quality control policies and procedures. During our review of several engagements, we noted ineffective post-issuance review in monitoring the firm's adherence to its quality control policies and procedures. This ineffective post-issuance review resulted in the firm not complying with its policies and procedures for timely communication of engagement deficiencies to appropriate professional staff.

Recommendation - We recommend that the firm hire an outside party to monitor the effectiveness of the firm's post-issuance review, identify systemic reasons for engagement deficiencies, and communicate such deficiencies timely to appropriate professional staff.

Peer Review Guide > Report and LOC Guide > Sample LOC Findings