For each of the following procedures taken from the quality control manual of a CPA firm, identify the applicable element of quality control from Table 1 on page 38.
a. Appropriate accounting and auditing research requires adequate technical reference materials. Each firm professional has online password access through the firm’s Internet Web site to electronic reference materials on accounting, auditing, tax, SEC, and other technical information, including industry data.
b. Each office of the firm shall be visited at least annually by review persons selected by the director of accounting and auditing. Procedures to be undertaken by the reviewers are illustrated by the office review program.
c. All potential new clients are reviewed before acceptance. The review includes consultation with predecessor auditors, and background checks. All new clients are approved by the firm management committee, including assessing whether the firm has the technical competence to complete the engagement.
d. Each audit engagement must include a concurring partner review of critical audit decisions.
e. Audit engagement team members enter their electronic signatures in the firm’s engagement management software to indicate the completion of specific audit program steps. At the end of the audit engagement, the engagement management software will not allow archiving of the engagement file until all audit program steps have been electronically signed.
f. At all stages of any engagement, an effort is made to involve professional staff at appropriate levels in the accounting and auditing decisions. Various approvals of the manager or senior accountant are obtained throughout the audit.
g. No employee will have any direct or indirect financial interest, association, or relationship (for example, a close relative serving a client in a decision-making capacity) not otherwise disclosed that might be adverse to the firm’s best interest.
h. Individual partners submit the nominations of those persons whom they wish to be considered for partner. To become a partner, an individual must have exhibited a high degree of technical competence; must possess integrity, motivation, and judgment; and must have a desire to help the firm progress through the efficient dispatch of the job responsibilities to which he or she is assigned.
i. Through our continuing employee evaluation and counseling program and through the quality control review procedures as established by the firm, educational needs are reviewed and formal staff training programs modified to accommodate changing needs. At the conclusion of practice office reviews, apparent accounting and auditing deficiencies are summarized and reported to the firm’s director of personnel.
j. The firm’s mission statement indicates its commitment to quality, and this commitment is emphasized in all staff training programs.
TABLE 1 Elements of Quality Control
Element | Summary of Requirements | Example of a Procedure |
Leadership responsibilities for quality within the firm (“tone at the top”) | The firm should promote a culture that quality is essential in performing engagements and should establish policies and procedures that support that culture. | The firm’s training programs emphasize the importance of quality work, and this is reinforced in performance evaluation and compensation decisions. |
Relevant ethical requirements | All personnel on engagements should maintain independence in fact and in appearance, perform all professional responsibilities with integrity, and maintain objectivity in performing their professional responsibilities. | Each partner and employee must answer an “independence questionnaire” annually, dealing with such things as stock ownership and membership on boards of directors. |
Acceptance and continuation of clients and engagements | Policies and procedures should be established for deciding whether to accept or continue a client relationship. These policies and procedures should minimize the risk of associating with a client whose management lacks integrity. The firm should also only undertake engagements that can be completed with professional competence. | A client evaluation form, dealing with such matters as predecessor auditor comments and evaluation of management, must be prepared for every new client before acceptance. |
Human resources | Policies and procedures should be established to provide the firm with reasonable assurance that
| Each professional must be evaluated on every engagement using the firm’s individual engagement evaluation report. |
Engagement performance | Policies and procedures should exist to ensure that the work performed by engagement personnel meets applicable professional standards, regulatory requirements, and the firm’s standards of quality | The firm’s director of accounting and auditing is available for consultation and must approve all engagements before their completion. |
Monitoring | Policies and procedures should exist to ensure that the other quality control elements are being effectively applied. | The quality control partner must test the quality control procedures at least annually to ensure the firm is in compliance. |
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