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A Firm’s System of Quality Control 3261

QC Section 10

A Firm’s System of Quality Control

(Supersedes SQCS No. 7.)

Source: SQCS No. 8.

Effective date: Applicable to a CPA firm’s system of quality control for itsaccounting and auditing practice as of January 1, 2012.

IntroductionScope of This Section

.01 This section addresses a CPA firm's responsibilities for its system ofquality control for its accounting and auditing practice. This section is to beread in conjunction with the AICPA Code of Professional Conduct and otherrelevant ethical requirements.

.02 This section, although applicable to audit and attestation engagementsperformed by CPA firms in accordance with Government Auditing Standards,does not apply to government audit organizations. Instead, those governmentaudit organizations are subject to the quality control and assurance require-ments of Government Auditing Standards, which are similar to those of thissection.

.03 Other professional standards set out additional requirements andguidance on the responsibilities of firm personnel regarding quality controlprocedures for specific types of engagements. AU-C section 220,* Quality Con-trol for an Engagement Conducted in Accordance With Generally Accepted Au-diting Standards, for example, addresses quality control procedures for engage-ments conducted in accordance with generally accepted auditing standards.[Revised, October 2011, to reflect conforming changes necessary due to the is-suance of SAS No. 122.]

.04 A system of quality control consists of policies designed to achieve theobjective set out in paragraph .12 and the procedures necessary to implementand monitor compliance with those policies.

Authority of the SQCSs.05 This section applies to all CPA firms with respect to engagements in

their accounting and auditing practice. The nature and extent of the policiesand procedures developed by an individual firm to comply with this section willdepend on various factors, such as the size and operating characteristics of thefirm and whether it is part of a network.

* Statement on Auditing Standards (SAS) No. 122, Statements on Auditing Standards: Clarifi-cation and Recodification, contains "AU-C" section numbers instead of "AU" section numbers. "AU-C"is a temporary identifier to avoid confusion with references to existing "AU" sections, which remaineffective through 2013. The "AU-C" identifier will revert to "AU" in 2014, by which time SAS No.122 becomes fully effective for all engagements. [Footnote added, October 2011, to reflect conformingchanges necessary due to the issuance of SAS No. 122.]

QC §10.05

3262 Quality Control

.06 Statements on Quality Control Standards (SQCSs) contain the objec-tive of the firm in following the SQCSs and requirements designed to enable thefirm to meet that stated objective. In addition, SQCSs contain related guidancein the form of application and other explanatory material, as discussed furtherin paragraph .09, and introductory material that provides context relevant toa proper understanding of the SQCSs and definitions.

.07 The objective provides the context in which the requirements of SQCSsare set and is intended to assist the firm in the following:

• Understanding what needs to be accomplished

• Deciding whether more needs to be done to achieve the objective

.08 SQCSs use two categories of professional requirements, identified byspecific terms, to describe the degree of responsibility they impose on firms, asfollows:

• Unconditional requirements. The firm is required to comply withan unconditional requirement in all cases in which such a require-ment is relevant. SQCSs use the word must to indicate an uncon-ditional requirement.

• Presumptively mandatory requirements. The firm is also requiredto comply with a presumptively mandatory requirement in allcases in which such a requirement is relevant; however, in rarecircumstances, the firm may depart from a presumptively manda-tory requirement, provided that the firm documents the justifica-tion for the departure and how the alternative policies established,or procedures performed, in the circumstances were sufficient toachieve the objectives of the presumptively mandatory require-ment. SQCSs use the word should to indicate a presumptivelymandatory requirement.

If an SQCS provides that a procedure or action is one that the firm "should con-sider," the consideration of the procedure or action is presumptively required,whereas carrying out the procedure or action is not. The professional require-ments of an SQCS are to be understood and applied in the context of the ex-planatory material that provides guidance for their application.

.09 When necessary, the application and other explanatory material pro-vides further explanation of the requirements and guidance for carrying themout. In particular, it may

• explain more precisely what a requirement means or is intendedto cover.

• include examples of policies and procedures that may be appro-priate in the circumstances.

The words may, might, and could, among others, are used to describe theseactions and procedures. Although such guidance does not, in itself, impose arequirement, it is relevant to the proper application of the requirements. Theapplication and other explanatory material may also provide background infor-mation on matters addressed in SQCSs. When appropriate, additional consid-erations specific to governmental entities or smaller firms are included withinthe application and other explanatory material. These additional considera-tions assist in the application of the requirements in SQCSs. They do not, how-ever, limit or reduce the responsibility of the firm to apply and comply with therequirements in SQCSs.

.10 SQCSs include, under the heading "Definitions," a description of themeanings attributed to certain terms for purposes of the SQCSs. These are

QC §10.06


provided to assist in the consistent application and interpretation of SQCSsand are not intended to override definitions that may be established for otherpurposes, whether in law, regulation, or otherwise. The AU-C glossary containsa complete listing of terms defined in this section. It also includes descriptionsof other terms found in this section to assist in common and consistent inter-pretation. [Revised, October 2011, to reflect conforming changes necessary dueto the issuance of SAS No. 122.]

Effective Date.11 The provisions of this section are applicable to a CPA firm's system of

quality control for its accounting and auditing practice as of January 1, 2012.

Objective.12 The objective of the firm is to establish and maintain a system of quality

control to provide it with reasonable assurance that

a. the firm and its personnel comply with professional standardsand applicable legal and regulatory requirements and

b. reports issued by the firm are appropriate in the circumstances.

Definitions.13 For purposes of SQCSs, the following terms have the meanings at-

tributed as follows:

Accounting and auditing practice. A practice that performs engagementscovered by this section, which are audit, attestation, compilation, review,and any other services for which standards have been promulgated by theAICPA Auditing Standards Board (ASB) or the AICPA Accounting and Re-view Services Committee (ARSC) under Rule 201, General Standards (ETsec. 201 par. .01), or Rule 202, Compliance With Standards (ET sec. 202par. .01), of the AICPA Code of Professional Conduct. Although standardsfor other engagements may be promulgated by other AICPA technical com-mittees, engagements performed in accordance with those standards arenot encompassed in the definition of an accounting and auditing practice.

Engagement documentation. The record of the work performed, results ob-tained, and conclusions that the practitioner reached (also known as work-ing papers or workpapers).

Engagement partner. The partner or other person in the firm who is respon-sible for the engagement and its performance and for the report that isissued on behalf of the firm and who, when required, has the appropriateauthority from a professional, legal, or regulatory body.

Engagement quality control review. A process designed to provide an objec-tive evaluation, before the report is released, of the significant judgmentsthe engagement team made and the conclusions it reached in formulatingthe report. The engagement quality control review process is only for thoseengagements, if any, for which the firm has determined that an engage-ment quality control review is required, in accordance with its policies andprocedures.

Engagement quality control reviewer. A partner, other person in the firm,suitably qualified external person, or team made up of such individu-als, none of whom is part of the engagement team, with sufficient and

QC §10.13


appropriate experience and authority to objectively evaluate the signifi-cant judgments that the engagement team made and the conclusions itreached in formulating the report.

Engagement team. All partners and staff performing the engagement and anyindividuals engaged by the firm or a network firm who perform procedureson the engagement. This excludes external specialists engaged by the firmor a network firm.1

Firm. A form of organization permitted by law or regulation whose characteris-tics conform to resolutions of the Council of the AICPA and that is engagedin the practice of public accounting.

Inspection. A retrospective evaluation of the adequacy of the firm's quality con-trol policies and procedures, its personnel's understanding of those policiesand procedures, and the extent of the firm's compliance with them. Inspec-tion includes a review of completed engagements.

Monitoring. A process comprising an ongoing consideration and evaluationof the firm's system of quality control, including inspection or a periodicreview of engagement documentation, reports, and clients' financial state-ments for a selection of completed engagements, designed to provide thefirm with reasonable assurance that its system of quality control is de-signed appropriately and operating effectively.

Network. An association of entities, as defined in ET section 92, Definitions.

Network firm. A firm or other entity that belongs to a network, as defined inET section 92.

Partner. Any individual with authority to bind the firm with respect to theperformance of a professional services engagement. For purposes of thisdefinition, partner may include an employee with this authority who hasnot assumed the risks and benefits of ownership. Firms may use differenttitles to refer to individuals with this authority.

Personnel. Partners and staff.

Professional standards. Standards promulgated by the ASB or ARSC underRules 201 or 202 of the AICPA Code of Professional Conduct, or otherstandards-setting bodies that set auditing and attest standards applicableto the engagement being performed and relevant ethical requirements.

Reasonable assurance. In the context of this section, a high, but not absolute,level of assurance.

Relevant ethical requirements. Ethical requirements to which the firm andits personnel are subject, which consist of the AICPA Code of ProfessionalConduct together with rules of applicable state boards of accountancy andapplicable regulatory agencies that are more restrictive.

Staff. Professionals, other than partners, including any specialists that thefirm employs.

Suitably qualified external person. An individual outside the firm with thecompetence and capabilities to act as an engagement partner (for example,a partner of another firm).

1 Paragraph .06 of AU-C section 620, Using the Work of an Auditor's Specialist, defines the termauditor's specialist. [Footnote revised, October 2011, to reflect conforming changes necessary due tothe issuance of SAS No. 122.]

QC §10.13


[Revised, October 2011, to reflect conforming changes necessary due to theissuance of SAS No. 122.]

Requirements

Applying and Complying With Relevant Requirements.14 Personnel within the firm responsible for establishing and maintaining

the firm's system of quality control should have an understanding of the entiretext of this section, including its application and other explanatory material, tounderstand its objective and apply its requirements properly.

.15 The firm should comply with each requirement of this section unless,in the circumstances of the firm, the requirement is not relevant to the servicesprovided by a firm's accounting and auditing practice. (Ref: par. .A1)

.16 The requirements are designed to enable the firm to achieve the objec-tive stated in this section. The proper application of the requirements is, there-fore, expected to provide a sufficient basis for the achievement of the objective.However, because circumstances vary widely and all such circumstances cannotbe anticipated, the firm should consider whether there are particular mattersor circumstances that require the firm to establish policies and procedures inaddition to those required by this section to meet the stated objective.

Elements of a System of Quality Control.17 The firm must establish and maintain a system of quality control. The

system of quality control should include policies and procedures addressingeach of the following elements:

a. Leadership responsibilities for quality within the firm (the toneat the top)

b. Relevant ethical requirementsc. Acceptance and continuance of client relationships and specific

engagementsd. Human resourcese. Engagement performancef. Monitoring

Policies and procedures established by the firm related to each element aredesigned to achieve reasonable assurance with respect to the purpose of thatelement. Deficiencies in policies and procedures for an element may result innot achieving reasonable assurance with respect to the purpose of that ele-ment; however, the system of quality control as a whole may still be effectivein achieving the objective described in paragraph .12.

.18 The firm should document its policies and procedures and communicatethem to the firm's personnel. (Ref: par. .A2–.A3)

Leadership Responsibilities for Quality Within the Firm.19 The firm should establish policies and procedures designed to promote

an internal culture based on the recognition that quality is essential in per-forming engagements. Such policies and procedures should require the firm'sleadership (managing partner or board of managing partners, CEO, or equiva-lent) to assume ultimate responsibility for the firm's system of quality control.(Ref: par. .A4–.A5)

QC §10.19


.20 The firm should establish policies and procedures designed to provideit with reasonable assurance that any person or persons assigned operationalresponsibility for the firm's system of quality control by the firm's leadership hassufficient and appropriate experience and ability, and the necessary authority,to assume that responsibility. (Ref: par. .A6)

Relevant Ethical Requirements.21 The firm should establish policies and procedures designed to provide it

with reasonable assurance that the firm and its personnel comply with relevantethical requirements. (Ref: par. .A7–.A9)

Independence.22 The firm should establish policies and procedures designed to provide

it with reasonable assurance that the firm; its personnel; and, when applicable,others subject to independence requirements (including network firm person-nel) maintain independence when required by relevant ethical requirements.Such policies and procedures should enable the firm to

a. communicate its independence requirements to its personnel and,when applicable, others subject to them and

b. identify and evaluate circumstances and relationships that createthreats to independence and to take appropriate action to elimi-nate those threats or reduce them to an acceptable level by apply-ing safeguards or, if considered appropriate, to withdraw from theengagement when withdrawal is possible under applicable law orregulation.

.23 Such policies and procedures should require

a. engagement partners to provide the firm with relevant informa-tion about client engagements, including the scope of services, toenable the firm to evaluate the overall effect, if any, on indepen-dence requirements;

b. personnel to promptly notify the firm of circumstances and rela-tionships that create a threat to independence so that appropriateaction can be taken; and

c. the accumulation and communication of relevant information toappropriate personnel so that

i. the firm and its personnel can readily determine whetherthey satisfy independence requirements,

ii. the firm can maintain and update information relating toindependence, and

iii. the firm can take appropriate action regarding identifiedthreats to independence that are not at an acceptable level.

.24 The firm should establish policies and procedures designed to provideit with reasonable assurance that it is notified of breaches of independencerequirements and to enable it to take appropriate actions to resolve such situ-ations. The policies and procedures should include requirements for

a. personnel to promptly notify the firm of independence breachesof which they become aware;

b. the firm to promptly communicate identified breaches of thesepolicies and procedures to

i. the engagement partner who, with the firm, needs to ad-dress the breach and

QC §10.20


ii. other relevant personnel in the firm and, when appropri-ate, the network and those subject to the independencerequirements who need to take appropriate action; and

c. prompt communication to the firm, if necessary, by the engage-ment partner and the other individuals referred to in subpara-graph (b)(ii) of the actions taken to resolve the matter so that thefirm can determine whether it should take further action.

.25 At least annually, the firm should obtain written confirmation of com-pliance with its policies and procedures on independence from all firm personnelrequired to be independent by the requirements set forth in Rule 101, Indepen-dence (ET sec. 101 par. .01), and its related interpretations and rulings of theAICPA Code of Professional Conduct and the rules of state boards of accoun-tancy and applicable regulatory agencies. (Ref: par. .A10)

.26 The firm should establish policies and procedures for all audit or at-testation engagements for which regulatory or other authorities require therotation of personnel after a specified period, in compliance with such require-ments.

Acceptance and Continuance of Client Relationshipsand Specific Engagements

.27 The firm should establish policies and procedures for the acceptanceand continuance of client relationships and specific engagements, designed toprovide the firm with reasonable assurance that it will undertake or continuerelationships and engagements only when the firm

a. is competent to perform the engagement and has the capabilities,including time and resources, to do so; (Ref: par. .A11)

b. can comply with legal and relevant ethical requirements; andc. has considered the integrity of the client and does not have in-

formation that would lead it to conclude that the client lacks in-tegrity. (Ref: par. .A12–.A13)

.28 Such policies and procedures should

a. require the firm to obtain such information as it considers neces-sary in the circumstances before accepting an engagement witha new client, when deciding whether to continue an existing en-gagement, and when considering acceptance of a new engagementwith an existing client. (Ref: par. .A14)

b. require the firm to determine whether it is appropriate to acceptthe engagement if a potential conflict of interest is identified inaccepting an engagement from a new or an existing client.

c. if issues have been identified and the firm decides to accept orcontinue the client relationship or a specific engagement, requirethe firm to

i. consider whether ethical requirements that exist under In-terpretation No. 102-2, "Conflicts of Interest," under Rule102, Integrity and Objectivity (ET sec. 102 par. .03), ap-ply, such as disclosure of the relationship to the client andother appropriate parties, and

ii. document how the issues were resolved..29 To minimize the risk of misunderstandings regarding the nature,

scope, and limitations of the services to be performed, the firm should establish

QC §10.29


policies and procedures that provide for obtaining an understanding with theclient regarding those services. (Ref: par. .A15)

.30 The firm should establish policies and procedures on continuing anengagement and the client relationship that address the circumstances whenthe firm obtains information that would have caused it to decline the engage-ment had that information been available earlier. Such policies and proceduresshould include consideration of the following:

a. The professional and legal responsibilities that apply to the cir-cumstances, including whether there is a requirement for the firmto report to regulatory authorities

b. The possibility of withdrawing from the engagement or from boththe engagement and the client relationship (Ref: par. .A16)

Human Resources.31 The firm should establish policies and procedures designed to provide it

with reasonable assurance that it has sufficient personnel with the competence,capabilities, and commitment to ethical principles necessary to

a. perform engagements in accordance with professional standardsand applicable legal and regulatory requirements and

b. enable the firm to issue reports that are appropriate in the cir-cumstances. (Ref: par. .A17–.A24)

.32 The firm's policies and procedures should provide that personnel se-lected for advancement have the qualifications necessary for fulfillment of theresponsibilities that they will be called on to assume.

Assignment of Engagement Teams.33 The firm should assign responsibility for each engagement to an en-

gagement partner and should establish policies and procedures requiring that

a. the identity and role of the engagement partner are communi-cated to management and those charged with governance;

b. the engagement partner has the appropriate competence, capabil-ities, and authority to perform the role; and (Ref: par. .A25–.A30)

c. the responsibilities of the engagement partner are clearly definedand communicated to that individual.

.34 The firm should establish policies and procedures to assign appropriatepersonnel with the necessary competence and capabilities to

a. perform engagements in accordance with professional standardsand applicable legal and regulatory requirements and

b. enable the firm to issue reports that are appropriate in the cir-cumstances. (Ref: par. .A31)

Engagement Performance.35 The firm should establish policies and procedures designed to provide

it with reasonable assurance that engagements are performed in accordancewith professional standards and applicable legal and regulatory requirementsand that the firm issues reports that are appropriate in the circumstances. Suchpolicies and procedures should include the following:

a. Matters relevant to promoting consistency in the quality of en-gagement performance (Ref: par. .A32–.A33)

QC §10.30


b. Supervision responsibilities (Ref: par. .A34)c. Review responsibilities (Ref: par. .A35)

.36 The firm's review responsibility policies and procedures should be de-termined on the basis that suitably experienced engagement team members,which may include the engagement partner, review work performed by otherengagement team members.

Consultation.37 The firm should establish policies and procedures designed to provide

it with reasonable assurance that

a. appropriate consultation takes place on difficult or contentiousissues;

b. sufficient resources are available to enable appropriate consulta-tion to take place;

c. the nature and scope of such consultations are documented andare agreed upon by both the individual seeking consultation andthe individual consulted; and

d. the conclusions resulting from consultations are documented, un-derstood by both the individual seeking consultation and the in-dividual consulted, and implemented. (Ref: par. .A36–.A40)

Engagement Quality Control Review.38 The firm should establish criteria against which all engagements cov-

ered by this section should be evaluated to determine whether an engagementquality control review should be performed. (Ref: par. .A41)

.39 The firm's policies and procedures should require that if an engagementmeets the criteria established, an engagement quality control review should beperformed for that engagement.

.40 The firm should establish policies and procedures setting out the na-ture, timing, and extent of an engagement quality control review. Such policiesand procedures should require that the engagement quality control review becompleted before the report is released. (Ref: par. .A42–.A44)

.41 The firm should establish policies and procedures to require the en-gagement quality control review to include

a. discussion of significant findings and issues with the engagementpartner;

b. reading the financial statements or other subject matter informa-tion and the proposed report;

c. review of selected engagement documentation relating to signifi-cant judgments that the engagement team made and the relatedconclusions it reached; and

d. evaluation of the conclusions reached in formulating the reportand consideration of whether the proposed report is appropriate.(Ref: par. .A45–.A47)

Criteria for the Eligibility of Engagement Quality Control Reviewers

.42 The firm should establish policies and procedures to address the ap-pointment of engagement quality control reviewers and to establish their eligi-bility through

a. the technical qualifications required to perform the role, includingthe necessary experience and authority, and (Ref: par. .A48)

QC §10.42


b. the degree to which an engagement quality control reviewer canbe consulted on the engagement without compromising the re-viewer's objectivity. (Ref: par. .A49)

.43 The firm should establish policies and procedures designed to main-tain the objectivity of the engagement quality control reviewer. Such policiesand procedures should provide that although the engagement quality controlreviewer is not a member of the engagement team, the engagement qualitycontrol reviewer should satisfy the independence requirements relating to theengagements reviewed. Accordingly, such policies and procedures should pro-vide that the engagement quality control reviewer

a. when practicable, is not selected by the engagement partner.b. does not otherwise participate in the performance of the engage-

ment during the period of review.c. does not make decisions for the engagement team.d. is not subject to other considerations that would threaten the

reviewer's objectivity..44 The firm's policies and procedures should provide for the replacement of

the engagement quality control reviewer when the reviewer's ability to performan objective review is likely to have been impaired. (Ref: par. .A50)

Documentation of the Engagement Quality Control Review

.45 The firm should establish policies and procedures on documentation ofthe engagement quality control review, which require documentation that

a. the procedures required by the firm's policies on engagement qual-ity control review have been performed;

b. the engagement quality control review has been completed beforethe report is released; and

c. the reviewer is not aware of any unresolved matters that wouldcause the reviewer to believe that the significant judgments thatthe engagement team made and the conclusions it reached werenot appropriate.

Differences of Opinion.46 The firm should establish policies and procedures for addressing and

resolving differences of opinion within the engagement team; with those con-sulted; and, when applicable, between the engagement partner and the engage-ment quality control reviewer. (Ref: par. .A51–.A52)

.47 Such policies and procedures should enable a member of the engage-ment team to document that member's disagreement with the conclusionsreached after appropriate consultation.

.48 Such policies and procedures should require the following:

a. Conclusions reached be documented and implementedb. The report not be released until the matter is resolved

Engagement DocumentationCompletion of the Assembly of Final Engagement Files

.49 The firm should establish policies and procedures for engagementteams to complete the assembly of final engagement files on a timely basisafter the engagement reports have been released. (Ref: par. .A53–.A54)

QC §10.43


Confidentiality, Safe Custody, Integrity, Accessibility, and Retrievability of En-gagement Documentation

.50 The firm should establish policies and procedures designed to maintainthe confidentiality, safe custody, integrity, accessibility, and retrievability ofengagement documentation. (Ref: par. .A55–.A58)

Retention of Engagement Documentation

.51 The firm should establish policies and procedures for the retention ofengagement documentation for a period sufficient to meet the needs of the firm,professional standards, laws, and regulations. (Ref: par. .A59–.A62)

Monitoring

Monitoring the Firm’s Quality Control Policies and Procedures.52 The firm should establish a monitoring process designed to provide

it with reasonable assurance that the policies and procedures relating to thesystem of quality control are relevant, adequate, and operating effectively. Thisprocess should

a. include an ongoing consideration and evaluation of the firm's sys-tem of quality control, including inspection or a periodic review ofengagement documentation, reports, and clients' financial state-ments for a selection of completed engagements;

b. require responsibility for the monitoring process to be assignedto a partner or partners or other persons with sufficient and ap-propriate experience and authority in the firm to assume thatresponsibility; and

c. assign the performance of monitoring the firm's system of qualitycontrol to qualified individuals. (Ref: par. .A63–.A73)

Evaluating, Communicating, and Remedying Identified Deficiencies.53 Any system of quality control has inherent limitations that can reduce

its effectiveness. Deficiencies in individual engagements covered by this sectiondo not, in and of themselves, indicate that the firm's system of quality control isinsufficient to provide it with reasonable assurance that its personnel complywith applicable professional standards.

.54 The firm should evaluate the effect of deficiencies noted as a result ofthe monitoring process and determine whether they are either

a. instances that do not necessarily indicate that the firm's system ofquality control is insufficient to provide it with reasonable assur-ance that it complies with professional standards and applicablelegal and regulatory requirements and that the reports issued bythe firm are appropriate in the circumstances or

b. systemic, repetitive, or other significant deficiencies that requireprompt corrective action.

.55 The firm should communicate to relevant engagement partners, andother appropriate personnel, deficiencies noted as a result of the monitoringprocess and recommendations for appropriate remedial action. (Ref: par. .A74)

.56 Recommendations for appropriate remedial actions for deficienciesnoted should include one or more of the following:

a. Taking appropriate remedial action in relation to an individualengagement or member of personnel

QC §10.56


b. The communication of the findings to those responsible for train-ing and professional development

c. Changes to the quality control policies and proceduresd. Disciplinary action against those who fail to comply with the poli-

cies and procedures of the firm, especially those who do so repeat-edly

.57 The firm should establish policies and procedures to address caseswhen the results of the monitoring procedures indicate that a report may beinappropriate or that procedures were omitted during the performance of theengagement. Such policies and procedures should require the firm to

a. determine what further action is appropriate to comply with rel-evant professional standards and legal and regulatory require-ments and

b. consider whether to obtain legal advice..58 The firm should communicate, at least annually, the results of the

monitoring of its system of quality control to engagement partners and otherappropriate individuals within the firm, including the firm's leadership. Thiscommunication should be sufficient to enable the firm and these individuals totake prompt and appropriate action, when necessary, in accordance with theirdefined roles and responsibilities to provide a basis for them to rely on thefirm's system of quality control. Information communicated should include thefollowing:

a. A description of the monitoring procedures performedb. The conclusions drawn from the monitoring proceduresc. When relevant, a description of systemic, repetitive, or other sig-

nificant deficiencies and of the actions taken to resolve or amendthose deficiencies

.59 Some firms operate as part of a network and, for consistency, mayimplement some of their monitoring procedures on a network basis. When firmswithin a network operate under common monitoring policies and proceduresdesigned to comply with this section, and these firms place reliance on such amonitoring system, the firm's policies and procedures should require that

a. at least annually, the network communicate the overall scope,extent, and results of the monitoring process to appropriate indi-viduals within the network firms and

b. the network communicate promptly any identified deficiencies inthe quality control system to appropriate individuals within therelevant network firm or firms so that the necessary action can betaken in order that engagement partners in the network firms canrely on the results of the monitoring process implemented withinthe network, unless the firms or the network advise otherwise.

Complaints and Allegations.60 The firm should establish policies and procedures designed to provide

it with reasonable assurance that it deals appropriately with

a. complaints and allegations that the work performed by the firmfails to comply with professional standards and applicable legaland regulatory requirements and

b. allegations of noncompliance with the firm's system of qualitycontrol.

QC §10.57


As part of this process, the firm should establish clearly defined channels forfirm personnel to raise any concerns in a manner that enables them to comeforward without fear of reprisals. (Ref: par. .A75)

.61 If, during the investigations into complaints and allegations, deficien-cies in the design or operation of the firm's quality control policies and proce-dures, or instances of noncompliance with the firm's system of quality controlby an individual or individuals are identified, the firm should take appropriateactions, as set out in paragraph .56. (Ref: par. .A76–.A77)

Documentation of the System of Quality Control.62 The firm should establish policies and procedures requiring appropri-

ate documentation to provide evidence of the operation of each element of itssystem of quality control. (Ref: par. .A78–.A80)

.63 The firm should establish policies and procedures that require reten-tion of documentation for a period of time sufficient to permit those performingmonitoring procedures and peer review of the firm to evaluate the firm's com-pliance with its system of quality control or for a longer period if required bylaw or regulation.2

.64 The firm should establish policies and procedures requiring documen-tation of complaints and allegations described in paragraph .60 and the re-sponses to them.

Application and Other Explanatory Material

Applying and Complying With Relevant Requirements

Considerations Specific to Smaller Firms (Ref: par. .15).A1 This section does not call for compliance with requirements that are

not relevant (for example, in the circumstances of a sole practitioner with nostaff). Requirements in this section, such as those for policies and proceduresfor the assignment of appropriate personnel to the engagement team (see para-graph .34), for review responsibilities (see paragraph .36), and for the annualcommunication of the results of monitoring to engagement partners within thefirm (see paragraph .58) are not relevant in the absence of staff.

Elements of a System of Quality Control (Ref: par. .18).A2 In general, communication of quality control policies and procedures

to firm personnel includes a description of the quality control policies and proce-dures and the objectives they are designed to achieve and the message that eachindividual has a personal responsibility for quality and is expected to complywith these policies and procedures. By encouraging firm personnel to commu-nicate their views or concerns on quality control matters, the firm recognizesthe importance of obtaining feedback on the firm's system of quality control.Although communication is enhanced if it is in writing, the communication ofquality control policies and procedures is not required to be in writing.

2 PR section 100, Standards for Performing and Reporting on Peer Reviews, is applicable to firmsenrolled in the AICPA Peer Review Program.

QC §10.A2


Considerations Specific to Smaller Firms.A3 Documentation and communication of policies and procedures for

smaller firms may be less formal and extensive than for larger firms.

Leadership Responsibilities for Quality Within the Firm

Promoting an Internal Culture of Quality (Ref: par. .19).A4 The firm's leadership, and the examples it sets, significantly influences

the internal culture of the firm. The promotion of a quality-oriented internalculture depends on clear, consistent, and frequent actions and messages fromall levels of the firm's management that emphasize the firm's quality controlpolicies and procedures and the requirement to

a. perform work that complies with professional standards and ap-plicable legal and regulatory requirements.

b. issue reports that are appropriate in the circumstances.

Such actions and messages encourage a culture that recognizes and rewardsquality work. These actions and messages may be communicated by, but are notlimited to, training seminars, meetings, formal or informal dialogue, missionstatements, newsletters, or briefing memoranda. They may be incorporated inpartner and staff appraisal procedures and the firm's internal documentationand training materials, such that they will support and reinforce the firm's viewon the importance of quality and how, practically, it is to be achieved.

.A5 Of particular importance in promoting an internal culture based onquality is the need for the firm's leadership to recognize that the firm's businessstrategy is subject to the overarching requirement for the firm to achieve theobjectives of the system of quality control in all the engagements that the firmperforms. Promoting such an internal culture includes the following:

a. Establishment of policies and procedures that address perfor-mance evaluation, compensation, and advancement (including in-centive systems) with regard to its personnel in order to demon-strate the firm's overarching commitment to quality

b. Assignment of management responsibilities so that commercialconsiderations do not override the quality of the work performed

c. Provision of sufficient and appropriate resources for the develop-ment, documentation, and support of its quality control policiesand procedures

Assigning Operational Responsibility for the Firm’s System of QualityControl (Ref: par. .20)

.A6 Sufficient and appropriate experience and ability enables the personor persons responsible for the firm's system of quality control to identify andunderstand quality control issues and to develop appropriate policies and pro-cedures. Necessary authority enables the person or persons to implement thosepolicies and procedures.

Relevant Ethical Requirements

Compliance With Relevant Ethical Requirements (Ref: par. .21).A7 The AICPA Code of Professional Conduct establishes the fundamental

principles of professional ethics, which include the following:

QC §10.A3


• Responsibilities

• The public interest

• Integrity

• Objectivity and independence

• Due care

• Scope and nature of services

.A8 Independence requirements are set forth in Rule 101 and its relatedinterpretations and rulings of the AICPA Code of Professional Conduct andthe rules of state boards of accountancy and applicable regulatory agencies.Guidance on threats to independence and safeguards to mitigate such threatsinvolving matters that are not explicitly addressed in the Code of ProfessionalConduct are set forth in ET section 100-1, Conceptual Framework for AICPAIndependence Standards.

.A9 The fundamental principles are reinforced, in particular, by the fol-lowing:

• The leadership of the firm

• Education and training

• Monitoring

• A process for dealing with noncompliance

Written Confirmation (Ref: par. .25)

.A10 Written confirmation may be in paper or electronic form. By obtainingconfirmation and taking appropriate action on information indicating noncom-pliance, the firm demonstrates the importance that it attaches to independenceand keeps the issue current for, and visible to, its personnel.

Acceptance and Continuance of Client Relationshipsand Specific Engagements

Competence, Capabilities, and Resources (Ref: par. .27a).A11 Consideration of whether the firm has the competence, capabilities,

and resources to undertake a new engagement from a new or an existing clientinvolves reviewing the specific requirements of the engagement and the existingpartner and staff profiles at all relevant levels, including whether

• firm personnel have knowledge of relevant industries or subjectmatters or the ability to effectively gain the necessary knowledge;

• firm personnel have experience with relevant regulatory or report-ing requirements or the ability to effectively gain the necessarycompetencies;

• the firm has sufficient personnel with the necessary competenceand capabilities;

• specialists are available, if needed;

• individuals meeting the criteria and eligibility requirements toperform an engagement quality control review are available, whenapplicable; and

• the firm is able to complete the engagement within the reportingdeadline.

QC §10.A11


Integrity of a Client (Ref: par. .27c).A12 Matters to consider regarding the integrity of a client include, for

example, the following:

• The identity and business reputation of the client's principal own-ers, key management, and those charged with governance

• The nature of the client's operations, including its business prac-tices

• Information concerning the attitude of the client's principal own-ers, key management, and those charged with governance towardsuch matters as internal control or aggressive interpretation ofaccounting standards

• Indications of an inappropriate limitation in the scope of the work

• Indications that the client might be involved in money launderingor other criminal activities

• The reasons for the proposed appointment of the firm and non-reappointment of the previous firm

The extent of knowledge that a firm will have regarding the integrity of a clientwill generally grow within the context of an ongoing relationship with thatclient.

.A13 Sources of information on such matters obtained by the firm mayinclude the following:

• Communications with existing or previous providers of profes-sional accountancy services to the client, in accordance with rele-vant ethical requirements, and discussions with other third par-ties

• Inquiry of other firm personnel or third parties, such as bankers,legal counsel, and industry peers

• Background searches of relevant databases

Continuance of a Client Relationship (Ref: par. .28a).A14 Deciding whether to continue a client relationship includes consid-

eration of significant issues that have arisen during the current or previousengagements and their implications for continuing the relationship. For exam-ple, a client may have started to expand its business operations into an areawhere the firm does not possess, and cannot obtain, the necessary expertise.

Obtaining an Understanding With the Client (Ref: par. .29).A15 Professional standards applicable to the engagement may contain

requirements for obtaining a written understanding with the client.

Withdrawal (Ref: par. .30).A16 Policies and procedures on withdrawal from an engagement or from

both the engagement and the client relationship may address issues that in-clude the following:

• Discussing with the appropriate level of the client's managementand those charged with governance the appropriate action that thefirm might take based on the relevant facts and circumstances

• If the firm determines that it is appropriate to withdraw, dis-cussing with the appropriate level of the client's management and

QC §10.A12


those charged with governance withdrawal from the engagementor from both the engagement and the client relationship and thereasons for the withdrawal

• Considering whether there is a professional, legal, or regulatoryrequirement for the firm to remain in place or for the firm to reportthe withdrawal from the engagement or from both the engagementand the client relationship, together with the reasons for the with-drawal, to regulatory authorities

• Documenting significant matters, consultations, conclusions, andthe basis for the conclusions

Human Resources (Ref: par. .31).A17 Personnel issues relevant to the firm's policies and procedures related

to human resources include, for example, the following:

• Recruitment and hiring, if applicable

• Performance evaluation, compensation, and advancement

• Determining competencies and capabilities, including time to per-form assignments

• Professional development

• The estimation of personnel needs

Effective recruitment processes and procedures help the firm select individualsof integrity who have the capacity to develop the competence and capabilitiesnecessary to perform the firm's work and possess the appropriate characteris-tics to enable them to perform competently. Examples of such characteristicsmay include meeting minimum academic requirements established by the firm,maturity, integrity, and leadership traits.

.A18 Competencies and capabilities are the knowledge, skills, and abilitiesthat qualify personnel to perform an engagement covered by this section. Com-petencies and capabilities are not measured by periods of time because such aquantitative measurement may not accurately reflect the kinds of experiencesgained by personnel in any given time period. Accordingly, for purposes of thissection, a measure of overall competency is qualitative rather than quantita-tive.

.A19 Competence can be developed through a variety of methods; thesemethods include, for example, the following:

• Professional education

• Continuing professional development, including training

• Work experience

• Mentoring by more experienced staff, such as other members ofthe engagement team

• Independence education for personnel who are required to be in-dependent

.A20 The continuing competence of the firm's personnel depends, to a sig-nificant extent, on an appropriate level of continuing professional developmentso that personnel maintain their knowledge and capabilities. Effective policiesand procedures emphasize the need for all levels of firm personnel to participatein general and industry-specific continuing professional education (CPE) and

QC §10.A20


other professional development activities that enable them to fulfill responsi-bilities assigned and to satisfy applicable CPE requirements of the AICPA andregulatory agencies. Effective policies and procedures also place importance onpassing the Uniform CPA Examination. The firm may provide the necessarytraining resources and assistance to enable personnel to develop and maintainthe required competence and capabilities.

.A21 The firm may use a suitably qualified external person, for example,when internal technical and training resources are unavailable.

.A22 Effective performance evaluation, compensation, and advancementprocedures give due recognition and reward to the development and mainte-nance of competence and commitment to ethical principles. Steps that a firmmay take in developing and maintaining competence and commitment to ethi-cal principles include the following:

• Making personnel aware of the firm's expectations regarding per-formance and ethical principles

• Providing personnel with an evaluation of, and counseling on, per-formance, progress, and career development

• Helping personnel understand that their compensation and ad-vancement to positions of greater responsibility depend upon,among other things, performance quality and adherence to eth-ical principles and that failure to comply with the firm's policiesand procedures may result in disciplinary action.

Considerations Specific to Smaller Firms.A23 The size and circumstances of the firm are important considerations

in determining the structure of the firm's performance evaluation process.Smaller firms, in particular, may employ less formal methods of evaluatingthe performance of their personnel.

The Relationship of the Competency Requirement of the UniformAccountancy Act to the Human Resource Element of Quality Control

.A24 CPAs are required to follow the accountancy laws of the individuallicensing jurisdictions in the United States that govern the practice of publicaccounting. These jurisdictions may have adopted, in whole or in part, the Uni-form Accountancy Act (UAA), which is a model legislative statute, includingrelated administrative rules, designed by the AICPA and the National Asso-ciation of State Boards of Accountancy to provide a uniform approach to theregulation of the accounting profession. The UAA provides that "[a]ny individ-ual licensee . . . who is responsible for supervising attest or compilation servicesand signs or authorizes someone to sign the accountant's report on the finan-cial statements on behalf of the firm, shall meet the competency requirementsset out in the professional standards for such services." A firm's compliancewith this section is intended to enable a practitioner who performs accountingand auditing services on the firm's behalf to meet the competency requirementreferred to in the UAA.

Assignment of Engagement TeamsEngagement Partners (Ref: par. .33)

.A25 In most cases, an engagement partner will have gained the necessarycompetencies through relevant and appropriate experience in engagements cov-ered by this section. In some cases, however, an engagement partner may have

QC §10.A21


obtained the necessary competencies through disciplines other than the prac-tice of public accounting, such as in relevant industry, governmental, and aca-demic positions. When necessary, the experience of the engagement partnermay be supplemented by CPE and consultation. The following are examples:

• An engagement partner whose recent experience has consistedprimarily in providing tax services may acquire the competenciesnecessary in the circumstances to perform a compilation or reviewengagement by obtaining relevant CPE.

• An engagement partner whose experience consists of performingreview and compilation engagements may be able to obtain thenecessary competencies to perform an audit by becoming familiarwith the industry in which the client operates, obtaining CPE re-lating to auditing, using consulting sources during the course ofperforming the audit engagement, or any combination of these.

• A person in academia might obtain the necessary competenciesto perform engagements covered by this section by (a) obtainingspecialized knowledge through teaching or authorship of researchprojects or similar papers and (b) performing a rigorous self-studyprogram or by engaging a consultant to assist on such engage-ments.

.A26 The characteristics of a particular client, industry, and the kind ofservice being provided determine the nature and extent of competencies estab-lished by a firm that are expected of the engagement partner. For example

• the competencies expected of an engagement partner to compilefinancial statements would be different than those expected of apractitioner engaged to review or audit financial statements.

• supervising engagements and signing or authorizing others tosign reports for clients in certain industries or engagements,such as financial services, governmental, or employee benefit planengagements, would require different competencies than those ex-pected in performing attest services for clients in other industries.

• the engagement partner for an attestation engagement to exam-ine the effectiveness of an entity's internal control over financialreporting that is integrated with an audit of financial statementswould be expected to have technical proficiency in understandingand evaluating the effectiveness of controls, whereas an engage-ment partner of an attestation engagement to examine investmentperformance statistics would be expected to have different compe-tencies, including an understanding of the subject matter of theunderlying assertion.

.A27 In practice, the competencies necessary for the engagement partnerare broad and varied in both their nature and number. Competencies includethe following, as well as other competencies as necessary in the circumstances:

• Understanding of the role of a system of quality control and theCode of Professional Conduct. An understanding of the role of afirm's system of quality control and the AICPA's Code of Profes-sional Conduct, both of which play critical roles in assuring theintegrity of the various kinds of reports.

• Understanding of the service to be performed. An understandingof the performance, supervision, and reporting aspects of the en-gagement. This understanding is usually gained through actual

QC §10.A27


participation under appropriate supervision in that type of en-gagement.

• Technical proficiency. An understanding of the applicable profes-sional standards, including those standards directly related to theindustry in which a client operates, and the kinds of transactionsin which a client engages.

• Familiarity with the industry. An understanding of the industryin which a client operates to the extent required by professionalstandards applicable to the kind of service being performed. Inperforming an audit or review of financial statements, this under-standing would include an industry's organization and operatingcharacteristics sufficient to identify areas of high or unusual riskassociated with an engagement and to evaluate the reasonable-ness of industry-specific estimates.

• Professional judgment. Skills that indicate sound professionaljudgment. In performing engagements covered by this section,such skills would typically include the ability to exercise profes-sional skepticism and identify areas requiring special considera-tion, including, for example, the evaluation of the reasonablenessof estimates and representations made by management and thedetermination of the kind of report appropriate in the circum-stances.

• Understanding the organization's IT systems. A sufficient under-standing of how the organization is dependent on, or enabled by,information technologies and the manner in which the informa-tion systems are used to record and maintain financial informationto determine when involvement of an IT professional is necessaryfor an audit engagement.

Interrelationship of Competencies and Other Elements of a Firm’s Systemof Quality Control

.A28 The competencies previously listed are interrelated and gaining oneparticular competency may be related to achieving another. For example, fa-miliarity with the client's industry interrelates with a practitioner's ability tomake professional judgments relating to the client.

.A29 In establishing policies and procedures related to the nature of com-petencies needed by the engagement partner of an engagement, a firm mayconsider the requirements of policies and procedures established for other ele-ments of quality control. For example, a firm might consider its requirementsrelated to engagement performance in determining the nature of competencyrequirements that describe the degree of technical proficiency necessary in agiven set of circumstances.

.A30 Policies and procedures may include systems to monitor the workloadand availability of engagement partners so as to enable these individuals tohave sufficient time to adequately discharge their responsibilities.

Engagement Teams (Ref: par. .34)

.A31 The firm's assignment of engagement teams and the determinationof the level of supervision required include, for example, consideration of theengagement team's

QC §10.A28


• understanding of, and practical experience with, engagements ofa similar nature and complexity through appropriate training andparticipation;

• understanding of professional standards and legal and regulatoryrequirements;

• technical knowledge and expertise, including knowledge of rele-vant IT;

• knowledge of relevant industries in which the clients operate;

• ability to apply professional judgment; and

• understanding of the firm's quality control policies and proce-dures.

Generally, as the ability and experience levels of assigned staff increase, theneed for direct supervision decreases.

Engagement Performance

Consistency in the Quality of Engagement Performance (Ref: par. .35a).A32 The firm promotes consistency in the quality of engagement perfor-

mance through its policies and procedures. This is often accomplished throughwritten or electronic manuals, software tools or other forms of standardized doc-umentation, and industry or subject matter-specific guidance materials. Mat-ters addressed may include the following:

• How engagement teams are briefed on the engagement to obtainan understanding of the objectives of their work

• Processes for complying with applicable engagement standards

• Processes of engagement supervision, staff training, and mentor-ing

• Methods of reviewing the work performed, the significant judg-ments made, and the type of report being issued

• Appropriate documentation of the work performed and of the tim-ing and extent of the review

• Processes to keep all policies and procedures current

.A33 Appropriate teamwork and training assist less experienced membersof the engagement team to clearly understand the objectives of the assignedwork.

Supervision (Ref: par. .35b).A34 Engagement supervision includes the following:

• Tracking the progress of the engagement

• Considering the competence and capabilities of individual mem-bers of the engagement team, whether they have sufficient time tocarry out their work, whether they understand their instructions,and whether the work is being carried out in accordance with theplanned approach to the engagement

• Addressing significant findings and issues arising during theengagement, considering their significance, and modifying theplanned approach appropriately

QC §10.A34


• Identifying matters for consultation or consideration by more ex-perienced engagement team members during the engagement

Review (Ref: par. .35c).A35 A review consists of consideration of whether

• the work has been performed in accordance with professional stan-dards and applicable legal and regulatory requirements;

• significant findings and issues have been raised for further con-sideration;

• appropriate consultations have taken place and the resulting con-clusions have been documented and implemented;

• the nature, timing, and extent of the work performed is appropri-ate and without need for revision;

• the work performed supports the conclusions reached and is ap-propriately documented;

• the evidence obtained is sufficient and appropriate to support thereport; and

• the objectives of the engagement procedures have been achieved.

Consultation (Ref: par. .37).A36 Consultation includes discussion at the appropriate professional level

with individuals within or outside the firm who have relevant specialized ex-pertise.

.A37 Consultation uses appropriate research resources, as well as the col-lective experience and technical expertise of the firm. Consultation helps pro-mote quality and improves the application of professional judgment. Appro-priate recognition of consultation in the firm's policies and procedures helpspromote a culture in which consultation is recognized as a strength and per-sonnel are encouraged to consult on difficult or contentious issues.

.A38 Effective consultation on significant technical, ethical, and other mat-ters within the firm or, when applicable, outside the firm can be achieved whenthose consulted

• are given all the relevant facts that will enable them to provideinformed advice and

• have appropriate knowledge, authority, and experience

and when conclusions resulting from consultations are appropriately docu-mented and implemented.

.A39 Documentation that is sufficiently complete and detailed of consul-tations with other professionals that involve difficult or contentious matterscontributes to an understanding of

• the issue on which consultation was sought and

• the results of the consultation, including any decisions made, thebasis for those decisions, and how they were implemented.

Considerations Specific to Smaller Firms.A40 A firm needing to consult externally may take advantage of advisory

services provided by the following:

• Other firms

QC §10.A35


• Professional and regulatory bodies

• Commercial organizations that provide relevant quality controlservices

Before contracting for such services, consideration of the competence and capa-bilities of the external provider helps the firm determine whether the externalprovider is suitably qualified for that purpose.

Engagement Quality Control ReviewCriteria for an Engagement Quality Control Review (Ref: par. .38)

.A41 The structure and nature of the firm's practice are important consid-erations in establishing criteria for determining which engagements are to besubject to an engagement quality control review. Such criteria may include, forexample, the following:

• The nature of the engagement, including the extent to which itinvolves a matter of public interest

• The identification of unusual circumstances or risks in an engage-ment or class of engagements

• Whether laws or regulations require an engagement quality con-trol review

Nature, Timing, and Extent of the Engagement Quality Control Review (Ref:par. .40–.41)

.A42 An engagement quality control review may include consideration ofthe following:

• The engagement team's evaluation of the firm's independence inrelation to the specific engagement

• Whether appropriate consultation has taken place on matters in-volving differences of opinion or other difficult or contentious mat-ters and the conclusions arising from those consultations

• Whether documentation selected for review reflects the work per-formed in relation to the significant judgments and supports theconclusions reached

.A43 If the engagement quality control review is completed after the reportis dated and identifies instances where additional procedures are needed or ad-ditional evidence is required, the date of the report is changed to the date whenthe additional procedures have been satisfactorily completed or the additionalevidence has been obtained, in accordance with the professional standards ap-plicable to the engagement.

.A44 Conducting the engagement quality control review in a timely man-ner at appropriate stages during the engagement allows significant issues tobe promptly resolved to the engagement quality control reviewer's satisfactionbefore the report is released.

.A45 The extent of the engagement quality control review may dependupon, among other things, the complexity of the engagement and the risk thatthe report might not be appropriate in the circumstances. The performance ofan engagement quality control review does not reduce the responsibilities ofthe engagement partner.

.A46 Other matters relevant to evaluating the significant judgments madeby the engagement team that may be considered in an engagement quality

QC §10.A46


control review for audits, as well as reviews of financial statements and otherassurance and related services engagements, include the following:

• Significant risks identified during the engagement and the re-sponses to those risks

• Judgments made, particularly with respect to materiality and sig-nificant risks

• The significance and disposition of corrected and uncorrected mis-statements identified during the engagement

• The matters to be communicated to management and thosecharged with governance and, when applicable, other parties, suchas regulatory bodies

.A47 When the engagement quality control reviewer makes recommen-dations that the engagement partner does not accept and the matter is notresolved to the reviewer's satisfaction, the firm's procedures for dealing withdifferences of opinion apply.

Criteria for the Eligibility of Engagement Quality Control Reviewers

Sufficient and Appropriate Technical Expertise, Experience, and Authority(Ref: par. .42a)

.A48 What constitutes sufficient and appropriate technical expertise, ex-perience, and authority depends on the circumstances of the engagement.

Consultation With the Engagement Quality Control Reviewer (Ref: par..42b)

.A49 The engagement partner may consult the engagement quality con-trol reviewer at any stage during the engagement (for example, to establishthat a judgment made by the engagement partner will be acceptable to theengagement quality control reviewer). Such consultation avoids identificationof differences of opinion at a late stage of the engagement and does not neces-sarily impair the engagement quality control reviewer's eligibility to performthe role. When the nature and extent of the consultations become significant,the reviewer's objectivity may be impaired unless both the engagement teamand the reviewer are careful to maintain the reviewer's objectivity. When this isnot possible, another individual within the firm or a suitably qualified externalperson may be appointed to take on the role of either the engagement qualitycontrol reviewer or the person to be consulted on the engagement.

Objectivity of the Engagement Quality Control Reviewer (Ref: par. .43–.44)

Considerations Specific to Smaller Firms

.A50 Suitably qualified external persons may be contracted when sole prac-titioners or small firms identify engagements requiring engagement qualitycontrol reviews and no person in the firm meets the eligibility requirements foran engagement quality control reviewer. Alternatively, some sole practitionersor small firms may wish to use other firms to facilitate engagement qualitycontrol reviews. When the firm contracts suitably qualified external personsor other firms, the requirements in paragraphs .43–.44 and the guidance inparagraph .A49 apply.

Differences of Opinion (Ref: par. .46).A51 Effective procedures encourage identification of differences of opinion

at an early stage, provide clear guidelines about the successive steps to betaken thereafter, and require documentation regarding the resolution of thedifferences and the implementation of the conclusions reached.

QC §10.A47


.A52 Procedures to resolve such differences may include consulting withanother practitioner or firm or a professional or regulatory body.

Engagement DocumentationCompletion of the Assembly of Final Engagement Files (Ref: par. .49)

.A53 Professional standards, law, or regulation may prescribe the time lim-its by which the assembly of final engagement files for specific types of engage-ments is to be completed. When no such time limits are prescribed, paragraph.49 requires the firm to establish time limits that reflect the need to completethe assembly of final engagement files on a timely basis.

.A54 When two or more different reports are issued regarding the samesubject matter information of an entity, the firm's policies and procedures re-lating to time limits for the assembly of final engagement files address eachreport as if it were for a separate engagement. This may, for example, be thecase when the firm issues an auditor's report on financial information preparedin accordance with generally accepted accounting principles and, at a subse-quent date, an auditor's report on the same financial information prepared inaccordance with a special purpose framework for regulatory purposes.

Confidentiality, Safe Custody, Integrity, Accessibility, and Retrievability of En-gagement Documentation (Ref: par. .50)

.A55 Relevant ethical requirements establish an obligation for the firm'spersonnel to observe at all times the confidentiality of information containedin engagement documentation, unless specific client authority has been givento disclose information or a legal or professional duty exists to do so. Specificlaws or regulations may impose additional obligations on the firm's personnelto maintain client confidentiality, particularly when data of a personal natureare concerned.

.A56 Whether engagement documentation is in paper, electronic, or othermedia, the integrity, accessibility, or retrievability of the underlying data may becompromised if the documentation could be altered, added to, or deleted withoutthe firm's knowledge or if it could be permanently lost or damaged. Accordingly,controls that the firm designs and implements to avoid unauthorized alterationor loss of engagement documentation may include those that

• enable the determination of when and by whom engagement doc-umentation was prepared or reviewed;

• protect the integrity of the information at all stages of the en-gagement, especially when the information is shared within theengagement team or transmitted to other parties via electronicmeans;

• prevent unauthorized changes to the engagement documentation;and

• allow access to the engagement documentation by the engagementteam and other authorized parties, as necessary, to properly dis-charge their responsibilities.

.A57 Controls that the firm designs and implements to maintain the confi-dentiality, safe custody, integrity, accessibility, and retrievability of engagementdocumentation may include the following:

• The use of a password by engagement team members and dataencryption to restrict access to electronic engagement documen-tation to authorized users

QC §10.A57


• Appropriate back-up routines for electronic engagement documen-tation at appropriate stages during the engagement

• Procedures for properly distributing engagement documentationto the team members at the start of the engagement, processing itduring the engagement, and collating it at the end of the engage-ment

• Procedures for restricting access to, and enabling proper distribu-tion and confidential storage of, hard copy engagement documen-tation

.A58 For practical reasons, original paper documentation may be electron-ically scanned or otherwise copied to another media for inclusion in engagementfiles. In such cases, the firm's procedures designed to maintain the integrity, ac-cessibility, and retrievability of the documentation may include requiring theengagement teams to

• generate scanned copies that reflect the entire content of the orig-inal paper documentation, including manual signatures, cross-references, and annotations.

• integrate the scanned copies into the engagement files, includingindexing and signing off on the scanned copies as necessary.

• enable the scanned copies to be retrieved and printed as necessary.

There may be legal, regulatory, or other reasons for a firm to retain originalpaper documentation.

Retention of Engagement Documentation (Ref: par. .51)

.A59 The needs of the firm for retention of engagement documentation andthe period of such retention will vary with the nature of the engagement andthe firm's circumstances (for example, whether the engagement documentationis needed to provide a record of matters of continuing significance to future en-gagements). The retention period may also depend on other factors, such aswhether professional standards, law, or regulation prescribe specific retentionperiods for certain types of engagements or whether generally accepted reten-tion periods exist in the absence of specific legal or regulatory requirements.

.A60 In the specific case of audit engagements, the retention period wouldbe no shorter than five years from the report release date.3

.A61 Procedures that the firm may adopt for retention of engagement doc-umentation include those that enable the requirements of paragraph .51 to bemet during the retention period, such as, for example, procedures to

• enable the retrieval of, and access to, the engagement documen-tation during the retention period, particularly in the case of elec-tronic documentation because the underlying technology may beupgraded or changed over time.

• provide, when necessary, a record of changes made to engagementdocumentation after the assembly of engagement files has beencompleted.

• enable authorized external parties to access and review specificengagement documentation for quality control or other purposes.

3 Paragraph .17 of AU-C section 230, Audit Documentation. [Footnote revised, October 2011, toreflect conforming changes necessary due to the issuance of SAS No. 122.]

QC §10.A58


Ownership of Engagement Documentation

.A62 Unless otherwise specified by law or regulation, engagement docu-mentation is the property of the firm. The firm may, at its discretion, makeportions of, or extracts from, engagement documentation available to clients,provided that such disclosure does not undermine the validity of the work per-formed or, in the case of assurance engagements, the independence of the firmor its personnel.

Monitoring

Monitoring the Firm’s Quality Control Policies and Procedures (Ref: par. .52).A63 The purpose of monitoring compliance with quality control policies

and procedures is to assess, for the system of quality control as a whole, whetherthe firm is achieving the objective described in paragraph .12 through an eval-uation of the following:

• Adherence to professional standards and applicable legal and reg-ulatory requirements

• Whether the system of quality control has been appropriately de-signed and effectively implemented

• Whether the firm's quality control policies and procedures havebeen operating effectively so that reports that are issued by thefirm are appropriate in the circumstances

The evaluation may identify circumstances that necessitate changes to, or im-prove compliance with, the firm's policies and procedures to provide the firmwith reasonable assurance that its system of quality control is effective.

.A64 Ongoing consideration and evaluation of the system of quality controlmay include matters such as the following:

• Review of selected administrative and personnel records pertain-ing to the quality control elements

• Review of engagement documentation, reports, and clients' finan-cial statements

• Discussions with the firm's personnel

• Determination of corrective actions to be taken and improvementsto be made in the system, including providing feedback into thefirm's policies and procedures relating to education and training

• Communication to appropriate firm personnel of weaknesses iden-tified in the system, in the level of understanding of the system,or compliance with the system

• Follow-up by appropriate firm personnel so that necessary mod-ifications are promptly made to the quality control policies andprocedures

.A65 Monitoring procedures also may include an assessment of the follow-ing:

• The appropriateness of the firm's guidance materials and anypractice aids

• New developments in professional standards and legal and regula-tory requirements and how they are reflected in the firm's policiesand procedures, when appropriate

QC §10.A65


• Written confirmation of compliance with policies and procedureson independence

• The effectiveness of continuing professional development, includ-ing training

• Decisions related to acceptance and continuance of client relation-ships and specific engagements

• Firm personnel's understanding of the firm's quality control poli-cies and procedures and implementation thereof

.A66 Some of the monitoring procedures discussed previously may be ac-complished through the performance of the following:

• Engagement quality control review

• Review of engagement documentation, reports, and clients' finan-cial statements for selected engagements after the report releasedate

• Inspection procedures

Reviews of the work or report when performed by engagement team membersprior to the date of the report are not monitoring procedures.

.A67 The need for, and extent of, inspection procedures depends, in part, onthe existence and effectiveness of the other monitoring procedures. The natureof inspection procedures varies based on the firm's quality control policies andprocedures and the effectiveness and results of other monitoring procedures.

.A68 The inspection of a selection of completed engagements may be per-formed on a cyclical basis. For example, engagements selected for inspectionmay include at least one engagement for each engagement partner over aninspection cycle that spans three years. The manner in which the inspectioncycle is organized, including the timing of selection of individual engagements,depends on many factors, such as the following:

• The size of the firm

• The number and geographical location of offices

• The results of previous monitoring procedures

• The degree of authority of both personnel and office (for example,whether individual offices are authorized to conduct their owninspections or whether only the head office may conduct them)

• The nature and complexity of the firm's practice and organization

• The risks associated with the firm's clients and specific engage-ments

.A69 Inspection procedures with respect to the engagement performanceelement of a quality control system are particularly appropriate in a firm withmore than a limited number of management-level individuals responsible forthe conduct of its accounting and auditing practice.

.A70 The inspection process involves the selection of individual engage-ments, some of which may be selected without prior notification to the engage-ment team. In determining the scope of the inspections, the firm may take intoaccount the scope or conclusions of a peer review or regulatory inspections.

QC §10.A66


The Relationship of Peer Review to Monitoring.A71 A peer review does not substitute for all monitoring procedures. How-

ever, because the objective of a peer review is similar to that of inspection proce-dures, a firm's quality control policies and procedures may provide that a peerreview conducted under standards established by the AICPA may substitutefor the inspection of engagement documentation, reports, and clients' finan-cial statements for some or all engagements for the period covered by the peerreview.

Considerations Specific to Smaller Firms

.A72 In small firms with a limited number of persons with sufficient andappropriate experience and authority in the firm, monitoring procedures mayneed to be performed by some of the same individuals who are responsible forcompliance with the firm's quality control policies and procedures. This includesreview of engagement working papers, reports, and clients' financial statementsby the engagement partner or other qualified personnel after the report releasedate. To effectively monitor one's own compliance with the firm's policies andprocedures, it is necessary that an individual be able to critically review hisor her own performance, assess his or her own strengths and weaknesses, andmaintain an attitude of continual improvement. Changes in conditions andthe environment within the firm (such as obtaining clients in an industry notpreviously serviced or significantly changing the size of the firm) may indicatethe need to have quality control policies and procedures monitored by anotherqualified individual.

.A73 Having an individual inspect his or her own compliance with a qualitycontrol system may be less effective than having such compliance inspectedby another qualified individual. When one individual inspects his or her owncompliance, the firm has a higher risk that noncompliance with policies andprocedures will not be detected. Accordingly, a firm with a limited number ofpersons with sufficient and appropriate experience and authority in the firmmay find it beneficial to engage a suitably qualified external person or anotherfirm to perform engagement inspections and other monitoring procedures.

Communicating Deficiencies (Ref: par. .55).A74 The reporting of identified deficiencies to individuals other than the

relevant engagement partners need not include an identification of the specificengagements concerned, unless such identification is necessary for the properdischarge of the responsibilities of the individuals other than the engagementpartners.

Complaints and AllegationsSource of Complaints and Allegations (Ref: par. .60)

.A75 Complaints and allegations of noncompliance with the firm's systemof quality control (which do not include those that are clearly frivolous) mayoriginate from within or outside the firm. They may be made by firm personnel,clients, state boards of accountancy, other regulators, or other third parties.They may be received by engagement team members or other firm personnel.

Investigation Policies and Procedures (Ref: par. .61)

.A76 Policies and procedures established for the investigation of com-plaints and allegations may include, for example, that the partner supervisingthe investigation

• has sufficient and appropriate experience,

QC §10.A76


• has authority within the firm, and

• is otherwise not involved in the engagement.

The partner supervising the investigation may involve legal counsel as neces-sary.Considerations Specific to Smaller Firms

.A77 In the case of firms with few partners, it may not be practicable forthe partner supervising the investigation not to be involved in the engagement.These small firms and sole practitioners may use the services of a suitablyqualified external person or another firm to carry out the investigation intocomplaints and allegations.

Documentation of the System of Quality Control (Ref: par. .62).A78 The form and content of documentation evidencing the operation of

each of the elements of the system of quality control is a matter of judgmentand depends on a number of factors, including the following:

• The size of the firm and the number of offices

• The nature and complexity of the firm's practice and organization

For example, large firms may use electronic databases to document matterssuch as independence confirmations, performance evaluations, and the resultsof monitoring inspections.

.A79 Appropriate documentation relating to monitoring includes, for ex-ample, the following:

• Monitoring procedures, including the procedure for selecting com-pleted engagements to be inspected

• A record of the evaluation of the following:

— Adherence to professional standards and applicable legaland regulatory requirements

— Whether the system of quality control has been appropri-ately designed and effectively implemented

— Whether the firm's quality control policies and procedureshave been appropriately applied so that the reports thatare issued by the firm are appropriate in the circumstances

• Identification of the deficiencies noted, an evaluation of their ef-fect, and the basis for determining whether and what further ac-tion is necessary

Considerations Specific to Smaller Firms.A80 Smaller firms may use more informal methods in the documentation

of their systems of quality control, such as manual notes, checklists, and forms.

QC §10.A77


.A81

Exhibit—Comparison of Section 10, A Firm’s Systemof Quality Control, and International Standard onQuality Control 1, Quality Control for Firms thatPerform Audits and Reviews of Financial Statements,and Other Assurance and Related ServicesEngagements

This analysis was prepared by the AICPA Audit and Attest Standardsstaff to highlight substantive differences between section 10, A Firm'sSystem of Quality Control, and International Standard on Quality Con-trol (ISQC) 1, Quality Control for Firms that Perform Audits and Re-views of Financial Statements, and Other Assurance and Related Ser-vices Engagements, and the rationale therefore. This analysis is notauthoritative and is prepared for informational purposes only. It hasnot been acted on or reviewed by the Auditing Standards Board (ASB).

Differences in Language

The ASB has made various changes to the language throughout section 10, ascompared with ISQC 1. Such changes have been made to use terms applicablein the United States and to make section 10 easier to read and apply. The ASBbelieves that such changes will not create differences between the applicationof ISQC 1 and the application of section 10.

Requirements in Section 10 Not in ISQC 1

Section 10 requires firms to establish policies and procedures providing

• in paragraph .30, for obtaining an understanding with the clientregarding the nature, scope, and limitations of the services to beperformed.

• in paragraph .33, that personnel selected for advancement havethe qualifications necessary for fulfillment of the responsibilitiesthey will be called on to assume.

• in paragraph .44, that although the engagement quality control re-viewer is not a member of the engagement team, the engagementquality control reviewer should satisfy the independence require-ments relating to the engagements reviewed.

• in paragraph .48, that when differences of opinion exist, a mem-ber of the engagement team be able to document that member'sdisagreement with the conclusions reached, after appropriate con-sultation.

ISQC 1 does not have equivalent requirements.

QC §10.A81


Requirements in ISQC 1 Not in Section 10Paragraph 25 of ISQC 1 requires the firm to establish policies and proceduressetting out criteria for determining the need for safeguards to reduce the fa-miliarity threat to an acceptable level when using the same senior personnelon an assurance engagement over a long period of time. The ASB believes thatthe familiarity threat should not be singled out among other threats to inde-pendence.Paragraph 48(a) of ISQC 1 requires including, on a cyclical basis, inspection of atleast one completed engagement for each engagement partner as a monitoringprocedure. The ASB believes that this requirement is overly prescriptive andthat a risk-based approach to inspections is more appropriate.

Requirements in ISQC 1 Revised in Section 10Paragraph .41 of section 10 requires that when an engagement quality controlreview is performed, the engagement quality control review be completed beforethe report is released. Paragraph 36 of ISQC 1 requires that the quality controlreview be completed before the report is dated. The ASB believes that an en-gagement quality control review is an independent review of the engagementteam's significant judgments, including the date selected by the engagementteam to date the report. As noted in the application material to section 10,when the engagement quality control review results in additional procedureshaving to be performed, the date of the report would be changed.Paragraph 48(c) of ISQC 1 requires that those performing the engagement orthe engagement quality control review are not involved in inspecting the en-gagements. Paragraph .53c of section 10, consistent with the requirement inparagraph 100 of Statement on Quality Control Standards No. 7, A Firm's Sys-tem of Quality Control, requires that performance of monitoring of the firm'ssystem of quality control be assigned to qualified individuals. Paragraph .A72of section 10 notes that in small firms with a limited number of persons withsufficient and appropriate experience and authority in the firm, monitoringprocedures may need to be performed by some of the same individuals who areresponsible for compliance with the firm's quality control policies and proce-dures. The ASB concluded that it was not necessary to change existing practicebecause in the United States, the peer review process provides a safeguard andprovides evidence that the monitoring procedures are effective.Paragraph A49 of ISQC 1 references the requirement in paragraph 40 of ISQC1 to establish policies and procedures to maintain the objectivity of the en-gagement quality control reviewer and states, "Accordingly, such policies andprocedures provide. . . . " The ASB believes that notwithstanding its placementas application material, the language is indicative of a requirement and, ac-cordingly, has included a requirement for the provision of these specific policiesand procedures in paragraph .44 of section 10. The ASB believes this will notcreate a difference in the application of ISQC 1 and the application of section10.

[Revised, October 2011, to reflect conforming changes necessary due to theissuance of SAS No. 122.]

QC §10.A81

00-8 JAN 2014 Quality Control Policies and Procedures—Sole Practitioner With No Personnel 4301

AICPA Peer Review Program Manual PRP §4300.01

PRP Section 4300 Quality Control Policies and Procedures Documentation Questionnaire for a Sole Practitioner With No Personnel1

.01 Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (AICPA, Profes-sional Standards, QC sec. 10) (effective as of January 1, 2012), supersedes all existing SQCSs, establishes standards, and provides guidance for a CPA firm’s responsibilities for its system of quality control. The SQCS deals comprehen-sibly with a firm’s quality control practices in the areas of audits, reviews, compilations, and attestation engagements. It places an unconditional obligation on a firm to establish a system of quality control designed to provide it with rea-sonable assurance that the firm and its personnel comply with professional standards and applicable regulatory and legal requirements, and that the reports issued by the firm or engagement partners are appropriate in the circumstanc-es. Significant aspects of SQCS No. 8 include the following:

� SQCS No. 8 defines unconditional requirements through the use of the words must or is required and pre-sumptively mandatory requirements through the use of the word should.

� SQCS No. 8 identifies the policies and procedures that should address each of the following elements of a firm’s system of quality control:

— Leadership Responsibilities for Quality Within the Firm (the “Tone at the Top”)

— Relevant Ethical Requirements

— Acceptance and Continuance of Client Relationships and Specific Engagements

— Human Resources

— Engagement Performance

— Monitoring

� SQCS No. 8 requires a firm to communicate and document its quality control policies and procedures. The extent of the documentation is based on the size, structure, and nature of the firm’s practice.

� SQCS No. 8 recognizes the importance of a quality oriented internal culture, requires firms to establish poli-cies that require the firm to assign its management responsibilities so that commercial considerations do not override the quality of work performed, and addresses personnel performance evaluation, compensation, and advancement to demonstrate the firm’s overarching commitment to quality.

� SQCS No. 8 provides detailed guidance on independence and requires a written confirmation of compliance with independence requirements from all personnel at least annually.

� SQCS No. 8 provides detailed guidance on client acceptance and continuance, and requires documentation of the resolution of significant issues.

� SQCS No. 8 provides detailed guidance on engagement supervision and review, engagement documentation, and consultation policies and procedures.

1 The term personnel is defined in Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (AICPA, Professional Standards, QC sec. 10), as all individuals who perform professional services for which the firm is responsible, whether or not they are CPAs (in-cluding leased and per diem employees who devote at least 25 percent of their time at the reviewed firm in performing audits, reviews, compila-tions, or attestation engagements, or those individuals who have the partner or manager level responsibility for the overall supervision or review of such engagements).

4302 System Reviews 00-8 JAN 2014

PRP §4300.02 Copyright © 2014, American Institute of Certified Public Accountants, Inc.

� SQCS No. 8 requires policies and procedures for addressing and resolving differences of opinions, including a requirement that reports must not be released until the differences of opinions are resolved. Such policies and procedures should enable a member of the engagement team to document that member’s disagreement with the conclusions reached after appropriate consultation.

� SQCS No. 8 uses the term engagement quality control review, including its objective, and requires firms to establish criteria to determine which engagements are to be subject to an engagement quality control review.

� SQCS No. 8 requires performance of monitoring procedures that are sufficiently comprehensive to enable the firm to assess compliance with all applicable professional standards and regulatory requirements and the firm’s quality control policies and procedures. Firms are required to assign responsibility for monitoring to a person of appropriate authority and are required to evaluate deficiencies and communicate recommendation for remedial action.

� SQCS No. 8 requires policies and procedures for dealing appropriately with complaints and allegations of noncompliance with professional standards or with the firm’s system of quality control.

.02 This section of the manual contains a questionnaire that provides documentation of the firm’s policies and pro-cedures for its system of quality control that should be provided to the peer reviewer prior to the commencement of the review. Firms that have developed a comprehensive quality control document (as contemplated by SQCS No. 8) that was effective for the peer review year should provide that document to the peer reviewer. However, under certain circum-stances, the team captain may still request that a firm complete this questionnaire (and attach the quality control docu-ment). For instance, this could be requested if the team captain’s consideration of the firm’s quality control document indicates that it may not adequately address all the required elements of a system of quality control in a level of detail appropriate to the firm. This could also be requested if the team captain’s consideration of the quality control document indicates that a summary of the document would assist the team captain’s review of it.

.03 Firms utilizing this questionnaire as the primary documentation of their system of quality control (to assist in complying with the documentation requirements of SQSC No. 8) should indicate its date of adoption (which cannot be prior to the date of completion of the questionnaire). If this questionnaire was not in effect for the peer review year, the firm should also attach previously completed questionnaire(s) that were effective for the peer review year, which could be the questionnaire completed for the firm’s last peer review. Firms should keep this questionnaire updated for ongoing changes in their respective practice structure, as they would for a quality control document.

.04 This questionnaire has been developed for sole practitioners with no personnel. Section 4400, Quality Control Policies and Procedures Documentation Questionnaire for Firms With Two or More Personnel, is a questionnaire that has been developed for firms with two or more personnel. This questionnaire has been adapted from the require-ments of SQSC No. 8 and from the nonauthoritative AICPA practice aid, Establishing and Maintaining a System of Quality Control for a CPA Firm’s Accounting and Auditing Practice. The AICPA practice aid provides illustrative examples of four hypothetical firms (multioffice, single office firm, sole practitioner, and an alternative practice struc-ture firm). Firms should understand the requirements of SQCS No. 8 and consider the practice aid when designing and maintaining the quality control policies and procedures applicable to their firm. The practice aid can be purchased from www.cpa2biz.com.

.05 The reviewed firm should respond directly with “Yes,” “No,” or “N/A” answers and describe, where appropri-ate, the policies and procedures it has in effect that relate to the questions asked. Where appropriate, the firm should make reference to any firm documents that describe those policies and procedures in more detail. Examples of such documents might be personnel manuals, audit and accounting manuals, a quality control document or manual, and firm forms and checklists. A “No” answer to a question does not necessarily indicate a problem with the firm’s system of quality control; however, it may require additional explanation of applicable procedures that the firm has implement-ed in the circumstances. A firm’s quality control policies and procedures should be sufficient based on the size, struc-ture, and nature of its practice for it to obtain reasonable assurance of complying with professional standards.

.06 When determining the extent of documentation required for this questionnaire, the reviewed firm should consider that “Yes” and “No” answers may assist in identifying the control objective, but it would not typically satisfy the required documentation of how the control was met. Documenting how controls are met is an integral component of documenting the quality control policies and procedures and is expected to be included if the questionnaire is meant to satisfy the requirements of SQCS 8 and be used as the firm’s quality control document. The reviewed firm should document the control objective and the details of the policies and procedures.



.07 AICPA Peer Review Program

QUALITY CONTROL POLICIES AND PROCEDURES DOCUMENTATION QUESTIONNAIRE FOR A SOLE PRACTITIONER WITH NO PERSONNEL2

Firm Prepared By Date

This questionnaire may not include all the policies and procedures applicable to a firm’s practice. It should be tailored to provide documentation of pertinent policies and procedures applicable to the six elements of quality control. In this questionnaire the terms “firm” and “practitioner” are used interchangeably. Some portions of the questionnaire will require a specific response, whereas a “Yes,” “No,” or “N/A” answer may be appropriate in other instances. Some questions may require a brief description of applicable procedures in place. If necessary, additional documentation should be provided. Where appropriate, make reference to any documents that describe those policies and procedures in more detail. Examples of such documents might be audit and accounting manuals and forms and checklists used in the firm’s practice.

This questionnaire does not address specific requirements of membership in the AICPA Governmental Audit Quality Center or the AICPA Employee Benefit Plan Audit Quality Center. Additionally, there may be other requirements for firms engaged to perform audit services for an issuer to comply with the Public Company Accounting Oversight Board and the Securities and Exchange Commission and for those firms performing engagements subject to Government Auditing Standards.

Yes No N/A Comments A. Leadership Responsibilities for Quality Within the Firm

(“Tone at the Top”)

Quality control policies and procedures are required to be documented and communicated to personnel, including the message that each individual has a personal responsibility for quality and to be familiar with and to comply with these poli-cies and procedures.

1. Does the firm have a written quality control document in effect for the peer review year?

a. If “yes,” submit a copy of the firm’s quality control document in effect for the peer review year to your team captain. Completion of this questionnaire may not be required if the quality control document com-prehensively describes the policies and procedures es-tablished and maintained for each element of quality control as contemplated by SQCS No. 8. However, under certain circumstances, the team captain may still request that this questionnaire be completed (and the quality control document attached).

b. If “no,” will this questionnaire provide the primary documentation of the firm’s policies and procedures for its system of quality control?

If “yes,” indicate date of adoption (cannot be prior to the date of the completion of this questionnaire)

2 The term personnel is defined in SQCS No. 8 as all individuals who perform professional services for which the firm is responsible, whether or not they are CPAs (including leased and per diem employees who devote at least 25 percent of their time at the reviewed firm in performing audits, reviews, compilations, or attestation engagements, or those individuals who have the partner or manager level responsibility for the overall supervi-sion or review of such engagements).



Yes No N/A Comments Considering the date of adoption, was this question-

naire in effect for the peer review year?

If “no”, also attach previously completed question-naire(s) that were effective for the peer review year, if any. This could be the questionnaire completed for the firm’s last peer review, which the firm should be maintaining as documentation of their system of quali-ty control.

If “no,” where are policies and procedures documented?

2. Has the practitioner developed or adopted other quality control materials? If “yes,” describe those materials:

3. Describe how the practitioner stresses the importance of obtaining feedback on its system of quality control from per diem personnel.

Quality control policies and procedures support an internal culture based on the recognition that quality is essential in performing engagements.

4. Describe how the practitioner accepts ultimate respon-sibility for the firm’s system of quality control.

5. Describe how the practitioner continually evaluates client relationships and specific engagements so that commercial considerations do not override the quality of the work per-formed.



Yes No N/A Comments 6. Does the practitioner review professional literature about

requirements for a system of quality control and devote sufficient and appropriate resources for the development, communication, and support of the firm’s quality control policies and procedures?

7. Describe how the practitioner reviews and updates the quality control policies, procedures, and documentation on an annual basis.

B. Relevant Ethical Requirements

Quality control policies and procedures provide the firm with reasonable assurance that the firm and its personnel comply with relevant ethical requirements when discharging profes-sional responsibilities. Relevant ethical requirements include independence, integrity, and objectivity. These requirements include regulations, interpretations, and rules of the AICPA, state CPA societies, state boards of accountancy, state statutes, the U.S. Government Accountability Office, and any other applicable regulators.

1. Describe how the practitioner documents and commu-nicates its policies and procedures for relevant ethical re-quirements to its per diem personnel.

2. Does the practitioner have access to current guidance mate-rials regarding the applicable independence, integrity, and objectivity requirements?

a. If “yes,” describe the source of such material (such as access through computer software databases containing professional and regulatory literature, by a subscrip-tion to the AICPA Professional Standards loose-leaf service or other services pertaining to the firm’s prac-tice, or other means).



Yes No N/A Comments b. If “no,” describe how the practitioner obtains reason-

able assurance that he or she is aware of the applicable independence, integrity, and objectivity rules.

3. Does the practitioner document independence annually through a written confirmation or on each engagement on a program step and require all per diem personnel to do the same? If “no,” describe how independence is confirmed in writing as required by SQCS No. 8.

4. Does the practitioner review unpaid fees from clients to as-certain whether any outstanding amounts impair the firm’s independence? If “no,” describe how this is determined.

5. Does the practitioner consider financial or other relation-ships that may impair independence? If “yes,” do those re-lationships include the following:

a. Business relationships with clients or with nonclients that have investor or investee relationships with clients

b. Loans to and from clients, including loans from finan-cial institution clients

c. Family members who are employed by clients, or who are in director, officer, manager, or audit sensitive po-sitions with client entities, including not-for-profit or-ganizations

d. Past due fees for professional services

e. Accounting or advisory services that have evolved into situations where the CPA has assumed some of the re-sponsibilities of management

f. Direct and material investments in clients

Describe any potential conflicts



Yes No N/A Comments 6. In situations where the firm is not independent, are ser-

vices for those clients limited to compilation and other nonattest services, and are all compilation reports modified to disclose the firm’s lack of independence?

The firm, when acting as principal auditor, confirms the inde-pendence of another firm performing parts of an engagement.

7. Does the firm have any engagements where it acts as prin-cipal auditor or accountant and another firm of CPAs is engaged to perform segments of the engagement?

a. If “yes,” are written confirmations obtained regarding the other firm’s independence with respect to audit engagements and either written or oral confirmations obtained for review or attestation engagements?

i. If “yes,” describe the form and content of the con-firmation.

ii. If “no,” describe how the practitioner determines and documents independence.

Before a member [ET sec. 92 par. .20] or his or her firm per-forms nonattest services for accounting and auditing clients,*

the member should determine that the requirements described in, Ethics Interpretation No. 101-3, “Performance of Nonattest Services,” under Rule 101, Independence (AICPA, Profes-sional Standards, vol. 2, ET sec. 101 par. .05), have been met. In cases where the requirements have not been met with re-spect to nonattest services rendered during the period of the professional engagement or the period covered by the finan-cial statements, independence would be impaired.

8. Does the firm provide nonattest services to accounting and auditing clients?

a. If “yes,” did the firm meet all the requirements of In-terpretation 101-3 for each accounting and auditing client for which nonattest services were performed?

* A member who performs a compilation engagement for a client should modify the compilation report to indicate a lack of independence if the member does not meet all of the conditions set out in Ethics Interpretation No. 101-3, “Performance of Nonattest Services,” under Rule 101, Independence (AICPA, Professional Standards, vol. 2, ET sec. 101 par. .05), when providing a nonattest service to that client (see Statement on Standards for Accounting and Review Services [SSARS] No. 19, Compilation and Review Engagements [AICPA, Professional Standards, vol. 2, AR sec. 80]), for compilation engagements performed on financial statements for periods ending before December 15, 2010, see SSARS No. 1, Compilation and Review of Financial Statements (AICPA, Professional Standards, vol. 2), which was superseded by SSARS No. 19.



Yes No N/A Comments Describe where and how this is documented.

b. Did the firm establish an understanding, including ap-propriate documentation of the understanding, of each client regarding the following:

i. Objectives of the engagement ii. Services to be performed iii. Client’s acceptance of its responsibilities iv. Member’s responsibilities v. Any limitations of the engagement

If the firm is a member of a network [ET sec. 92 par. .21], the firm should determine that the requirements described in Ethics Interpretation No. 101-17, “Networks and Network Firms,” under Rule 101, “Independence” (AICPA, Professional Standards, ET sec. 101, par. .19), have been met.

9. Is the firm a network firm [ET sec. 92 par. .22]?

a. If “Yes,” answer the following:

i. Did the firm meet all the requirements of Ethics Interpretation No. 101-17?

ii. Describe how the firm monitors its independence with respect to financial statement audits, reviews, and other attest engagements performed by other members of the network.

10. Describe the procedures the practitioner performs in evalu-ating other possible threats to independence and objectivity and appropriate actions taken to eliminate those threats or reduce them to an acceptable level by applying safeguards (accumulate and consider relevant information, consult AICPA Ethics Hotline, consider withdrawing from the en-gagement, and so on).



Yes No N/A Comments C. Acceptance and Continuance of Client Relationships and

Specific Engagements

Quality control policies and procedures for acceptance and continuance of client relationships and specific engagements provide the firm with reasonable assurance that the firm will undertake or continue relationships and engagements only where it has considered the integrity of the client, is com-petent to perform the engagement, can comply with the legal and ethical requirements, and has reached an understanding with the client regarding the services to be performed.

1. Does the practitioner obtain and evaluate relevant infor-mation such as the following before accepting or continu-ing a client relationship:

a. The nature and purpose of the services to be provided to the client and management’s understanding thereof

b. The identity of the client’s principal owners, key man-agement, related parties, and those charged with gov-ernance

c. The nature of the client’s operations, including its business practices, from sources such as annual reports, interim financial statements, reports to and from regu-lators, income tax returns, and credit reports

d. Information obtained from third parties (bankers, fac-tors, attorneys, credit services, and others who have business relationships with the entity)

e. Information concerning the attitude of the client’s principal owners, key management, and those charged with governance toward such matters as aggressive in-terpretation of accounting standards and internal con-trol over financial reporting

f. The risk of providing services in highly specialized or regulated industries

g. Engagements that require an inordinate amount of time to complete relative to the available resources of the firm

h. Communicating with the predecessor accountant or auditor when required by professional standards

i. Conducting background checks of the business, its of-ficers, and so on

j. The risk of providing services to significant clients or to other clients for which the firm’s objectivity or the appearance of independence may be impaired

k. Describe where and how a-j above are documented.



Yes No N/A Comments 2. Does the practitioner document the necessary commun-

ications with predecessor accountants and auditors, in-cluding inquiries regarding the nature of any disagreements and other events, and whether evidence of “opinion shop-ping” exists?

a. If “yes,” where is the documentation maintained?

b. If “no,” describe how the practitioner complies with paragraph .13 of AU-C section 300, Planning an Audit (AICPA, Professional Standards).

The firm evaluates whether the engagement can be completed with professional competence; undertakes only those engage-ments for which the firm has the capabilities, resources, and professional competence to complete; and evaluates, at the end of specific periods or upon occurrence of certain events, whether the relationship should be continued.

3. Does the practitioner evaluate whether he or she has ob-tained or can reasonably expect to obtain the knowledge and expertise necessary to perform the engagement, includ-ing relevant regulatory or reporting requirements, prior to accepting the engagement?

a. If “yes,” describe how this decision is reached and where it is documented.

b. If “no,” describe how the practitioner determines that he or she can perform the engagement.



Yes No N/A Comments 4. Does the practitioner consider conditions that require eval-

uation of a specific client or engagement, obtain relevant information to determine whether the relationship should be continued, and establish a specific time period to make that evaluation?

a. If “yes,” do the conditions include the following:

i. Significant changes in the client such as a major change in senior client personnel, ownership, ad-visors, nature of its business, or financial stability of the client

ii. Changes in the nature or scope of the engagement, including requests for additional services

iii. Changes in the composition of the firm, such as the loss of and inability to replace key personnel who are particularly knowledgeable about a spe-cialized industry

iv. The decision to discontinue services to clients in a particular industry

v. The existence of conditions that would have caused the practitioner to reject the client or en-gagement had such conditions existed at the time of the initial acceptance

vi. The client’s delinquency in paying fees vii. Engagements for entities in highly specialized or

regulated industries

viii. Engagements where there may be substantial

doubt about the entity’s ability to continue as a going concern

ix Engagements for entities in the development stage

x. Engagements in which the client has ignored prior recommendations, such as those that address defi-ciencies in internal control

xi. Describe where and how i–x above are docu-mented.

b. If “no,” describe how the practitioner obtains assur-ance that he or she is not continuing a relationship which should be discontinued.



Yes No N/A Comments 5. Did the practitioner consider discontinuing any audit and

accounting client relationships during the year under re-view but decide to continue? If “yes,” explain.

The firm obtains an understanding with the client regarding the services to be performed.

6. Does the practitioner document his or her understanding with the client regarding the services to be performed by ei-ther obtaining an engagement letter for all engagements, thus minimizing the risk of misunderstandings regarding the nature, scope, and limitation of the services to be performed, or documenting the understanding in a memorandum? If “no,” describe how the practitioner obtains assurance that his or her understanding is in agreement with the client’s understanding of the work to be performed.

7. Describe the firm’s procedures for withdrawal from an en-gagement or from both the engagement and the client rela-tionship.

D. Human Resources

Quality control policies and procedures for human resources provide the firm with reasonable assurance that it has suffi-cient personnel with the capabilities, competence, and com-mitment to ethical principles necessary to perform its engagements in accordance with professional standards and regulatory and legal requirements, and to enable the firm to is-sue reports that are appropriate in the circumstances.

Per diem personnel who are hired must have integrity and possess the characteristics that enable them to perform com-petently.

1. If the practitioner hires per diem personnel, has hiring cri-teria been established for such factors as education, certifi-cation or licensure, and experience that per diem personnel must meet to be hired?



Yes No N/A Comments a. If “yes,” describe the criteria and how the practitioner

evaluates personal characteristics such as integrity, competence, and motivation of per diem personnel.

b. If “no,” describe how the practitioner determines that the per diem personnel are appropriate for the position they are hired to fill.

Personnel assigned to engagements (practitioner and per diem personnel) possess the knowledge, skills, and abilities required in the circumstances and the nature and extent of supervision needed.

2. Describe how the practitioner ensures that per diem per-sonnel assigned to engagements have the degree of tech-nical training and proficiency required in the circumstances, considering the nature and extent of super-vision to be provided.

3. Does the practitioner possess the knowledge, skills, and abilities (competencies) necessary to fulfill engagement responsibilities for the firm’s accounting, auditing, or at-testation engagements? Do such competencies for the prac-titioner include the following:

a. An understanding of the role of the firm’s system of quality control and the AICPA’s Code of Professional Conduct

b. An understanding of the performance, supervision, and reporting aspects of the engagement

c. An understanding of the applicable accounting, audit-ing, or attestation professional standards including those standards directly related to the industry in which a cli-ent operates



Yes No N/A Comments d. An understanding of the industry in which a client oper-

ates, including the industry’s organization and operating characteristics, to identify the areas of high or unusual risk associated with an engagement and to evaluate the reasonableness of industry specific estimates

e. Skills that indicate sound professional judgment

f. An understanding of how the organization is depen-dent on or enabled by information technologies, and the manner in which information systems are used to record and maintain financial information

Personnel participate in general and industry specific continu-ing professional education (CPE) and professional develop-ment activities that enable them to satisfy responsibilities and fulfill applicable continuing professional education require-ments of the AICPA, state CPA societies, state board of ac-countancy, and other regulators.

4. Do personnel (the practitioner and per diem personnel) as-signed to audit and accounting engagements take courses related to those engagements?

a. Provide an approximation of the type of CPE taken.

i. Self study courses %

ii. State society or AICPA programs %

iii. Other programs %

b. Describe how the practitioner determines the appro-priate mix of CPE related to accounting and auditing assignments, including specialized industries.

5. Is the practitioner and, if applicable, per diem personnel in compliance with the professional education requirements of the board(s) of accountancy in state(s) where licensed, the AICPA (if applicable), the state CPA society (if appli-cable), and Government Auditing Standards—the Yellow Book (if applicable)? If “no,” explain instances of non-compliance and the firm’s plans for correcting the situa-tion.



Yes No N/A Comments 6. Does the practitioner receive professional publications that

keep the firm’s personnel abreast of changes in accounting and auditing standards and any client industry specific pronouncements? If “yes,” please describe. If “no,” de-scribe how you keep current with changes.

E. Engagement Performance

Quality control policies and procedures for engagement per-formance are designed to provide the firm with reasonable as-surance that engagements are consistently performed in accordance with professional standards and regulatory and legal requirements, and that the firm issues reports that are appropriate in the circumstances.

1. Does the firm develop its own quality control materials (QCM)(for example, an audit and accounting manual, stand-ardized forms, checklists, templates, practice aids, tools, questionnaires. and the like) to assist with engagement per-formance? If “yes”:

a. have you provided the review team with a list of the types of QCM developed by the firm?

b. are such QCM used as an integral part of the firm’s system of quality control?

c. are the firm’s QCM used for a specified purpose (for example, sampling or risk assessment templates) or a specific industry (for example, homeowners’ associa-tions)?

d. describe the firm’s quality control policies and proce-dures for the following:

i. developing and maintaining the QCM (for exam-ple, making updates and revisions).

ii. ensuring the reliability of the QCM.



Yes No N/A Comments iii. ensuring the suitability of the QCM for the firm’s

practice.

2. Does the firm use third-party QCM (for example, an audit and accounting manual, standardized forms, checklists, templates, practice aids, tools, questionnaires and the like) to assist with engagement performance? If yes,

a. have you provided the review team with a list of all providers or sources of QCM used by the firm?


c. are the provider’s QCM used for a specified purpose (for example, sampling or risk assessment templates) or a specific industry (for example, homeowners’ associa-tions)?


i. adopting, updating and modifying the third party QCM.


iii. ensuring the suitability of the QCM for the firm’s practice.

e. have the specific third party QCM used by the firm undergone a QCM review (been “peer reviewed”) (cop-ies of current QCM review reports and acceptance let-ters can be obtained either from the AICPA website at http://www.aicpa.org/InterestAreas/PeerReview/Community/NationalPRC/Pages/QCMReviewResults.aspx or from the reviewed provider)?



Yes No N/A Comments i. If “Yes,” have you furnished a copy of the pro-

vider’s QCM review report to the team captain or, if the provider has elected to have its QCM review documents posted to the AICPA’s website, directed the team captain toward the website?

ii. If “No”, identify the QCM used by the firm that have not undergone a QCM review.

The engagement is planned to meet professional, regulatory, and firm requirements.

3. Do the firm’s policies and procedures for planning include the following:

a. Developing or updating background information on the client and the engagement

b. Developing a proposed written work program tailored to the specific engagements

c. Considering the economic conditions affecting the cli-ent and its industry and their potential effect on the conduct of the engagement

d. Considering risks, including fraud, and how they may affect the procedures to be performed

e. Obtaining an understanding of the engagement by use of an engagement letter or documentation in the work-ing papers

f. Reviewing prior financial statements and accountant’s or auditor’s report, or both

The engagement is performed, supervised, documented, and re-ported (or communicated) in accordance with the requirements of professional standards, applicable regulators, and the firm.

4. Does the practitioner use purchased practice aids to assist the firm in documenting the work performed on engagements?

a. If “yes,” describe what you use.

b. If “no,” describe the form of documentation used, in-cluding other checklists and how they have been de-veloped and updated in order to determine that appropriate work has been performed to justify the firm’s conclusions.



Yes No N/A Comments 5. Does the firm require documentation of the following:

a. Understanding of the entity and its environment

b. Consideration of internal control structure in planning and performing the engagement

c. Assessment of control risk

d. Consideration of audit risk and materiality when plan-ning and performing an audit

e. Audit sampling techniques

f. Consideration of fraud in the financial statement audit

g. Conduct of, and degree of reliance placed on, ana-lytical procedures

If “no” to any of the preceding, describe how the firm de-termines that appropriate procedures were performed.

6. Does the practitioner review reports, financial statements, and working papers and complete and document the as-sembly of final engagement files on a timely basis?

7. Does the firm use other accounting firms for audit or ac-counting engagements? If “yes,” describe the form in which instructions are given to the other firms and the ex-tent to which their work is reviewed, or indicate where their procedures for the supervision and control of that work are found.

8. Does the practitioner assume ultimate responsibility for each engagement (certain standards may require owner re-sponsibility)? If “no,” describe who is responsible for the final approval for issuing the accountant’s or auditor’s re-port, or both.



Yes No N/A Comments 9. Describe the firm’s policies and procedures for maintaining

confidentiality, safe custody, integrity, accessibility, and retrievability of engagement documentation.

10. Describe the firm’s policies and procedures for retaining engagement documentation for a period of time sufficient to meet the needs of the firm, professional standards, laws, and regulations.

The firm requires consultations to take place when appro-priate; that sufficient and appropriate resources are available to enable appropriate consultation to take place; that all the relevant known facts are provided to those consulted; that the nature, scope, and conclusions of such consultations are doc-umented; and that conclusions resulting from such consulta-tions are implemented.

11. Does the practitioner maintain or have access to appro-priate current technical reference materials that include materials related to the clients it serves?

a. If “yes,” do those materials include the following: i. AICPA Professional Standards ii. AICPA industry audit guides relevant to the

firm’s practice

iii. Financial Accounting Standards Board pro-

nouncements

iv. Governmental Accounting Standards Board pro-

nouncements, Government Auditing Standards (the Yellow Book), and other government audit guides relevant to the firm’s practice

v. Describe the means of access to i–iv above.

b. If “no,” describe how you determine that appropriate technical standards are followed.



Yes No N/A Comments 12. Does the practitioner consult based on the following factors:

a. The materiality of the matter

b. Its experience in a particular industry or functional area

c. Whether generally accepted accounting principles or generally accepted auditing standards in the area

i. are based on authoritative pronouncements that are subject to varying interpretations

ii. are based on varied interpretations of prevailing practice

iii. have yet to be developed

iv. are under active consideration by an authoritative body

v. have not previously been interpreted by the firm (for example, in connection with another engage-ment)

13. Does the practitioner consult with outside parties, such as the AICPA Technical Hotline or another CPA qualified in the area, when a technical question arises? If “no,” de-scribe how technical questions are resolved.

14. Does the practitioner document consultations, including all of the relevant facts, circumstances, and references to pro-fessional literature and how they will be implemented?

a. If “yes,” describe where this documentation is main-tained.

b. If “no,” describe how you justify conclusions.



Yes No N/A Comments 15. Describe how and where the practitioner evaluates and

documents issues of professional judgment when differ-ences of opinion arise with per diem personnel, with those consulted, or with an external reviewer and resolve the matter before releasing the report.

16. Do the firm’s policies provide that if persons involved in the engagement continue to disagree with the resolution, they may disassociate themselves from the resolution of the mat-ter and document that a disagreement continues to exist?

An engagement quality control review includes reading the financial statements or other subject matter information and the report and considering whether the report is appropriate. The engagement quality control review also includes a review of selected engagement documentation relating to the signif-icant judgments the engagement team made and the con-clusions they reached, and discussion with the engagement partner regarding significant findings and issues.

17. Describe the criteria the firm has established for determin-ing whether an engagement quality control review should be performed (nature of the firm’s practice, nature of the engagement, unusual circumstances or risk, and whether laws or regulations require an engagement quality control review).

18. Does the firm have any engagements that meet the criteria for an engagement quality control review?

a. If “no,” an engagement quality control review is not required and the remainder of this section is not appli-cable.

b. If “yes,” has the firm considered the following:

i. The need to contract with a qualified external per-son with sufficient technical expertise and experi-ence to perform the engagement quality control review



Yes No N/A Comments ii. That the engagement quality control reviewer

meets the independence requirements relating to the engagements reviewed, even though the en-gagement quality control reviewer is not a mem-ber of the engagement team

iii. That the practitioner remains responsible for the engagement and its performance, notwithstanding involvement of the engagement quality control reviewer

iv. That the engagement quality control review be completed before the report is released

v. That the engagement quality control review be documented

vi. That matters are resolved before reports are re-leased that might have come to the attention of the engagement quality control reviewer that would cause the reviewer to believe that the significant judgments the practitioner made and the conclu-sions reached were not appropriate

vii. Describe how the review is documented.

F. Monitoring Quality control policies and procedures for monitoring provide the firm with reasonable assurance that the policies and proce-dures related to the system of quality control are relevant, ade-quate, operating effectively, and complied with in practice.

The firm considers and evaluates, on an ongoing basis, the appropriateness of the design and effectiveness of the operation of its quality control policies and procedures.

1. Does the practitioner revise the firm’s policies and pro-cedures that are ineffective due to changes in professional standards?

2. Describe how the practitioner improves the firm’s com-pliance with its policies and procedures, as needed.



Yes No N/A Comments The firm considers and evaluates, on an ongoing basis, the appropriateness of its guidance materials and any practice aids.

3. Describe the practitioner’s quality control policies and pro-cedures to monitor that the firm’s guidance, and quality control materials (QCM) (for example, practice aids, such as audit programs forms and checklists), are updated for new professional pronouncements and are reliable and suitable for the firm’s practice.

The firm considers and evaluates, on an ongoing basis, the effectiveness of professional development activities.

4. Does the practitioner review CPE records to determine that the courses its personnel (including per diem personnel) have taken are appropriate considering the firm’s practice?

5. Does the practitioner review CPE records to determine compliance with the requirements of the AICPA and other regulatory bodies?

The firm considers and evaluates, on an ongoing basis, com-pliance with policies and procedures.

6. Does the practitioner perform either timely inspections3 or postissuance reviews of engagement working papers, re-ports, and clients’ financial statements for selected en-gagements to evaluate the firm’s compliance with its policies and procedures?

7. Does the practitioner, on an ongoing basis, review its com-pliance with its policies and procedures regarding leader-ship responsibilities for quality within the firm, relevant ethical requirements (including independence, integrity, and objectivity), acceptance and continuance of client rela-tionships and specific engagements, human resources, en-gagement performance, and monitoring?

8. Does the firm test compliance with its policies and pro-cedures through other monitoring procedures (such as en-gaging a qualified individual from outside the firm to perform engagement quality control reviews or inspection procedures) not described in 6 and 7? If “yes,” describe.

3 Paragraphs .A72–.A73 of SQCS No. 8 provides guidance for inspection and monitoring procedures for small firms with a limited number of persons with sufficient and appropriate experience to effectively monitor compliance.



Yes No N/A Comments 9. In review of the firm’s compliance with its policies and

procedures for human resources, how does the practitioner provide reasonable assurance that he or she possessed the necessary knowledge, skills, and abilities (competencies) to allow the firm to fulfill its responsibilities related to its accounting, auditing, and attestation engagements?

10. How does the practitioner place additional emphasis on de-ficient areas in future engagements?

11. Does the practitioner summarize and document, at least annually, the results of the monitoring process as required by quality control standards?

12. Does the practitioner take specific corrective actions or steps based upon the results of the monitoring process and follow up on such planned corrective actions to provide reasonable assurance of compliance with its policies and procedures?

13. Do the firm’s quality control policies and procedures pro-vide that a peer review conducted under the standards estab-lished by the AICPA substitute for the firm’s inspection of engagement working papers, reports, and clients’ financial statements for some or all engagements for the period cov-ered by the peer review? (Note: A peer review does not sub-stitute for all monitoring procedures.) If so, describe scope of other monitoring procedures performed in that year.

The firm deals appropriately with complaints and allegations

14. Does the practitioner investigate complaints or allegations about noncompliance with professional standards, regula-tory and legal requirements, or the firm’s system of quality control and document the responses to them?



Yes No N/A Comments The firm prepares appropriate documentation to provide evi-dence of the operation of each element of its system of quality control.

15. Describe how the practitioner documents evidence of the operation of each element of its system of quality control (through a summary monitoring report, electronic databases, manual notes, and checklists and forms).

16. Describe the firm’s policies and procedures for retention of documentation to permit those performing monitoring pro-cedures and peer reviews to evaluate the firm’s compliance with its system of quality control.

G. Implementation of SQCS No. 8

1. Describe any substantial changes made to the system of quality control as a result of implementing SQCS No. 8.

[The next page is 4401.]

00-8 JAN 2014 Quality Control Policies and Procedures—Firms With Two or More Personnel 4401


PRP Section 4400 Quality Control Policies and Procedures Documentation Questionnaire for Firms With Two or More Personnel1

.01 Statement on Quality Control Standards (SQCS) No. 8, A Firm's System of Quality Control (AICPA, Profes-sional Standards, QC sec. 10) (effective as of January 1, 2012), supersedes all existing SQCSs, establishes standards, and provides guidance for a CPA firm’s responsibilities for its system of quality control. The SQCS deals comprehen-sibly with a firm’s quality control practices in the areas of audits, reviews, compilations, and attestation engagements. It places an unconditional obligation on a firm to establish a system of quality control designed to provide it with rea-sonable assurance that the firm and its personnel comply with professional standards and applicable regulatory and legal requirements, and that the reports issued by the firm or engagement partners are appropriate in the circumstanc-es. The significant aspects of SQCS No. 8 include the following:

� SQCS No. 8 defines unconditional requirements through the use of the words must or is required and pre-sumptively mandatory requirements through the use of the word should.

� SQCS No. 8 identifies the following six elements of quality control to be included in a firm’s quality control system of and addressed in its policies:

— Leadership Responsibilities for Quality Within the Firm (the “Tone at the Top”) — Relevant Ethical Requirements — Acceptance and Continuance of Client Relationships and Specific Engagements — Human Resources — Engagement Performance — Monitoring

� SQCS No. 8 requires a firm to communicate and document its quality control policies and procedures. The extent of the documentation is based on the size, structure and nature of the firm’s practice.

� SQCS No. 8 recognizes the importance of a quality-oriented internal culture by requiring firms to establish policies assigning its management responsibilities for ensuring that commercial considerations do not over-ride the quality of work performed and for addressing personnel performance evaluation, compensation, and advancement to demonstrate the firm’s overarching commitment to quality.

� SQCS No. 8 provides detailed guidance on independence and requires a written confirmation of compliance with independence requirements from all personnel at least annually.

� SQCS No. 8 provides detailed guidance on client acceptance and continuance, and it requires documentation of the resolution of significant issues.

� SQCS No. 8 provides detailed guidance on engagement supervision and review, engagement documentation, and consultation policies and procedures.

� SQCS No. 8 requires policies and procedures for addressing and resolving differences of opinions, including a requirement that reports must not be released until the difference of opinions are resolved. Such policies and

1 The term personnel is defined in Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (AICPA, Profes-sional Standards, QC sec. 10), as all individuals who perform professional services for which the firm is responsible, whether or not they are CPAs (including leased and per diem employees who devote at least 25 percent of their time at the reviewed firm in performing audits, reviews, compila-tions, or attestation engagements, or those professionals who have the partner-level and manager-level responsibility for the overall supervision or review of such engagements).



procedures should enable a member of the engagement team to document that member’s disagreement with the conclusions reached after appropriate consultation.

� SQCS No. 8 uses the term engagement quality control review, including its objective, and requires firms to establish criteria to determine which engagements are to be subject to an engagement quality control review.

� SQCS No. 8 requires performance of monitoring procedures that are sufficiently comprehensive to enable the firm to assess compliance with all applicable professional standards and regulatory requirements and the firm’s quality control policies and procedures. Firms are required to assign responsibility for monitoring to a person of appropriate authority and are required to evaluate deficiencies and communicate recommendation for remedial action.

� SQCS No. 8 requires policies and procedures for dealing appropriately with complaints and allegations of noncompliance with professional standards or with the firm’s system of quality control.

.02 This section of the manual contains a questionnaire, to be provided to the peer reviewer prior to the com-mencement of the review, that provides documentation of the firm’s policies and procedures for its system of quality control. Firms that have developed a comprehensive quality control document (as contemplated by SQCS No. 8) that was effective for the peer review year should provide that document to the peer reviewer. However, under certain circumstances, the team captain may still request that a firm complete this questionnaire (and attach the quality control document). For instance, this could be requested if the team captain’s consideration of the firm’s quality control document indicates that it may not adequately address all the required elements of a system of quality control in a level of detail appropriate to the firm. This could also be requested if the team captain’s consideration of the quality con-trol document indicates that a summary of the document would assist the team captain’s review of it.

.03 Firms utilizing this questionnaire as the primary documentation of their system of quality control (to assist in complying with the documentation requirements of SQSC No. 8) should indicate its date of adoption (which cannot be prior to the date of completion of the questionnaire). If this questionnaire was not in effect for the peer review year, the firm should also attach previously completed questionnaire(s) that were effective for the peer review year, which could be the questionnaire completed for the firm’s last peer review. Firms should keep this questionnaire updated for ongoing changes in their respective practice structure as they would for a quality control document.

.04 This questionnaire has been developed for firms with two or more personnel. Section 4300, Quality Control Policies and Procedures Documentation for a Sole Practitioner With No Personnel, is a questionnaire that has been developed for sole practitioners with no personnel. This questionnaire has been adapted from the requirements of SQSC No. 8 and from the nonauthoritative AICPA Practice Aid, Establishing and Maintaining a System of Quality Control for a CPA Firm’s Accounting and Auditing Practice. The AICPA practice aid provides illustrative examples of four hypothetical firms (multioffice firm, single office firm, sole practitioner firm, and an alternative practice struc-ture firm). Firms should understand the requirements of SQCS No. 8 and consider the practice aid when designing and maintaining the applicable quality control policies and procedures. The practice aid can be purchased from cpa2biz.com.

.05 The reviewed firm should respond directly with “Yes,” “No,” or “N/A” answers and describe, where appro-priate, the policies and procedures it has in effect that relate to the questions asked. Where appropriate, the firm should make reference to any firm documents that describe those policies and procedures in more detail. Examples of such documents might be personnel manuals, audit and accounting manuals, a quality control document or manual, and firm forms and checklists. A “No” answer to a question does not necessarily indicate a problem with the firm’s system of quality control; however, it may require additional explanation of applicable procedures that the firm has implemented in the circumstances. A firm’s quality control policies and procedures should be sufficient based on the size, structure, and nature of its practice for it to obtain reasonable assurance of complying with professional stand-ards.

.06 When determining the extent of documentation required for this questionnaire, the reviewed firm should consider that “Yes” and “No” answers may assist in identifying the control objective, but it would not typically satisfy the required documentation of how the control was met. Documenting how controls are met is an integral component of documenting the quality control policies and procedures and is expected to be included if the questionnaire is meant to satisfy the requirements of SQCS 8 and be used as the firm’s quality control document. The reviewed firm should document the control objective and the details of the policies and procedures.



.07 There may be arrangements where certain portions of the reviewed firm’s system of quality control reside at or operate in conjunction with the system of quality control of a non-CPA owned entity with which the reviewed firm is closely aligned through common employment, leasing of employees, equipment, facilities, and so on, or other simi-lar arrangements. This would generally include policies and procedures relating to the following elements of quality control: (1) relevant ethical requirements, (2) human resources, and (3) monitoring of the elements noted in (1) and (2). If this arrangement applies to the reviewed firm, in addition to section 4400, complete PRP section 5100, Quality Control Policies and Procedures Documentation Questionnaire Supplement for non-CPA Owned Entities Closely Aligned With a CPA Firm.



.08 AICPA Peer Review Program

QUALITY CONTROL POLICIES AND PROCEDURES DOCUMENTATION QUESTIONNAIRE FOR FIRMS WITH TWO OR MORE PERSONNEL

2

Firm Prepared By Date

This questionnaire may not include all the policies and procedures applicable to a firm’s practice. It should be tailored to provide documentation of pertinent policies and procedures applicable to the six elements of quality control. Some portions of the questionnaire will require a specific response; a “Yes,” “No,” or “N/A” answer may be appropriate in other instances. Some questions may require a brief description of applicable procedures in place. If necessary, addi-tional documentation should be provided. Where appropriate, make reference to any documents that describe those policies and procedures in more detail. Examples of such documents might be audit and accounting manuals and forms and checklists used in the practice.

This questionnaire does not address specific requirements of membership in the AICPA Governmental Audit Quality Center or the AICPA Employee Benefit Plan Audit Quality Center. Additionally, there may be other requirements for firms engaged to perform audit services for an issuer to comply with the Public Company Accounting Oversight Board and the Securities and Exchange Commission (SEC) and for those firms perform-ing engagements subject to Government Auditing Standards.

If the firm is closely aligned with a non-CPA owned entity, and if certain portions of the elements of (1) relevant ethical requirements, (2) human resources, or (3) monitoring reside at or operate in conjunction with the sys-tem of quality control of the non-CPA owned entity, the firm must also complete PRP section 5100, Quality Control Policies and Procedures Documentation Questionnaire Supplement for Non-CPA Owned Entities Closely Aligned With a CPA Firm.

Yes No N/A Comments A. Leadership Responsibilities for Quality Within the Firm

(“Tone at the Top”)

Quality control policies and procedures are required to be documented and communicated to personnel, including the message that each individual has a personal responsibility for quality and to be familiar with and to comply with these poli-cies and procedures.

1. Does the firm have a written quality control document in effect for the peer review year?

a. If “yes,” submit a copy of the firm’s quality control document in effect for the peer review year to your team captain. Completion of this questionnaire may not be required if the quality control document com-prehensively describes the policies and procedures es-tablished and maintained for each element of quality control as contemplated by SQCS No. 8. However, under certain circumstances the team captain may still request that this questionnaire be completed (and the quality control document attached).

2 The term personnel is defined in SQCS No. 8 as all individuals who perform professional services for which the firm is responsible, whether or not they are CPAs (including leased and per diem employees who devote at least 25 percent of their time at the reviewed firm in performing audits, reviews, compilations, or attestation engagements, or those professionals who have the partner-level or manager-level responsibility for the overall supervision or review of such engagements).



Yes No N/A Comments

b. If “no,” will this questionnaire provide the primary documentation of the firm’s policies and procedures for its system of quality control?

If “yes,” indicate date of adoption (cannot be prior to the date of completion of this questionnaire).

Considering the date of adoption, was this question-naire in effect for the peer review year?

If “no,” also attach previously completed question-naire(s) that were effective for the peer review year, if any. This could be the questionnaire completed for the firm’s last peer review, which the firm should be maintaining as documentation of their system of qual-ity control.

If “no,” where are policies and procedures documented?

2. Has the firm developed or adopted other quality control materials?

If “yes,” describe those materials:

3. Describe how the firm communicates its policies and pro-cedures to personnel.

4. Describe how the firm stresses the importance of obtaining feedback on its system of quality control from its person-nel.



Yes No N/A Comments Quality control policies and procedures support an internal culture based on the recognition that quality is essential in performing engagements.

5. Describe how the firm’s management assumes ultimate re-sponsibility for the firm’s system of quality control.

6. Describe how the firm assigns management responsibili-ties so that commercial considerations do not override the quality of the work performed.

7. Describe how the firm assigns operational responsibility for its system of quality control to personnel who have sufficient and appropriate experience and ability to identi-fy and understand quality control issues and to develop appropriate policies and procedures, as well as the neces-sary authority to implement those policies and procedures.

8. Describe how the firm designs procedures addressing per-sonnel performance evaluation, compensation, and ad-vancement to demonstrate the firm’s overarching com-mitment to the objective of the system of quality control.

9. Describe how the firm devotes resources for the develop-ment, communication, and support of its quality control policies and procedures.



Yes No N/A Comments B. Relevant Ethical Requirements

Quality control policies and procedures provide the firm with reasonable assurance that the firm and its personnel comply with relevant ethical requirements when discharging profes-sional responsibilities. Relevant ethical requirements include independence, integrity, and objectivity. These requirements include regulations, interpretations, and rules of the AICPA, state CPA societies, state boards of accountancy, state stat-utes, the U.S. Government Accountability Office, and any other applicable regulators.

1. Describe how the firm documents and communicates its policies and procedures for relevant ethical requirements to its personnel.

2. Does the firm have access to current guidance materials regarding the applicable independence, integrity, and ob-jectivity requirements?

a. If “yes,” describe the source of such material (such as access through computer software databases contain-ing professional and regulatory literature, by a sub-scription to the AICPA Professional Standards loose-leaf service, other services pertaining to the firm’s practice, or other means).

b. If “no,” describe how the firm obtains reasonable as-surance that it is aware of the applicable independ-ence, integrity, and objectivity rules.

3. Does the firm employ someone responsible for providing guidance, answering questions, monitoring compliance, and resolving matters with respect to independence, integ-rity, and objectivity?

a. If “yes,” identify.

b. If “no,” describe how the firm handles these matters.



Yes No N/A Comments

4. Does the firm have a system for identifying all services performed for clients, including services performed by en-tities closely aligned through common employment and other means, and evaluating whether any of those services might impair independence?

a. If “yes,” identify the relevant policies and procedures.

b. If “no,” describe how the firm differentiates the types of services performed.

� 5. Does the firm have policies and procedures in place to ensure the independence of the firm as required by the AICPA, state CPA societies, state boards of accountancy, state statute, the SEC, and other regulatory bodies, if ap-plicable?

a. If “yes,” how is this information documented (for example, memorandum, manuals, and so on)?

b. If “no,” how does the firm obtain reasonable assur-ance that its personnel are aware of the pertinent regu-lations, interpretations, and rulings of regulatory agencies that impact the firm?

6. Does the firm provide its personnel with the firm’s list of clients and any related entities and inform them on a time-ly basis as to any changes in the firm’s clients and any re-lated entities to which independence policies apply?

a. If “yes,” describe how the firm communicates this in-formation to its personnel.

b. If “no,” describe how the firm ensures that all person-nel are aware on a timely basis of those entities to which independence policies apply.



Yes No N/A Comments

7. Does the firm obtain written confirmation, upon hire and on an annual basis, of compliance with its policies and procedures on independence from all personnel required to be independent by relevant requirements? (If “no,” the firm may not be in compliance with SQCS No. 8, which requires written confirmation, at least annually.)

If “no,” explain.

The firm, when acting as principal auditor, confirms the inde-pendence of another firm performing parts of an engagement.

8. Does the firm have any engagements where it acts as prin-ciple auditor or accountant and another firm of CPAs is engaged to perform segments of the engagement?

a. If “yes,” are written confirmations obtained regarding the other firm’s independence with respect to audit engagements and either written or oral confirmations obtained for review or attestation engagements?

If “yes,” describe the form and content of the confir-mation.

9. Has the firm identified circumstances for which documen-tation of the resolution of independence, integrity, and ob-jectivity questions is required?

a. If “yes,” describe such circumstances and where the documentation is maintained.

b. If “no,” describe how the firm handles these matters.

10. Has the firm found it necessary within the last year to con-sult with individuals outside the firm on independence, in-tegrity, or objectivity concerns?

If “yes,” describe.



Yes No N/A Comments

11. Does the firm review unpaid fees from clients to ascertain whether any outstanding amounts may impair the firm’s independence?

a. If “yes,” answer the following questions:

i. Who does this?

ii. How often is it done?

iii. Have there been any such situations during the year under review?

b. If “no,” describe how the firm monitors its independ-ence with respect to clients with unpaid fees.

12. Does the firm inform its personnel of financial or other re-lationships that may impair independence and that may be prohibited?

a. If “yes,” do those relationships include the following?

i. Business relationships with clients or with non-clients that have investor or investee relationships with clients

ii. Loans to and from clients, including loans from financial institution clients

iii. Family members who are employed by clients, or who are in director, officer, manager, or audit- sensitive positions with clients, including not-for-profit entities

iv. Past-due fees for professional services

v. Accounting or advisory services that have evolved into situations where the firm has assumed some of the responsibilities of client management

vi. Direct and material investments in clients



Yes No N/A Comments Before a member [ET sec. 92 par. .20] or his or her firm per-forms nonattest services for accounting and auditing clients*, the member should determine that the requirements described in Ethics Interpretation No. 101-3, “Performance of Nonattest Services,” under rule 101, “Independence” (AICPA Profes-sional Standards, ET sec. 10, par. .05), have been met. In cas-es where the requirements have not been met with respect to nonattest services rendered during the period of the profes-sional engagement or the period covered by the financial statements, independence would be impaired.

13. Does the firm provide nonattest services to accounting and auditing clients?

a. If “yes,” did the firm meet all the requirements of Ethics Interpretation No. 101-3 for each accounting and auditing client for which nonattest services were performed?

b. Does the firm establish an understanding, including appropriate documentation of the understanding, with each client regarding the following?

i. Objectives of the engagement ii. Services to be performed iii. Client’s acceptance of its responsibilities iv. Member’s responsibilities v. Any limitations of the engagement

If the firm is a member of a network [ET sec. 92 par. .21], the firm should determine that the requirements described in Ethics Interpretation No. 101-17, “Networks and Network Firms,” under Rule 101, “Independence” (AICPA, Profes-sional Standards, ET sec. 101, par. .19), have been met.

14. Is the firm a network firm [ET sec. 92 par. .22]? a. If “Yes,” answer the following:

i. Did the firm meet all of the requirements of Eth-ics Interpretation No. 101-17?

ii. Describe how the firm monitors its independence with respect to financial statement audits, re-views, and other attest engagements performed by other members of the network.

* A member who performs a compilation engagement for a client should modify the compilation report to indicate a lack of independence if the member does not meet all of the conditions set out in Ethics Interpretation No. 101-3, “Performance of Nonattest Services,” under Rule 101, Independence (AICPA, Professional Standards, ET sec. 101 par. .05), when providing a nonattest service to that client (see Statement on Standards for Accounting and Review Services [SSARS] No. 19, Compilation and Review Engagements [AICPA, Professional Standards, AR sec. 80]), for compilation engagements performed on financial statements for periods ending before December 15, 2010, see SSARS No. 1, Compilation and Review of Financial Statements (AICPA, Professional Standards), which was superseded by SSARS No. 19.



Yes No N/A Comments

15. Describe the procedures the firm performs in evaluating other possible threats to independence and objectivity, in-cluding the familiarity threat that may be created by using the same senior personnel on an audit or attest engagement over a long period of time, and appropriate actions taken to eliminate those threats or reduce them to an acceptable level by applying safeguards (that is, periodically rotate partners, conduct concurring reviews, require approval of engagement personnel by another partner, require prompt reporting of circumstances and relationships that create a threat or breach of policy, monitoring of procedures, consult professional literature, consult AICPA Ethics Hotline, consider ET sec. 100.01, A Conceptual Framework for AICPA Independence Standards (AICPA, Professional Standards), consider withdrawing from the engagement, and so on).

16. Describe the firm’s policies and procedures for withdraw-ing from an engagement if effective safeguards to reduce threats to independence to an acceptable level cannot be applied (consulting within the firm, with legal counsel or other parties).

C. Acceptance and Continuance of Client Relationships and Specific Engagements

Quality control policies and procedures for acceptance and continuance of client relationships and specific engagements provide the firm with reasonable assurance that the firm and its personnel will undertake or continue relationships and engagements only where it has considered the integrity of the client, is competent to perform the engagement, can comply with the legal and ethical requirements, and has reached an understanding with the client regarding the services to be performed.

1. Describe how the firm documents and communicates its policies and procedures to personnel for accepting pro-spective clients and the continuance of current clients and specific engagements.



Yes No N/A Comments

2. Do the firm’s policies and procedures include obtaining and evaluating the following relevant information before accepting or continuing a client relationship?

a. The nature and purpose of the services to be provided to the client and management’s understanding thereof

b. The identity of the client’s principal owners, key management, related parties, and those charged with governance

c. The nature of the client’s operations, including its business practices, from sources such as annual re-ports, interim financial statements, reports to and from regulators, income tax returns, and credit reports

d. Information obtained from third parties (bankers, fac-tors, attorneys, credit services, and others who have business relationships with the entity)

e. Information concerning the attitude of the client’s principal owners, key management, and those charged with governance toward such matters as aggressive interpretation of accounting standards and internal control over financial reporting

f. The risk of providing services in highly specialized or regulated industries

g. Engagements that require an inordinate amount of time to complete relative to the available resources of the firm

h. Communicating with the predecessor accountant or auditor when required by professional standards

i. Conducting background checks of the business, its of-ficers, and so on

j. The risk of providing services to significant clients or to other clients for which the firm’s objectivity or the appearance of independence may be impaired

k. Describe any other procedures the firm performs in making acceptance and continuance of client deci-sions or variations in procedures based on factors such as the nature and size of the engagement and prior experience with the client.

3. Does the firm document the necessary communications with predecessor accountants and auditors, including in-quiries regarding the nature of any disagreements and oth-er events, and whether evidence of “opinion shopping” exists?



Yes No N/A Comments

a. If “yes,” where is the documentation maintained?

b. If “no,” describe how the firm documents compliance with paragraph .13 of AU-C sec. 300, Planning an Audit (AICPA, Professional Standards).

4. When issues have been identified, and the firm decides to accept or continue the client relationship or a specific en-gagement, how does the firm document that the issues were resolved?

The firm evaluates whether the engagement can be completed with professional competence; undertakes only those engage-ments for which the firm has the capabilities, resources, and professional competence to complete; and evaluates, at the end of specific periods or upon occurrence of certain events, whether the relationship should be continued.

5. Does the firm evaluate whether it has obtained or can rea-sonably expect to obtain the knowledge and expertise nec-essary to perform the engagement, including relevant regulatory or reporting requirements, prior to accepting the engagement?

a. If “yes,” describe how this decision is reached and where it is documented.

b. If “no,” describe how the firm determines that it can perform the engagement.

6. Does the firm specify conditions that require evaluation of a specific client or engagement, obtaining relevant infor-mation to determine whether the relationship should be continued, and establishing a specific time period to make that evaluation?



Yes No N/A Comments a. If “yes,” do the conditions include the following?

i. Significant changes in the client, such as a major change in senior client personnel, ownership, advi-sors, nature of its business, or its financial stability

ii. Changes in the nature or scope of the engage-ment, including requests for additional services

iii. Changes in the composition of the firm, such as the loss of and inability to replace key personnel who are particularly knowledgeable about a spe-cialized industry

iv. The decision to discontinue services to clients in a particular industry

v. The existence of conditions that would have caused the firm to reject the client or engagement had such conditions existed at the time of the ini-tial acceptance

vi. The client’s delinquency in paying fees vii. Engagements for entities in highly specialized or

regulated industries

viii. Engagements for entities in which there may be

substantial doubt about the entity’s ability to con-tinue as a going concern

ix. Engagements for entities in the development stage x. Engagements in which the client has ignored prior

recommendations, such as those that address defi-ciencies in internal control

b. If “no,” describe how the firm obtains assurance that it is not continuing a relationship that should be dis-continued.

7. Does the firm designate individuals to evaluate and make a recommendation as to whether a client or specific en-gagement should be accepted or continued?

If “yes,” indicate individual(s).

a. If “yes,” do the individuals do the following?

i. Evaluate all the information obtained about the client or engagement and make a recommen-dation about whether the client or engagement should be accepted or continued



Yes No N/A Comments

ii. Document the decision and have an individual at an appropriate level approve the decision

b. If “no,” describe how the decision to accept or con-tinue a client or engagement is made.

The firm obtains an understanding with the client regarding the services to be performed.

8. Does the firm document its understanding with the client regarding the services to be performed by obtaining either an engagement letter for all engagements, thus minimizing the risk of misunderstandings regarding the nature, scope, and limitation of the services to be performed, or by doc-umenting the understanding in a memorandum?

If “no,” describe how the firm obtains assurance that its understanding is in agreement with the client’s under-standing of the work to be performed.

The firm establishes procedures on withdrawal from an en-gagement or from both the engagement and the client rela-tionship.

9. Describe the firm’s procedures for withdrawal from an en-gagement or from both the engagement and the client rela-tionship.

10. Did the firm consider discontinuing any audit and account-ing client relationships during the year under review but decide to continue?

If “yes,” explain.



Yes No N/A Comments D. Human Resources

Quality control policies and procedures for human resources provide the firm with reasonable assurance that it has suffi-cient personnel with the capabilities, competence, and com-mitment to ethical principles necessary to perform its engagements in accordance with professional standards and regulatory and legal requirements and to enable the firm to issue reports that are appropriate in the circumstances.

Personnel must have integrity and possess the appropriate characteristics to enable them to perform competently.

1. Does the firm have an individual responsible for the firm’s hiring and human resources management, including evalu-ation of personnel needs, establishment of hiring objec-tives, and providing final approval?


b. If “no,” describe the following:

i. How this is accomplished.

ii. How the firm determines that it has adequate staff to perform its professional engagements.

2. Does the firm have hiring criteria?

a. If “yes,” briefly describe the following:

i. The attributes, achievements, and experiences desired in entry-level and experienced personnel

to enable them to perform competently within the firm. Highlight any items that represent require-ments for hire.

ii. How the firm evaluates personal characteristics such as integrity, competence, and motivation of new hires.



Yes No N/A Comments

iii. Any additional information the firm requires for experienced hires,

such as background checks and

inquiries about any outstanding regulatory ac-tions.

b. If “no,” describe how the firm determines that the personnel hired are appropriate for the position they are hired to fill.

3. Does the firm have criteria for determining which individ-uals will be involved in the interviewing and hiring pro-cess?

a. If “yes,” describe how these individuals are trained.

b. If “no,” describe how the firm determines who is ap-propriate for this role.

The firm assigns personnel (including partners) based on the knowledge, skills, and abilities required in the circumstances and the nature and extent of supervision needed.

4. Does the firm have policies and procedures to ensure person-nel

assigned to engagements have the degree of technical

training and proficiency required in the circumstances con-sidering the nature and extent of supervision to be provided?

a. If “yes,” answer the following:

i. Who is responsible for the assignment of person-nel

to engagements, including high-risk engage-

ments and industries?



Yes No N/A Comments

ii. What factors are used to determine how person-nel

are assigned to engagements (for example,

engagement size and complexity, specialized ex-perience or expertise required, personnel avail-ability and involvement of supervisory personnel, timing of the work to be performed, continuity and rotation of personnel, opportunities for on-the-job training, previous knowledge, skills, and abilities [competencies] gained through other ex-perience, situations where independence or objec-tivity concerns exist)?

b. If “no,” describe how the firm determines that the personnel

assigned to engagements are qualified to

perform the engagements.

5. Does the firm specify the knowledge, skills, and abilities (competencies) the practitioner in charge of the firm’s ac-counting, auditing, or attestation engagements (the partner or other person who is responsible for supervising those types of engagements and signing or authorizing someone to sign the accountant’s report on such engagements) should possess to fulfill his or her engagement responsibil-ities? Do such competencies for the practitioner-in-charge include the following:

a. An understanding of the role of the firm’s system of quality control and the AICPA Code of Professional Conduct

b. An understanding of the performance, supervision, and reporting aspects of the engagement

c. An understanding of the applicable accounting, audit-ing, or attestation professional standards, including those standards directly related to the industry in which a client operates

d. An understanding of the industry in which a client op-erates, including the industry’s organization and oper-ating characteristics, to identify the areas of high or unusual risk associated with an engagement, and to evaluate the reasonableness of industry-specific esti-mates

e. Skills that indicate sound professional judgment



Yes No N/A Comments

f. An understanding of how the organization is depend-ent on or enabled by information technologies, and the manner in which information systems are used to record and maintain financial information

Personnel participate in general and industry-specific con-tinuing professional education (CPE) and professional de-velopment activities that enable them to satisfy responsi-bilities assigned and fulfill applicable CPE requirements of the AICPA, state CPA societies, state boards of accountancy, and other regulators.

6. Does the firm have an individual or individuals responsi-ble for the firm’s CPE and professional development ac-tivities and who maintain(s) CPE records and course materials for personnel?


b. If “no,” describe how the firm monitors its CPE and professional development activities and determines that all personnel are in compliance with applicable CPE requirements.

7. Do personnel assigned to audit and accounting engage-

ments take courses related to those engagements?

a. Provide an approximation of the type of CPE taken. Self-study courses % In-house training program �(i) Developed by the firm % �(ii) Obtained from outside vendors % State society or AICPA programs % Other programs %

b. Describe how the firm assures personnel participate in CPE related to accounting and auditing assignments, including specialized industries.

8. Are all personnel in compliance with the professional edu-

cation requirements of the board(s) of accountancy in state(s) where they are licensed, the AICPA (if applicable), the state CPA society (if applicable), and Government Au-diting Standards—the Yellow Book (if applicable)?



Yes No N/A Comments If “no,” provide the following information:

a. Explain instances of noncompliance.

b. Attach a list of personnel not in compliance, and

indicate the firm’s plan for correcting the situation.

9. Does the firm have an orientation and training policy for new hires?

a. If “yes,” briefly describe the policy.

b. If “no,” describe how the firm trains new hires.

10. Does the firm inform personnel of changes in accounting

and auditing standards, independence, integrity, and objec-tivity requirements and the firm’s technical policies and procedures with respect to them (for example, by distrib-uting technical pronouncements and holding training courses on recent changes and areas noted by the firm as needing improvement)?

a. If “yes,” briefly describe.

b. If “no,” describe how the firm determines that per-sonnel are informed of changes in professional stand-ards.



Yes No N/A Comments

11. Does the firm encourage personnel to pass the Uniform CPA Examination and to participate in other professional development activities, such as taking graduate-level courses, becoming members of professional organizations, serving on professional committees, and writing for pro-fessional publications?

If “yes,” briefly describe.

If “no,” briefly explain why.

Personnel selected for advancement have the qualifications necessary to fulfill the responsibilities they will be called on to assume.

12. Does the firm have different levels of responsibility within the firm (for example, partner, manager, senior)?

If “yes,” briefly describe.

13. Does the firm have an individual responsible for ad-vancement and termination decisions?

a. If “yes,” describe who is responsible for the follow-ing:

i. Establishing evaluation and advancement criteria for personnel at all levels, including development of evaluation forms. Also, briefly describe whether criteria are documented (for example, in a personnel manual).



Yes No N/A Comments

ii. Making advancement and termination decisions, including identifying responsibilities and re-quirements for evaluation at each level and decid-ing who will prepare evaluations.

iii. Development of the evaluation form for each professional classification, including partners.

b. If “no,” describe how these decisions are made and implemented.

14. Does the firm periodically evaluate the performance of personnel and advise them of their progress in the firm?


i. Who is responsible for performing the evaluation?

ii. How often are the evaluations performed?

iii. Are standard evaluation forms used?

If “no,” briefly describe whether they are docu-mented by another means.

b. If “no,” describe how firm personnel are informed of their performance and progress in the firm.



Yes No N/A Comments 15. Does the firm counsel personnel regarding their progress

and career opportunities by doing the following:

a. Periodically summarizing and reviewing with person-nel the evaluation of their performance, including an assessment of their knowledge, skills and abilities (competencies), and progress with the firm that in-cludes a discussion regarding performance, future ob-jectives of the firm and the individual, assignment preferences, and career opportunities

b. Periodically evaluating owners, including whether they possess the knowledge, skills, and abilities (competen-cies) necessary to enable them to be qualified to per-form the firm’s accounting, auditing, or attestation engagements (for example, by means of counseling, peer evaluation or self-appraisal)

E. Engagement Performance Quality control policies and procedures for engagement per-formance are designed to provide the firm with reasonable assurance that engagements are consistently performed in ac-cordance with professional standards and regulatory and legal requirements, and that the firm or the engagement partner issues reports that are appropriate in the circumstances.

1. Does the firm develop its own quality control materials (QCM) (for example, an audit and accounting manual, standardized forms, checklists, templates, practice aids, tools, questionnaires and the like) to assist with engagement performance? If “yes,”

a. have you provided the review team with a list of the types of QCM developed by the firm?

b. are such materials used as an integral part of the firm’s system of quality control?

c. are the firm’s QCM used for a specified purpose (for example, sampling or risk templates) or a specific in-dustry (for example, homeowners’ associations)?


i. developing and maintaining the QCM (for exam-ple, making updates and revisions).




Yes No N/A Comments

iii. ensuring the suitability of the QCM for the firm’s practice.

2. Does the firm use third-party QCM (for example, an audit and accounting manual, standardized forms, checklists, templates, practice aids, tools, questionnaires, and the like) to assist with engagement performance? If yes,

a. have you provided the review team with a list of all providers or sources of QCM used by the firm?


c. are the provider’s QCM used for a specified purpose (for example, sampling or risk assessment templates) or a specific industry (for example, homeowners’ associa-tions)?


i. adopting, updating and modifying the third-party QCM.

ii. ensuring the reliability of the QCM. iii. ensuring the suitability of the QCM for the firm’s

practice.

e. have the specific third party QCM used by the firm undergone a QCM review (been “peer reviewed”) (Copies of current QCM review reports and acceptance letters can be obtained either from the AICPA website at http://www.aicpa.org/InterestAreas/PeerReview/Community/NationalPRC/Pages/QCMReviewResults.aspx or from the reviewed provider)?



Yes No N/A Comments

i. If “yes,” have you furnished a copy of the provid-er’s QCM review report to the team captain or, if the provider has elected to have its QCM review documents posted to the AICPA’s website, di-rected the team captain toward the website?

ii. If “no,” identify the QCM used by the firm that have not undergone a QCM review.

The engagement is planned to meet professional, regulatory, and firm requirements.

3. Does the firm provide its personnel with documented poli-cies and procedures for planning audit and accounting en-gagements?

a. If “yes,” indicate where that documentation is located (for example, in an audit and accounting manual).

b. If “no,” briefly describe the procedures the firm per-forms in planning audit and accounting engagements, including the information obtained and considered and the nature, timing, and extent of partner involve-ment in the planning process. Also, describe any vari-ations in those procedures based on factors such as the nature and size of the engagement and prior experi-ence on the engagement.

4. Do the firm’s policies and procedures for planning include the following:

a. Assigning responsibility for planning the engagement. If “yes,” indicate who is responsible.

b. Developing or updating background information on the client and the engagement.

If “yes,” indicate who is responsible.

c. Developing a proposed work program tailored to the specific engagement

d. Considering staffing requirements and the need for specialized knowledge



Yes No N/A Comments

e. Considering the economic conditions affecting the client or its industry and their potential effect on the conduct of the engagement

f. Considering risks, including fraud, and how they may affect the procedures to be performed

g. Preparing a budget that allocates a sufficient amount of time so the engagement will be performed in ac-cordance with professional standards and the firm’s quality control procedures

h. Describe any other procedures in addition to those covered in 2a–2g.

The engagement is performed, supervised, documented, and reported (or communicated) in accordance with the require-ments of professional standards, applicable regulators, and the firm.

5. Do the firm’s policies and procedures do the following:

a. Require that a written program tailored to the specific engagement be used on all engagements?

i. If “yes,” is someone with appropriate authority required to review and approve the program?

If “yes,” describe how this approval is docu-mented

ii. If “no,” describe how personnel are made aware of the procedures to be performed on engagements.

b. Specify the form and content of working papers, such as purchased practice aids, as well as standardized forms, checklists, and questionnaires, that are to be used in engagement performance evaluations?

How does the firm integrate such aids into its engage-ments?

i. List any purchased practice aids or other forms and checklists and describe how they have been developed and updated; then attach the list and indicate whether the use of each is required or discretionary. (Note that the reviewer will want to inspect these forms during the review.)



Yes No N/A Comments

ii. If these are not used, describe the form of docu-mentation used to determine that appropriate work has been performed to justify the firm’s conclusions.

c. Was the following verified through required docu-mentation?

i. Understanding of the entity and its environment

ii. Consideration of internal control structure in planning and performing the engagement

iii. Assessment of control risk

iv. Consideration of audit risk and materiality when planning and performing an audit

v. Audit sampling technique

vi. Consideration of fraud in the financial statement audit

vii. Conduct of and degree of reliance placed on ana-lytical procedures

If “no” to any possibilities covered in items3c(i) – 3c(vii), describe how the firm determines that appro-priate procedures were performed.

d. Does the firm have documented procedures to follow when the firm uses other offices or correspondents for audit or accounting engagements?

i. If “yes,” describe the form in which instructions are given to other offices or correspondents and the extent to which their work is reviewed, or in-dicate where the firm’s procedures for the super-vision and control of that work are found.

ii. If “no,” describe how the firm determines that the work performed was appropriate.



Yes No N/A Comments

e. Does the firm have procedures for documenting the extent of engagement reviews so that the financial statements and communications with management and the board of directors meet professional and firm pre-sentation and disclosure standards?

If “no,” describe how the firm determines that an ap-propriate review was performed and that com-munications were made in accordance with firm and professional standards.

6. Do the firm’s policies and procedures assign responsibility for review of all reports, financial statements, and working papers to a reviewer who is senior (when possible) to the preparer?

a. If “yes,” is that review designed to obtain reasonable assurance of the following:

i. The procedures performed were consistent with engagement planning and exceptions were appro-priately investigated.

ii. The appropriateness of planned procedures was reconsidered when significant changes in risk factors were identified during the engagement.

iii. Firm-prescribed forms, checklists, questionnaires, and purchased practice aids (as applicable) were used in performing and reporting on the engage-ment.

b. If “no,” describe how the firm obtains assurance that reports, financial statements, and working papers are appropriate.

7. Does the firm require that a partner of the firm ultimately be responsible for each engagement (certain standards may require partner responsibility)?

If “no,” describe who is responsible for the final approval for issuing the accountant’s or auditor’s report.



Yes No N/A Comments 8. Do the firm’s policies and procedures regarding review of

reports, financial statements, and working papers, as well as documentation of the review and completion process provide reasonable assurance of the following:

a. All reviewers have appropriate experience, compe-tence, and responsibility.

b. All engagements performed comply with professional standards and firm policy.

c. Appropriate documentation is required on all en-gagements evidencing review of reports, financial statements, and working papers.

d. Engagement teams complete the assembly of final en-gagement files on time.

e. Describe where and how a-d above are documented.

9. Describe the firm’s policies and procedures for main-taining confidentiality, safe custody, integrity, accessibility, and retrievability of engagement documentation.

10. Describe the firm’s policies and procedures for retaining engagement documentation for a period of time sufficient to meet the needs of the firm, professional standards, and laws and regulations.

11. Has the firm merged with another firm since the date of its last peer review or in the last three years?

If “yes,” answer the following questions:

a. Did the firm acquire any personnel in the merger?

b. Did the firm acquire and retain any new offices in the merger?

If “yes,” indicate the locations of any such offices.



Yes No N/A Comments

c. Have the personnel of the acquired firm adopted the firm’s quality control policies and procedures? If “no,” briefly describe on a separate page the plan for integrating the acquired firm.

The firm requires that consultations take place when appro-priate; that sufficient and appropriate resources are available to enable appropriate consultation to take place; that all the relevant facts known to the engagement team are provided to those consulted; that the nature, scope, and conclusions of such consultations are documented; and that conclusions re-sulting from such consultations are implemented.

12. Does the firm inform personnel of its consultation policies and procedures?

a. If “yes,” briefly describe how they are informed.

b. If “no,” describe how personnel are made aware of what procedures to follow when they encounter areas or situations where consultation is required.

13. Does the firm require the person ultimately responsible for the engagement to determine the need to consult?

a. If “yes,” is that determination based on the following: i. The materiality of the matter ii. The experience of senior engagement personnel

in a particular industry or functional area

iii. Whether generally accepted accounting principles

or generally accepted auditing standards in the functional area are as follows:

(a) Based on authoritative pronouncements that are subject to varying interpretations

(b) Based on varied interpretations of prevailing practice

(c) Developed (d) Under active consideration by an authori-

tative body

(e) Not previously interpreted by the firm (for

example, in connection with another engage-ment)



Yes No N/A Comments

(f) Describe where and how (a)–(e) above are documented.

(g) Title of person responsible:

b. If “no,” describe who determines the need to consult.

14. Does the firm identify circumstances, including specialized situations, when firm personnel are expected to consult?

a. If “yes,” do those circumstances include the following:

i. Application of newly issued technical pronounce-ments

ii. Industries with special accounting, auditing, or reporting requirements

iii. Emerging practice problems

iv. Choices among alternative generally accepted accounting principles upon initial adoption or when an accounting change is made

v. Reissuance of a report, consideration of omitted procedures after a report has been issued, or sub-sequent discovery of facts that existed at the time a report was issued

vi. Filing requirements of regulatory agencies

b. If “no,” describe how personnel are informed of situa-tions when they should consult.

15. Does the firm designate individuals within and outside the firm as consultants in certain areas?

a. If “yes,” complete the following:

i. Attach a list of the individuals designated as con-sultants, identify their specialties, and indicate how personnel have been made aware of this in-formation.



Yes No N/A Comments

ii. Describe how differences of opinion between en-gagement personnel and specialists are resolved.

iii. Describe how the firm determines when to consult with outside parties and with whom to consult.

iv. If, during the year of review, the firm sought ad-vice from outside parties to resolve questions in-volving professional standards or specialized industry practices, describe the situation and the outcome.

v. SEC pronouncements?

b. If “no,” describe how personnel are made aware of whom they should consult.

16. Does the firm maintain or provide its personnel access to adequate and current reference materials, including mate-rials related to its clients?

a. If “yes,” do those materials include the following:

i. AICPA Professional Standards

ii. AICPA industry audit guides relevant to the firm’s practice

iii. FASB pronouncements

iv. GASB pronouncements, Government Auditing Standards (the “Yellow Book”), and other gov-ernment audit guides relevant to the firm’s practice

v. SEC pronouncements

vi. Describe the means of access to i–v above.



Yes No N/A Comments

b. If “no,” describe how personnel are kept aware of current professional standards related to the firm’s clients.

17. Does the firm require documentation of consultation?

a. If “yes,” does that documentation include the following:

i. All relevant facts and circumstances

ii. References to professional literature used in the determination

iii. Conclusions reached

iv. Signatures of engagement partner and consultant

v. Reference to the engagement working papers

vi. Describe where documentation of i-v above is maintained.

b. If “no,” describe how the firm justifies its position on consultation.

18. Does the firm have policies and procedures for personnel to follow to resolve differences of professional judgment within an engagement team? (See AU-C section 220, Quality Control for an Engagement Conducted in Accord-ance With Generally Accepted Auditing Standards [AICPA, Professional Standards].)


i. Are conclusions reached appropriately docu-mented?

If “yes,” describe where.

ii. Who is responsible for resolving such matters?



Yes No N/A Comments

iii. Do the procedures allow assistants to document their disagreement with the conclusion reached and disassociate themselves from the resolution of the matter?

iv. Does the policy require that the matter be re-solved before the report is released?

v. Describe where the documentation is maintained.

b. If “no,” describe how personnel know what proce-dures to follow in the event of a difference in profes-sional judgment.

An engagement quality control review includes reading the financial statements or other subject matter information and the report and considering whether the report is appropriate. The engagement quality control review also includes a review of selected engagement documentation relating to the signi-ficant judgments the engagement team made, conclusions they reached, and discussion with the engagement partner regarding significant findings and issues.

19. Describe the criteria the firm has established for determin-ing whether an engagement quality control review should be performed (include the nature of the firm’s practice, na-ture of the engagement, unusual circumstances or risk, and whether laws or regulations require an engagement quality control review).

20. Does the firm have any engagements that meet the criteria for an engagement quality control review?

a. If “no,” an engagement quality control review is not required and the remainder of this section is not appli-cable.

b. If “yes,” has the firm considered the following:

i. The engagement partner should not select the engagement quality control reviewer.

ii. The engagement quality control reviewer has sufficient technical expertise and experience.



Yes No N/A Comments

iii. The engagement quality control reviewer meets the independence requirements relating to the en-gagements reviewed, even though the reviewer is not a member of the engagement team.

iv. The engagement partner remains responsible for the engagement and its performance, despite in-volvement of the engagement quality control re-viewer.

v. The engagement quality control review may be conducted at various stages throughout the en-gagement.

vi. The engagement quality control review includes a discussion with the engagement partner about significant findings and issues.

vii. The engagement quality control review be com-pleted before the report is released.

viii. The engagement quality control review be docu-mented.

ix. Before reports are released, matters that would cause the reviewer to question the engagement team’s judgments and conclusions are resolved.

x. Describe how and where i–ix above are docu-mented.

F. Monitoring

Quality control policies and procedures for monitoring pro-vide the firm and its engagement partners with reasonable assurance that the policies and procedures related to the sys-tem of quality control are relevant, adequate, operationally effective, and followed.

The firm considers and evaluates, on an ongoing basis, the design and effectiveness of its quality control policies and procedures operation.

1. Indicate who has been assigned the responsibility for the firm’s quality assurance process.

2. Describe how the firm determines that individuals respon-sible for the quality assurance process have sufficient ex-perience and authority to assume that responsibility.



Yes No N/A Comments 3. Describe how the firm considers the following quality as-

surance matters:

a. The need to review the relevance and adequacy of the firm’s audit methodology for the following factors:

i. Mergers and divestitures of portions of the prac-tice

ii. Changes in professional standards and SEC or other regulatory requirements applicable to the firm’s practice

iii. Results of inspections and peer reviews

iv. Review of litigation and regulatory enforcement actions against the firm and others

v. The impact that changes in technology may have on clients’ methods of doing business

vi. Changes in clients’ industries that affect their operations

vii. Changes in applicable AICPA membership re-quirements



Yes No N/A Comments

b. Whether personnel have been appropriately informed of their responsibilities for maintaining the firm’s standards of quality

c. Compliance, effectiveness, and appropriateness of the other elements of quality control in the firm’s practice

The firm considers and evaluates, on an ongoing basis, the appropriateness of its guidance materials and any practice aids.

4. Describe the firm’s quality control policies and procedures to monitor that the firm’s guidance, and quality control materials (QCM) (for example, an audit and accounting manual, standardized forms, checklists, templates, practice aids tools, questionnaires, and the like), are updated for new professional pronouncements and are reliable and suitable for the firm’s practice.

5. Describe how the firm informs and provides guidance to its personnel regarding new professional standards, regula-tory requirements, and related changes to firm policy or practice aids.

The firm considers and evaluates, on an ongoing basis, the effectiveness of professional development activities.

6. Who is responsible for monitoring the firm’s professional development programs? Indicate name.

a. Does the firm accomplish the following: i. Evaluate training programs to determine whether

they achieve their objectives.



Yes No N/A Comments

ii. Review summaries of CPE records to track each of its personnel’s compliance with the require-ments of the AICPA and other regulatory bodies.

iii. Consider whether the firm’s professional devel-opment programs should be revised based on the results of the firm’s inspection or peer review.

iv. Solicit information from its personnel regarding effectiveness of the firm’s training programs.

b. If “no” to any of the above describe how the firm de-termines that its professional development programs are appropriate.

The firm considers and evaluates, on an ongoing basis, com-pliance with its policies and procedures and communicates the results of the monitoring process to relevant firm person-nel at least annually.

7. Does the firm perform timely inspections,3 postissuance reviews of engagement working papers, reports, and cli-ents’ financial statements for selected engagements, or both to evaluate the firm’s compliance with its policies and procedures as part of its monitoring process?

If “yes,” answer the following questions:

a. Does the firm assign responsibility for performing the inspections or postissuance reviews to a partner or manager-level individual not associated with the en-gagement?

b. Does the firm’s inspections or postissuance reviews include the following:

i. Establishing an approach and timetable for per-forming the inspection or postissuance review procedures and determining the forms and check-lists to be used and the extent of documentation required

ii. Performing appropriate tests of compliance with the firm’s policies and procedures on a sample basis

3 Paragraphs .A72–.A73 of SQCS No. 8 provides guidance for inspection and monitoring procedures for small firms with a limited number of persons with sufficient and appropriate experience to effectively monitor compliance.



Yes No N/A Comments

iii. Reviewing correspondence and documentation, as well as interviewing personnel, to determine the firm’s compliance with its policies and procedures regarding leadership responsibilities for quality within the firm, relevant ethical requirements (in-cluding independence, integrity, and objectivity), acceptance and continuance of client relationships and specific engagements, human resources, en-gagement performance, and monitoring

iv. Reviewing a cross section of engagements con-sidering the following criteria:

(a) All partners and managers with significant accounting and auditing responsibilities

(b) Significant specialized industries with em-phasis given to high-risk industries

(c) The size of the firm, number and geo-graphical location of offices, and the degree of authority

(d) Significant client engagements

(e) First-year engagements

(f) Level of service performed (that is, audit, review, compilation, and attestation engage-ments)

(g) Engagements for which there have been complaints or allegations from firm person-nel, clients, or other third parties that the work performed by the firm failed to comply with professional standards, regulatory re-quirements, or the firm’s system of quality control

(h) Engagements in which there were significant disagreements between the quality review partner and the engagement partner

(i) Engagements performed under Government Auditing Standards (the Yellow Book)

(j) Engagements for employee benefit plans (ERISA)

(k) Engagements for financial institutions

c. Does the firm summarize and communicate at least annually to relevant engagement partners and other appropriate individuals with the firm, including the firm’s leadership, the monitoring process results and any recommended changes to the firm’s policies and procedures?



Yes No N/A Comments

d. Does the firm take specific corrective actions or steps based upon the results of the monitoring process, and does the firm follow up on such planned corrective actions to assure compliance with its policies and pro-cedures?

If “no,” to any item between 7a–7d, explain the firm’s ra-tionale.

8� Does the firm, on an ongoing basis, review its compliance with its policies and procedures regarding leadership re-sponsibilities for quality within the firm, relevant ethical requirements (including independence, integrity and objectiv-ity), acceptance and continuance of client relationships and specific engagements, human resources, engagement per-formance and monitoring?

9. Does the firm test compliance with its policies and proce-dures through other monitoring procedures (such as en-gagement quality control reviews) not described in items 7 and 8?

If “yes,” describe.

10. Does the firm’s quality control policies and procedures state that a peer review conducted under the standards es-tablished by the AICPA substitute for the firm’s inspection of engagement working papers, reports, and clients’ finan-cial statements for some or all engagements for the period covered by the peer review? (Note: A peer review does not substitute for all monitoring procedures.) If so, de-scribe the scope of other monitoring procedures performed in that year:

The firm deals appropriately with complaints and allegations.

11. Does the managing partner inform personnel that they may raise any concerns about noncompliance with professional standards, regulatory and legal requirements, or the firm’s system of quality control with any partner without fear of reprisals? If “no,” describe why not.



Yes No N/A Comments

12. Does the firm assign a partner who is not otherwise in-volved in the engagement to investigate complaints and al-legations and the responses to them? If “no,” describe why not.

The firm prepares appropriate documentation as evidence of the operation of each quality control system element.

13. Describe how the firm documents the evidence of the op-eration of each quality control system element (through its summary monitoring report, electronic databases, manual notes, checklists, and forms).

14. Describe the firm’s policies and procedures for document retention so that those performing monitoring procedures and peer reviews may evaluate the firm’s compliance with its system of quality control.

G. SQCS No. 8 Implementation

1. Describe any substantial changes made to the system of quality control as a result of implementing SQCS No. 8.

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