Maintaining and assessing audit quality are ongoing challenges that require serious and persistent attention in order for auditors to keep pace with the increasing size and complexity of modern business operations. A current initiative published to address this expanding environment is the AICPA’s new practice aid, Establishing and Maintaining a System of Quality Management for a CPA Firm’s Accounting and Auditing Practice. This aid is in response to the new Statement on Quality Management Standards (SQMS) 1, A Firm’s System of Quality Management, and SQMS 2, Engagement Quality Reviews, which go into effect on December15, 2025.
Accounting practitioners from the 1970’s will recall the creation of the peer review process. A formalized quality control document was produced to describe the firm’s procedures. These procedures were subject to internal inspections annually and external peer reviews every three years. The Statements on Quality Control Standards (SQCS) were issued to guide the process. The final SQCS 8, A Firm's System of Quality Control (Redrafted), issued in October 2010, was policies based, and included the following components:
1. Leadership responsibilities for quality within the firm (the tone at the top)
2. Relevant ethical requirements
3. Acceptance and continuance of client relationships and specific engagements
4. Human resources
5. Engagement performance
6. Monitoring
SQMS 1 replaces SQCS8 and adds two components:
7. The firm’s risk assessment process
8. Information and communication
The accomplishment of any significant new endeavor must start with recognition and direction from firm leaders. Therefore, management at the highest levels must demonstrate a wholehearted sense of commitment to excellence that compels buy in from all levels at the firm, so that adequate time and resources are allocated.
High ethical standards are a basic expectation in the accounting profession. So application to SQMS should be a given without question.
Before accepting or continuing a client and/or an engagement, consideration needs to be given as to whether that is the proper direction in which to proceed based on the current circumstances.
Human resources must be sufficient and possess the appropriate skills and character to perform the necessary services accurately and on a timely basis.
Engagement performance involves planning and consistent execution by all team members throughout the engagement, expressing both professional judgment and skepticism when appropriate.
Effectiveness of the firm’s employment of SQMS will be obtained by a system of monitoring that evaluates the engagements and provides for remedial actions to correct shortcomings.
By focusing on risks rather than just policies, a firm can design a system that is geared to the aspects of the firm that more specifically address the firm’s strengths and weaknesses.
Information and communication allows for gathering pertinent data regarding the firm’s quality management system and conveying the results both internally and externally.
This practice aid will prove to be a useful resource that auditors and accountants can employ to assure the effectiveness of their efforts for attaining and maintaining the highest level of quality in their work.
Further details can be found at Establishing and Maintaining a System of Quality Management for a CPA Firm’s Accounting and Auditing Practice.
