Magazine article The CPA Journal

Quality Review: Past, Present, and Future

Magazine article The CPA Journal

Quality Review: Past, Present, and Future

Article excerpt

Quality and peer reviews are well established parts of the accounting profession's self-regulatory system. As of April 15, the two practice-monitoring programs, as they relate to firms that do not audit publicly held clients, will be combined into one peer review program. This combination is the culmination of a major undertaking by the profession to provide assurances to the public that all firms with AICPA members are complying with professional standards.

Has it been worth the effort? Why does the profession need this aspect of self-regulation?

THE PAST

Auditing professionals have historically focused on getting the numbers right--making certain that all the items balance. We have constantly heard accountants say they will not rest until every item on the trial balance "ties out," every expenditure is "vouched," and every cash account is "reconciled." If the professionals were verifying every number to the penny, why did we need quality and peer reviews?

Many blame the national firms for the problems that questioned the quality of the accountant's report and believe local practitioners are paying the price for failures of which they had no part. My observations support these claims; the local firms, however, had other problems to solve.

I believe local firms and individual practitioners needed the quality and peer review programs. Although they may have been "tying out" every number, they by no means were adhering to all professional standards. Financial statements prepared by many local firms omitted significant disclosures required by GAAP and were accompanied by incorrect accountant's reports. The most consistent weakness was the lack of documentation in support of the type of report being issued, i.e., audit, review, or compilation. In audit situations, accountants were thinking about the internal control structure, materiality, assessing risk, and analytical procedures, but the workpapers did not reflect this. Too much was in the accountant's head, too many audit programs were not written, and too many financial statements were issued without the disclosures required by professional standards and needed by users.

Many local firms have extensive tax practices but do only one or two audits and issue a limited number of financial statements. …

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