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April 1990

It must be Monday. (American Institute of Certified Public Accountants' Quality Review program)

by Sperstad, Joe

    Abstract- The experiences of a sole practitioner preparing for, and undergoing a review under the American Institute of Certified Public Accountants' (AICPA) Quality Review program is presented. CPAs participating in the program have their practices reviewed by peers to make sure they comply with nine quality standards established by the AICPA. Prior to the review, CPAs can contact their AICPA state chapter and select the firm to conduct the review, or they can have one appointed by the chapter. CPAs can prepare for the review by attending the AICPA seminar titled 'How to Prepare for a Quality Review' or reading the AICPA Quality Review Program Manual.

Monday Morning--Week One

Here I am on another Monday, looking at my face in mirror--God I'm ugly this morning. Maybe I'll look and feel better after I shave and shower. I wonder why Myrtle still loves me after 25 years and 26 tax seasons?

That pimple on my nose is like that Quality Review; you can't ignore either one and neither will go away.

Quality Review--I'd like to tell someone in a high place what they could do with QR. That's another one of those things the big guys are doing to the little guys. I'm so busy now I don't know how I can take on getting ready for and having a quality review. I'm not sure I like the idea of someone "combing" around the office and looking at things that are none of his or her business.

Maybe I should go to New York and burn my AICPA membership card in front "1211 Avenue of Something." I feel like protesting, but in New York City no one would notice. They don't pay attention to stop lights or anything else. Dropping out doesn't make sense either. I'm going to be part of the profession until I hang it up. You can't just walk away, and once you lose your edge its hard to get it back. Yup! I'm going to stay with it.

I could merge or sell out. The managing partner of that firm down the street keeps smiling at me and shaking my hand--if he grasps my hand any harder I'll have to pry his fingers loose. No, I've been there--I want to be my own boss, run my own show, work when I want to and play when I can.

Maybe I should retire--sell out and travel with Myrtle. Not now--maybe later. Myrtle doesn't want me hanging around the house, and I'd really miss my clients, the profession, and the challenge of the tax season. What I should probably do is take the advice I give my clients: "When going into a new venture, get all the information you can. Do some careful planning. Make sure the cost benefit ratio is in your favor, and then move ahead."

I think I'll give Harry a call. Although his practice is a little bigger than mine, he and I think alike.

Monday Morning--Week Two

That pimple on my face is smaller, but that Quality Review is getting bigger and nearer. Anyway, it was good talking to Harry. I'm glad we've stayed in touch over the years, and it's good he has his practice on the other side of town. But even if he was next door, I don't think we would have any problems. He's a real professional.

If he could only forget that he graduated from that "prestigious" Eastern school "that's high above a lake or river or something." The next time he gets half in the bag and sings that dumb alumni song of his I'm going to baptize him with beer.

I don't know what's happening in the profession--there are too many carnivorous CPAs out there--they like to gobble up other people's clients. Thank God I haven't lost any. I'm blessed with real client loyalty. Of course, I take good care of them, too. It made me feel better to know that Harry had a lot of the same thoughts I did about what to do. I'm glad he decided to stay with it.

You know, maybe, just maybe, Harry and I could team up and help each other get ready for our reviews.

Monday Morning--Week Three

Harry liked the idea of working together on QR. He's going to attend the program on "How to Prepare for a Quality Review" I agreed to read up on the QR standards. Harry had also though about getting rid of his audits in order not to have an on-site review. However, he decided to stay with auditing, and so did I. It didn't make sense to give it up. Then you're up against it when a banker calls and asks one of your review or compilation clients for an audit. Besides, if I'm going to give up auditing, I'll give it up because I want to and not because I want to avoid an AICPA regulation.

It's good that Harry and I both have small firms so we have a couple of years to get ready. Harry's trying to be cheerful--he says it could be every year instead of every three. Nice try, Harry.

I must be losing it. This QR has me talking to myself; then again, at least I know one person is listening. That's one more listener than I have when I talk to Myrtle.

Monday Morning--Week Four

I feel better than I look, but that's not saying much, everything is relative. It's no surprise and a little comforting that Harry found everybody at the Quality Review seminar looking for a handle on what to do about getting ready. I think we are a little further ahead than I thought.

Someone suggested to Harry that we get some hands-on information from someone who has had a peer review. Better yet, talk to a reviewer.

Subscribing to the AICPA Quality Review Program Manual sounds good. Those checklists tell you what to expect as a sole practitioner without staff and there's one for a practitioner with staff. Harry needs that. And the financial statement checklist will help a lot. For a hundred bucks it's a good deal.

Aside from that, he feels that we'll learn a lot from getting ready, the review itself, and the report on the review. I'll bet it will be a "thorny" education--like most of my real life lessons. That's the way it is.

Monday Morning--Week Five

Auditing isn't a casual experience. It shouldn't be. There are planning procedures, checklists and analysis. It seems like only yesterday when I carried it all around in my head. I knew it forwards, backwards, and sideways, but nothing in writing. I couldn't do that today, not with CPAs being sued the way they are. Nope, its all changed for the better. If something happened to me, Harry would have a tough time taking over without any written audit programs or a workpaper file. It would be tough on my clients too. Besides, with all the competition it's more efficient to operate with plans and procedures.

It's no wonder reviewers look at some audit engagements and documents. They want you to even have documentation for independence. I wonder what they would think about my first independence problem. That was a long time ago. My biggest client (I only had five) and my only audit, asked me to watch his dog while they went on vacation. In those days I said yes--you bet! Myrtle didn't know much about dogs and was, and still is, a little naive. Myrtle opened the door, and that dog took off like a ball of fire. Dogs came from everywhere. Our back yard looked like a scene from a Disney movie and a dog pound. I never asked anybody if buying seven mixed breed puppies from a client compromised independence.

On the other side, my biggest audit client came from Harry when his son took over as controller for one of his clients. There are nine standards--it's no surprise independence is number one. When Harry and I meet with that reviewer I'm going to ask how we document those standards.

Monday Morning--Week Six

I'm getting older but the world is changing faster. Imagine, reviewers expect us to make hotel reservations when they come to town. I know just the place on the other side of town. Myrtle's brother has a motel--$20 for two hours, $35 for the night. It has more action than the Playboy channel.

Taking the reviewers out to dinner is OK. Maybe we can get a sort of interim report on what's been found. For sure I'm going to pick him or her up at the motel (it won't be my brother-in-law's), that way I can control their coming in and going out.

But I'm looking too far ahead. The reviewer we met with told us we can't afford to ignore any of the nine standards. With his staff, Harry must adhere to all nine, but sole practitioners like me don't have to worry about hiring or advancement unless we have some professional staff.

As far as consultation goes, I probably need to see what I have in audit guides and be sure to make a note when I call Harry or the "smiling partner" for advice.

A caveat from the reviewer--don't have all your CPE hours in tax when you also have accounting and auditing clients. He also recommended we maintain an annual CPE record showing the date attended, course title, location, and number of hours. That makes sense--I'm paying good money for registration fees.

Because Harry has governmental clients, he says the "yellow book" requires him to have 24 hours of governmental accounting every two years. He must be able to document that.

As for client selection, I have good clients now and don't need anymore, but if a good one came along I wouldn't turn it down. Still, I'm glad I don't have to be active, but if I did I wouldn't take just anyone on as a client. It's not just a matter of getting paid, with some of them you know things are out of bounds--with others I have a felling I'd run into that recent audit standard about a "going concern" or worse yet the one on "illegal acts." I don't need that. I'd better review my accounting and auditing client list to make sure I have all the information I need: * Level of service/audit, review, or compilation; * Date they came with me as a client; * Their industry or business; and * Number of accounting and auditing hours.

As much as Harry and I have griped about the review, the idea of an annual inspection has some appeal. If I get the oil changed in my car every 5,000 miles, a regular look at what I'm doing makes sense.

Maybe Harry and I can inspect each other's work after we both get our "unqualified" reports. Now that's hope and real optimism. But first we must get ready. Better yet, Harry and I should "inspect" one another's work before the review. Harry's a tough old bird and wouldn't show any mercy--that's good.

Monday Morning--Week Seven

Myrtle is worried because she hears me talking to myself. We're both worried. The reviewer told us to pull together our written policies, procedure forms and checklists that we use in auditing. I might use three-ring binders. Harry likes things in file folders.

For evaluating how "ready" we are, the reviewer recommended we use a "quality control questionnaire" to indicate deficiencies. He said "deficiencies" so casually, confidently, and smugly. I had to restrain Harry. He's too old, and too slow, and besides, the guy was doing us a favor and trying to help.

And if we don't find what's wrong we can't fix it. Yup, we should see where we can improve. Harry and I need to make a decision on a formal consulting review. I like the idea. Old hard-nosed Harry thinks we would learn more through a do-it-yourself approach.

Monday Morning--Week Eight

I called the state society. Before my review they'll send me a "Scheduling Information Form." They use it in matching a firm with reviewers. Can you believe we have a choice of having our review performed by another firm or having one appointed by the state society? It's nice that the state society will help, but for me I'm looking forward to negotiating with another CPA from the "other" side of the table. It will give me a chance to use all tactics my clients have used on me. I can hardly wait until we discuss fees and the engagement letter. But if I "hammer" them now they may "hammer" me later.

I'd better follow the advice I give my clients: "get everything ready, organized, and prepared in advance--it will help me do my job and keep your costs down." I don't want to spend a ton of money bringing in reviewers from Nowheresville, but I want someone competent, not from next door, outside my practice area. I'll tell them what I want and see what happens.

Monday Morning--Week Nine

Harry asked the big one. "What do we do if we get zapped on the reviews?" I'm not going to tell anyone, not even Myrtle. Well, may be Myrtle and Harry. I'm glad it's private, I'm not ready to go public yet. I wonder if I could get an extension, say five to 10 years? From what I hear you may get a change from May to July, but not much more than that, and only for a good reason.

If I have bad news coming I might as well hear it from someone inside the profession. Besides, I have the right to respond to a letter of comment before it goes to the state society Quality Review Committee. To be honest, I think both Harry and I are in pretty good shape. I wish I could see ahead and read the letter of comments and the Team Captain's report...I wonder? Maybe I can take the course on conducting a Quality Review and become a Team Captain myself. That would really keep me on my toes and bring some extra billings, too.

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