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July 1990

Quality review. (American Institute of Certified Public Accountants Quality Review program)

by Mancuso, Anthony J.

    Abstract- Certified Public Accountants must be enrolled in the American Institute of Certified Public Accountants (AICPA) quality review program or join one or both sections of the AICPA divisions for CPA firms in order to maintain their membership in the AICPA. The considerations for the standards for performing and reporting on quality reviews include confidentiality, independence, and conflict of interest. Firms performing audits of financial statements or performing examinations of prospective financial statements must have on-site reviews; firms not performing audits will have off-site reviews. The options firms have for quality reviews include: committee-review teams appointed by state CPA societies; qualified member firms; and teams formed by an association of CPA firms.

A firm can enroll in the AICPA quality review program or voluntarily join one or both sections of the AICPA Division for CPA Firms-the Private Companies Practice Section (PCPS) and the SEC Practice Section (SECPS)-in order to meet the mandatory requirement. Firms enrolling in tile quality review program may change to another AICPA approved program at a later date.

A recent AICPA requirement requires all firms that perform work for SEC engagements join the SEC Practice Section.

Enrollment in Quality Review Division

The AICPA Board of Directors established a quality review division within the institute. This division is governed by the Quality Review Executive Committee, which has the authority, to establish and conduct a quality review program in cooperation with state CPA societies.

Each firm is assigned a review date, determined by computerized lottery, by which its initial quality review should take place. By completing and returning an enrollment form, a firm agrees to adhere to the AICPA's quality. control standards and submit to a review of its accounting and auditing practice once every three years.

The firm's managing partner is responsible for completing and returning the enrollment form to the Quality Review Division. A requirement of membership is that one of the proprietors, partners or shareholders of a firm that seeks to be enrolled in the AICPA quality review program must be a member of the AICPA. By-now, all firms should have been given many opportunities to enroll. However, if your firm has not been contacted you may obtain a form from the AICPA Quality

Review Division, 1211 Avenue of the Americas, New York, NY 10036

The AICPA is phasing in the scheduled reviews over five years, through 1993, according to the following timetable based on the size and the nature of members' practices:













General Considerations

The Standards for Performing and Reporting on Quality Reviews provide for the following considerations:

* Confidentiality. A quality review must be conducted in compliance with the confidentiality, requirements set forth in the AICPA Code of Professional Conduct.

* Independence. Independence must be maintained with respect to tile reviewed firm by a reviewing firm, by review team members, and by any other individuals who participate in or are Associated with the review.

* Conflict of Interest. A reviewing firm or an individual participating in carrying out or administering a review must not have a conflict of interest with respect to the reviewed firm or those of its clients whose engagements are selected for review.

* Competence. A review team conducting an on-site quality review must have current knowledge of the type of practice to be reviewed. Individuals reviewing engagements on-site or off-site must have a familiarity with the specialized industry practices of the clients that should be selected for review.

* Due Professional Care. The standard of due professional care must be exercised in performing and reporting on the review.

* Administration of Reviews. Reviews intended to meet the requirements of the AICPA quality review program must be carried out in conformity, with these standards under the supervision of a participating state CPA society or under the supervision of the AICPA Quality Review Division.

Types of Review

The quality review standards provide for two types of reviews:

1. On-site quality review; and

2. Off-site quality review.

Firms without audit or accounting clients must still enroll, but will not be reviewed. However, if a firm at a later date obtains an accounting or audit client, then a review will he expected to occur within 18 months from the time of acceptance of the engagement,

On-Site Reviews

if your firm performs one or more audits of historical financial statements or performs an examination of prospective financial statements, your firm is required to have an on-site review.

On-site quality reviews include a study and evaluation if the reviewed firm's quality control policies and procedures in effect for its accounting and auditing practice generally during the period of one year, mutually agreed upon by the reviewed firm and the team captain.

Statement of Quality Control Standards No. I requires every CPA firm, regardless of size, to have a system of quality control for its accounting and auditing practice. It provides that a firm should consider each of the following nine elements in establishing its quality control policies and procedures:

* Independence;

* Assigning personnel to engagements;

* Consultation;

* Supervision;

* Hiring;

* Professional development;

* Advancement;

* Acceptance and continuance of clients; and

* Inspection.

The review team obtains a general understanding of the reviewed firm's quality control policies and procedures with respect to each of those nine elements of quality control.

When circumstances exist in firms with up to 10 professionals, the team captain would ordinarily decide to restrict compliance tests of broad functions to those related to:

* Independence;

* Consultation;

* Supervision; and

* Professional development.

Off-Site Reviews

If your firm issues compilation or review reports but does not perform audits,. it will have an off-site review.

Off-site reviews are administered only by participating state CPA societies or by the AICPA Quality Review Division. Associations of CPA firms are not authorized to arrange or carry out off-site quality reviews.

Off-site reviews do not include a review of the engagement workpapers being reviewed, and do not include testing of administrative personnel files or interviews with firm personnel.

An off-site review consists only of reading the historical or prospective financial statements submitted by, the reviewed firm and the accountants report thereon, together with certain background information and representations, provided by the review firm, about each engagement.

Performance of Reviews

A firm may select a quality review from among three options.

1. A committee appointed review team (CART) appointed by the state CPA society, or, if ;.our society is not participating in the program, the AICPA's Quality Review Division. if you select a CART review, the state CPA society or AICPA Quality Review Division will randomly select the team from a reviewer data bank maintained by the AICPA. The review team must have a similarity with the specialized industry practices of the clients that should be selected for review. However, the reviewed firm has the option of accepting or rejecting the team. if the firm finds one or more of the team members unacceptable, another team member(s) will he appointed.

2. A qualified member firm that you engage (Firm-on-Firm Review) to conduct a review, subject to approval of the administering entity.

3. A review team formed by an Association of CPA firms, that is authorized by the AICPA Quality Review Executive Committee to arrange and carry out quality reviews (Association Review).

Special Note

If you have any questions about the quality review program, direct your inquiries to: Anthony J. Mancuso, CPA, c/o Editorial Department, The CPA Journal, 200 Park Avenue, New York, AY 10166-0010. Questions of general interest, and answers thereto, will appear in future issues of the journal.

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