The road to quality. (Quality Review)by Mancuso, Anthony J.
Quality Review and Quality:
What is the Connection?
Quality review can be defined simply as the process by which accountants and auditors are judged by their peers as to whether they are practicing in accordance with standards promulgated by the profession. Quality in the performance of accounting and auditing engagements by AICPA members is the goal of the quality review program. The program's goals are accomplished through awareness, education, and corrective actions. The objectives of the quality review program are achieved through the performance of reviews involving procedures tailored to the size of the firm and the nature of its practice.
Why Should Firms Focus on
Quality control is a term that arose in industry. It refers to a systematic means of testing or inspecting a product to ensure that certain predefined specifications or tolerances are being met. Industry accomplishes its objective measurement by setting specific standards, then monitoring them. In accounting and auditing, aside from the requirements of practice monitoring programs, quality is at the root of a successful business. The quality of a firm's accounting and auditing services, and the efficiency in delivering those services, are fundamental to profitable operations. Developing and improving the system of quality control and improving quality offers a firm the following benefits:
1. Documentation of Firm Policy Leads to Compliance with Professional Standards and a More Efficient Operation. The standards specifically emphasize and confirm that a system of quality control must be adopted in order to provide reasonable assurance that the firm is following GAAS. By formalizing policies and procedures in firm manuals, forms, checklists, and questionnaires a firm automatically complies with standards and establishes a framework for efficient conduct of its accounting and auditing practice. The formalization process helps the firm effectively communicate to all staff, and facilitates and encourages the exchange of ideas.
A higher degree of performance in delivering work to clients will occur if the firm takes the time to obtain knowledge about the professional standards and apply them in practice. The concept is simple: the higher the quality of the work done for clients and the greater the excellence attained by the professional staff in serving their needs, the greater the chances for higher economic rewards.
2. Marketing Tool. The better reputation and perception outside third party users and potential clients have of the firm's capabilities and competence, the greater the potential for referrals. Success in a practice monitoring program can only enhance the image and credibility of the firm in the business community.
3. Proficiency and Assurance About the Work Product. An improved quality control system leads to an improved end product. The risks of error and of noncompliance with professional standards are reduced by maintaining a top-notch system. In addition, the client receives a work product, about which the firm can feel confident. Each engagement performed usually enhances or detracts from the firm's professional reputation. Following an appropriate quality control system enhances the proficiency of the firm and, thus, its overall reputation.
4. Collection Enhancement. Appropriate policies and procedures for Independence, and Acceptance and Continuance of Clients, (two of the elements of quality control) reduce the risk of performing services for which a firm cannot collect its fees and will ensure that the firm adequately considers client risk factors.
In addition, because fees overdue for an extended period of time take on the characteristics of a loan, by highlighting independence considerations, a firm will minimize chances of performing additional work for clients that have failed to pay for prior year services.
5. Reduced Risk of Litigation. The adverse affects of a lawsuit can be minimized by establishing a quality control system that reduces the likelihood of error, and increases the quality of documentation. The accounting profession, on the whole, does good work. Considering the magnitude of financial statements issued each year, the number of audit failures that are widely publicized seem to be unfortunate exceptions. Obviously, the better the quality the less likelihood reprisals can occur, especially in today's litigious environment. The SEC and the GAO have both studied the relationship of practice monitoring to performance. The results indicate that CPA firms that have undergone peer reviews under the Private Companies Practice Section of the Division for CPA Firms, are far less likely to do substandard work than those that have not been reviewed. Reporting on a study of 48 SEC enforcement actions against accountants from 1981 through 1986, an SEC release noted that "the incidence of enforcement actions against accountants which had not undergone peer review was approximately eleven times higher than for accountants which had . . ." GAO found problems in 59% of audits by accountants who had not been peer reviewed, but in only 18% of audits by those who had been reviewed.
6. Improved Motivation and Morale. Implementation of a quality control system can produce many positive effects on personnel. A motivated staff is more likely to be efficient and profitable than one that lacks direction and standards against which to operate. Because the profession depends on people, and their abilities, experience, and education, it would seem logical that association with a firm with a commitment to quality will create pride in the firm. Benefits derived can amount to greater productivity, job satisfaction, and objectivity, development of a team concept, effective recruitment, and more meaningful CPE efforts.
7. Efficient Delivery of Practical Professional Services. The accountant's and auditor's real work product is service, which is subjective and sometimes difficult to evaluate. A quality control system is one of the principal tools a firm has to ensure that it is actually providing practical professional services to its accounting and auditing clients.
8. Other Benefits. In addition to the above benefits an effective quality control system may also:
* Serve as an effective training tool;
* Lead to possible insurance premium savings;
* Satisfy State Board of Accountancy requirements; and
* Satisfy revised Government Auditing Standards.
Commit to a practice method. Don't sacrifice standards over practice pressures. Consider in the end whether the risk of substandard work and the potential negative effect in may cause, is worth the rewards. Once a quality control system is in place and operating properly, a firm should have a competitive edge over firms that do not maintain adequate control systems. A quality firm does quality work.
The road to quality and excellence is sometimes long and hard but in many ways satisfying and rewarding.
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