Enhancing Audit Quality update – the profession takes charge

Written on Jul 19, 2016

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By Laura Hay, CPA, CAE


In OSCPA’s most recent membership research, talent management, the regulatory environment, and business development were cited as the three most critical business challenges for CPAs and related professionals. A fundamental requirement for growth, retention, and addressing regulatory challenge is maintaining and elevating the trust attributed to the profession for its commitment to quality and
continuous improvement.

The profession’s self-regulatory activities are a core tenet of that trust. In May 2015, the AICPA issued its 6-Point Plan to Improve Audits, covered in last year’s story “Audit Quality – what happens next?” We connected with Susan Coffey, CPA, AICPA senior VP - public practice and global alliances, to discuss the latest developments in the plan.
“Changes led by the profession are already making a difference,” said Coffey, “some focused on helping firms get it right, while others are clearly about greater accountability … meaning really holding firms to the highest standards.”
Latest developments and resources include:

Pre-licensure
The comment period on the next version of the Uniform CPA Examination closed Nov. 30, 2015, and the new exam is due to launch April 1, 2017. Testing higher-order cognitive skills such as critical thinking and analytical ability, the exam will include an increased use of task-based simulations to test the knowledge and skills that a newly-licensed CPA must possess.

Standards and ethics
“A number of resources are helping firms make the connection that good quality is good business,” noted Coffey. The AICPA Private Companies Practice Section (PCPS) has developed a free toolkit to help particularly the smallest firms implement quality control standards. For all firms, there is also a free e-version of the Practice Aid, Establishing and Maintaining a System of Quality Control for a CPA Firm’s Accounting and Auditing Practice.

The Quality Control Task Force of the Auditing Standards Board has developed free model quality control documents for sole proprietors and small- to medium-sized firms scheduled to be released in June 2016, and the AICPA is developing a self-study online course on quality control for release in July 2016.

CPA learning and support
The AICPA has launched the AICPA/CIMA Competency and Learning website to help practitioners identify gaps in audit knowledge and develop competencies by mapping their needs to relevant resources. The site includes competency frameworks for the high-risk areas of employee benefit plan (EBP) and governmental auditing.
New AICPA certificate programs for Single Audit and EBP audits include examinations designed by psychometricians to go beyond basic knowledge testing and focus on assessing the participant’s competency to perform a given task. “This approach will help certificate holders demonstrate their competency while distinguishing themselves in the marketplace,”
said Coffey.

Peer review
The Enhanced Oversight Program recently completed its pilot year. Subject matter experts evaluated “must-select” engagements (including EBP audits and Single Audits) on a surprise basis after they had undergone peer review. Forty-four percent of the engagements were found to have failed to conform to applicable professional standards in all material respects, approximately five times the rate identified by peer reviewers who had looked at the
same engagements.

Coffey noted these were not nitpicky findings. Instances of non-conformity included:
•Single Audit – no control testing, missing major programs
•EBP audits – no eligibility testing, no testing of distributions or participant loans

Coffey said this program will be doubled in size for 2016.
Enforcement has been enhanced as well. To target firm quality and accountability, firms that fail to remediate after one non-pass report may now be subject to termination from peer review. New guidance effective in December 2015 resulted in:
•A streamlined process for remediating and removing poor performing reviewers.
•Increased qualifications to review engagements in specialized must-select areas.
•New training requirements for team captains and reviewers of specialized engagements, as well as annual knowledge assessments.

AICPA is also working to improve the completeness of the peer review population. To
make sure all firms that should be enrolled in peer review are in fact enrolled and all engagements that should be reviewed are in fact reviewed, the AICPA has started gathering Employer Identification Numbers (EINs) from all firms enrolled in the program. Firms that fail to submit their EIN will be dropped from peer review.
Starting in 2016, that data will be compared with other available databases, such as the Department of Labor’s EFAST2 for EBP audits and the Federal Audit Clearinghouse for Single Audits, to help ensure appropriate enrollment and inclusion in the scope of the peer review.

“The vast majority of members really want to do the right things and are doing the right things,” said Coffey. “These changes are about holding people accountable for what most members are already doing right, finding those who are bypassing the system and damaging the profession’s image for all those who are upholding it.”

Peer Review as a Practice Specialty
Will an environment of increased requirements and oversight lead to a shortage in the pool of quality peer reviewers? National statistics are not showing a drop off, according to Coffey. We spoke with Craig Steinhoff, CPA, a Principal at HBK CPAs and Consultants, about the firm’s recent decision to expand its peer review practice.

“The decision (to grow) was more about identifying practice development and professional development opportunities than about growing revenue,” said Steinhoff. “It was a natural extension of the firm’s quality control practice.”

“Some of the best conversations that arise during a peer review revolve around non-compliance topics such as utilization of technology, practice management, and engagement workflow. However, we’ve also been able to identify ways to enhance another firm’s best practices in planning, reporting and documentation. Firms that have chosen us to perform their peer review are looking to us for that expertise, and I’ve gained a lot of personal fulfillment as well working toward the greater good of
the profession.”

“My greatest concern is balance,” said Coffey. “Making sure we’re doing something that moves the needle in a meaningful way, but not so far that it breaks the needle.” The best thing members can do, advised Coffey, is to be part of the feedback loop, and “Please, be patient. Changes are being made every day in response to
member feedback.”

Laura Hay, CPA, CAE, is executive vice president of The Ohio Society of CPAs and staff liaison to the Accounting & Auditing Committee. She can be reached at Lhay@ohiocpa.com or 614.321.2241.

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