quality control standards
SQCS 8 strongly emphasizes the responsibility of firm leadership to set the proper “tone at the top”
On October 10, 2007, the AICPA Auditing Standards Board issued Statement on Quality Control Standards No. 7 (SQCS 7), A Firm’s System of Quality Control, which replaced all existing SQCS. The SQCS No. 7 was effective January 1, 2009.
Resulting from its Clarity Project, the Auditing Standards Board issued Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (Redrafted), to supersede SQCS No. 7, A Firm’s System of Quality Control (AICPA, Professional Standards, vol. 2, QC sec. 10). SQCS No. 8 does not change or expand SQCS No. 7 in any significant respect. The provisions of this SQCS are applicable to a CPA firm’s system of quality control for its accounting and auditing practice as of January 1, 2012.
SQCS 8 strongly emphasizes the responsibility of firm leadership to set the proper “tone at the top”, conveying through words and actions that quality work is of paramount importance. Each firm is required to design and implement QC policies and procedures that support that message and promote a quality-oriented culture.
The elements of quality control have been expanded as follows, further illustrating the “tone-at-the-top” emphasis:
SQCS 8 |
Superseded QC Standards |
|---|---|
| Leadership responsibilities for quality within the firm | |
| Relevant ethical requirements (e.g. independence, integrity, objectivity, concern for the public interest) | Independence, integrity and objectivity |
| Acceptance and continuance of client relationships and specific engagements |
Acceptance and continuance of clients and engagements |
| Human resources | Personnel management |
| Engagement performance | Engagement performance |
| Monitoring | Monitoring |
Under SQCS 8, a firm that has audit, review, compilation, or other attestation engagements is required to formally document its quality control policies and procedures. The extent of the documentation will depend on the size, structure, and nature of the firm’s practice. Documentation may be as simple as a checklist of the firm’s policies and procedures or as extensive as practice manuals.
The following tools are available from the AICPA to assist in complying with the documentation of the firm’s system of quality control:
- PRP 4300 - Quality Control Policies and Procedures Documentation Questionnaire for a Sole Practitioner With No Personnel.
- PRP 4400 - Quality Control Policies and Procedures Documentation Questionnaire for Firms With Two or More Personnel
The Quality Control Questionnaires (sections 4300 and 4400) were updated in 2012. If the appropriate questionnaire is completed by the firm in adequate detail prior to January 1, 2012, it can normally be used to comply with Statement on Quality Control Standards No. 8, effective January 1, 2012. The questionnaires are not intended to be used as the quality control document for large firms with complex systems of quality of control.
To firms that have prepared to document their quality control system for the first time: be sure to adopt only those policies and procedures that work for your firm. Adoption of a sample quality control document without modification can have negative results during peer review if the firm does not have the resources to comply with the policies and procedures adopted.
If the peer reviewer does not deem the system of quality control to be adequately documented and complied with, and finds other deficiencies, he or she may consider this to be a monitoring issue and that the system of quality control is neither documented nor effective, and should ordinarily be a deficiency, which may result in a grade of pass with deficiencies or fail.