A certified public accountant (CPA) firm's accounting and auditing practice's engagement quality depends on decisions made before, during, and after individual engagements. A system of quality management connects those decisions through objectives, responsibilities, procedures, and evaluation.
The system seeks reasonable assurance of two outcomes:
- The firm and its personnel fulfill professional responsibilities and perform engagements consistently with applicable standards, laws, and regulations.
- The firm and engagement leaders issue reports appropriate to the circumstances, supported by the work actually performed.
The engagement's governing standards determine which quality requirements apply, and a firm serving several markets may need one coordinated system that satisfies multiple sets of requirements.
- The American Institute of Certified Public Accountants (AICPA) establishes U.S. quality-management standards for firms performing covered accounting and auditing engagements, including nonissuer audits.
- The Public Company Accounting Oversight Board (PCAOB) establishes separate quality requirements for registered firms' covered work, including issuer audits.
- Generally accepted government auditing standards (GAGAS), issued by the Government Accountability Office (GAO), add requirements for engagements performed under the Yellow Book.
Common mistakes
- Six becomes five. The former U.S. framework had six elements; the current framework has eight components.
- Commercial deadline controls acceptance. A three-day deadline cannot compensate for unavailable competent staff, specialist support, or review capacity.
- Every review is an EQR. An ordinary supervisory review does not satisfy the separate eligibility and performance requirements.
Bottom line
- The firm designs, implements, operates, monitors, and evaluates a system providing reasonable assurance about professional compliance and appropriate reports.
- Eight quality-management components replace six former quality-control elements, with explicit risk assessment and information and communication.
- Engagement partners retain overall responsibility despite delegation, external resources, and separate quality reviews.
- A required EQR needs an eligible, objective reviewer outside the team and completion before report release; PCAOB engagements require concurring approval before permission to use the report.
Exam shortcut
Identify the regime and the decision being tested: firm policy, engagement performance, reviewer eligibility, system evaluation, or external oversight. For a proposed reviewer, inspect actual involvement before counting years. Challenging a decision and making that decision have different consequences. For a missed procedure, separate the affected engagement's correction from the system's underlying cause. Recurrence broadens the investigation; counts alone do not select the annual conclusion.
The full lesson (about 4,975 words, 33 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- I.G1
Browse all free CPA AUD lessons or jump into free CPA AUD practice questions.