Audit quality — what happens next?

Written on Jul 31, 2015

Audit quality — what happens next?
By Laura Hay, CPA, CAE

Upholding the public trust is the unique value proposition of the CPA profession, and the financial statement audit is the most public-facing service through which CPAs deliver on that trust.

There are many layers of commitment the CPA undertakes to be the most trusted adviser to business, including ethical standards, auditing standards, professional competence, quality control and practice monitoring.

Examining challenges to audit quality for both public and private entities, and recognizing that it is the profession that must lead in addressing quality challenges, the AICPA launched the Enhancing Audit Quality initiative (EAQ) in May 2014. EAQ utilizes a holistic approach to address audit quality, particularly for the challenges of specialized industries, such as employee benefit plans and governmental entities.

More than 860 responses were received to the AICPA's EAQ discussion paper, including both formal and informal commentary from OSCPA and its leaders. Recommended actions are being forwarded to the AICPA board, committees and task forces, and the profession's response has been summarized in AICPA's new "6-Point Plan to Improve Audits."

Pre-licensure

The AICPA is working with the College Board to establish a high school advanced placement course in accounting to attract highly talented students and promote the requirements of the profession's commitment to the public trust. And the AICPA's Pathways Commission produced several recommendations that are already in process to better align university-level education with practice.

On the graduate level, the Accounting Doctoral Scholars program funds students with real-world auditing experience to pursue a PhD and become faculty in U.S. colleges and universities.

Finally, a comprehensive research effort to develop the next version of the CPA exam is in progress and is scheduled to be exposed for public comment in September 2015. The vision for the new exam includes the critical thinking skills and professional skepticism required for audit quality.

Standards and ethics

The AICPA Auditing Standards Board Clarity Project redrafted auditing and quality control standards for greater understanding and consistency of application.

A number of new tools, resources and courses, including three new practice aids based on firm size, seek to improve compliance with Statements on Quality Control Standards. Industry-specific practice aids are being developed for specialized areas including Single Audit and employee benefit plans.

A new AICPA course will be offered this summer and fall to help firms mitigate quality control risks while performing efficient and effective audits. The course will include a toolkit with a variety of resources developed by the Private Companies Practice Section and the AICPA peer review team. OSCPA will be one of the course providers.

A five-year Codification of the AICPA Code of Professional Conduct was completed last year. It incorporates non-authoritative guidance and new conceptual frameworks for members in public practice and business and industry. Its topical organization and enhanced search capability improves the ability to identify and comply with rules.

CPA learning and support

Launched in February, the AICPA/CIMA Competency and Learning website allows CPAs to assess technical, business, people and leadership skills and link to tools and resources to help build needed competencies. Employee benefit plan and ethics competencies are already included, and governmental accounting and auditing will be added in summer 2015.

Employee benefit plan and Single Audit certificate programs are being introduced in early 2016.

Through the Future of Learning initiative, AICPA is working with NASBA on a number of recommendations that would change the continuing professional education measurement model to be more competency-driven.

AICPA Audit Quality Centers, including the Employee Benefit Plan and Governmental Centers, offer education, discussion, alerts and other resources to support CPAs working in specialty practice areas. In addition, the Center for Plain English Accounting helps smaller practices with challenging accounting and auditing issues.

Peer review

Near-term changes to peer review include:

  • Improving the quality of peer reviewers by increasing the qualifications to perform a review, enhancing the oversight of reviewers and expediting the removal of problem reviewers.
  • Targeting firm quality and accountability, including deeper dives in specialized practice areas, enhanced testing of the quality control system and increased accountability for firms that fail to comply with professional standards.
  • Focusing on engagement and firm tracking to improve peer review population completeness, including terminating participants for failure to report engagements.

Practice Monitoring of the Future

AICPA is piloting a concept for a more real-time, technology-based quality monitoring tool for firms that will allow them to monitor their own accounting and auditing practices, and to quickly leverage and implement prescriptive measures. Feedback on the concept paper was due in June, and will be used to help develop the next generation of practice monitoring.

"Many professionals view quality control and practice monitoring standards as a compliance requirement — something you have to check off the list, rather than an opportunity to review your practice and make improvements," said Kathleen Hoover, CPA, Corbets & Associates. "That's the wrong approach — it's a way to become better rather than just to satisfy a requirement."

Enforcement

OSCPA and AICPA are working with state and federal regulators to ensure effective enforcement of ethical and professional standards. When a member is found in violation of the Code of Professional Conduct, it may result in remediation or discipline. Discipline affecting membership rights is published and shared with state boards of accountancy.

"There's no such thing as a foolproof system," said James Gero, CPA, Hobe & Lucas CPAs, Inc. "Any system has a way around it. Somebody needs to put their foot down and say 'This isn't right,' and CPAs are uniquely qualified to be that somebody. The goal is to achieve effective oversight without compliance overload."

Outcomes

The desired outcomes for these combined initiatives are to:

  • Continue the strong reputation of the CPA profession for competence, integrity and objectivity.
  • Heighten understanding of the audit's value.
  • Ensure that each and every CPA understands his or her contribution to the profession's reputation.
  • Enhance the relevance of the profession's work in the marketplace.

"CPAs belong to a proud profession with an ongoing commitment to quality and a long history of continuous improvement," the report states. "The profession's core service — he audit — deserves the time, resources and energy needed to achieve the highest level of performance. Financial statement users, company management, employee benefit plan sponsors, governmental entities, regulators and other stakeholders expect no less."

The business environment is continually evolving, and doing so at a quick pace. CPAs must keep up with the complexity and change, and so they continue on the journey to audit excellence. Reinforcing the CPA profession's commitment to the public interest, CPAs are joining together to uphold the hallmarks for which the profession is known.

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 (800) 686-2727, ext. 322.

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