Quality Control Under Generally Accepted Auditing Standards

Quality Control Under Generally Accepted Auditing Standards

by Donald Ressiguie *

The auditing and attestation standards under GAAS and PCAOB standards govern the conduct of specific audits and the methods and manner of their performance. In addition, standards of quality control apply to both specific engagements and the overall auditing practice both for auditors of issuers (governed by PCAOB standards) and those of non-issuers (governed by GAAS).

The AICPA has a detailed set of quality control requirements in place for public accounting firms that do not perform audits for SEC issuers. GAAS quality control standards are composed of three interrelated sets of standards. First, a public accounting firm's overall auditing and attestation practice is governed by AICPA Statements on Quality Control Standards (SQCS) No. 8. This standard mandates that public accounting firms must have a firm-wide system of quality control that sets overall firm standards for the conduct of all accounting and auditing engagements. This system must include a set of quality control policies and procedures as well a system to monitor and report on compliance with this system of quality control. GAAS AU-C section 220 governs quality control for individual engagements and provides detailed quality control requirements as they apply to individual engagements. The third element of the AICPA quality control regime requires public accounting firms to undergo a peer review of their accounting and/or auditing practice. Third party accounting firms or other persons qualified to conduct peer reviews perform these reviews. All three elements work together to provide an overall system of accounting firm quality control and it is important that firms understand the requirements of each of these elements. This paper will provide a detailed discussion of all three elements of the AICPA quality control program.

The Public Company Accounting Oversight Board has a similar scheme with regard to quality control. The PCAOB standards also require a firm to have an overall system of quality control that governs its entire practice. In addition, the PCAOB requires that CPA firms that perform audits for SEC issuers have a system in place to monitor the firm's accounting and auditing practice in addition to requiring certain personnel competencies regarding audit management personnel. The PCOAB also requires firms to undergo a peer review. This paper does not specifically cover PCAOB quality control standards as they are evolving. As of April 2003 the PCAOB adopted the AICPA's quality control standards, as in existence as of April 16, 2003, as interim standards. In addition to the AICPA quality control standards, firms that practice under the supervision of the PCAOB are subject to inspection by the PCAOB in addition to any peer review requirements mandated by AICPA quality control standards.

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* Donald Resseguie holds a BS from Beloit College, an MBA from Miami University of Ohio, and a JD from Cleveland-Marshall College of Law. Mr. Resseguie is also a CPA. Mr. Resseguie has worked in private industry as well as professional service firms and has over thirty years of professional experience. Mr. Resseguie currently teaches at Lone Star College in Houston, Texas. In addition, Mr. Resseguie updates a number of Lexis publications: Applying GAAP and GAAS, Accounting for Banks, Banking Law, Volumes 1 & 2, and Banks and Thrifts: Government Enforcement and Receivership..

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