Enhancing Audit Quality
Paula M. Kinnard, CPA
Arkansas Legislative Audit
May 28, 2015
Quality Control Standards
•
AU-C 220 - Quality Control for an
Engagement Conducted in Accordance
with Generally Accepted Auditing
Standards
•
•
•
Addresses specific responsibilities of an
auditor related to quality control procedures
when auditing financial statements
Should be read along with AICPA Code of
Professional Conduct and other relevant
ethical requirements
Applies to all auditors who perform financial
audits in accordance with GAAS
Quality Control Standards
•
Statement on Quality Control Standards (SQCS) No. 8,
A Firm’s System of Quality Control (AICPA,
Professional Standards, QC sec. 10)
•
•
•
•
•
Must be followed by CPA firms enrolled in an AICPA
approved practice monitoring program
Addresses responsibilities for a firm’s system of quality
control for accounting and auditing practice
AICPA Code of Professional Conduct should be utilized
in conjunction with SQCS 8
Peer review focuses on compliance with QC standards
Peer reviewers will review a firm’s Quality Control
document that was in effect during the peer review
year.
1
Quality Control Standards – AU-C 220
•
A firm must establish a system of QC designed
to provide it with reasonable assurance that:
• The firm and its personnel comply with professional
standards and applicable regulatory and legal
requirements, and
• Reports issued are appropriate in the circumstances
•
A system of QC consists of:
• Policies designed to achieve these objectives and
• The procedures necessary to implement and
monitor compliance with those policies.
Required Elements of QC
•
QC system should include policies and
procedures for each of the following
elements:
•
•
•
•
•
•
Leadership Responsibilities for Quality Within the
Firm
Relevant Ethical Requirements
Acceptance and Continuance of Client Relationships
and Specific Engagements
Human Resources
Engagement Performance
Monitoring
Quality Control Standards – Yellow Book
•
•
Incorporates AU-C 220
• SQCS No. 8 – not included in YB
More stringent requirements than
AU-C 220
• Requirements
Documentation of QC policies and
procedures
• Communication of policies/procedures
• Compliance with policies/procedures
•
2
Common Audit Deficiencies
•
Government issues
• Opinion units
• MD&A
• Opinion units
• Defining the reporting entity
Common Audit Deficiencies
•
Reporting
• Independent Auditor’s Report
• Disclosures
Independent Auditor’s Report
•
•
•
•
Report should not be dated before obtaining sufficient,
appropriate evidence including obtaining management’s
representations
Re-date or dual-date the report if the report is reissued
as a result of additional disclosures or additional audit
procedures being performed that cause a re-issuance of
the report
Management responsibility documented
Comply with standards in wording communications
under AU-C Section 265-Communicating Internal Control
Related Matters Identified in an Audit
• Use appropriate definitions of control deficiencies,
significant deficiencies, and material weaknesses
3
Emphasis of Matter and Other
Matter Paragraphs (AU-C 706)
Emphasis of Matter
• Matters appropriately
presented or disclosed
Other Matter
• To understand audit matters
(Combining statements, SI,
RSI, SEFA)
10
Emphasis of Matter and Other
Matter Paragraphs (AU-C 706)
Emphasis of Matter
Going concern
Special purpose
frameworks except for
general use regulatory F/S
Consistency
Other Matter
Audit reports of prior periods
presented
Materially inconsistent other
information
In relation to opinion
RSI
Restricted use regulatory or
contractual F/S
In connection with compliance
reporting
Other Reporting Issues
•
•
Reports not updated for clarity
Items reported on as required supplementary
information (RSI) when financial statements
were presented on a cash basis
•
•
No RSI in a non-GAAP presentation
It would be considered supplementary information
(opinion in relation to the financial statements) or
other information (no assurance provided)
4
Disclosures
•
•
•
•
•
•
Outdated terminology
Component units
Debt Service
Long term liabilities
Deposits and investments
GASB disclosures
• GASB 54 fund balance descriptions
• Transfers
Documentation Requirements
•
AU-C 230 Generally Accepted
Auditing Standards
•
Yellow Book 4.15 – 4.16
Addressing Audit Quality:
Document Procedures Performed
•
•
The auditor should prepare audit documentation in
connection with each engagement in sufficient detail
to provide an experienced auditor with no previous
connection to the audit a clear understanding of the
work performed (including the nature, timing, extent
and results of audit procedures performed), the
audit evidence obtained and its source, and the
conclusions reached.
Oral explanations on their own do not represent
sufficient support for the work the auditor
performed or conclusions the auditor reached, but
they may be used by the auditor to clarify or explain
information contained in the audit documentation.
5
Documentation Requirements
•
•
•
•
•
•
•
Record identifying characteristics of items tested
Who performed the work and the date completed
Who reviewed the work and the date and extent of
the review
Inspection of contracts/agreements require that the
abstracts/copies of those be included in working
papers
Record report release date
Complete assembly of final audit files within 60 days
after report release date
No deletions after audit completion date; additions
to documentation must include explanation and date
Avoiding Audit Quality Issues
•
•
•
•
Obtain appropriate CPE each year
Join and use the resources provided by the
AICPA audit quality centers
Select an adequate cross-section of
governmental audits for Engagement Quality
Control Review
Use financial statement presentation and note
disclosure checklists
•
•
AICPA Peer Review checklists (free on website)
GFOA review checklists (free on website)
Common Characteristics of High
Quality Audits
•
Timely executive involvement
•
•
•
•
Tone at the top
Active engagement with auditee on key
accounting and auditing matters
On-site presence, including supervision and
review
Integration of any audit specialists
18
6
Common Characteristics of High
Quality Audits
•
•
Effective use of tools and checklists
Strong focus on auditing and
accounting matters
•
•
Challenging past approaches and conclusions
Engagement team expertise,
composition and workload
management
AICPA 6-Point Plan to Improve
Audit Quality
AICPA Practice Aid
7
Paula M. Kinnard, CPA, CFF
Arkansas Legislative Audit
paula.kinnard@arklegaudit.gov
8