SYSTEM OF QUALITY CONTROL DOCUMENTATION AND INSPECTION FORM
OBJECTIVES: To describe the firm’s approach to establishing, implementing, and maintaining a
system of quality control over its accounting and auditing practice; and to document the performance
of inspection-related monitoring activities performed pursuant to that system.
INSTRUCTIONS: This form is separated into 3 sections:
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Section 1 – Description of the Firm and its Accounting and Auditing Practice
Section 2 – Description of the Firm’s Quality Control System Elements
Section 3 – Inspection Scope, Procedures, and Results
Sections 1 and 2 should be completed by the individual(s) within the firm that has been assigned the
responsibility for monitoring quality control. The description column of these two sections may be
completed by either (1) writing a narrative description in the column or (2) by referencing other
documentation such as a quality control manual or other form of documented policies and
procedures. For small firms, Sections 1 and 2 may serve as the firm’s documentation of its system of
quality control.
Section 3 should be completed by the individual performing the inspection procedures and should
include an identification of the scope of the inspection and engagements reviewed, the monitoring
procedures performed, conclusions as to system effectiveness of design and operation, and the
resulting findings and recommendations. The inspection findings and recommendations should be
shared with firm staff and a corrective action plan developed and agreed to.
SECTION 1 – Description of the Firm and Its Accounting and Auditing Practice
Description
Firm Name
Office Location (s)
Year Firm Established
Names of Partners, Owners, Shareholders
(and number of years with the firm)
Number of Employees
(professional/clerical)
Nature of Accounting and Auditing
Practice
Industry Concentration
General Description of Firm Environment
and Operations
SECTION 2 – Description of the Firm’s Quality Control System Elements
SQC Requirement
Documentation and Communication:
The firm should document and communicate its quality
control policies and procedures and the objectives they
are designed to achieve to its personnel. (SQCS-7, par.
12-13)
The firm should have policies and procedures that
require documentation of evidence of the operation of
each element of its quality control system, including
the use of electronic databases or documents, manual
notes, checklists and forms. (SQCS-7, par. 125-126)
The firm should have policies and procedures that
require retention of quality control evidence
documentation for a period of time sufficient to permit
reviewers and those performing monitoring activities to
evaluate the firm’s compliance with quality control
system requirements, or a longer period if required by
law or regulation. (SQCS-7, par. 127)
Leadership Responsibilities:
The firm should have policies and procedures that
promote and support an internal culture of quality.
(SQCS-7, par. 15)
Firm leadership should assume the ultimate
responsibility for the firm’s system of quality control.
(SQCS-7, par. 15-18)
Relevant Ethical Requirements:
The firm should have policies and procedures to
provide it reasonable assurance of complying with the
AICPA Code of Professional Conduct and other
relevant ethical requirements. (SQCS-7, par. 19)
The firm should have specific policies and procedures
to provide reasonable assurance of complying with the
independence requirements set forth in the AICPA
Code and the rules of state boards of accountancy and
any other regulatory agencies. (SQCS-7, par. 21)
The firm should have sufficient policies and procedures
to identify threats to independence and apply
safeguards to mitigate such threats when the Code of
Conduct does not address the specific matter. (SQCS-7,
par. 21-.22)
The firm should have policies and procedures to
provide for notification of independence requirement
breaches and for addressing and resolving such
breaches. (SQCS-7, par. 23)
At least annually, the firm should obtain written
confirmation of firm personnel in regards to
compliance with applicable independence
requirements. (SQCS-7, par. 24-26)
Description of How Requirement is Met
SQC Requirement
Description of How Requirement is Met
Acceptance and Continuance of Client Relationships and Specific Engagements:
The firm should have policies and procedures to
provide reasonable assurance it will undertake or
continue relationships and engagements only when the
firm (1) considered the risks associated with
management integrity and providing the services, (2) is
competent to perform the engagement and has the
needed resources, and (3) can comply with the legal
and ethical requirements. (SQCS-7, par. 27)
The firm should have policies and procedures to
document the understanding of the engagement with
the client in order to minimize any misunderstanding
regarding the services. (SQCS-7, par. 28)
The firm should document the identification of issues
surrounding acceptance or continuance and how any
issues of concern were resolved. (SQCS-7, par. 29-34)
The firm should have policies and procedures that
provide guidance on withdrawal from an engagement
or client relationship, and the documentation of the
issues, consultations, conclusions, and basis for
conclusions related to such decisions. (SQCS-7, par.
35-36)
Human Resources:
The firm should have policies and procedures to
provide reasonable assurance that is has sufficient
personnel with the capabilities, competence and
commitment to ethics needed to perform the
engagements timely, in accordance with professional
standards, and that result in appropriate reports under
the circumstances. (SQCS-7, par. 37-41)
The firm should have policies and procedures to ensure
the engagement partner possesses sufficient
competencies and experience to fulfill engagement
leadership responsibilities. (SQCS-7, par. 42-45)
The firm should have policies and procedures to ensure
that appropriate staff is assigned to engagements,
sufficient resources are made available for the
engagements, and appropriate level of supervision is
provided. (SQCS-7, par. 49-53)
The firm should have policies and procedures to ensure
the professional personnel meet applicable continuing
professional education requirements. (SQCS-7, par. 54)
The firm’s policies and procedures should provide for
periodic performance evaluations and should ensure
that personnel selected for advancement have the
qualifications to fulfill the responsibilities they will be
called upon to assume. (SQCS-7, par. 55-56)
Engagement Performance:
The firm should have policies and procedures to
SQC Requirement
provide reasonable assurance that engagements are
consistently performed in accordance with applicable
professional standards and any regulatory or legal
requirements, including sufficient engagement review
and assembly of final engagement files on a timely
basis. This could be accomplished through the use of
written or electronic manuals, software tools, or other
industry or standardized documentation or materials.
(SQCS-7, par. 57-62)
The firm should have policies and procedures to
maintain the confidentiality, safe custody, integrity,
accessibility, and retrievability of engagement
documentation. (SQCS-7, par. 63-68)
The firm should have policies and procedures for the
retention of engagement documentation that meet
applicable professional standards, laws and regulations.
(SQCS-7, par. 69-71)
The firm should have policies and procedures to
document when consultation should take place, to
ensure that all facts are provided to those consulted and
the nature and scope of the consultation is understood,
and that consultation conclusions are documented.
(SQCS-7, par. 72-77)
The firm should have policies and procedures dealing
with and resolving differences of opinion within the
engagement team, those consulted, and any
engagement reviewers. The policies and procedures
should provide for documentation of the issues and the
conclusion reached, and reports should not be issued
until the matter is resolved. (SQCS-7, par. 78-79)
The firm should have policies and procedures that
establish criteria under which all engagements are to be
evaluated to determine whether an engagement quality
control review should be performed; and if an
engagement meets that criteria, an engagement review
if performed prior to report release. (SQCS-7, par. 8084)
The firm should have policies and procedures that any
engagement quality control reviews performed include
at least the following: (1) an objective evaluation of
significant judgments made by the engagement team
and the conclusions reached in formulating the report,
(2) a reading of the financial statements or other
subject matter information, (3) a reading of the
auditor’s report and consideration as to whether it is
appropriate for the circumstances, (4) a review of
selected engagement documentation related to the
significant judgments and conclusions reached, and (5)
a discussion with the engagement partner regarding
significant findings and issues . (SQCS-7, par. 85-91)
The firm should have policies and procedures to ensure
any engagement quality control reviewers meet the
Description of How Requirement is Met
SQC Requirement
criteria for eligibility to be a reviewer, including: (1)
was not a member of the engagement team, (2) has
appropriate technical qualifications and expertise, and
(3) can maintain appropriate objectivity and
independence in regards to the engagement reviewed.
(SQCS-7, par.92-98)
The firm should have policies and procedures to
provide for appropriate documentation of engagement
quality control reviews, including documentation of the
required review procedures performed, the completion
of the review prior to report release, and an appropriate
conclusion by the reviewer indicating no unresolved
matters. (SQCS-7, par. 99)
Monitoring:
The firm should have policies and procedures to
provide reasonable assurance that the system of quality
control are relevant, adequate, operating effectively,
and complied with in practice, through a combination
of: (1) on-going monitoring activities such as
engagement quality control reviews, (2) postissuance
engagement reviews, and (3) periodic inspections.
(SQCS-7, par. 100-110)
The firm should have policies and procedures to
address any deficiencies identified in monitoring
activities and develop prompt corrective or remedial
action to address them. (SQCS-7, par. 111-115)
At least annually, the firm should document and
communicate the results of quality control system
monitoring activities to engagement partners and other
appropriate individuals within the firm. Such
documentation and communication should include: (1)
the monitoring procedures performed (including the
procedure for selecting engagements inspected), (2) the
conclusions drawn from the monitoring as to
compliance with professional standards and operating
effectiveness of quality control system, and (3)
description of any deficiencies identified and actions
planned or taken to address them. (SQCS-7, par. 116118)
The firm should have policies and procedures to
provide reasonable assurance that the firm documents
and deals with (1) complaints or allegations of
noncompliance with professional standards or
legal/regulatory requirements, (2) noncompliance with
the firm’s quality control system policies and
procedures, and (3) deficiencies identified in following
up on complaints and allegations. (SQVS-7, par. 120124)
Description of How Requirement is Met
SECTION 3 – Inspection Scope, Procedures, and Results
Inspection Scope
Period Covered by Inspection
Reviewer
Date of Inspection
Types and Number of Engagements Performed
During Inspection Period
Basis for Selection of Engagements to be Inspected
Engagements Selected for Inspection
Procedures Performed
1. Reviewed the firm’s documentation of quality
control system policies and procedures as
described in Section 2 above to identify any
deficiencies in system design.
2. Obtained and reviewed the current licenses of the
firm and applicable state board registrations to
determine they were current and in compliance
with applicable laws and regulations.
3. Interviewed firm partners and selected staff to
access level of knowledge and understanding of
the quality control policies and procedures, and
their perceptions of the firm leadership’s
commitment to ethics and adherence to
professional standards and overall tone at the top.
4. Obtained and reviewed a copy of the firm’s
policies and procedures regarding independence
and compliance with the other Code of Conduct
requirements, and inquired about any situations
where independence or any other ethical concerns
were raised in regards to an engagement or activity
during the inspection period. For any such
situations identified, the final resolution by the
firm was evaluated as to appropriateness.
5. Obtained and reviewed engagement-specific or
annual written independence representations of
selected firm personnel for compliance with
professional standards and firm policies.
6. Inquired of any circumstances during the
inspection period that posed unusual or difficult
engagement acceptance, continuation, or
withdrawal decisions, and evaluated the
appropriateness of the firm’s decision in any such
circumstances.
7. For engagements selected for inspection, the
documentation of the engagement acceptance or
continuance was reviewed for completeness and
Results
Procedures Performed
appropriateness of conclusions.
8. Selected a sample of firm personnel and reviewed
their personnel files and conducted interviews with
them to assess their qualifications, and obtain their
perceptions on the adequacy of training and
supervision in regards to their assignments and
responsibilities.
9. Selected a sample of employee continuing
professional education forms and reviewed them
for adequacy of type of training and compliance
with professional standards, laws, and regulations.
10. Obtained and reviewed a sample of employee
performance evaluations and interviewed the
employee in regards to the evaluation results and
process.
11. Inquired as to any personnel terminations during
the inspection period and ascertained the basis for
the termination. Any issues involving unresolved
disagreements, allegations of noncompliance with
code of conduct requirements or noncompliance
with firm policies were further investigated.
12. For engagements selected for inspection, the
assignment of the engagement team was evaluated
to determine whether appropriate staff resources
and competencies were assigned, and appropriate
supervision was provided.
13. Examined the firm library, including access to
electronic resources, to assess the completeness
and current status of the research materials.
14. Engagements selected for inspection were
reviewed for compliance with professional
standards and firm policies, including: (1) a
reading of the financial statements or other subject
matter information, (2) a reading of the auditor’s
report and consideration as to whether it is
appropriate for the circumstances, and (3) a review
of selected engagement documentation related to
the significant judgments and conclusions reached.
15. Based on the engagements selected for review and
from inquired of firm personnel, any situations
where consultation was considered necessary were
identified. Selected consultation results were
reviewed for appropriate documentation, advice,
and resolution.
16. Through observation, compliance with the firm’s
policies relating to confidentiality, custody, access,
and retention of engagement documentation was
evaluated.
17. For engagements that met the firm’s criteria for
engagement quality control reviews, a sample of
the reports from such reviews was obtained and
evaluated for compliance with firm policies for
such reviews. Also, for the engagements selected
for inspection, an assessment was made as to
Results
Procedures Performed
Results
whether that engagement met the criteria for an
engagement quality control review, and, if so,
whether such a review was performed.
18. For the engagements selected for inspection, the
engagement documentation was reviewed to
determine whether any differences of opinion
existed, and if so, whether they were appropriately
documented and resolved.
19. Inquiries were made and any correspondence
reviewed regarding any complaints or allegations
made against the firm in regards to noncompliance
with professional standards, laws, regulations, or
firm policies. Any such indications were further
evaluated as to action taken by the firm and final
resolution.
20. Inquiries were made, along with a review of
documents, in regards to monitoring activities,
including prior annual inspections. The results and
findings from those monitoring activities were
reviewed. Any significant findings or deficiencies
from those activities were evaluated as to the
sufficiency of the corrective action taken.
Reviewer’s Conclusions:
Did the inspection results indicate adherence to
professional standards and applicable regulatory and
legal requirements?
Did the inspection results indicate the firm’s system of
quality control was appropriately designed and
effectively implemented?
Did the inspection results indicate the firm’s quality
control policies and procedures were operating
effectively, so that the appropriate reports were issued
in the circumstances?
Reviewer’s Recommendations:
Finding
Reviewer Signature:
Firm QC Partner Signature:
Recommendation
Firm’s Response and Corrective
Action Plan
Date:
Date: