A new report by the American Institute of CPAs (AICPA) highlights the past year’s progress in the continuing effort to enhance audit quality. The publication outlines key accomplishments in the areas of peer review, audit documentation, single audits, employee benefit plan audits and quality control. It also addresses changing talent needs with sections dedicated to the Uniform CPA Examination and Valuation credentials.
The Enhancing Audit Quality (EAQ) initiative, launched in 2014, aligns all AICPA audit- and assurance-related activities with the goal of supporting firms’ quality improvement.
“EAQ is a holistic effort to improve audit quality in an increasingly complex business and regulatory environment,” said Susan S. Coffey, CPA, CGMA, AICPA executive vice president for public practice. “Through this initiative, the AICPA uses a data-driven approach to identify trends in audit quality and address those trends through targeted action.”
This year’s key accomplishments include:
- Peer Review: The AICPA Peer Review Board implemented a variety of reforms throughout 2016 and 2017 that require reviewers to meet additional qualifications and that expedite the process for remediating and, where necessary, removing reviewers and firms who are unwilling or unable to perform. This has led to better performance, improved detection of compliance with professional standards and more effective remediation for reviewed firms.
- Audit Documentation: The most common quality issue identified through the peer review process was inadequate or no audit documentation. As a result, the AICPA developed an awareness campaign that includes a documentation toolkit. The response has been significant, with more than ten thousand page-views to the toolkit and more than 4,500 downloads of the documentation resources in its first six months.
- Single Audits: The AICPA studied a random sample of single audits and identified three key factors that strongly correlated to quality performance: the number of single audits a firm performed annually (regardless of firm size), qualifications of a firm’s engagement partner, and membership in the Governmental Audit Quality Center. The AICPA raised awareness of these factors and shared free single audit tools through communications to auditors and auditees from the Federal Audit Clearinghouse.
- Employee Benefit Plan Audits: The AICPA Employee Benefit Plan Expert Panel and Employee Benefit Plan Audit Quality Center (EBPAQC) Executive Committee brought to the Financial Accounting Standards Board’s (FASB) attention the need for employee benefit plan (EBP) reporting simplification. As a result, the FASB issued a new accounting standard to simplify EBP reporting. The EBPAQC has developed webcasts and tools to assist with implementation and audit planning.
- Quality Control: The AICPA is collaborating with the International Auditing and Assurance Standards Board on a quality control project, which may lead to revisions to the AICPA’s quality control standards. Additionally, the AICPA created a free “Invigorate the Focus on Quality” toolkit to help firms with their quality control systems.
- Updated Uniform CPA Examination: An updated exam, released on April 1, focuses on the candidate’s higher-order skills, including the application of professional skepticism and judgement.
- Valuation Credentials: To address the need for increased competence and improved quality, consistency and transparency in the performance of fair value measurements, the AICPA launched the new Certified in Entity and Intangible Valuations™ (CEIV™) credential and Mandatory Performance Framework for CPAs and finance professionals. CEIV credential holders will follow the new framework, which defines how much work is necessary to provide supportable and auditable fair value measurements for financial reporting.
“Enhancing Audit Quality is a strategic, comprehensive commitment by the AICPA and the CPA profession to promote quality services. Through this long-term initiative, the AICPA is guiding the profession through continuous, steady quality improvement that will lead to enhanced performance over time,” the report concludes. “And as EAQ supports auditors in their goal of improved audit quality, those auditors will in turn be able to support small business owners, investors, the public and more with valuable, trusted services.”