Rodriguez, Zyra Denelle M.

A-331 AAPRINCIPLES

QUALITY CONTROLS

1. What are the elements of a System of Quality Control? Identify and explain

each.

According to the American Institute of Certified Public Accountants (2015), a firm

must have a system of quality control and that system includes the policies and the

procedures that address each of the system of quality control elements. The most

effective regulation is the regulation within the firm for the firm can easily take actions to

solve problems (Cabrera, M. & Cabrera, G., 2020). These elements are the following:

1.1 Leadership Responsibilities for Quality Within the Firm

Also referred to as the “Tone at the Top”, its main purpose is to

instill the importance quality during or when performing engagements. It

aims to promote a culture of quality within the firm. The firm must establish

certain policies and procedures in order to achieve this goal like requiring

the firm’s leaders such as managing partners, board of managing

partners, or the CEO to handle the responsibility of promoting quality. The

firm must also provide assurance to its employees that the assigned

personnel has enough experience and is capable of identifying and

solving the quality control issues of the firm (American Institute of Certified

Public Accountants, 2015).

The firm must perform in accordance to standards and issue the

needed reports that are appropriate in the situations. It must commend

high quality work made by the personnel. The importance of the policies
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may be communicated through seminars, meetings, or memorandums. In

order to maintain the policies and procedures of the firm for quality

engagements, it must assign management responsibilities in a way that

commercial considerations or anything that is of value do not overrule the

quality control of the work being performed. The firm must design certain

policies that address personnel’s performance evaluation, compensation,

and advancement to help demonstrate the commitment of the firm to

quality control. Also, the firm must give sufficient resources in order to

develop and communicate its quality control system policies and

procedures to its employees (Cabrera, M. & Cabrera, G., 2020).

1.2 Ethical Requirements

The main purpose of the relevant Ethical Requirements is to

provide an assurance to the firm that its personnel are complying with the

required ethical criteria when they are doing their professional

responsibilities. The ethical requirements, includes independence,

integrity, objectivity, professional competence and due care,

confidentiality, and professional behavior, must be observed during

engagements.

The firm must establish certain policies to achieve its purpose like

requiring its personnel to follow the ethical criteria of organizations like the

Board of Accountancy and other regulators, establishing or creating

Rodriguez, Zyra Denelle M. A-331 AAPRINCIPLES

procedures to communicate these requirements to the personnel,

establishing or creating procedures to identify and solve the possible

ethical threat to the firm by taking the appropriate actions to eliminate the

threat, add a requirement to withdraw from certain engagements that may

be a threat to the firms independence, require reports signifying the

compliance of the personnel to the firm’s policies, establish or create

procedures that may confirm the independence of the firm or its personnel

performing engagements, and establish and require rotations during

audits and attestations just like what is required by the regulators

(Cabrera, M. & Cabrera, G., 2020).

1.3 Acceptance and Continuance of Client Relationships and Specific

Engagements

The main purpose of this element is to address the firm’s clients

and to establish a certain criteria in deciding on whether to accept a client

and perform specific services or to continue the client relationship which is

a very important element in mitigating litigation and controlling business

risk. In the policies that the firm will establish regarding the acceptance

and continuance of client relationship it must be noted that the firm must

only accept those with assurance that the firm may be able to perform

services where it: is competent and has the time and resources in

performing the engagement services; comply with the ethical

requirements; has considered the integrity of the client and will not do
Rodriguez, Zyra Denelle M. A-331 AAPRINCIPLES

actions that may claim that the client lacks integrity; and is with an

understanding with the client regarding the services that will be performed.

The firm must establish certain policies and procedures to obtain

such assurance, actions that may help the firm in doing so includes

activities such as evaluating the factors and identifying the risk in providing

services to the client, assessing or evaluating on whether the firm will be

able to completely perform the services with professional competence,

obtaining an understanding between the firm and the client regarding the

services that will be performed, establish or create procedures regarding

the continuance of client relationship specifying actions on dealing with

information that may cause the firm to decline an engagement with the

client, and requiring a document stating how the issues experience by the

firm and the client are resolved (American Institute of Certified Public

Accountants, 2015).

1.4 Human Resources

The main purpose of the Human Resource element is to provide

assurance to the firm that it has enough and capable personnel that will

perform engagements according to the standards and regulations and to

give appropriate reports on appropriate circumstances. These personnel

must competent and committed to following the necessary ethical

principles during engagements.

Rodriguez, Zyra Denelle M. A-331 AAPRINCIPLES

In order to obtain the assurance that such personnel have the

needed characteristics, the firms must hire only personnel that possess

the needed characteristics, determine the capabilities of the personnel to

find what kind of services they are excelling, determine personnel

capabilities and competencies, assign a specific responsibility to a specific

engaging partner, assign the personnel depending on their knowledge and

skills and depending on the circumstances and nature of the service to be

performed, require the personnel to participate on continuing professional

development activities to satisfy requirements and improve their skills and

experiences, and select only individuals who have the qualifications

necessary to handle and face the responsibility that will be given upon

them (American Institute of Certified Public Accountants, 2015).

The firm’s policies and procedures address the company’s

personnel issues like recruitment, performance evaluation, capabilities,

competence, promotion, career development, compensation, and

estimation of the needs of the personnel. The various ways to develop the

skills and capabilities of the personnel are through professional education,

continuing professional development, work experience, and coaching from

a more experienced staff (Cabrera, M. & Cabrera, G., 2020).

1.5 Engagement Performance

The main purpose of this element is to ensure the firm that all

services provided is in accordance to the standards and regulations and

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that the firm issues reports in that are appropriate to the circumstances.

The policies and procedures must address all the stages or points in the

procedures of the engagement including the performance in the

engagement, the supervision responsibilities, and the review

responsibilities. The policies must establish a certain criteria to be used

against all the engagements to ensure whether a quality control review is

needed.

The policies that will enable the firm to achieve assurance in the

Engagement Performance include: planning all the engagements to meet

the requirements to the regulations and the firm’s policies; perform the

needed service, issue the reports, and communicate according to

standards and regulations; require that the work of the other team

members be evaluated and reviewed on a timely basis; require the team

assigned to the engagement to complete assembling the final

engagement files on a timely basis, establish or create procedures

regarding the maintenance of the engagement documents ensuring their

confidentiality; require the retention of the engagement documents for a

certain period of time for the needs of the firm, the regulations and

standards, and laws; require that consultation is done only when

appropriate, resources are sufficient, everything is documented, and the

conclusion is made as a result of the consultations; require that

documentation is needed when there is a difference in opinion and that a

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report will not be released until the matter on hand is resolved (American

Institute of Certified Public Accountants, 2015).

1.6 Monitoring

The purpose of the Monitoring element is to ensure the firm and its

partners that the system of quality control of the firm are in compliance in

performing their services, and that they are adequate and effective. In

Monitoring, the system is evaluated on whether it is adhered in

accordance to professional standards, whether it is effectively

implemented, and whether it is complied with.

In achieving this assurance, the firm must assign the responsibility

of monitoring to certain personnel with authority, with appropriate

experience, and competence, require that monitoring is done

comprehensively, the personnel must communicate at least on an annual

basis the deficiencies in order to take actions, establish certain procedures

to deal with issues such as complaints and allegations that the firm failed

to comply to the standards and the firm’s quality control and the

deficiencies in the firm’s system of quality control, require documentation

and retention of such documents (American Institute of Certified Public

Accountants, 2015).
Rodriguez, Zyra Denelle M. A-331 AAPRINCIPLES

2. Why is each element of a System of Quality Control significant to

achievement of such effective system? Explain per element.

Each of the elements mentioned above is important for the firm.

Leadership Responsibilities for Quality within the Firm is significant to help

communicate in the whole firm that quality control is very important. It is

important that leaders must be capable as they are responsible in ensuring that

the aim of the firm to promote quality is being practiced by the whole firm.

Relevant and Ethical Requirements is important to ensure that during times of

distress the personnel of the firm still maintains its professionalism. It is also

important to ensure that the firm and its personnel are following the ethical

criteria of the regulations and standards. Acceptance and Continuance of Client

Relationships and Specific Engagements is important to ensure that all services

performed by the firm during engagements is done with integrity and compliance

to ethical requirements. It is important to help the firm comply with the

requirements of the boards, to have a stable relationship with clients, and to

maintain integrity and competence. Human Resources is significant to achieve

high quality work. Having competent workers will ensure competent work results

that will be beneficial to the firm and will ensure that the personnel are following

the necessary procedures and ethical requirements. Engagement Performance is

important to deliver high quality audits and to provide an informed opinion

regarding the engagements assuring that procedures are followed accordingly.

Monitoring is significant for the firm to find their inefficiencies and find appropriate
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ways in order to solve such risk in the firm. The firm will benefit with the

monitoring to make changes as soon as possible to minimize the potential risk it

may cause that may harm the firm (ICAEW Audit and Assurance Faculty, 2010).

Leadership Responsibilities for Quality within the Firm to identify the

influencers, Relevant and Ethical Requirements to identify what is right,

Acceptance and Continuance of Client Relationships and Specific Engagements

to identify who to perform services, Human Resources to identify competent

workers, Engagement Performance to identify if such workers perform right,

Monitoring to identify if all is working efficiently and effectively. All of these

element work together, without one of the elements it can be said that such

system is not effective.

3. Why do we need a system of quality control for the firm?

Effective quality control systems will enable firms to ensure that all

accounting and auditing practices done by the firm is observed in accordance

with the regulations and standards. Quality control improves the firm’s decision

making to make optimal performances in the services they perform. It helps the

firm to enhance integrity, forecast future problems, and make changes for further

improvement (Peoria, 2009).

It benefits the firm by: improving the firms internal communication;

reducing the time that is lost in reworking inefficient practices; identifying

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problems earlier; reducing the firm’s risk of litigation; retaining good clients; and

having more confidence that the company controls are working in place and that

the risk of having an error is minimized. Aside from the firm itself, there are also

other beneficiaries of having a system of quality control. Clients are assured that

firms perform high quality service and reliability regarding the services is

increased. It also helps the accounting profession in assisting the work of other

accounting service providers, helps in strengthening the quality control of the

firms which also improves the quality control of the profession in general, and

maintaining a confidence to the public that firms in the profession are performing

services with quality assurance (New Zealand Institute of Chartered Accountants,

2019).
Rodriguez, Zyra Denelle M. A-331 AAPRINCIPLES

References

American Institute of Certified Public Accountants (2015). Establishing a System of

Quality Control for a CPA Firm’s Accounting and Auditing Practice-Firm with a

Single Office. https://www.aicpa.org/interestare-

as/frc/downloadabledocuments/eaqpa/practice_aid-single_office_firm.pdf

Cabrera, M.E.B. & Cabrera, G.A.B. (2020). Principles of Auditing and Assurance

Services (2020-2021 ed.). GIC Enterprise & Co., Inc

ICAEW Audit and Assurance Faculty (2010). Quality Control in the Audit Environment.

https://www.icaew.com/-/media/corporate/files/technical/audit-and-

assurance/practical-help/quality-control/publications-and-learning-

material/quality-control-in-the-audit-enviroment-2010.ashx?la=en

New Zealand Institute of Chartered Accountants (2019). PS-1 Quality Control.

https://www.charteredaccountantsanz.com/-/media/826d310c3ce7442fb81e3766

cd6ea9ad.ashx

Peoria (2009). Quality Control in Accounting.

https://www.peoriamagazines.com/ibi/2009/jul/quality-control-accounting