A new approach to practice monitoring for the future aims to deter and prevent quality issues in accounting, auditing, and attestation engagements with the help of a new technological tool being created for peer reviewers and firms.
The AICPA is developing a concept for the future of practice monitoring as part of its Enhancing Audit Quality initiative. The AICPA on Monday released a concept paper describing a vision for the future of practice monitoring and is seeking feedback on that vision.
Under the concept that the Institute is crafting, peer reviewers and firms would use a new practice-monitoring technology platform—which has yet to be developed—to expand the benefits of the current peer-review program while embracing technological innovation, risk management, and timely, transparent results.
The new approach and technology would enable firms to monitor themselves and see if they are meeting quality targets. In addition, peer reviewers who evaluate the quality of accounting, auditing, and attestation engagements would be able to conduct more comprehensive analyses and provide more timely feedback.
“Peer review is at the heart of the profession’s commitment to enhancing the quality of accounting and auditing services. It has evolved over the course of 35 years to ably serve the profession and the public,” AICPA President and CEO Barry Melancon, CPA, CGMA, said in a news release. “The concept paper, provocative by design, presents a significant leap forward in practice monitoring. It challenges the profession and its stakeholders to imagine a more timely and transparent process that offers insights into quality, in some instances even before an engagement is completed.”
The concept for peer review will change and evolve as a result of feedback, but the principles of the vision call for audit effectiveness to be enhanced by:
- Highlighting potential quality risk indicators and detecting engagement issues earlier.
- Reviewing all firms that perform accounting, auditing, and attestation engagements.
- Monitoring all engagements subject to review.
As currently envisioned, five activities would form the basis of practice monitoring:
- Continuous analytical evaluation of engagement performance.
- Human review when system-identified concerns are raised.
- Involvement of external monitors when necessary.
- Periodic inspection of system integrity.
- Oversight of the system’s operating effectiveness.
A self-monitoring tool is being developed based on some of the principles. The tool will be pilot-tested by a select, voluntary group of small, medium, and large firms.
That tool, after modification based on the pilot, will provide the basis for a more permanent program that would apply to all firms in the future.
The new model would provide potential and existing clients, users of financial statements, regulators, and others a means to understand the quality of a firm’s services. Meanwhile, internal users would be able to monitor, via a dashboard, the status of the firm’s engagement activities and compliance with metrics pertaining to the areas that are subject to monitoring.
The current concept calls for cumulative results of engagement quality indicators to generate ratings that would display for firm management and external stakeholders the firm’s participation in the program, the extent of services, and certain performance metrics.
—Ken Tysiac ( firstname.lastname@example.org ) is a JofA editorial director.