Key factors correlate with quality in single audits

Performing a small number of specialized audits may lead to nonconformities, a study found.

A new study by the AICPA Peer Review team has revealed a set of factors that had a strong correlation with quality in single audits, which are compliance audits of governments, not-for-profits, institutions of higher education, and Indian tribes expending $750,000 or more in federal awards in a given year.

In the study, the Peer Review team randomly selected a sample of 87 single audits for "enhanced oversight" by subject-matter experts in public practice. The review showed that three factors had a strong correlation to quality performance in the sample:

  • Size of single audit practice. Firms that performed 11 or more single audits had a nonconformity rate of 15% in the study, compared with 49% for firms that perform two to 10 single audits each year and 62% for firms that perform one single audit annually.
  • Membership in the AICPA Governmental Audit Quality Center (GAQC). Fifty-eight percent of audits by firms that are not members of the GAQC were found to be nonconforming, compared with 32% nonconformity for audits by GAQC member firms. When considering firms that both performed 11 or more single audits in a year and were GAQC members, the nonconformity rate dropped to zero.
  • Qualifications of the engagement partner. Nonconformity decreased when engagement partners had six or more years of experience, and when engagement partners had taken nine or more hours of single-audit-specific CPE in the three years before the audit.

"After a careful review of the engagements in question, we have concluded that performing a small number of audits in a specialized area, such as single audits, regardless of firm size, is more likely to result in audit quality issues," James Brackens, CPA, CGMA, AICPA vice president—Ethics & Practice Quality, Public Accounting, said in a news release.

SPONSORED REPORT

Why cybercriminals are targeting CPAs

This free report expands on the most commonly found scams, why education and specialized IT knowledge help to lessen security vulnerabilities, and why every firm should plan carefully for how it would respond to a breach.

PODCAST

How tax reform — and Excel — are changing the CPA Exam

Mike Decker, the vice president of examinations at the AICPA, discusses changes being made to the exam as a result of tax reform — and about how Excel will now be available for use on the test.