The next area talks about quality control, and this is governed by SQCS, statements on
quality control standards, SCQS.
Basically, what we're looking at is, we�re saying within the firm, on all of their jobs,
we want certain controls.
So these are called the standards of quality controls.
So the same as quality control standards, SQCS.
It says, within the firm on all of the jobs, we want to make sure certain things are happening.
So, you�ll see that over here, quality control within the firm on all of their jobs.
So, within all the firm, all their jobs, we�re concerned, for example, with independence.
Now, we're also going to compare and contrast that with this, which is GAAS.
What is GAAS?
Generally Accepted Auditing Standards says, I�ll measure the quality of the auditor�s
work.
This is the auditor on each individual, on this one job, where they what?
Tippicanoe...T-I-P-P-I-C-A-N-O-E where they Tippicanoe.
So, within this company, within this one job, was a T-I-P-P-I-C-A-N-O-E.
General standards, standards of fieldwork, standards of reporting.
So here, what we're saying is, within the firm, on each job, are they trained?
On this one job, are they independent?
So here are they independent with regards to this one client versus do we have something
within the firm on all the jobs to make sure they are independent.
For example, when I worked at Deloitte, they would pass a sheet of paper around and say,
�Fill out what stock you own, your parents, your kids, your bros, your nephews, your uncles...fill
it out and let us know.
We want to make sure that you are in fact independent.� Now, here it says we want
to make sure you�re independent with respect to all the clients even if you're not on that
job.
This would be all the engagements within the firm, we want these quality control standards,
and, again, governed by SSQC, statements on standards for quality control...I'm sorry...S-Q,
Statements for Quality Control Standards, SQCS, statements for quality control standards.
That�s what we're looking at within the firm on all of the jobs.
Here, on this one job, you the auditor, are you trained with respect to the client?
Independent with respect to this one client?
Act with skill?
Planning, internal control, corroborative evidence, accordance, no new principles...expressing
an opinion on this one client.
So that the real difference.
So a good way to remember this is I need you H-E-A-L-M-E.
Heal me, right?
Oh, yeah-us, I say heal!
There you go!
I can hear reform in my ear drum!
Heal me!
Alright, what does heal me stand for?
The first one is human resources.
In other words, HR.
Personnel management.
We want to make sure they have standard setup for hiring, for development, for assignment,
for advancement of staff, that�s your HR, human resources.
Ethical requirements.
We want to make sure that they have standard setup.
They go out and they make sure that everybody is in fact independent with respect to the
client that they're working with.
Says here the firm should establish procedures to ensure the independence is maintained at
attestation engagements and that there is appropriate means for identifying potential
independence, a lack of independence.
The purpose is to ensure that the firm will always be able to act with integrity and objectivity.
So we want to make sure they�re acting with integrity, they�re objective within the
firm versus, remember independence over here said independence means to act with integrity
and objectivity with respect to this one client.
Here, it�s on all the jobs whether you're on the job or not.
Acceptance and continuance of clients� relationships and so on.
When you take on a new client, make sure they have integrity.
Make sure it's someone you want to be associated with.
Leadership responsibilities for quality within the firm.
What is the tone at the top?
The leadership?
What is the hierarchy?
Monitoring to make sure we're adhering to the other standards, and engagement performance
says make sure we're adhering to all the professional standards within the firm.
Now, this is called quality control.
We used to do our own peer reviews, where one big firm went and reviewed the work in
another big firm to make sure we're adhering to Tippicanoe but also our quality control
standards.
Now, under Sarbanes-Oxley, we�ll learn later in the chapter that basically we have to have
a review done, a peer review, by the PCOB, part of the SEC.
If you do over a hundred or more audits, every year, if not, every three years and they're
basically doing the peer reviews, the quality control standards, things that we used to
do our own, because years ago, we kind of policed ourselves, and then after Arthur Anderson,
ENRON, that�s when the PCOB said, �You know, we need someone to look over your shoulder.�
So you'll see here it says, �Quality control standards complement those that are applied
primarily at the individual level, such as code of conduct.
Each firm is different.
The specific procedures depend on the size of the firm, the nature of the practice, the
organizational structure and the cost-benefit consideration.� So, those are all things
that were concerned with...cost-benefit, the nature, the size all of that will affect all
of the different policies and procedures we�re going to do under quality control.
So with quality control, QC, governed by SQCS, Statements on Quality Control Standards, boy,
did I have trouble with that.
But, again, what is your mnemonic?
HEAL ME.
But I want you to understand the comparison and contrast, compare and contrast between,
this is within the firm on all the jobs, even if you're not working on that job.
Here, the auditor on this one job that you are auditing with the client needed to be
Tippicanoe.
Okay?
Dude, you need to Tippicanoe.
Mmm hmm.
Alright, let's look at a question.
It says, �The nature,� number 14, �the nature and extent of a CPA firm�s quality
control policies and procedures depend on what?� What does it depend upon?
The size the firm?
Mmm hmm.
The nature?
Mmm hmm.
Cost-benefit?
Mmm hmm.
Yes, yes, yes.
So it really relates to all of them as you will see there.
That is quality control.
Okay, now, very important, I also want you to practice the simulations.
Alright?
If you're in live class, make sure you go home, log on to your student account.
I'm going to spend some time walking through the problems, so make sure you do those.
Alright?
And we'll do some problems in just a minute.