Quality Assurance Process Manual

Quality Assurance Process Manual

(for Sole Proprietor)

QUALITY ASSURANCE PROCESS MANUAL

FOR

SOLE PROPRIETOR CPA

INTRODUCTION

This manual contains a system of quality assurance policies and procedures which is specially designed for _(sole proprietor CPA) and her personnel as a guide and a reference manual in the performance of her audit practice. While ______is a single practitioner, she also employs several audit and administrative personnel who assist her in the performance of her professional practice. Thus, this manual also contains policies and procedures covering the personnel management / administration. This manual is comprehensive and suitably designed to be responsive to the changing environment in accordance with the standardsestablished by the governing bodies of audit practice such as the Auditing Standards Council, Board of Accountancy and Securities Exchange Commission, etc.

The objective of a detailed quality assurance manual is to provide THE SOLE PROPRIETORand her personnel (referred to as the FIRM in this manual) with a reasonable assurance that it complieswith THE SOLE PROPRIETOR’s standards of quality in conjunction with applicable professional standards of quality. In line with this objective, this manual contains a system of policies and procedures that address the major elements of quality assurance as follows:

I.)Leadership responsibilities for quality within the firm

II.)Ethical Requirements

III.)Acceptance and Continuance of Client Relationship and specific engagements

IV.)Human Resources

V.)Engagement Performance

VI.)Monitoring

These elements are interrelated. For a firm to establish and maintain independence, integrity and objectivity, it must continually assess client relationships that affect policies and procedures related to the acceptance and continuance of clients and engagements. Similarly, the personnel management element of quality assurance encompasses criteria related to professional development, hiring, advancement and assignment of firm’s personnel to engagements, which all affect policies and procedures related to engagement performance. In addition, policies and procedures related to the monitoring element enable a firm to evaluate whether its policies and procedures for each of the other five elements of quality assurance and control are suitably designed and effectively applied.

THE SOLE PROPRIETOR and staff shall then endeavor to practice the accountancy profession by strictly adhering to the policies and procedures set forth in this manual.

I.LEADERSHIP RESPONSIBILITIES FOR QUALITY WITHIN THE FIRM

1)The business and affairs of the Firm is managed under the direct supervision of THE SOLE PROPRIETOR, who represents the Firm being the sole proprietor. As a manager of the Firm, ______shall assume full responsibility for the decisions and actions the Firm may take in the course of its functions, and to live up to the consequences that flow from them including submitting oneself to quality review appropriate to her office. Her basic responsibility is to exercise sound business judgment and to act in what she reasonably believe to be the best interest of the firm.

2.As part of her responsibility and function, The SOLE PROPRIETORshall see to it that all the elements of quality assurance embodied in this manual are effectively implemented and properly adhered to.

3.As the manager, theSOLE PROPRIETORis entirely responsible for setting a tone for the organization that stressesthe importance of ethical values, especially as they pertain to accounting and auditing engagements,and communicates related policies and procedures to firm personnel.

4.TheSOLE PROPRIETOR shall be the designated quality assurance officer to review relevant pronouncements relating to independence, integrity, and objectivity, answer questions, and resolve matters.

5.As the manager, theSOLE PROPRIETOR shall serve as a model to her employees and shall conduct herself in a manner that upholds the honor, dignity, integrity and objectivity of the accounting profession.

To ensure that quality assurance within the organization and among its employeesis strictly observed, theSOLE PROPRIETOR shall be tasked to perform the following:

1.Continually emphasize theconcepts of independence, integrity, and objectivity (including the significance of clientengagements)in its professional development meetings, in the acceptance and continuance ofclients and engagements, and in the performance of engagements.

2.Provide each of its professional personnel with access to applicable professional and regulatoryliterature and advising them that they are expected to be familiar with that literature.

3.Require periodic independence and ethics training for all professional personnel. Suchtraining covers the firm’s independence and ethics policies and the independence and ethicalrequirements of all applicable regulators.

4.Inform personnel, on a timely basis, of those entities to which independence policies apply,by:

—Preparing and maintaining a list of entities with which firm personnel are prohibited fromhaving a business relationship.

—Making the list available to personnel so they may evaluate their independence (includingpersonnel new to the firm).

—Notifying personnel on a timely basis of changes in the list.

II.ETHICAL REQUIREMENTS

The objective of these ethical conduct standards is to provide the Firm with reasonable assurance that personnel maintain independence(in fact and in appearance) in all required circumstances, perform all professional responsibilitieswith integrity, and maintain objectivity in discharging professional responsibilities.The three main ethical standards of the Firm shall be :

a)Independence–which encompasses an impartiality that recognizes an obligation for fairness not only to management and owners of a business but also to those who may otherwise use the firm’s report;

b)Integrity – which requires personnel to be honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage, and ;

c)Objectivity – which is a state of mind and a quality that lends value to a firm’s services. The principle of objectivity imposes the obligation to be impartial, intellectually honest and free of conflicts of interest.

Below are the policies and procedures of the firm relative to ethical standards:

1.All personnel are required to adhere to applicable independence, integrity, and objectivity requirementsas provided for in the Code of Professional Ethics for Certified Public Accountants and as embodied in the Good Governance Code of Ethics of the Firm as submitted to the Board of Accountancy.

•TheSOLE PROPRIETORand personnel must strive to exemplify the highest standards of professional and personal ethics in all aspects of the business.

• All personnel are encouraged to always keep abreast of recent and new developments relating to independence, integrity, and objectivity and other related issues affecting the industry through various methods.

• All employees are required to submit written representations, upon hire and on an annual basis, concerning whether they are familiar with and incompliance with professional standards and the firm’s policies and procedures regarding independence,integrity, and objectivity.

• Each team leader (Audit Supervisor) shall be responsible for reviewing the independence representationsfor completeness of their respective audit staff and shall report exceptions to the Manager, for resolution.

• The Manager shall be tasked to prepare a current list of the following:

-all entities with which firm personnel are prohibited from having a business relationship, and,

-all activities in which the firm is prohibited from engaging and making the list available to the staff so they may evaluate their independence.

-unpaid feesfrom clients to ascertain whether any outstanding amounts impair the firm’s independence.

-a master record of all its clients showing salient information such as; services performed, audit fee, no. of years, etc.

2.All personnel should avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict. Toeffectively implement this policy, employees are advised to:

• Refuse any gift, favor or hospitality that would influence or influence their actions.

• Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically.

• Refrain from either actively or passively subverting the attainment of the firm’s legitimate and ethical objectives.

• Recognize and communicate professions limitations or other constraints that would preclude responsible judgment or successful performance of an activity.

• Communicate unfavorable as well as favorable information and professional judgments or opinions.

• Refrain from engaging in or supporting any activity that would discredit the profession.

3.All employees have a responsibility to refrain from disclosing information acquired in the course of their work except when authorized, unless legally obligated to do so. To preserve confidentiality of information, the firm implements the following:

• TheSOLE PROPRIETOR shall inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that activity.

• All employees are advised to refrain from using or appearing to use confidential information acquired in the course of work for unethical or illegal advantages either personally or third parties.

4.The Firm mustalways be aware of possible threats to independenceand objectivityand shall perform the following to help mitigate it:

•TheSOLE PROPRIETOR shall always be responsible for the concurring review of all auditand attest engagements performed by her audit staff.

• For high risk or significant clients and for clients that theSOLE PROPRIETOR personally audited, the Firm shall engage the services of other independent auditors to conduct the concurring review.

5.The Firm shall establish procedures for confirming the independence of otherfirms who are performing part of an engagement which can be accomplished by:

• Requiring that independence representations be first obtained from other firms who are performing part of the engagement before the start of an engagement and;

• Requiring that such representations be documented.

III.PERSONNEL MANAGEMENT

A firm’s quality control system depends heavily on the proficiency of its personnel. In making assignments, the nature and extent of supervision to be provided should be considered. Generally, the more able and experienced the personnel assigned to a particular engagement, the less supervision is needed.

The objective of the personnel management element of a system of quality control is toprovide the firm with reasonable assurance that all personnel have the competency to performtheir assigned responsibilities. Attributes or qualities that enhance the competency of personnelwho perform, supervise, or review work include integrity, objectivity, intelligence, judgment,experience, and motivation of personnel who perform, supervise and review the work. TheSOLE PROPRIETOR satisfies this objective by establishing andmaintaining the following policies and procedures:

1. All personnel hired by the Firmshould possess the characteristics that enable them to performcompetently. This policy can be achieved by developing and maintaining hiring standards and evaluating the firm’s personnel needs as follows:

• Designating the Administrative Personnel, under the guidance and direction of theSOLE PROPRIETOR, to be responsible for evaluating the firm’s personnel needs by considering factors such as existing clientele,anticipated growth, personnel turnover, and individual advancement.

• Developing criteria that identify attributes, achievements and experiences desired in entry level and experienced personnel.

• Establishing criteria for evaluating personal characteristics such as integrity, competence, andmotivation.

• Setting guidelines for the additional procedures to be performed when hiring experienced personnel,such as performing background checks and inquiring about any outstanding regulatoryactions.

2.TheSOLE PROPRIETOR assigns personnel based on the knowledge,skills, and abilities required in the circumstances, and the nature and extent of supervisionneeded. This policy shall be implemented by the following:

• TheSOLE PROPRIETOR, upon the recommendation of her audit supervisor, shall be responsible for assigning personnel to engagements based on such factors as:

—Engagement type, size, significance, complexity, and risk profile.

—Specialized experience and expertise required for the engagement and competenciesgained through prior experience.

—Personnel availability.

—Timing of the work to be performed.

—Continuity and rotation of personnel.

—Opportunities for on-the-job training.

—Situations for which independence or objectivity concerns exist.

• ______, being the sole proprietor / practitioner, is fully in charge of the firm’saccounting, auditing,and attestation engagements and possessesthe competencies needed to accomplish their engagement responsibilities. These competencies include having an understandingof:

—The role of the firm’s system of quality assurance and the Board of Accountancy’s Code of Professional Ethics for Certified Public Accountants,in assuring the integrity of the accounting, auditing, and attest functions to usersof reports.

—The performance, supervision, and reporting aspects of the engagement, which ordinarilyare gained through participation or training in similar engagements.

—The professional standards applicable to the engagement and the industry in which the clientoperates. Such standards include accounting, auditing, and attestation standards, aswell as rules and regulations issued by other applicable regulators.

—The industry in which the client operates, including its organization and operating characteristics,sufficient to identify areas of high or unusual risk associated with the engagement,and to evaluate the reasonableness of industry-specific estimates.

—The skills that contribute to sound professional judgment, including the ability to exerciseprofessional skepticism.

—How the organization uses information technology, and the manner in which informationsystems are used to record and maintain financial information.

3.All accounting and auditing personnel of the Firm shall participate in general and industry-specific continuing professionaleducation (CPE) and professional development activities that should enable them toaccomplish assigned responsibilities and satisfy applicable CPE requirements of theBoard of Accountancy, and other applicable regulators.

• TheSOLE PROPRIETOR, through the Administrative Personnel, shall maintain an office professional development programthat:

—Requires personnel to participate in professional development programs in accordancewith firm guidelines and in subjects that are relevant to their responsibilities.

—Takes into account the requirements of the Board of Accountancy (BOA) in establishingthe firm’s CPE requirements.

—Provides course materials for and maintains records of CPE completed by professionalpersonnel.

—Provides an orientation and training program for new hires.

•Encourage participation by personnel at each level in the firm in other professional developmentactivities such as external professional development programs, including graduateleveland self-study courses, membership in professional organizations, serving on professionalcommittees, writing for professional publications, and speaking to professional groups.

• Communicate and distribute to personnel, when applicable, changes in accounting,auditing, and independence requirements, and the firm’s guidance with respect to these requirements.

4.Only those individuals who have the qualifications necessary to accomplishthe responsibilities they will be called on to assume are selected for advancement.

• TheSOLE PROPRIETOR, shall have the sole authority and responsibility for making advancement and termination decisions.Such responsibilities include:

—Identifying criteria for evaluating personnel at each professional level and for advancementto the next higher level of responsibility. Such criteria give due recognition and rewardto the development and maintenance of competence and commitment to ethical principles.

—Informing firm personnel about the criteria for advancement to the next higher level of responsibility.

—Designating personnel responsible for preparing evaluations and determining when theyshould be prepared.

—Informing personnel that failure to adhere to the firm’s policies and procedures regardingperformance quality and commitment to ethical principles may result in disciplinary action.

—Using forms that include the applicable qualifications when evaluating the performance ofpersonnel. Such forms include qualifications related to performance quality and adherenceto ethical principles.

—Reviewing evaluations on a timely basis with the individual being evaluated.

• Counseling personnel regarding their progress and career opportunities by:

—Annually summarizing and reviewing with personnel the evaluation of their performance,including an assessment of their progress with the firm. Considerations should include pastperformance, future objectives of the individual and the firm, the individual’s assignmentpreferences, and career opportunities.

—Periodically evaluating partners by means of counseling, peer evaluation, or self-appraisal,as appropriate.

5.Employees are compensated in a manner thatprovides an incentive and reward for quality work and for maintainingindependence, integrity,and objectivity.

•TheSOLE PROPRIETORshall maintaina compensation system that predominantly rewards employees for the quality of their accounting and auditing work. The compensation system rewards personnel involved in the accounting and auditing practice (a) for the quality of their work and their compliance with professional standards, and (b) provide disincentives for behavior that might be perceived as impairing the independence or objectivity of their work, for example, the cross selling of certain consulting services.

IV. ACCEPTANCE AND CONTINUANCE OF CLIENTS ENGAGEMENTS

The objective of the acceptance and continuance of clients and engagements element of a

system of quality control is to establish criteria for deciding whether to accept or continue a clientrelationship and whether to perform a specific engagement for that client. Below stated policies andprocedures provide the firm with reasonable assurance that:

• The likelihood of association with a client whose management lacks integrity is minimized.

• The firm undertakes only those engagements that can be completed with professional competence.

• The risks associated with providing professional services in particular circumstances are appropriatelyconsidered.

• An understanding with the client regarding the services to be performed is reached.

TheSOLE PROPRIETORsatisfies this objective, with respect to the initial period for which thefirm is performing its service and for subsequent periods, by establishing and maintaining thepolicies and procedures described as follows:

1.The firm evaluates factors that have a bearing on management’s integrity which shall be implemented by:

• Informing personnel of the firm’s policies and procedures for accepting and continuing clients.

• Obtaining and evaluating available financial information regarding the client and its operationssuch as annual reports, interim financial statements, reports to and from regulators, incometax returns, and credit reports before accepting or continuing a client.