The path to Quality Management: Resources & methods

By Ross H. Roye, CPA

In this article, I want to touch on the timeline for having this transition complete and add some flavor to the implementation of standards. I will also bring to your attention the latest AICPA resources and other resources that have been published and released in the last few months to help all of us get through this transition.

As always, if you do not have a firm or practice that performs any of the services that fall under the standards, I would appreciate it if you would share the article with a CPA who may have a firm where these standards apply.

I continue to remind you all that the new Quality Management Standards affect every firm with an audit or accounting practice, not just firms that have a peer review. Every firm performing engagements in accordance with the SASs, SSARSs and SSAEs must follow these new standards. In addition, I need to state that the old Quality Control Standards will remain in effect for your firm until your firm has adopted the Quality Management Standards. Early adoption is permitted, but you have to adopt the entire suite of standards.

I cannot hope to get every detail of the new Quality Management Standards (QMS), or the process for implementing these standards, into this or any series of articles. My hope is to guide you to the resources I have found. As the old saying goes, I think, “You can lead a horse to water, but you can’t make it bathe…”

You as a practitioner in charge of a firm that performs engagement subject to the new QMS need to read the standards, use the AICPA resources, and seek input from others who have a deep knowledge of the standards.

I recently heard Ahava Goldman, CPA, CGMA, an associate director with the Association of International Certified Professional Accountants (AICPA) Audit and Attest Standards team, pose two questions concerning the QMS: 1) “So, what are we doing here?” and 2) “What is quality in this context?” To summarize her answers: 1) The change from the Quality Control Standards to the QMS is meant to drive engagement quality. 2) Quality in this context is performing engagements in accordance with professional standards and regulations, and issuing reports that are appropriate to the circumstances. The change in mindset to Quality Management from Quality Control is meant to increase our engagement quality. It is that simple.

Embedded in these new standards is basically the same process our clients take in designing their internal controls to ensure they can maintain quality as well. Some of our clients may use the COSO system, some may use the Green Book, and some may not use any predetermined system. I bet your clients that have standardized systems in place over their financial reporting have more consistent results with fewer errors. Engagement quality can be summed up in a similar manner. Engagement quality could be described as doing more consistent work with fewer errors.

In raising my kids, I feel like they fall down and hurt themselves more than I did as a child. I am sure this is merely my perception, but our orthopedic doctors will never have to worry about money. I say that to reiterate that going through this process will be much like growing up. I do not think any of us will get through this without getting some scrapes or bruises. We may stumble and fall during the process, but if we are prepared we may not have to suffer through a compound fracture of the quality of our engagements.

This drive to increase quality in our engagements is also rooted in the changes to our industry in the last decade. Our firms are using more outside parties and service providers to assist in the engagement processes and firm management. We all have more information and communication traveling through our technology systems than we had just five years ago. Also, perhaps most importantly, not all firms are the same.

As we look to implement the change to the QMS we need to keep in mind that small firms face different challenges. However, all components of the standard will apply to any size firm. The less complex your firm is the easier implementation should be. A firm that just does compilations without disclosures versus a firm that does audits subject to the Single Audit rules and the DOL rules will have considerations of risk.  Put simply, a more complex practice will have to consider more risks.

Let me introduce an idea that many of you may not yet have considered. We are going to have more documentation in our QMS than we did in our Quality Control system.

This is a whole lot of information and change, but much of what we do now in our firms will still apply under the new QMS. We are not going to have to trash our current Quality Control Documents and start from scratch. We can use this as a foundation to start building our new Systems of Quality Management.

Throughout these articles, I have tried not to say large and small when referencing firms. I try to say more complex and less complex because large firms could be more or less complex, just as small firms could be more or less complex. The one thing we all have in common is that we all have a complex.

SO MANY QUESTIONS, AND NOT ENOUGH ANSWERS…YET

I hope to be able to provide a way to the answers with some of the resources that have become available recently.

What most CPAs want when it comes to quality management is a path that is straight and has nice scenery to look at as they whiz from start to finish. What I have found is that the path each of us will take to get to quality management is not fully paved, it is winding, and it even doubles back on itself at times.

The risk-based approach is meant to give power to the firms to develop a tailored approach to quality management. The current standards are prescriptive in nature and may not allow for the nuance of each firm’s quality objectives. The design and implementation of your quality management system will be based on your firm’s circumstances. This may lead to some less complex firms finding that a system of quality management is less work than a system of quality control. I hope that you find your updated systems are more proactive, less reactive and leading you to greater engagement quality.

To help me down the path to quality management I am constantly seeking out knowledge and practice aides to act as my road signs.

Recently PPC released their guide on this subject. I am making my way through this guide as I am writing this article. The PPC guide sections I have been able to read include implementation considerations, the authors strongly recommend that firms begin their implementation process with a thorough reading of the new QM standard, and there are many new thoughts and discussions I had not found in other materials. I am not bringing this up to promote PPC, but I know many of the firms in Oklahoma use the PPC products and they may already be paying for this guide and can use it.

The AICPA is releasing more training and other resources. The webcasts on the subject were originally released in July, but there are rebroadcasts before yearend. The AICPA released a webinar series including a two-hour event on a practical approach to QMS risk assessment and response. All will be rebroadcasted in October. Search New Quality Management Standards Webinar Series on the AICPA website the register for this and other QMS events.

The AICPA has another new resource, a new on-demand self-study course, Understanding and Implementing the New Quality Management Standards. It provides a roadmap to assist in the implementation of our new system of quality management. This course will provide 5.5 hours of recommended CPE credit.

For some, perhaps firms that specialize in tax, implementing a QMS over their accounting and/or auditing practice may be more than challenging. Workload or the lack of administrative and supervisory systems may make it extremely difficult to develop and implement a system timely. If your firm fits into this category, your time, money and effort might best be spent hiring a firm of comparable size or a consultant to assist in implementing the system. I do not have a good resource for this yet. I continue to search for help in this area. If you are a sole practitioner, you may want to find a group of three or more other sole practitioners to work as a group to get the implementation complete. Don’t feel like you have to work alone, we are all in the same boat and we all need help.

Let me end with this. If you are a sole practitioner your approach will differ from a firm with 30 CPAs and 30 administrative staff. This change in mindset from control to management is meant to help reduce the burden on those firms that are less complex. The documentation of the quality objectives, quality risks, and responses for a less complex firm should be less burdensome than for a more complex firm. The whole process could be in one document for a less complex firm. Whereas a more complex firm may have a separate document for the quality objectives, quality risks, and responses. 

As you can imagine in true auditor form it is the eleventh hour the day before my article is due to the editor and I am over my word count. So, in closing for more information and to stay up to date on the QM standards, visit the following link: https://www.aicpa.org/topic/audit-assurance/quality-management

Ross H. Roye, CPA, is a shareholder of Gray, Blodgett & Company, PLLC, and has been with the firm since 2006. He currently serves as the chair of the OSCPA Peer Review Committee. Roye has previously served on the OSCPA board of directors as an at-large director, as well as the Society’s New CPA, Financial Literacy and the Accounting Careers Committees. He was honored as an OSCPA Trailblazer in 2012. Roye is a Past President of the OSCPA’s Norman Chapter and was selected as the Chapter’s Distinguished CPA in 2014.