Practice inspection results and calls to Advisory Services confirm that firm monitoring requirements under the Canadian Standard on Quality Control (CSQC 1) continue to be a source of confusion or misunderstanding for some practitioners.
The relevant requirements from CSQC 1 in the CPA Canada Handbook – Assurance are:
48. The firm shall establish a monitoring process designed to provide it with reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate, and operating effectively. This process shall:
- Include an ongoing consideration and evaluation of the firm's system of quality control including, on a cyclical basis, inspection of at least one completed engagement for each engagement partner;
- Require responsibility for the monitoring process to be assigned to a partner or partners or other persons with sufficient and appropriate experience and authority in the firm to assume that responsibility; and
- Require that those performing the engagement or the engagement quality control review are not involved in inspecting the engagement. (Ref: Para. A64-A68)
53. The firm shall communicate at least annually the results of the monitoring of its system of quality control to engagement partners and other appropriate individuals within the firm, including the firm's chief executive officer or, if appropriate, its managing board of partners. This communication shall be sufficient to enable the firm and these individuals to take prompt and appropriate action where necessary in accordance with their defined roles and responsibilities. Information communicated shall include the following:
- A description of the monitoring procedures performed.
- The conclusions drawn from the monitoring procedures.
- Where relevant, a description of systemic, repetitive or other significant deficiencies and of the actions taken to resolve or amend those deficiencies.
The ongoing consideration and evaluation required in paragraph .48(a) is generally referred to as “annual monitoring” and paragraph .53 requires the results be communicated to all appropriate individuals within the firm each year. In addition, at least one assurance engagement per engagement partner is required to be inspected on a cyclical basis which has been generally interpreted as once in each three-year cycle. This second requirement is usually referred to as “cyclical monitoring.”
Difficulties in completing cyclical monitoring might arise for sole practitioners and practitioners with partners with limited expertise or experience in assurance. This is because such monitoring is required to be completed by an individual with sufficient and appropriate experience and authority in the firm, and independent of the specific file. In some cases, this could require practitioners to look outside of their firm by engaging an external consultant to complete the monitoring, or perhaps to trade services with another firm.
Annual monitoring, on the other hand, does not require the same independence from the selected engagements and, as such, may be completed in-house even in the case of a sole practitioner.
Whenever you conduct monitoring activities, be sure to document the work that you performed, the findings from the review of the firm’s policy, procedures and/or engagement files, the communication of those findings to the other partners and staff when appropriate, as well as the firm’s action plan to correct any deficiencies noted.
We remind members that practice inspections by CPABC are not considered to be a substitute for the monitoring requirements set out in CSQC 1. For a detailed look at the ways annual monitoring, cyclical monitoring, and various levels of pre-release file reviews differ, please see “Improving Quality Control and Monitoring” in the June 2015 edition of Public Practice News & Views.