Peer Review Findings Contain Lessons for Auditors of Entities Receiving Federal Assistance
Analysis of single audit engagements by the American Institute of CPAs’ (AICPA) Peer Review Program has determined that three factors – size of single audit practice, qualifications of the engagement partner and membership in the AICPA’s Governmental Audit Quality Center – have a strong correlation to quality performance.
The single audit is a rigorous, organization-wide financial and compliance audit of an entity that expends $750,000 or more of federal assistance (e.g., awards, grants, loans and loan guarantees).
The Peer Review Program last year selected a random sample of single audit engagements for enhanced oversight. Analysis of the sample resulted in the identification of three factors showing a strong correlation to quality performance:
- Size of single audit practice;
- Qualifications of the engagement partner and
- Membership in the AICPA’s Governmental Audit Quality Center
“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,” said James Brackens, CPA, CGMA, AICPA Vice President, Ethics & Practice Quality, Public Accounting.
Brackens encouraged firms performing a small number of audits in a specialized area to consider the unique risks associated with those engagements and either invest in the necessary resources to perform the job appropriately or refocus their practice on other areas.
“It takes a significant investment of resources to perform audit engagements, particularly in specialized industries. You only want to accept engagements that you are competent to perform,” Brackens said. “Beyond that, be certain your practice aids and Accounting & Auditing guides are up to date. Ensure that your engagement team is your ‘A’ team and is performing appropriate consultations through the engagement. Also, confirm that your Engagement Quality Control Review criteria are appropriate in light of the risks of operating in this area. And, if this is a new practice area for the firm, engage another firm that is highly experienced in the area to consult throughout the process.”
In the study, the Peer Review team randomly selected a sample of 87 single audits from a population of about 1,100 engagements that were subject to peer review. The engagements selected had year ends of November 30, 2015, or earlier.