GAQC Questions and Answers on Membership Requirements for CPA Firms and GAQC Web Site Access 

A1

Per note 1 of the membership requirements, a partner is defined as follows:  

"…¹an individual who is legally a partner, owner or shareholder in a CPA firm or a sole practitioner and who performs audit services, concurring reviews (if applicable) or consultations on technical or industry-specific issues with respect to audit clients of the firm. Such individual should be party to any partnership, ownership or shareholder agreement of a CPA firm."

Q2

How does a sole practitioner satisfy the requirement to designate an audit partner with firm-wide responsibility for the quality of the firm's governmental audit practice?

A2

A sole practitioner can be the designated partner with responsibility for the quality of his or her governmental audit practice. 

Q3

The GAQC membership requirement states that the DAQP must be a partner, owner or shareholder in a CPA firm and that such individual should be party to any partnership, ownership or shareholder agreement of a CPA firm. In the context of this requirement, can a firm’s non-equity CPA partner serve as the DAQP?

A3

Because each firm has so many different classes or levels of partners (such as non-equity partners) and the roles of those partners differ significantly from firm to firm, the GAQC will address this question on a case-by-case basis. Therefore, you should contact the GAQC at  GAQC@aicpa.org  regarding situations where your firm would like to designate a non-equity partner to serve as the firm’s DAQP. Ultimately, the GAQC Executive Committee shall determine whether the substance of the related GAQC membership requirement would be met with a non-equity DAQP candidate. Such determination by the Executive Committee would be based on the characteristics and responsibilities of the non-equity partner.

Our Firm's DAQP was unable to view the live annual Center Webcast due to a scheduling conflict. What can our firm do to ensure we are in compliance with the membership requirement that our DAQP view the Webcast?

A4

The DAQP has several choices to view the annual Center Webcast after the live event.  First, several continuing professional education (CPE) re-broadcasts of the Webcast are offered shortly after the live event. GAQC Alerts are sent directly to member firms with instructions on how to register for rebroadcasts of the Webcast. Second, the Webcast is turned into an on-demand CPE course that can be viewed any time after the live event.  Finally, if the Center DAQP is not interested in obtaining CPE for viewing the Webcast, it is archived on the GAQC Web site. You can click here to learn more about accessing the archived Webcast after the live event with no-CPE. We encourage the DAQP to view the archived Webcast as soon as possible to ensure that he or she has access to the latest governmental audit quality information. The Center staff will monitor all partners that view the archived Webcast.

Q5

Our firm recently joined the Center and noted that the required annual Center Webcast had already occurred. How can our firm ensure we are in compliance with the membership requirement that our DAQP view the Webcast?

A5

Q6

Assuming the firm has joined the Center after the live offering of the annual Center Webcast, how much time does the DAQP have to view the required Webcast?

A6

The DAQP should view the annual center Webcast as soon as possible after the firm's enrollment in the Center (Q4 above provides information on how to access the Webcast after the live event). However, if the firm joins the Center within three (3) months of the next live offering of the annual Center Webcast, it is not necessary for the DAQP to view the previous annual Center Webcast. The DAQP can meet the membership requirement in this case by viewing the current annual Center Webcast.

Q7

Can the DAQP delegate the viewing of the required GAQC Annual Webcast Update to someone else?

A7

No. The membership requirements are designed to ensure that the DAQP has the best and latest information available to help ensure the quality of the firm's governmental audits. However, the DAQP should consider making other staff in the firm aware of the Webcast and encourage them to view the live Webcast or access it after the live event using one of the methods described in Q4.

Q8

Can staff members other than the DAQP view the Webcast?

A8

Yes. See the answer to Q7 above.

Q9

Is continuing professional education (CPE) provided for the required Center Webcast?

A9

Yes. The live offering of the Webcast is offered with a CPE Option for DAQPs and member firm staff attendance. There is no limit on the number of member firm staff participants using the CPE Option for the live event. We also offer a No CPE Option at no cost for DAQPs that do not want the CPE. Member firms are generally limited to one Webcast participant for the No CPE Option.  As noted in Q4 above, other CPE options are available for viewing the Webcast after the live offering, as well.

Q10

Will a firm's existing system of quality control satisfy membership requirement #6?

A10

In most cases, no. This requirement is intended to lead firms to do something extra in their system of quality control by focusing on the specific policies and procedures applicable to a firm's accounting and auditing practice for governmental audits. Firms that do not have inspection procedures specific to their governmental audit practice as a part of their normal monitoring procedures are required to implement such procedures.

Q11

What inspection procedures would a firm need to perform related to its governmental audit practice?

A11

The nature of inspection procedures will vary based on the firm's quality control policies and procedures and the effectiveness and results of other monitoring procedures. The adequacy of and compliance with a firm's system of quality control are evaluated by performing such inspection procedures as:  

• Review of selected administrative and personnel records pertaining to the elements of quality control.

• Review of governmental audit engagement working papers, reports, and clients' financial statements and related supplementary information (for example, the Schedule of Expenditures of Federal Awards). It should be noted that any firm that is a GAQC member is required in all instances to include in its inspection governmental audit engagements.

• Discussions with the firm's personnel.

• Summarization of the findings from the governmental audit inspection procedures, at least annually, and consideration of the systemic causes of findings that indicate improvements are needed. See the next question for an exception to performing the inspection in the year of the firm’s peer review. However, note that the firm is still required to perform the other required monitoring procedures and the findings thereof are to be summarized annually.

• Determination of any corrective actions to be taken or improvements to be made with respect to the specific governmental audit engagements reviewed or the firm's quality control policies and procedures.

• Communication of the identified findings to appropriate firm personnel, including the DAQP.

• Consideration of inspection findings by appropriate firm personnel who should also determine that any actions necessary, including necessary modifications to the system of quality control, are taken on a timely basis.

Q12

Does the inspection need to be performed in the firm's peer review year?

A12

No. A peer review does not substitute for monitoring procedures. All firms are required by the Statements on Quality Control Standards (SQCS) to have in place a system to continually monitor their system of quality control and to measure their compliance with that system. One aspect of this monitoring is engagement inspections; however, since the objective of a peer review is similar to that of inspection procedures, a firm's quality control policies may provide that a peer review conducted under standards established by the AICPA may substitute for some or all of its inspection procedures for the period covered by the peer review.

Q13

How would a small firm with one audit partner or a sole practitioner satisfy membership requirement #6?

A13

In small firms qualified individuals (partners or managers) may inspect their own work (on a post issuance basis only). Small firms should follow the guidance in paragraphs A72 and A73 of AICPA’s Statement on Quality Control Standards (SQCS). 
 
“In small firms with a limited number of persons with sufficient and appropriate experience and authority in the firm, monitoring procedures may need to be performed by some of the same individuals who are responsible for compliance with the firm’s quality control policies and procedures. This includes review of engagement working papers, reports and clients’ financial statements by the engagement partner or other qualified personnel after the report release date. To effectively monitor one’s own compliance with the firm’s policies and procedures, it is necessary that an individual be able to critically review his or her own performance, assess his or her own strengths and weaknesses, and maintain an attitude of continual improvement. Changes in conditions and the environment within the firm (such as obtaining clients in an industry not previously serviced or significantly changing the size of the firm) may indicate the need to have quality control policies and procedures monitored by another qualified individual.”Alternatively, some firms may choose to engage a suitably qualified external person or another firm to perform engagement inspections and other monitoring procedures as indicated in paragraph A73 of SQCS 8.

• “Having an individual inspect his or her own compliance with a quality control system may be less effective than having such compliance inspected by another qualified individual. When one individual inspects his or her own compliance, the firm has a higher risk that noncompliance with policies and procedures will not be detected. Accordingly, a firm with a limited number of persons with sufficient and appropriate experience and authority in the firm may find it beneficial to engage a suitably qualified external person or another firm to perform engagement inspections and other monitoring procedures.”

Q14

How should the firm select the governmental audits to be inspected?

A14

The selection of engagements for inspection should be focused on the firm's governmental practice only (that is, not influenced by the size of the governmental practice in relation to the firm’s entire audit practice). The number of engagements selected for inspection should be sufficient to provide the inspector with a reasonable basis for concluding whether the firm's system of quality control for its governmental audit practice is properly designed, and whether it was being complied with during the year. Engagements selected for review should provide a reasonable cross section of the firm's governmental audit practice with emphasis on engagements that are considered to have higher risk. Examples of the factors to consider when selecting engagements to inspect are:

• Type of organization (for example, state or local government, federal government, not-for-profit, and certain for-profit organizations that receive federal awards)

• Types of audits (for example, all audits and attestation engagements performed under Government Auditing Standards; audits performed under the Single Audit Act Amendments of 1996 and OMB Circular A–133, Audits of States, Local Governments and Non-Profit Organizations; program-specific audits as defined under OMB Circular A–133; and other compliance audits and attestation engagements performed under various federal, state, or local agency audit guides.)

• Experience of personnel assigned

• Office where the engagement was performed

• Whether it is the initial year of a governmental audit engagement.

The number of practice offices selected for inspection should be sufficient to provide the inspector with a reasonable basis for concluding whether the firm's quality control policies and procedures for its governmental audit practice are adequately complied with throughout the firm. Greater emphasis should be placed on selecting those offices with higher risk. Factors to consider when selecting offices include:

• The number, size, and geographic distribution of offices

• The degree of centralization of control and supervision of the firm's governmental audit practice

• Recently merged or recently opened offices.

Q15

Does the firm need to prepare a separate inspection report for the governmental audits inspected?

A15

No. The firm may prepare a separate report on its inspection of governmental engagements, or it may document the governmental practice inspection scope along with the results of the firm's general monitoring/inspection documentation.

Q16

How long does a firm need to retain its reports on its inspection of governmental engagements?

A16

The report and/or documentation should be retained for a period of time sufficient to enable those performing monitoring procedures and a peer review to evaluate the extent of the firm's compliance with its quality control policies and procedures.

Q17

Is there a checklist to help firms perform inspections?

A17

Yes.  Firms may use the checklists from the AICPA Peer Review program to assist them in conducting the inspections. Click here to view specific Peer Review checklists for governmental audits including checklists for audits and attestation engagements performed under Government Auditing Standards, single audits, financial statement audits of governments, not-for-profits, and healthcare organizations, and audits under the U.S. Department of Housing and Urban Development (HUD) Consolidated Audit Guide.

Self inspections can provide important information about the composition of the firm's governmental audit practice, and should point out areas where the firm is deficient. Such information can help the firm more efficiently and effectively plan its governmental audits, including determining timing of the engagements, staffing needs and availability, and necessary changes to audit plans and programs. It also may assist firms in determining staff training needs.

 Q21

A firm joined the GAQC in April 20X8. The firm uses an April 1 to March 31 period for purposes of its internal inspection program. The firm's 20X8 cycle for performing internal inspections is occurring over the summer 20X8 for the period ending March 31, 20X8. Does the firm need to have its 20X8 inspection program meet membership requirement #6?

 A21

No. Membership requirement #6 requires the firm to establish annual internal inspection procedures within three (3) months of its admission date to the GAQC. Therefore, in the situation described in the question above the firm would have to establish its annual inspection procedures by July 20X8. However, those procedures would not have to be applied to inspections occurring during the summer of 20X8. Instead, the firm would apply the procedures to its 20X9 inspection cycle (that is, to engagements occurring from April 1, 20X8 to March 31, 20X9). However, it should be noted that there is nothing to preclude a firm in this situation from applying the procedures it establishes to meet membership requirement #6  to its 20X8 inspection cycle. 

Q22

What peer review information has the Executive Committee determined should be available to the public?

A22

Center member firms are required to make publicly available the following information (as stated in notes 5 and 6 to the membership requirements) relative to the firm's peer review:

• Peer review report

• Letter of response, if applicable 

• Letter signed by the reviewed firm indicating that the peer review documents have been accepted with the understanding that the firm agrees to take certain actions, if applicable

• Letter notifying the firm that certain required actions have been completed, if applicable, and

• Letter notifying the firm that the peer review has been accepted

Q23

How does a firm make the peer review information available to the public?

A23

Q24

If a peer reviewer's firm is not a member of the Center, is the Center member firm now required to hire a new firm that is a Center member to perform its peer review?

A24

Not necessarily, but it is suggested that you encourage your peer reviewer's firm to join the Center. The Center's membership requirement states that the governmental audits selected as part of the firm's peer review be reviewed by a peer review team member employed by a Center member firm. This requirement is intended to ensure that the member of the peer review team who reviews your governmental engagements has specialized knowledge of the auditing and reporting requirements for governmental engagements. It is this individual who must be employed by a Center member firm. Accordingly, if the firm you engage to perform your peer review is not a Center member, it may be possible for that firm to add a team member who is employed by a Center member firm for the sole purpose of reviewing your governmental engagements, subject to the existing AICPA peer review team approval procedures.

Q25

If a GAQC member firm decides to use a non-GAQC member firm for its peer review but supplements the peer review firm team with an individual employed by a GAQC member firm to look at governmental audits, does that individual have to have any special qualifications as a peer reviewer to satisfy the GAQC peer review requirement?

A25

Yes. All peer reviewers must be approved by the state societies (or AICPA) administering the peer review. All peer reviewers must also meet the minimum requirements set forth in the standards set by the Peer Review Board. Further, the reviewer firm must have received a rating of “pass” of his firm’s most recent peer review.

Q26

Where can a firm find a listing of GAQC member firms in its state that perform peer reviews?

1. Navigate to: http://peerreview.aicpaservices.org/firmfile/docdefault.aspx
2. Click 'Reviewer Search' on the left menu bar
3. Input the relevant search criteria (e.g. state or specific member)
4. Check the box next to 'Governmental Audit Quality Center'
5. Click 'Submit'

A28

The Center requirement to establish policies and procedures specific to the firm's governmental audit practice to comply with the applicable professional standards is consistent with Statement on Quality Control Standards (SQCS) No. 8, A Firm's System of Quality Control (AICPA, Professional Standards, vol. 2, QC sec. 10), which broadly defines the objectives of a system of quality control (QC System) as a process to provide a firm with reasonable assurance that:

1. the firm and its personnel comply with professional standards and applicable legal and regulatory requirements and
2. reports issued by the firm are appropriate in the circumstances.

A system of quality control consists of policies designed to achieve the above objective and the procedures necessary to implement and monitor compliance with those policies.

The Center requirement applies this same general quality control standard at the governmental audit level. The firm's auditing policies and procedures should specifically address governmental audits, including the six elements of the general quality control standard as they relate to the firm's governmental audit practice. This requirement is effective within six (6) months of a firm’s admission date.

Q29

What are the six elements of the general quality control standard and how are they related to a firm's governmental audit practice?

A29

The policies and procedures should encompass the following six elements at the governmental audit level:

1. Leadership responsibilities for quality within the firm (the "tone at the top"): The firm should establish policies and procedures designed to promote an internal culture based on the recognition that quality is essential in performing engagements and should establish policies and procedures to support that culture. Such policies and procedures should require the firm's leadership (managing partner or board of managing partners, chief executive officer, or equivalent) to assume ultimate responsibility for the firm's system of quality control. For Center member firms, the firm's DAQP partner should assume ultimate responsibility for the quality of the firm's governmental engagements.

2. Relevant ethical requirements: The firm should establish policies and procedures designed to provide it with reasonable assurance that the firm and its personnel comply with relevant ethical requirements. The AICPA Code of Professional Conduct establishes the fundamental principles of professional ethics, which include: [Special consideration: In addition to AICPA ethics standards, the Government Accountability Office (GAO) has issued additional standards for determining whether an auditor is independent in Government Auditing Standards.]

• Responsibilities
• The public interest
• Integrity
• Objectivity and independence
• Due care
• Scope and nature of services

3. Acceptance and Continuance of Clients and Engagements: The firm should establish policies and procedures for the acceptance and continuance of client relationships and specific engagements, designed to provide the firm with reasonable assurance that it will undertake or continue relationships and engagements only where the firm:

• Has considered the integrity of the client, including the identity and business reputation of the client's principal owners, key management, related parties, and those charged with its governance, and the risks associated with providing professional services in the particular circumstances;
• Is competent to perform the engagement and has the capabilities and resources to do so; and
• Can comply with legal and ethical requirements.

The firm should obtain such information as it considers necessary in the circumstances before accepting an engagement with a new client, when deciding whether to continue an existing engagement, and when considering acceptance of a new engagement with an existing client.

4.  Human Resources: The firm should establish policies and procedures designed to provide it with reasonable assurance that it has sufficient personnel with the capabilities, competence, and commitment to ethical principles necessary to:

• Perform its engagements in accordance with professional standards (including Government Auditing Standards if applicable to the engagement) and regulatory and legal requirements, and
• Enable the firm to issue reports that are appropriate in the circumstances.
• Such policies and procedures should address the following:
• Recruitment and hiring, if applicable;
• Performance evaluation, compensation, and advancement;
• Determining competencies and capabilities, including time to perform assignments;
• Professional development; and
• The estimation of personnel needs

5.  Engagement Performance: The firm should establish policies and procedures designed to provide it with reasonable assurance that engagements are consistently performed in accordance with professional standards, Government Auditing Standards, and regulatory and legal requirements, and that the firm or the engagement partner issues reports that are appropriate in the circumstances. Required policies and procedures should address:

• Engagement performance,
• Supervision responsibilities, and
• Review responsibilities

6.   Monitoring: The firm should establish policies and procedures designed to provide the firm and its engagement partners with reasonable assurance that the policies and procedures relating to the system of quality control are relevant, adequate, operating effectively, and complied with in practice. Such policies and procedures should:

• Include an ongoing consideration and evaluation of the firm's system of quality control to determine 

1. The appropriateness of the design and
2. The effectiveness of the operation of the system of quality control.

• Assign responsibility for the monitoring process to a partner or partners or other persons with sufficient and appropriate experience and authority in the firm to assume that responsibility.

• Assign performance of monitoring of the firm's system of quality control to qualified individuals

The purpose of monitoring compliance with quality control policies and procedures is to provide an evaluation of:

• Adherence to professional standards and regulatory and legal requirements;
• Whether the quality control system has been appropriately designed and effectively implemented; and
• Whether the firm's quality control policies and procedures have been operating effectively, so that reports that are issued by the firm are appropriate in the circumstances

Q30

Are there any additional matters that must be encompassed by the firm's policies and procedures specific to the governmental audit practice?

A30

Yes. The firm should establish policies and procedures to comply with Center membership requirements, including:

• Designating an audit partner to have firm-wide responsibility for the quality of the firm's governmental audit practice.

• Having all audit partners of the firm residing in the United States and eligible for AICPA membership be members of the AICPA.

• Ensuring that the audit partner designated with firm-wide responsibility for the quality of the firm's governmental audit practice meets the continuing professional education requirements of Government Auditing Standards, even if that partner would not otherwise be subject to those CPE requirements.

• Ensuring that the audit partner designated with firm-wide responsibility for the firm's governmental audit practice, participate in an annual Center-sponsored Webcast on recent developments in governmental auditing.

• Performing annual internal inspection procedures that include a review of the firm's governmental audit practice by individuals possessing current experience and knowledge of the accounting and auditing practices specific to governmental audits.

• Making publicly available information about its most recently accepted peer review as determined by the Executive Committee.

• Having its governmental audits selected as part of the firms peer review reviewed by a peer review team member who is employed by a Center member firm.

Q31

What quality control policies and procedures should ordinarily be addressed with regard to the competencies for the individual who is responsible for supervising a governmental audit engagement and signing or authorizing an individual to sign the accountants report on such engagement (the practitioner-in-charge)?

A31

The firm should assign responsibility for each engagement to an engagement partner and should establish policies and procedures requiring that the identity and role of the engagement partner are communicated to management and those charged with governance; the engagement partner has the appropriate competence, capabilities to perform the role; and the responsibilities of the engagement partner are clearly defined and communicated to that individual. (SQCS No. 8, paragraph .33). In practice, the competencies necessary for the engagement partner are broad and varied in both their nature and number. Competencies include the following, as well as other competencies as necessary in the circumstances (SQCS No. 8, paragraph .A27):

• a. Understanding of the role of a system of quality control and the Code of Professional Conduct—Practitioners-in-charge of a governmental audit engagement should possess an understanding of the role of a firm’s system of quality control and the AICPA's Code of Professional Conduct, both of which play critical roles in assuring the integrity of the various kinds of  reports.  

  b. Understanding of the service to be performed —Practitioners-in-charge of a governmental audit engagement should possess an understanding of the performance, supervision, and reporting aspects of the engagement.  This understanding is usually gained through actual participation under appropriate supervision in a governmental audit.

  c. Technical Proficiency—Practitioners-in-charge of a governmental audit engagement should possess an understanding of the applicable professional standards (e.g., accounting and auditing standards) and other regulatory audit requirements (e.g., OMB Circular A–133) directly related to the industry in which a client operates, and the kinds of transactions in which the client engages.

  d. Familiarity with the Industry—To the extent required by professional standards applicable to governmental audits, practitioners-in-charge of an engagement should possess an understanding of the industry in which the client operates to the extent of the kind of service being performed. In performing an audit or review of financial statements, this understanding would include an industry’s organization and operating characteristics sufficient to identify areas of high or unusual risk associated with an engagement to evaluate the reasonableness of industry-specific estimates.

  e. Professional Judgment—Practitioners-in-charge of a governmental audit should possess skills that indicate sound professional judgment. In performing an audit of financial statements, such skills would typically include the ability to exercise professional skepticism and identify areas requiring special consideration including, for example, the evaluation of the reasonableness of estimates and representations made by management and the determination of the kind of report appropriate in the circumstances. In performing a single audit or program-specific audit such skills would typically include the ability to exercise professional skepticism and identify areas requiring special consideration including, for example, the application of the risk-based approach to determining major programs and the appropriate evaluation and reporting of noncompliance.

  f. Understanding the Organization's Information Technology Systems—Practitioners-in-charge of a governmental audit engagement should have an understanding of how the organization is dependent on or enabled by information technologies; and the manner in which information systems are used to record and maintain financial information to determine when involvement of an IT professional is necessary for an audit engagement.

Q32

A firm has a comprehensive quality control policies and procedures document already in place. Is it necessary to amend the entire document to include specific wording covering the firm's governmental audit practice, or is it acceptable to issue an addendum that addresses how the governmental audit practice quality control will be achieved and how it interfaces with the firm's existing quality control document?

A32

Either method would be acceptable. A firm may amend each section of its existing quality control document to address its governmental audit practice quality control or, alternatively, it may issue an addendum that addresses how the governmental audit quality control will be achieved and how it interfaces with the firm's existing quality control document. Whichever method is used, the firm should ensure the documented policies and procedures specific to the firm’s governmental audit practice are adequate to comply with the applicable professional standards and Center membership requirements, as discussed above.  

The GAQC Web site contains certain information that is for members only. How do I give access to this premium content to my staff?

A33

Q34

We either did not receive the URL or have deleted the welcome email with the URL, how do I get a copy of my firm’s URL?

A34

Simply send an email to GAQC@aicpa.org requesting your firm's URL and we will send you another copy of the original welcome email with your URL.

Q35

I have provided one of my staff with our firm URL to register for the GAQC Web site. She is using what she believes to be her username and password but is having problems logging in to access the member-only content. What should I advise her to do?

A35