How high-quality audits protect the public interest and propel businesses forward
Quality audit work supports a functioning economy and protects the public interest.
The accounting profession’s dedication to audit quality is underpinned by independent regulatory mechanisms that include licensing, peer review, and standard-setting bodies, creating a robust public-protection framework.
Accounting firms audit public and private companies, not-for-profits, and government entities. An audit is a thorough, evidence-based, independent examination of an organization’s financial data and other relevant information conducted by highly qualified professionals who provide confidence to the organization and its stakeholders.
High-quality audits are vital to protecting the public interest. Businesses, investors, governmental entities, and taxpayers gain confidence because auditors apply specialized, neutral third-party judgment to extremely important matters, such as whether financial statements are materially misstated or organizations are appropriately using federally funded grants.
The AICPA helps ensure high-quality audits
The AICPA plays a vital role in enabling high-quality audits, starting with the education and licensing of CPAs. The AICPA works with state licensure boards to make sure only competent, ethical professionals are licensed. The AICPA sets professional standards for auditors, including quality control and quality management standards, which provide carefully considered guidance for CPAs as they perform their work. The AICPA also creates educational materials and resources for members, establishing an important pipeline of regularly updated information to keep up with a changing business environment and evolving standards.
In addition to meeting requirements for continuing professional education throughout their careers, AICPA members must comply with the AICPA Code of Professional Conduct, an ethics code designed to uphold the integrity of the entire profession and ensure compliance with professional standards.
Peer review contributes to audit quality
To maintain their licensure, CPA firms must participate in a peer review program administered by the AICPA.
The peer review program provides a mechanism for experienced professionals to verify that high-quality work is being done at the firms they are reviewing. This process is at the heart of the CPA profession’s values of promoting transparency and accountability.
Each of the program’s more than 24,000 CPA firm participants must undergo a peer review at least once every three years. Those that perform audits must have what’s called a system review that evaluates the design and effectiveness of a firm’s quality control systems. The peer reviewer will also examine samples of the firm’s engagements.
CPA firms that do not perform audits or similar engagements but do perform other accounting work, such as reviews and compilations, undergo engagement reviews that are less system oriented. In engagement reviews, a sample of the CPA firm’s accounting engagements is examined by the peer reviewer.
When peer reviewers uncover issues, they act immediately and work with the firm to help it learn from the discovery and enhance compliance and quality. These efforts drive improvement. Recent AICPA data shows that nearly 80% of firms that were required to undergo remedial action improved on their next peer review. To instill trust and promote transparency, the AICPA maintains a public file with recent peer review information about each CPA firm participant.
The same principles and standards for peer reviews apply whether you’re located in Minneapolis or Miami. A recent project to clarify the peer review standards has made them easier to understand and apply anywhere.
The peer review program is so highly trusted that enrollment is required as a condition of licensure in almost every state.
Depending on the types of engagements firms perform, they may also have their practices reviewed or inspected by regulatory or governmental entities including the Public Company Accounting Oversight Board (PCAOB), the Department of Health and Human Services, and the Department of Labor.
Auditing is evolving
As the business environment and government regulations evolve, auditors must continually improve to maintain quality. Through its Enhancing Audit Quality initiative, the AICPA is updating education requirements, developing new tools and resources, and leading the discussion on how bedrock principles that support today’s robust audit system can be applied to situations in the future.
