OVERVIEW
Our firm has 1 office, 2 partners, and a total of 7 professionals.
We communicate the policies in this manual to everyone in our firm by providing a copy of this document to each member of the firm and requiring acknowledgement of receipt of the manual in writing and a confirmation that the manual has been read. The manual is reviewed by the QC partner annually, and updated, as needed. All firm members are required to commit to complying with our firm's quality control policies.
Our firm is composed of intelligent, hardworking professionals, and everyone's opinion is valued. Therefore, we encourage every member of our firm to evaluate and discuss concerns about any policy, and its application, with either partner. Any significant issues, or objections with respect to policies or their application are investigated by the managing partner, and resolution is documented and kept with the firm's monitoring documentation.
The firm uses PPC practice aids that have been subjected to peer review in accordance with standards established by the AICPA. These practice aids are supplemented by oral and written communications. Our policies are detailed in this document.
THE TONE AT THE TOP (LEADERSHIP)
Our firm has a state-wide reputation for ethical behavior, which is a unique asset of the firm, and one that is closely guarded by our firm-wide internal culture. The key to maintaining an appropriate quality control system is leadership, and a demonstration of commitment to the system, in fact and in appearance, by the partners of the firm. The partners demonstrate this commitment in the following ways:
We will not subscribe to any approach in our work that puts profit over professionalism. For example (although not all inclusive) we do not emphasize strict adherence to time budgets, so that staff is placed under a deadline to complete assignments without completing all the appropriate work. We will not place any greater emphasis or value on client development and developing new revenues, in exchange for accepting clients who demonstrate weak ethics.
The managing partner takes ultimate responsibility for maintaining firm-wide adherence to quality control standards. He demonstrates his commitment by overseeing the timely completion and documentation of monitoring and inspection procedures; by documenting annual personnel reviews and discussions where there may be ethics violations; by enforcing policies on ethics violations or any violations which lead to a break down in the firm's culture.
The managing partner is responsible for assuring that sufficient funds are made available to provide for quality output. This means that a significant part of revenues are dedicated to staff pay and rewards, software and library tools to complete assignments properly, a financial commitment to CPE for all members of the firm, and a sufficient amount of time and evidence of documentation dedicated to monitoring compliance with policies.
RELEVANT ETHICAL REQUIREMENTS
The firm adheres to policies and procedures which provide a basis for completing its work in a professional and ethical manner. Ethics rules come from a number of sources including the AICPA, New York State Board of Regents and State Accountancy Board, the GAO (Yellow book), the DOL, and the Internal Revenue Service (Circular 230).
The firm maintains a policy of complying with a standard of independence, integrity, and objectivity to provide reasonable assurance that personnel maintain independence (in fact and in appearance) in all required circumstances, perform all professional responsibilities with integrity, and maintain objectivity in discharging professional responsibilities. Our firm satisfies this objective by establishing and maintaining the policies and procedures described herein.
Policy 1
Personnel adhere to applicable independence, integrity, and objectivity requirements such as those in regulations, interpretations, and rules of the AICPA, state CPA societies, state boards of accountancy, state statutes, the U.S. Government Accountability Office (GAO), Department of Labor (DOL), the Internal Revenue Service, and any other applicable regulators. Our firm implements this policy by:
a) Designating the managing partner as the quality assurance partner to review relevant pronouncements relating to independence, objectivity, answer questions, and resolve matters.
b) Subscribing to the AICPA Professional Standards service.
c) Identifying circumstances for which documentation of the resolution of matters is appropriate.
d) Assigning responsibility to the managing partner for obtaining written representations from personnel, upon hire, on an annual basis, and during each pay-period concerning whether they are familiar with and in compliance with professional standards and the firms policies and procedures regarding independence, integrity, and objectivity.
e) Assigning responsibility to managing partner for reviewing these independence representations for completeness, and for resolving reported exceptions.
f) Requiring all professional personnel assigned to an engagement to sign a step in the engagement program attesting to his or her independence.
g) Having a partner, or an individual designated by the partner, periodically review unpaid fees from clients to ascertain whether any outstanding amounts impair the firm's independence.
h) Establishing a system for identifying all services performed for each client.
Policy 2
The firm's management sets a tone for the organization that stresses the importance of ethical values, especially as they pertain to accounting and auditing engagements, and communicates related policies and procedures to firm personnel. Our firm implements this policy by:
a) Having the managing partner (through e-mails, letters, recordings, and so on), emphasize the concepts of independence, integrity, and objectivity (including the significance of client engagements) in its professional development meetings, in the acceptance and continuance of clients and engagements, and in the performance of engagements.
b) Providing each of its professional personnel with access to applicable professional and regulatory literature and advising them that they are expected to be familiar with that literature.
c) Requiring periodic independence and ethics training for all professional personnel. Such training covers the firm's independence and ethics policies and the independence and ethical requirements of all applicable regulators.
d) Verbally informing personnel on a timely basis of those entities to which specialized independence policies apply. The managing partner is also responsible for informing staff when staff actions appear to create an appearance of a lack of independence or objectivity.
Policy 3
The firm establishes procedures to help mitigate possible threats to independence and objectivity. Our firm implements this policy by:
a) Designating and implementing compensation systems that (a) reward partners and staff involved in the accounting and auditing practice for the quality of their work and their compliance with professional standards, and (b) provide disincentives for behavior that might be perceived as impairing the independence or objectivity of their work, for example, the cross-selling of certain consulting services.
b) Establishing additional procedures that provide safeguards when the firm performs audit or other attest work for (a) significant clients or (b) clients at which partners or other senior personnel are offered management positions, or accept offers of employment.
c) Establishing a policy of cross-review to assure at least two CPA's approve each engagement.
Policy 4
The firm establishes procedures for confirming the independence of other firms who are performing part of an engagement. Our firm implements this policy by:
a) Using practice aids that prescribe the form, content, and frequency of independence representations to be obtained.
b) Requiring that such representations be documented.
Policy 5
The firm withdraws from engagements if effective safeguards to reduce threats against independence or other ethical standards cannot be applied to an acceptable level. The procedures for implementing this policy include:
a) Consultation among the partners
b) Review of significant factors
c) Obtaining engagement letters which provide the firm with a unilateral right of disengagement
d) Review of appropriate guidance material
e) Consultation with AICPA technical staff, our firm's malpractice insurance carrier and our legal counsel
f) Withdrawal from the engagement in a manner that puts the firm's ethical responsibilities above all; however, the firm gives consideration to applying approaches which will mitigate potential litigation hazards from such threats as "abandonment" of a client, by offering clients alternatives during the separation process.
Withdrawal from the engagement in a manner that puts the firm's ethical responsibilities above all; however, the firm gives consideration to applying approaches which will mitigate potential litigation hazards from such threats as "abandonment" of a client, by offering clients alternatives during the separation process.
ACCEPTANCE AND CONTINUANCE OF CLIENTS AND ENGAGEMENTS
The objective of the acceptance and continuance of clients and engagements element of a system of quality control is to establish criteria for deciding whether to accept or continue a client relationship and whether to perform a specific engagement for that client. We recognize that acceptance or continuance of an inappropriate client is one of the greatest threats to the firm's ethical reputation, its staff morale, and to efficient operation of the firm. Our policies and procedures provide the firm with reasonable assurance that:
1. The likelihood of association with a client whose management lacks integrity is minimized.
2. The firm undertakes only those engagements that can be completed with professional competence.
3. The risks associated with providing professional services in particular circumstances are appropriately considered.
4. An understanding with the client regarding the services to be performed is reached.
Our firm satisfies this objective, with respect to the initial period for which the firm is performing its service and for subsequent periods, by establishing and maintaining the policies and procedures described hereinafter.
Policy 1
The firm evaluates factors that have a bearing on management's integrity. Our firm implements this policy by:
a) Informing personnel for the firm's policies and procedures for accepting and continuing clients, including those outlined in the firm's practice aids.
b) Obtaining and evaluating available financial information regarding the client and its operations such as annual reports, interim financial statements, reports to and from regulators, income tax returns, and credit reports before accepting or continuing a client.
c) Making inquiries of client management about the nature and purpose of the services to be provided, and our firm's suitability for the engagement.
d) Making inquiries of the client's bankers, factors, attorneys, credit services, law enforcement (when appropriate) and others who have business relationships with the entity.
e) Doing a Google name search for the name of the proposed client and related parties
f) Communicating with the predecessor accountant or auditor when required or suggested by professional standards.
If after taking the steps described above, the firm is unable to obtain sufficient information about the prospective client, or there is an indication that management or someone affiliated with the prospective client may be less than reputable, the firm refuses the engagement.
Policy 2
The firm (a) evaluates whether the engagement can be completed with professional competence, (b) undertakes only those engagements that can be completed with professional competence, and (c) considers the risk associated with providing professional services in particular circumstances. Our firm implements this policy by:
1. Evaluating whether the firm has obtained or can reasonably expect to obtain the knowledge and expertise necessary to perform the engagement.
2. Specifying conditions that trigger the requirement to reevaluate a specific client or engagement. The following are examples of such conditions:
a. Significant changes in the client, for example, a major change in senior client personnel, ownership, advisors, the nature of its business, or the financial stability of the client.
b. Changes in the nature or scope of the engagement, including requests for additional services.
c. Changes in the composition of the firm, for example, the loss of and inability to replace key personnel who are particularly knowledgeable about a specialized industry.
d. The decision to discontinue services to clients in a particular industry.
e. The existence of conditions that would have caused the firm to reject the client or engagement had such conditions existed at the time of initial acceptance.
f. The client has been delinquent in paying fees. (This may also affect the firm's independence.)
g. Engagements for entities operating in highly specialized or regulated industries, including governmental entities, and employee benefit plans.
h. Engagements that require a burdensome amount of time to complete relative to the available resources of the firm.
i. Engagements for entities in the development stage
j. Engagements in which the client has ignored prior recommendations, for example, recommendations that address deficiencies in internal control.
3. Obtaining relevant information to determine whether the relationship should be continued, and establishing a frequency for evaluations (for example, continuance decisions are made at least annually.) Annually, the managing partner asks for staff input on clients who should be terminated.
4. Evaluating the information obtained regarding acceptance or continuance of the client or engagement by having:
a. The engagement partner evaluates the information obtained about the client or the specific engagement, including information about the significance of the client to the firm, and makes a recommendation about whether the client or engagement should be accepted or continued.
b. The engagement partner completes a client acceptance form and submits it to the managing partner for approval.
c. The engagement partner signs a step in the planning program concerning client continuance, and completes a form documenting client continuance if conditions exist that trigger the requirement between annual audits to reevaluate a client or engagement.
d. The managing partner evaluates and approves the recommendation made by the engagement partner. If the managing partner recommends not accepting a client or discontinuing a client relationship, the managing partner discusses his or her reasons for the acceptance or continuance decision with appropriate members of the firm.
Policy 3
The firm obtains an understanding with the client regarding the services to be performed. Our firm implements this policy by obtaining, for all engagements, a written and signed engagement letter thus minimizing the risk of misunderstanding regarding the nature, scope, and limitations of the services to be performed
Policy 4
The firm monitors client ethical conduct and behavior on an ongoing basis, by maintaining regular dialogue with those clients who are likely to have the greatest impact on quality control, such as audit, attestation and compilation clients. The firm also is usually engaged to deal with non-attestation engagements (such as assisting with income, payroll or sales tax audits) which often give insight into the client's ethical standards. When the firm becomes aware of a breach of ethical conduct by the client, the firm will evaluate whether continuation of the business relationship is in the best interest of maintaining the firm's standards. The firm also evaluates whether previously issued financial statements can be relied upon. If the client's ethical issue results in a conclusion that the matter does not need to result in disengagement, the matter is documented in the Audit Strategy memo for the subsequent year or in the client acceptance document for the engagement. If the matter appears to be leaning towards a conclusion that the firm wishes to disengage, the firm will inquire of both the firm's E & O carrier, and legal counsel, to determine the extent of documentation and location of maintenance of the documentation, as advised by legal counsel. In such instances, the managing partner is the final authority on continuance decisions.
