The Auditing Standards Board of the American Institute of Certified Public Accountants has issued an exposure draft of a proposed Statement on Quality Control Standards (SQCS) entitled A Firm’s System of Quality Control.  The proposed Statement deals comprehensively with a firm’s quality control practices in the areas of audits, reviews and compilations and other attestation engagements. It would replace all existing SQCSs.

The proposed Statement differs from existing SQCSs in several ways, including the following:

• The Statement defines the engagement quality control review (often referred to as a concurring review) and requires firms to establish criteria to determine which engagements are to be subject to an engagement quality control review.
• The Statement also defines the terminology to be used to describe the degrees of responsibility that the requirements in SQCSs impose on firms. Both unconditional requirements and presumptively mandatory requirements must be followed in all cases in which the circumstances exist to which the requirement applies; however, in rare circumstances, the firm may depart from a presumptively mandatory requirement provided the firm documents its justification for the departure and how the alternative procedures performed in the circumstances were sufficient to achieve the objectives of the presumptively mandatory requirement.
• The Statement recognizes the importance of a quality-oriented internal culture, and requires firms to assign its management responsibilities so that commercial considerations do not override the objectives of the system of quality control, and to design its policies and procedures addressing personnel performance evaluation, compensation and promotion to demonstrate the firm’s overarching commitment to quality.
• More detailed guidance is provided regarding independence, client acceptance and continuance, engagement supervision and review, engagement documentation, and consultation policies and procedures.
• Policies and procedures are required for resolving differences of opinions and for dealing appropriately with complaints and allegations of non-compliance with professional standards or with the firm’s system of quality control.

The proposed Statement is available for comment until September 30, 2006 at http://www.aicpa.org/download/members/div/auditstd/ED_SQCS.pdf.

RSM McGladrey Inc. and McGladrey & Pullen LLP have an alternative practice structure. Though separate and independent legal entities, the two firms work together to serve clients' business needs.