FAQs Quality review program

Recently released quality review results indicate practitioners are not always providing a statement in writing to their clients clarifying their clients’ responsibilities.

Following the release of the Institute’s Quality Review Annual Report for the year ended 30 June 2011, we can identify the most common departures from standards and legislation reported by the Institute’s quality reviewers in the past year.

Although overall results were pleasing, one issue leaps to the eye; 48% of practices reviewed during the year did not provide all the statements to their clients required by APES 220: Taxation Services. The most common omission was a statement clarifying the client is responsible for the accuracy and completeness of the information they provide.  This is required by APES 220 as the APESB is of the view that documenting the terms of engagement represents best practice and is also instrumental in resolving any disputes.

The Tax Practitioners Board (TPB) has a similar view: 'A common understanding and communication between the agent and the client clarifies the responsibilities of the agent and the client and how the work is to be paid for.' Providing advice of the taxation rights and obligations that are materially related to the services that an agent provides is one of the requirements of the agents’ Code of Professional Conduct (Code) in the Tax Agent Services Act 2009 (TASA).

To assist members fulfil the requirements of APES 220, as well as APES 305 Terms of Engagement and the TPB’s requirements, the Institute has released a sample engagement letter for tax engagements, available as part of the Institute’s Tax everyday tools (hint: go to the bottom of the list of tools to find the sample letter).

Although this communication to the client needs to be in writing, it is not required to be in the form of a letter. Other acceptable forms of communicating in writing could include a handout, brochure, leaflet or electronic communication.

At the end of a reviewer’s second visit to an accounting practice, the reviewer prepares their Findings and Suggestions report. It includes: the review findings; suggested improvements; comments on any weaknesses, or inadequacies, in quality control; and recommended corrective action.

The draft report is discussed with the practitioner, or partners, whose engagements have been reviewed and the reviewer may make amendments. In most cases any differences of opinion or misunderstandings between the reviewer and practitioner are clarified at this stage.

Before the reviewer sends their final Findings and Suggestions report to the Institute the practice receives a copy for comment. If you want to add explanations or do not agree with the reviewer’s comments this is the ideal opportunity to include your reasons, and provide documents to support your reasoning. These should be returned to your reviewer within two weeks so your comments can be included in the package the reviewer sends to the Institute. If the Institute receives a Findings and Suggestions report from a reviewer that does not include any practice comments, we write to the practice encouraging them to comment.

In preparing the Institute review results letter, we consider all documents and reports that relate to the review, including the reviewer’s Findings and Suggestions Report, and, if available at the time, comments from the practice.

If you are an experienced chartered accountant who works, or has recently worked, in public practice you may be eligible to become an Institute quality reviewer. Selection criteria include:

• Your practice successfully undergoing an Institute quality review
• Positive references from your reviewer and/or other professional referees
• Experience and registrations where appropriate to match practices under review, for example reviewers from small or sole practices that are Registered Company Auditors are potentially suitable reviewers for smaller practices that conduct assurance engagements
• Completing a one day reviewer training program at the Institute offices

If you are interested in becoming a reviewer and believe you meet the selection criteria, we would be pleased to hear from you. Please contact Suzanne Smith, Quality Review Administrator: Suzanne.Smith@charteredaccountants.com.au or telephone 02 9290 5723.

Your reviewer needs to establish whether your practice has the quality control policies and procedures in place to comply with professional standards and legal requirements. Provided records are maintained and retained in accordance with legislation and other requirements, most of which permit electronic systems, a paperless office will not impact on the outcome of your review.

However, there are some practical issues that add a different dimension to your review:

• The Institute will need to nominate a reviewer for your review with appropriate experience. To assist with this please notify the Institute on your Confidential Practice Information Questionnaire that you have a paperless office.
• During your review, your reviewer will consider whether your quality control system has suitable policies and procedures for a paperless office, for example appropriate procedures to maintain the integrity of electronic documents.
  

An Affiliate member 1 is required to agree to be bound by the Institute's Code of Ethics, in accordance with the Supplemental Royal Charter and By-laws, and to comply with the Institute’s requirements such as Training and Development, Quality Review and Professional Indemnity Insurance.

This means an Affiliate member will need to be included in an Institute quality review. Alternatively, the affiliate could be included in a CPA Australia review as the Institute and CPA Australia have a reciprocal arrangement regarding quality reviews. So that the Institute can accept the CPA Australia review, it is essential the CPA review documents identify by name the affiliate (and any Chartered Accountants where relevant) included in the CPA Australia review.

If the affiliate has been reviewed by a body or regulator other than the Institute or CPA Australia this does not satisfy the Institute’s quality review requirements. However, the Institute’s review may be able to place reliance on that other body’s work, provided the other body has provided sufficient documentation to rely on. This may reduce the time and cost of an Institute review.

Where a chartered accountant enters into practice with persons who are not members of the Institute, the practice is not entitled to use the description “Chartered Accountants”. However, in certain situations, non-members who are principals of a practice that includes chartered accountants as principals can apply to become affiliate members of the Institute. If all of the principals of a practice are either chartered accountants or affiliates, then the practice will be entitled to use the description “Chartered Accountants” to describe the practice.

No, every practice is reviewed regularly, regardless of size. As approximately 75% of all Institute practices are sole practitioners there could be the impression that sole practitioners are over represented, but this is not the case.

There are sometimes exceptional circumstances that means it is appropriate to defer a review, for example because of the serious illness of a practitioner or close family member.

If you wish to defer your review due to exceptional circumstances, you need to apply in writing to the Manager, Quality Review at the Institute explaining the reason for the request, the requested length of deferral and enclosing supporting documentation such as medical certificate.  You also need to return their completed Confidential Practice Questionnaire, if this has not already been done.

The Institute requires this documented evidence of exceptional circumstances from members to demonstrate the integrity of the review program, and to fulfil the Institute’s obligations to regulators.

Requests for deferral will be granted only in the case of exceptional circumstances which may include a family death, serious illness or a practice merger or demerger.

Work pressures would not normally constitute exceptional circumstances.

To assist members with this process we prepared the Quality Control Guide. Designed in Microsoft Word, the guide can help practices meet the requirements of APES 320: Quality Control for Firms and ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports, Other Financial Information and Other Assurance Engagements. It includes guidance notes and template documentation that can be tailored to individual practices.

Members can access the guide by clicking here.

A practitioner with a Full Certificate of Public Practice who does not sign off on audits requiring a registered company auditor registration and with fees of less than $50,000 per annum is eligible to request a self assessment review.

If you wish to request a self assessment review, when you receive a letter from the Institute notifying you that you have been selected for review you need to write to the Manager Quality Review informing the Institute of your request. In your letter you need to outline that you satisfy the conditions for a self assessment review, and also attach evidence that your fees are less than $50,000 per annum. Usually a copy of your most recent tax return and tax assessment will be appropriate. The Institute will then consider your request.

The Institute requires this documented evidence of compliance from members to demonstrate the integrity of the review program, and to fulfil the Institute’s obligations to regulators.

Throughout the whole review process the identity of the practice and its clients is totally confidential.

The reviewer does not document client details such as names, and the practice retains the client consent letters. Only information to identify the type and size of client is documented in the review workpapers, for example the legal structure of the client and the net assets or total revenue. In rare circumstances the review results are referred to the Institute’s professional conduct team in which case the identity of the practice is revealed to the professional conduct staff and their confidentiality procedures are applied.

Quality review results letters, and any associated correspondence, are kept on file by the Institute. This allows quality reviewers to see how practices have progressed over time, by comparing the review result with the previous result. It will also allow the Financial Reporting Council (FRC), and its consultants, to oversee the Institute’s work. The information will be treated confidentially, and will not be shared with any other third party.

The Institute and CPA Australia have a reciprocal arrangement regarding quality reviews. While the review programs are operated separately by the individual bodies, a review by one body is fully recognised by the other body.

If your practice is selected for review by the Institute and you and your partners have recently been reviewed by CPA Australia, or are undergoing a CPA Australia review, you need to notify the Manager, Quality Review at the Institute. CPA Australia reviews individual practitioners, whereas the Institute reviews all the Chartered Accountants that are practitioners in a practice. This means you need to ensure all partners that are Chartered Accountants in your practice are included in the CPA Australia review, and that the CPA documents you send to the Institute demonstrate this.

If you are currently undergoing a CPA Australia review, please send the Institute a copy of the CPA Australia letters notifying you and your partners of your reviews. If you do not have appropriate letters you will need to contact CPA Australia requesting written confirmation that all the Chartered Accountant practitioners in your practice are under review by CPA Australia. Once your review is complete you will also need to send the Institute copies of the CPA acceptance letter for each relevant partner, confirming the review is complete.

On receipt of these documents, the Institute will confirm you are exempt from an Institute review where appropriate, or contact you to discuss your situation further.

If you have any queries on this issue, please contact Suzanne Smith, Quality Review Administrator at the Institute on 02 9290 5723.

Practices are selected for review every three years if a practitioner in the practice is an RCA. All other practices are reviewed once every five years, including practices containing an RCA but not conducting RCA audits.

If your practice is selected for review on a three year cycle, but does not actually conduct any audits requiring sign-off by an RCA, you need to write to the Manager Quality Review at the Institute explaining your practice does not sign off on any RCA audits. You also need to enclose a copy of the RCA’s most recent ASIC annual statement (form 912). If appropriate, the practice will then be included in the five year review cycle.

The Institute requires this documented evidence of compliance from members to demonstrate the integrity of the review program, and to fulfil the Institute’s obligations to regulators.

The results letter the Institute sends to a practice at the end of a review is based on all the documents and reports that relate to the review, including the reviewer’s Findings and Suggestions Report, and, if available at the time, comments from the practice.  If the reviewer has raised any issues of best practice, these are largely excluded from the assessment and from the final report written to the practice by the Institute. 

If you would like to discuss your results letter further, contact Suzanne Smith, Quality Review Administrator at the Institute on 02 9290 5723 or email suzanne.smith@charteredaccountants.com.au and she will arrange for an appropriate staff member to speak with you.

If your practice has been recently reviewed by CPA Australia, you may be exempt from an Institute review. For more information refer to the FAQ: I am already being reviewed, or have recently been reviewed by CPA Australia. Do I need an Institute review?

If your practice has been reviewed by another body or regulator, the Institute’s review will place reliance on that other body’s work, provided the other body has provided sufficient documentation to rely on. This may reduce the time and cost of an Institute review.

This is a questionnaire sent to practices selected for a review. It is designed to collect data from the practice that is then used to select an appropriate reviewer and to calculate the estimated fee for the review of that particular practice. It also identifies any practices selected for a full review who may be eligible for a self assessment review.

You can find copies of the questionnaires a reviewer will use during an Institute quality review on the Institute’s website.

Quality review questionnaires

All reviewers are experienced practitioners.  They do not expect the level of documentation and scope of internal review for a large practice to be duplicated and implemented by a small practice.  They do expect that practices adopt and document quality control systems appropriate to their particular needs and circumstances and which comply with APES 320: Quality Control for Firms and ASQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Reports, Other Financial Information and Other Assurance Engagements.

The Institute’s Quality Control Guide includes sample policies and procedures to assist members in implementing quality control and these also indicate the sorts of documentation that reviewers are looking for.  For each engagement the reviewer will expect documentation that demonstrates compliance with standards and other regulatory and legal requirements.  For example, if any threats to independence have been identified, the reviewer would expect the threats and safeguards to be documented.

The Institute’s Board, at the time the review program was introduced and after much debate, determined the policy of recovering the costs of reviews from reviewees. This policy was decided on primarily because it results in practices with appropriate quality systems and procedures paying less per partner for their reviews than practices where the quality system is inadequate and a follow up review is required.

The fee invoiced to a practice for a review includes both the cost of the reviewer plus an amount to cover the Institute’s direct costs for reviews. The Institute’s costs charged to practices do not include general administration of the review program or any other Institute activities.

As a result of this policy Regulation 715 requires all practitioners to pay the amount invoiced as a result of the review program. Failure to comply with the Regulations may result in referral for disciplinary action.

Click here to find out more about review fees.