July 1999 Issue

AICPA Defines UAA Attest Experience Requirement

Includes Peer Reviewed Firms

By James A. Woehlke, CPA

The AICPA issued an exposure draft on June 17 containing the attest experience definition in response to change in the Uniform Accountancy Act (UAA). Instead of requiring any specific length of experience to perform attest work, the exposure draft focuses on the "competencies" of attesting supervisory personnel. This attest experience requirement would apply not only in states adopting the UAA, but also to every firm participating in the AICPA Peer Review Program.

The exposure draft contains two quality control statements established by the Auditing Standards Board (ASB). The second statement, The Personnel Management Element of a Firm's System of Quality Control--Competencies Required by a Practitioner-in-Charge of an Attest Engagement, contains the AICPA's attest experience approach. The proposal would modify one of five elements of quality control that comprise a CPA firm's internal quality control systems. Those elements are as follows:

* independence, integrity, and objectivity;

* personnel management;

* acceptance and continuance of clients and engagements;

* engagement performance; and

* monitoring.

Concepts underlying the UAA would permit only registered CPA firms to provide attest services. (The term "firms" in the UAA includes sole practitioners.) In a state that adopts the UAA, CPA licensees who supervise attest services or sign or authorize others to sign accountant's reports on financial statements must meet certain experience requirements defined in professional standards. The ASB decided that the best way to incorporate the attest experience requirement into the professional standards would be to require their inclusion in CPA firms' quality control systems.

In the proposal, the ASB defines experience in terms of "competencies" rather than the length of time CPAs work on attest engagements.

"Competencies are the knowledge, skills, and abilities that enable a practitioner-in-charge to be qualified to perform an accounting and auditing engagement," the fourth paragraph of the proposal states. "A firm is expected to determine the kinds of competencies that are necessary in the individual circumstances. Competencies are not measured by periods of time because such a quantitative measurement may not accurately reflect the kinds of experiences gained by a practitioner in any given time period. Accordingly, for purposes of this statement, a measure of overall competency is qualitative rather than quantitative."

Competencies are gained through practical accounting and auditing experience, but the proposed statement allows for a practitioner to obtain necessary competencies "through disciplines other than the practice of accounting, such as in relevant industry, governmental, and academic positions." It also states that competencies can be supplemented through CPE and outside consultants. Competencies needed for an engagement will depend on the client, industry, and type of service to be provided.

The proposed statement discusses the specific competencies required for accounting and auditing engagements. The practitioner-in-charge should understand the firm's system of quality control and the AICPA's Code of Professional Conduct. The practitioner-in-charge also should understand the "performance, supervision, and reporting aspects of the engagement" and the technical standards applicable to the engagement and have an understanding of the industry in which the client operates.

Finally, the practitioner-in-charge should possess professional judgment. The proposal says this includes "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 necessary in the circumstances."

The proposed quality control statement on the attest experience requirement is slated to become effective January 1, 2000.

NYSSCPA President Alan E. Weiner formed a special task force in consultation with the Society's Oversight Committee on Accounting and Auditing, Auditing Standards and Procedures Committee, Accounting and Review Services Committee, and Peer Review Committee to prepare the Society's comments on the exposure draft.

SQCS No. 2 Revision

The other quality control statement contained in the exposure draft revises Statement on Quality Control Standards (SQCS) No. 2, System of Quality Control for a CPA Firm's Accounting and Auditing Practice (AICPA, Professional Standards, vol. 2, QC sec. 20). The revision to SQCS No. 2 would require that a firm's quality control policies and procedures address the AICPA SEC Practice Section's membership requirement, which mandates concurring partner reviews of all SEC registrants. Specifically, the proposal would change paragraph 18 of SQCS No. 2 to read as follows:

Policies and procedures for engagement performance encompass all phases of the design and execution of the engagement. To the extent appropriate and as required by applicable professional standards, these policies and procedures should cover planning, performing, supervising, reviewing, documenting, and communicating the results of each engagement. Where applicable, these policies and procedures should also address the concurring partner review requirements applicable to SEC engagements as set forth in membership requirements of the SEC Practice Section of the AICPA. (Italics denote language proposed to be added.)