The American Institute of CPAs has released an analysis of single audits and found several factors contribute to audit quality, indicating why some firms are having problems doing the audits.
In a “single audit,” an auditor examines the finances and compliance of organizations that expend $750,000 or more of federal assistance, which can come in the form of federal awards, grants, loans and loan guarantees. The goal of a single audit, which is usually performed annually, is to make sure recipients of federal funds, such as state and local governments, universities and nonprofits, are spending the funds appropriately. Typically, single audits are performed by CPAs.
The AICPA’s Peer Review Program looked at a random sample of 87 single audit engagements last year to find out what accounted for better quality audits. The three factors identified were the size of a firm’s single audit practice, the qualifications of the engagement partner, and membership in the AICPA’s Governmental Audit Quality Center.
The more single audits a firm performed every year, no what size the firm was, the more likely the single audit was to conform to professional standards. The AICPA recommended firms only accept engagements they are competent to perform. Otherwise, they should engage a knowledgeable third party to help the engagement team.
Engagement partners who conducted a number of single audits each year typically did a better job. Those who performed 11 or more single audits per year had a 75 percent rate of conformity with professional standards, compared to 56 percent who performed two to 10 single audits a year, and 32 percent for those who only did one single audit annually.
Nonconformity with professional standards jumped when an engagement partner had less than six years of experience performing single audits, had non-conforming engagements previously, and took less than nine hours of single audit-specific continuing professional education courses within the past three years. The AICPA recommended establishing firm-wide policies requiring engagement partners to take single audit-specific CPE classes, consider the need for engagement quality review and provide resources for consultation for inexperienced partners.
Firms that are members of the AICPA’s Governmental Audit Quality Center had two times greater conformity with professional standards than non-members, particularly those that performed 11 or more single audits annually.
“After a careful review of the engagements in question, we have concluded that performing a small number of audits in a specialized area, such as single audits, regardless of firm size, is more likely to result in audit quality issues,” said AICPA vice president of ethics and practice quality James Brackens in a statement.
He encouraged firms that perform a small number of audits in a specialized area to either invest in the resources needed to perform the job appropriately or refocus their practice on other areas.
“It takes a significant investment of resources to perform audit engagements, particularly in specialized industries,” said Bracken. “You only want to accept engagements that you are competent to perform. Beyond that, be certain your practice aids and Accounting & Auditing guides are up to date. Ensure that your engagement team is your ‘A’ team and is performing appropriate consultations through the engagement. Also, confirm that your Engagement Quality Control Review criteria are appropriate in light of the risks of operating in this area. And, if this is a new practice area for the firm, engage another firm that is highly experienced in the area to consult throughout the process.”
