Completed Engagement Monitoring per CSQM for Sole Practitioners

Subsequent to our annual non-assurance common practice review deficiencies webinar, we received several enquiries related to the completed engagement monitoring (i.e. cyclical monitoring) as per the CSQM standards. The guidance below should help explain what this typically looks like for a sole practitioner.

What is Monitoring

A firm performing “related services engagements” is required to comply with CSQM 1 and CSQM 2. The “related services engagements” includes conducting compilation engagements pursuant to CSRS 4200.

Per CSQM 1 paragraphs 38 and 39, and the application material copied below, compliance with CSQM 1 includes the inspection of at least one completed engagement for each engagement partner as part of the monitoring activities.

Please note that the completed engagement monitoring is different from including an engagement quality reviewer on an engagement file pursuant to CSQM 2. CSQM 2 deals with the appointment and eligibility of an engagement quality reviewer, and the performance and documentation of the engagement quality review.

While a CPABC practice review may review the same completed engagement that was included in the firm’s monitoring activities, these activities differ. The firm is tasked with complying with CSQM standards; the purpose of the CPABC practice review is to assess the compliance with the CPA Canada Handbook and other relevant legislation. Additional information about the practice review process can be found at this link: https://www.bccpa.ca/member-practice-regulation/public-practice/practice-review/

As a sole practitioner, you would be the assigned person who takes ultimate responsibility and accountability for the firm’s system of quality management. Paragraph 39 prohibits the engagement team members or the engagement quality reviewer of an engagement from performing any inspection of that engagement. Sole practitioners often don’t have the resources internally to comply with paragraph 39, since the practitioner is considered a team member on every engagement. Therefore, an outside accountant may be engaged to perform the monitoring work. It is common practice for sole practitioners to perform this work for each other, however, each practitioner should ensure that the other practitioner is competent and capable of undertaking such work.

CSQM 1

2. Engagement quality reviews form part of the firm's system of quality management and:
    
   • This CSQM deals with the firm's responsibility to establish policies or procedures addressing engagements that are required to be subject to engagement quality reviews.
   • CSQM 2  deals with the appointment and eligibility of the engagement quality reviewer, and the performance and documentation of the engagement quality review.

38. The firm shall include the inspection of completed engagements in its monitoring activities and shall determine which engagements and engagement partners to select. In doing so, the firm shall:
     
    • Take into account the matters in paragraph 37;
    • Consider the nature, timing and extent of other monitoring activities undertaken by the firm and the engagements and engagement partners subject to such monitoring activities; and
    • Select at least one completed engagement for each engagement partner on a cyclical basis determined by the firm.

A141. The nature, timing and extent of the monitoring activities may also be affected by other matters, including:

A153. The inspection of completed engagements for engagement partners on a cyclical basis may assist the firm in monitoring whether engagement partners have fulfilled their overall responsibility for managing and achieving quality on the engagements they are assigned to.

39. The firm shall establish policies or procedures that:
     
    • Require the individuals performing the monitoring activities to have the competence and capabilities, including sufficient time, to perform the monitoring activities effectively; and
    • Address the objectivity of the individuals performing the monitoring activities. Such policies or procedures shall prohibit the engagement team members or the engagement quality reviewer of an engagement from performing any inspection of that engagement. (Ref: Para. A155-A156)

Further Questions?

Should you have further questions about the above please write our member advisory services team at professionaladvisory@bccpa.ca for additional guidance.

Other Resources

Public Practice Knowledge Base Collection - Monitoring & Quality Management