Practice Inspection

Objectives of the Practice Inspection Program

Practice inspection is a key component of CPA Saskatchewan’s monitoring function within our regulatory framework. Practice inspection operates under the applicable Regulatory Bylaws and Rules, mainly within the 27 and 327 series respectively.

All registered firms providing services to clients in Saskatchewan are subject to practice inspection notice. Inspections are performed by CPA Saskatchewan on a sample, as applicable, of audit, review, other assurance, and compilation engagements executed by licensed firms that are not subject to practice inspection within another jurisdiction.

The main objective of the practice inspection program is to protect the public. This is achieved through:

inspection of a firm’s compliance with all applicable professional standards (i.e., relevant standards for accounting, quality management, assurance, related services, and the Rules of Professional Conduct); and,
tailored outcomes intended to specifically address non-compliance and other risks noted in an inspection.

A secondary objective of the practice inspection program is to provide firms with education including information about available tools to assist in them in complying with applicable professional standards and in making positive improvements to overall engagement quality. It is expected that firms will promptly adopt guidance and tools that are mandated through the inspection outcomes and to consider how to incorporate any educational materials provided.

Firms Subject to Inspection and Frequency of Inspection

All registered firms, regardless of the services offered by that firm, are subject to notification of practice inspection. Some firms may be approved for a waiver of practice inspection when they carry out certain services that are not subject to practice inspection (defined within the Bylaws as “other regulated services”), when they are not actively providing inspectable services to the public, or when the firm is inspected by another provincial body (i.e., an affiliate firm). Waivers for affiliate firms are assessed on a case-by-case basis and are approved by the Registrar (or the Chair and Vice Chair of the Professional Practice Committee (“Committee”) in some cases) in accordance with Regulatory Board Rule 327.12, depending on the results of inspection in the other jurisdiction and the extent of their professional practice within Saskatchewan.

Licensed firms carrying out inspectable services by practicing in assurance engagements (i.e., the firm executes audit, review, and/or other assurance reports) and/or by practicing in compilation engagements are subject to the practice inspection process. As nearly all registered firms in Saskatchewan are also licensed (holding one of three tiers of licensing: comprehensive, specified and compilation licences), most firms are inspected.

Bylaws 327.3 to 327.5 outline the inspection cycle. Practice inspections are carried out on a four-year, risk-adjusted cycle, meaning that some firms will be inspected more frequently than once every four years and some may reach the maximum of four years between inspections. Firms who audit reporting issuer clients (i.e., registered with the Canadian Public Accountability Board (CPAB) are required to be inspected every three years, at minimum. For newly licensed firms, a practice inspection is completed within the first twelve months of operations or when at least a minimum number of assurance and/or compilation engagements have been completed by the firm. Firms who were unsuccessful in a previous inspection are subject to reinspection within the timelines as directed by the Committee and not more than one year of the previous inspection decision as outlined in Board Rule 327.5.

Further to the requirements outlined within the Bylaws and Board Rules, the Committee annually approves the Practice Inspection Program which includes details about the procedures and requirements for the practice inspector to complete and the Committee’s decision model (which supports Bylaw 27.4).

The Inspection Process and Outcomes

The duties of the practice inspector and the procedures for inspections are outlined in Board Rules 327.13 to 327.18. The duties of the firm are outlined in Board Rules 327.19 to 327.20. During the practice inspection, the inspector selects a risk-targeted sample of the firm’s client engagements, covering (to the extent possible):

all service areas practiced by the firm (audits, reviews, other assurance, compilations),
various financial reporting frameworks for assurance clients,
various industries, and
any areas of higher risk as identified by the firm, engagements requiring engagement quality reviews, or areas of risk identified through other regulatory activities, as applicable.

Within the sample of engagements selected for inspection, the inspector may identify deficiencies in the firm’s compliance with professional standards in material or significant classes of transactions, account balances, and disclosures and in engagement file documentation. These are classified into and referred to as ‘reportable deficiencies’. Reportable deficiencies are accumulated into a report provided to the firm and to the Committee. Based on the nature, frequency, significance and seriousness of the reportable deficiencies identified within an engagement inspected as well as the pervasiveness of the deficiencies across the engagement files inspected (i.e. the whole inspection), the inspector assesses and recommends one of three categories of inspection outcomes (summarized and grouped from within Regulatory Bylaws 27.4 and Regulatory Board Rules 327.7 and 333.20):

Meets Requirements (Comply): no further action is required but the firm is expected to address the reportable deficiencies (if any) within its next engagements. The firm will be inspected in the next practice inspection cycle;
Meets Requirements with Action Plan (Comply): the firm is required to submit an action plan for review and approval that outlines the specific actions the firm will undertake going forward to address all reportable deficiencies. The inspector may also recommend the Committee consider other remedial actions, such as recommending the members of the firm complete professional development in specific topics or that the firm develop review processes to ensure its templates and checklists are reflective of current professional standards. The firm is expected to promptly address deficiencies immediately and not wait for decision by the Committee or action plan approval to take action on deficiencies. After review, when the action plan and any other actions are deemed satisfactory, the firm will then be inspected in the next regular practice inspection cycle; or
Does Not Meet Requirements (Non-comply): Within this category, there are a range of consequences to the firm:

a. The firm is required to undergo a re-inspection within a certain period of up to one year, either in one area specifically (i.e., partial re-inspection) or in all areas of practice (i.e., full re-inspection). Other actions may be considered by the Committee, such as the requirement for the members of the firm to complete continuing professional development (CPD) in a specific topic, or to update/amend firm templates, tools or checklists to be reflective of current standards, or for the firm to update its system of quality management (SOQM) policies and procedures to be reflective of current standards. Any required actions would become conditions on the licences of the member and/or firm, as applicable.

b. The inspector may recommend that the Committee place restrictions on the licences of a member and/or firm, which may include specific reporting requirements or the requirement for the licensed member(s) of the firm to obtain monitoring/supervisory services from another licensed member (either internal or external to the firm).

c. Considering the seriousness of risks posed to the public, the inspector may recommend the Committee cancel a licence and/or may raise a complaint to the Professional Conduct Committee to proceed through the professional conduct process.

Committee Decision for Inspection Outcome

In all cases, the determination of the outcome(s) of an inspection is decided by the Committee. In making this decision, the Committee assesses the completeness of the inspection report (and finalizes it if complete) and the risk to the public posed by the deficiencies identified within the inspection report; while considering the inspector’s recommendations and the firm’s written comments, if provided. Taking all of this into account, if there is low risk or potential risk to the public identified, this would typically result in a “Comply” assessment made by the Committee with the requirement to submit an action plan to address potential risks. If there is serious risk to the public identified within the deficiencies raised either within one engagement inspected or the whole inspection, this would typically result in a “Non-Comply” assessment by the Committee with the range of outcomes noted above depending on the assessment of extent of the risk to the public. When determining the outcome of a practice inspection, the Committee’s considerations may also include other factors, but are not limited to:

the public interest;
the extent to which the requirements of the Practice Inspection Program have not been met;
the nature, pervasiveness and severity of the reportable deficiencies;
whether any deficiencies indicate a breach in the Rules of Professional Conduct;
if received for Committee review, the adequacy of the firm’s action plan and commitment towards rectification of issues identified and towards improving overall firm quality;
the cooperation of the member/firm throughout the process; and
on a re-inspection, the results of the previous practice inspection(s) of the member/firm and the degree to which the member/firm addressed deficiencies identified in the previous inspection(s) and the extent of new deficiencies.

To ensure objectivity of all inspection decisions, all information provided to the Committee is on an anonymous and redacted basis. The Committee is provided with the details about the inspection outlined under Rule 327.14 which include the name of the practice inspector, that date of the inspection, a profile of the practice, the number and type of files reviewed, a listing of reportable deficiencies and written comments from the firm. The profile of the practice includes certain demographic information about the firm (e.g., the number of licensed members within the firm, number of engagements recently completed and total engagement hours for each type of engagement, whether the firm trains CPA candidates, whether there is a history of re-inspections within the inspection cycle, information about any licence conditions or restrictions, and indication whether the firm has undergone a practice administration review previously). This demographic information is used by the Committee to determine the extent of risk to the public.

Committee Composition and Representation

Committee members represent various geographic regions across the province and range in representation of all firm sizes (sole practitioner, regional and large national firms).

CPA Saskatchewan is appreciative of each of the Professional Practice Committee members for their contributions to the practice inspection process and invaluable expertise over this past year.

Practice Inspection Deficiencies

Some of the details within the firm newsletter are also published here on our website.

The goal of firms should always be to continually improve the quality of their work performed in line with professional standards, regardless of their inspection results.

Ways to Continuously Improve Quality in Your Practice

We continue to remind all firms about the following “tips for practice success”:

Continuously refer to and refine your firm’s documented system of quality management. Along with the requirements to complete and document an annual evaluation, ongoing monitoring, and cyclical monitoring, invest the time to continually assess and refine the quality risks and the associated responses related to your firm. Firms who continuously monitor and adjust processes for quality risks as they arise have observed measurable improvements in their quality. These improvements translate into efficiency gains, saving time and money on the next engagement.
Keep up to date on all changes in professional standards and the latest in best practices through high-quality, in-depth, relevant continuing professional development (CPD). Take the time to understand your clients’ needs and assess them against your recently completed learning activities to identify any knowledge gaps. While short or micro-learning webinars are useful for highlighting current or upcoming changes, they often do not provide sufficient depth or address important areas of practical application. Prioritize in-depth courses that incorporate progressive learning to support a comprehensive technical understanding of the standards. Once learning is completed, ensure the knowledge is applied promptly in your engagement work.
Ensure all tools, checklists and other materials are reflective of current standards. Regardless of the source of the tools and checklists used, remember that they are only aids and do not replace professional judgement. You remain fully responsible for meeting all applicable professional standards for each engagement. Some tools and checklists may be summarized or condensed and may not address every situation. Ensure the tools and checklists used are current and appropriate to each engagement.
Set up a system to regularly check for updates to all subscriptions and to ensure you are getting all necessary updates. Review each subscription for accuracy and completeness. Assess the appropriateness of all updates or revisions made by the provider. Proceed carefully when modifying a template or checklist or applying it outside its intended use, as doing so may increase the risk of non-compliance with the applicable professional standards. Within engagement files, check on the “date last updated” in forms and /checklists. If it has been more than a couple years since last updated, it is time to get new templates. Be sure to roll out template changes to all engagements and develop a monitoring system to confirm all files are up to date.
Set fees appropriately for the work done. Fees should reflect the value of the work required to be performed. Regardless of the fees charged, engagement work must be sufficient and appropriate, subject to proper supervision and file review, and staffed with appropriately qualified resources to ensure compliance with all relevant professional standards and agreed-upon client deadlines.
Only take on or continue with engagement work that is within your skill set and capacity. Be prepared to decline the acceptance or continuance of client engagements that are, or have become, too complex to be completed appropriately, or for which you lack sufficient resources to staff adequately. Recognize and learn to respect your professional limitations, and consider developing relationships with other professionals who can be engaged to provide consultation on complex engagement matters. When uncertain how to proceed on a client matter, consider contacting us for free, confidential practice advisory services at monitoring@cpask.ca.
Fully document all engagement files, at the right stage and throughout the engagement. The engagement file must “tell the story“ of the engagement and clearly document all significant decisions and professional judgments made. Documentation should include sufficient detail to enable an experienced practitioner to understand how and why those decisions were reached. The engagement file must be documented to the extent that an experienced practitioner, having no prior knowledge of the client or engagement, can understand the entity and its circumstances, follow how the engagement was performed, and arrive at the same conclusions as the practitioner who performed the work.
Ensure engagement file review and supervision of any staff working on the engagement file is carried out at appropriate stages. Engagement files should be fully documented and reviewed before the engagement report is issued. The typical 60-90 day post report-issuance period is intended for administrative engagement file clean-up (such as ensuring all signed documents and final issued items are on file) and should not be used to perform procedures required to be completed prior to report issuance.

We strongly encourage firms to utilize the wide range of available resources and guidance materials published by the profession. Firms are also encouraged to stay informed of changes in professional standards, regulatory requirements, and other developments that may affect the practice of the profession. CPA Saskatchewan staff can direct you to applicable resource materials by contacting monitoring@cpask.ca.

Key Observations – by area

Many of the issues/areas requiring attention reported in 2024-25 continue to be observed by inspectors in 2025-26. Further, we include details about areas needing attention within the Spring 2025 Focus on Firms newsletter that continue to remain applicable for 2025-26. These will not be repeated in this article, however may be referenced by going to: https://cpask.ca/public/plugins/pdfs/25cpa003_june_firm_focus-1751057295.pdf

In our Spring 2024 Focus on Firms newsletter, we published a listing of the most commonly reported deficiencies in each of the areas of audit engagements, review engagements, compilation engagements, and quality management standards, and the various financial reporting frameworks (note: IFRS is not included as this framework is not frequently inspected). These deficiencies continue to remain our most commonly reported in 2025-26 and are not re-published in this year’s article. You may find these included at: https://cpask.ca/public/plugins/pdfs/24cpa003_focus_on_firms_spring2024_newsletter-1716310891.pdf

Note: The deficiencies listed in previous inspection articles either alone or in combination with other deficiencies may or may not result in a firm being unsuccessful on a practice inspection. We encourage the firm to use the 2025-26 article in combination with the articles published in June 2025 and June 2024 to assess where their engagement files may require more documentation to comply with the professional standards.

Ethical requirements - independence documentation

Within assurance engagements inspected, firms:

did not adequately identify and document independence prohibitions and did not discontinue the engagement, where required;
did not adequately identify and document threats to the practitioner’s independence (e.g., carrying out other client engagement services such as bookkeeping or taxation services while also carrying out the assurance engagement);
did not adequately identify and document the safeguards that were used by the firm to address identified independence threats (e.g., management’s detailed review and approval of all adjusting entries prepared by the practitioner, including taxation entries);
did not implement safeguards that were adequate to address an identified independence threat or used insufficient safeguards to inappropriately justify the mitigation of independence threats (e.g., inadequate separation of staff from the assurance engagement and other engagements carried out by the firm); and/or
did not reassess independence when circumstances had changed during the engagement.

While compilation engagement standards do not require the firm to be independent, an assessment of independence must still be documented and assessed within the engagement file. Disclosure may be required within the compilation engagement report.

Firms are reminded to ensure that:

All members and staff are aware of all prohibited services (for assurance engagements specifically). Firms can access the guidance resources provided with the Rules of Professional Conduct to help in their assessment of whether the service they intend to provide is a prohibited service. Firms cannot carry out a prohibited service for any reason to ensure they maintain full independence (including the perception thereof) and objectivity (i.e., a threats and safeguards approach cannot be used for these situations¹
Where there is a threat to independence that is not clearly insignificant, but is not a prohibited service, the engagement file accurately and clearly describes the threat, fully documents all services provided by the firm, clearly documents all safeguards used to mitigate the threat and documents the outcome of the safeguard(s) used. If there are changes to services provided or staff on the engagement at any point throughout the engagement, this assessment must be revisited. Reconfirm the appropriateness of the safeguards and the conclusion that they were adequately used before completing the engagement.
The assessment of a clearly insignificant threat is well-documented within the engagement file. This assessment cannot be made as a blanket across all engagements of a similar type completed by the firm and must be made for each file individually based on its own merits.

Remember – the title of each audit or review engagement report clearly states this is the work of an independent practitioner! Be prepared to decline the engagement or to adjust the services the firm provides if independence and objectivity cannot be maintained for any reason. The principle of independence is central to the integrity of the accounting profession. Firms who do not maintain their independence and objectivity will face a complaint raised to the Professional Conduct Committee.

¹ https://www.cpask.ca/public/CKeditorUpload/Protecting_the_Public/Documents/2022-06-01_FINAL_BOARD_APPROVED_RPC_with_Guidance.pdf

Financial Statement Presentation and Disclosure (note IFRS references are not included as financial statements prepared under this framework are infrequently inspected)

Be Careful with your Cash Flow Statement (Part II, 1540.18, .19, .23, .24)

This is a very useful financial statement for users to understand either how they will be repaid for their loans or other borrowing and where the money earned by the entity is going. Correct classification to aid in their understanding is really important. We have observed increased misclassification between investing and financing activities. Remember: Due to goes into financing activities and due from goes into investing activities. Cash flows cannot be reported as a lumpsum (i.e. inflows and outflows must be categorized separately). Firms must be careful to check that non-cash transactions are removed (e.g., unrealized items or capital leases) from the cash flow statement and to disclose those details separately.

Are all accounting policies disclosed? (Part II, 1505.03 and 1505.06)

Inspectors often observe missing disclosure of the accounting policies for cash and cash equivalents, financial instruments (including related party financial instruments), coverage of revenue recognition for all significant revenue streams, and coverage of revenue recognition aside from contributions for not-for-profit entities.

Is the Basis of Accounting properly disclosed? (Part II, 1400.16; Part III, 1401.17, PS 2100.09(b))

The financial statements should clearly indicate the relevant financial reporting framework and this needs to be accurate. When using a general purpose financial reporting framework (e.g., IFRS, ASPE, ASFPO, PSAS), there should not be any indication that the financial statements are prepared for any certain limiting purpose. Inspectors observed several instances where disclosure identified the incorrect framework by oversight (e.g., ASPE was disclosed when the framework was clearly ASNPO). A careful final review can catch what may appear to be a small error but is critical to users’ understanding of the financial statements.

Accounting and disclosures for investments (Part II, 3856)

Inspectors continue to observe uncertainty within financial statement disclosure regarding the categorization and presentation of certain investments. GICs and term deposits would not be considered cash equivalents unless they will be redeemed in the short term (3 months or less). Otherwise GICs, term deposits, and other similar items would be categorized as financial instruments and would be accounted for and disclosed under the requirements contained within Part II 3856 accordingly. Further, as GICs, term deposits and other such related items would not be classified under the requirements of investments under Part II 3051, practitioners are reminded to carefully assess all investments held by the entity for correct presentation and disclosure under the applicable standards. When disclosing investments classified as financial instruments, the accounting policy followed along with the applicable terms and conditions would be required.

Non-Profit Accounting Presentation and Disclosure Items (Part III, 4400, 4410)

We continue to observe firms struggling with proper presentation and disclosure items relating to non-profit entities. It is important to understand the basis of accounting and have this sorted out first. Is the NPO using fund accounting? If so, are they using the restricted fund method or the deferral method for accounting for contributions? If not using fund accounting, then deferral method is the only option as the restricted fund method is a specialized structure under fund accounting only.

Is your understanding of contributions accurate? To meet the definition of a contribution, these transactions need to be non-reciprocal. If the provider/user receives something in return, this would not meet the definition of a contribution. One example observed frequently was accounting for member dues or user fees as a contribution.

In cases where the funds received are correctly classified contributions but have restrictions with them, do you understand the nature of these restrictions? Are they imposed externally (i.e., a requirement of the funder or directed by the funder)? If the funds have been set aside by the Board for a specific purpose, these are considered internal restrictions and are not subject to deferral under the deferral method. Within the appendices of Part III 4410, we recommend you review the two decision trees that outline the various accounting requirements for contributions based on whether the deferral or the restricted fund method is followed.

Does the Statement of Financial Position include all details of net assets? This financial statement must disclose (as applicable) all net assets subject to restrictions, other restricted net assets, unrestricted net assets and total net assets. The presentation of a total line with reference made to a separate statement does not meet this presentation requirement. Further, do the names of the net assets align with the balances reported within the statement of change in net assets?

Are there interfund transfers/balances? Is there disclosure of the terms and conditions associated with these?

Audit Engagement Documentation

Identifying and Assessing Risks (CAS 315)

Within the adoption of CAS 315, firms continue to struggle with how to sequence the flow of the work required under this standard. Within the Professional Engagement Guide (PEG), there are two flow charts that can be of assistance: “Flow chart – Risk assessment in an audit” and “Understanding of the IT environment and general IT controls”. Ensure the design and implementation of controls over significant risks, journal entries, and other controls for which the auditor plans to test operating effectiveness are documented and extend beyond inquiry.

Information prepared by the client (CAS 500 – Audit Evidence)

Inspectors have observed a significant overreliance on a client’s (management’s) prepared information, typically referred to as an “audit binder”, to carry out many, if not all, audit procedures. CAS 500.9 outlines specific requirements for certain procedures to carry out when using information prepared by the client. Professional skepticism is critical! Have you confirmed the evidence with external, third parties or attempted to directly access the information in real time? Have you considered whether everything was reported that should be (i.e. accuracy and completeness)? Have any modifications been made or has certain information been redacted or left out that should be there (i.e., five pages to a report and you only have the last page)?

Communication with the audit committee or those charged with governance (CAS 560)

This CAS includes a long list of required items to bring to the attention of those with recognized authority within the entity (i.e., management, the audit committee or those charged with governance). While not specifically required to be in writing, it is recommended that a written report be provided in all audits to cover all the items within this standard.

Other areas missing within audit documentation

CAS 315 – A stand back assessment is required. If using CPA Canada PEG forms, Form 590 includes a section for this documentation. If PEG methodology is adopted but this form is not used or is modified, there is a high risk of missing this specific required documentation item.

CAS 240 – Fraud can occur in any entity regardless of the size or simplicity of operations. When assessing the risks of fraud, it has been observed that auditors typically dismiss or downplay risks. This is where professional skepticism is important. Using information obtained through understanding of the entity, try to think of various scenarios on how fraud could happen within that entity, based on the control system in place, “If I were management, how could I commit fraud in this entity and how would I cover it up?”

CAS 540 – Estimates may be used in many areas of the financial statements. It is important to be aware of all estimates and how they are used by management or TCWG. This CAS outlines the procedures to be carried out based on the understanding of the entity and the risks of material misstatement. Simply relying on inquiry or reports provided by management will be insufficient.

CAS 501 – Areas often overlooked include the specific requirements over auditing inventory, litigation and claims, and segment information. Attendance at the physical inventory count is the expected procedure when inventory is material. Where attendance was deemed not possible, the engagement file did not always include an acceptable rationale and/or documentation of alternative audit procedures performed to obtain sufficient appropriate audit evidence. In addition, inspectors noted incidents where documentation did not address whether any claims or potential litigation may require confirmation with a lawyer or documentation over the audit evidence obtained to ensure segment information is appropriately presented and disclosed in compliance with the applicable financial reporting framework.

Review Engagement Documentation – CSRE 2400

Paragraph 45 - Assessment of areas where material misstatement is likely to arise (AMMLA). In many inspections, inspectors observed the assessment of AMMLA was not completed entirely or at too high a level for financial statement balances (especially in relation to income statement (revenue and expense) balances). These need to be at an appropriately disaggregated level (i.e., analyzed based on the various revenue sources vs total revenues). The practitioner needs to use information obtained from their understanding of the entity to make a thorough assessment of AMMLA. Then, once the assessment of AMMLA is complete, this analysis needs to be linked to the review engagement procedures planned in response. The use of standardized checklists without factoring in areas where there might be potential misstatement may lead to insufficient engagement work and inappropriate conclusions.

Paragraph 47 - In many files inspected, documentation did not cover each of the required inquiries within this standard, or the detail supporting the date of the inquiries and with whom inquiries were made was not evident. If using the CPA Canada PEG methodology, these inquiries are included within various checklists so there is a risk of missing documentation if not all checklists are adopted or fully completed or if documentation is simply carried forward from the prior year. Ensure the engagement team is aware of each of the specific inquiries included in paragraph 47 which are required annually.

Paragraph 48 - Since analytical procedures are foundational to the overall engagement, it is very important to have a solid understanding of where the data comes from for the analytics used and how the practitioner has assessed that the data is adequate for this purpose.

Paragraphs 49 to 55 – Procedures to Address Specific Circumstances – Documentation for this area needs to cover an assessment of each of the specific circumstances. A clear assessment of the applicability of each item is required (i.e., the absence of any consideration cannot be interpreted as none are applicable).

Compilation Engagement Documentation – CSRS 4200

Basis of accounting – It was observed in many inspections that the basis of accounting was generic or not specific to the client. If the basis of accounting determined by management is the cash basis plus specific accruals, there needs to be a listing of accruals within the disclosure and these accruals need to tie in to the financial information.

Client continuance procedures – Paragraph 24 outlines the requirements over assessing client acceptance and continuance. Paragraph 25 includes the requirements when financial information is intended to be used by a third party. Prior to accepting or continuing an engagement, responses to these two inquiries is required: whether the financial information is going to be used by a third party and an acknowledgement of the basis of accounting expected to be applied in the preparation of the compiled financial information. This documentation needs to be made on file before or at the same time the engagement letter is sent to management. The engagement letter would not be appropriate documentation for these two items as these are expected to be obtained prior to accepting or continuing the client (i.e., before you send over the engagement letter).

Engagement letters – Inspectors continue to observe missing elements within the engagement letters. Most often, the engagement letter is missing a copy of the expected form and content of the compilation engagement report. A sample letter is available within CSRS 4200 – Appendix 1 that you may use.

Missing documentation – At times, inspectors observed that firms were not documenting a reconciliation of underlying records to the final compiled financial information. In addition, a common observation was the absence of documentation of significant judgements made. In some cases, the firm also carried out bookkeeping services for the client so had kept a copy of the client’s general ledger information separately. The engagement file needs to demonstrate the reconciliation of the client’s initial trial balance to the final compiled financial information, including copies of all adjustments made as part of the compilation engagement.

Dating of the compilation engagement report – Firms generally demonstrated difficulty in determining the appropriate timing for dating the compilation engagement report. Within paragraph 35, the compilation engagement report cannot be dated until the practitioner obtains acknowledgment from management that they have taken responsibility for the final version of the compiled financial information. Within paragraph 40, the compilation engagement report is dated when the practitioner has completed the compilation including receiving management’s acknowledgment. In some cases, inspectors observed the compilation engagement report was dated when the practitioner had completed all their procedures and had sent the financial information to management for their approval. In other cases, the inspectors observed the compilation engagement report was dated after management had made their approval, but then documentation indicated the practitioner had completed more procedures (including documentation of all the required items within CSRS 4200). Ensure the compilation engagement report is dated after all required procedures are completed, the practitioner is satisfied there is no misleading information, and when the acknowledgement by management is provided.

Quality Management Documentation or System of Quality Management (SOQM) - CSQM 1 & 2

Inspectors observed a number of areas within firm’s SOQM that was missing documentation or had limited documentation:

Every firm’s SOQM should contain at a minimum:
1. The quality objectives required by paragraphs 28-33 of CSQM 1 for each of the following components:
  - Governance and leadership
  - Relevant ethical requirements
  - Acceptance and continuance of client relationships and specific engagements
  - Engagement performance
  - Resources
  - Information and communication;
2. The identification and assessment of firm-specific quality risks that affect the achievement of the quality objectives within each of the components above;
3. Responses to address the quality risks identified, which must include at a minimum the responses specified in paragraph 34 of CSQM 1; and
4. Monitoring and remediation processes including:
  - Ongoing monitoring activities to provide a basis for the identification of, evaluation of, and response to deficiencies;
  - The inspection of completed engagements for each engagement partner on a cyclical basis by an appropriately competent individual who was not involved on the engagement team; and
  - An annual evaluation of the SOQM.

The standard is explicit about the documentation of each of the quality objectives. Some firms had abbreviated or removed some elements, leading to deficiencies in this documentation.
Quality risks were not always identified or assessed in each component – quality risks must be specific to the firm and services offered
Responses – not all specified responses under paragraph 34 were included or additional responses were not developed
Monitoring policies were not developed
Monitoring and remediation activities – monitoring activities to ensure policies and procedures are working were not carried out, when monitoring activities were completed the findings were not evaluated, or the deficiencies were not evaluated and/or the planned response to those were not documented.
The required annual evaluation of assessing the reasonableness of the effectiveness of the firm’s SOQM was not completed at all or at an appropriate time
Cycle length for inspection of completed inspections by an individual external to the engagement team was not appropriate or assigned to an individual who is not objective/qualified
Other items – missing annual confirmation of compliance forms (when are these required), missing responses to assign and supervise professional staff on engagements and to monitor professional development, missing documentation of the retention period for documentation specific to the SOQM