Transparency report: How we perform quality audit engagements - February 26, 2016
Baker Tilly Virchow Krause
Description
. . A message from the CEO, CEO Elect, and
Managing Partner of Assurance
We are pleased to demonstrate within this document how Baker Tilly professionals bring skill, integrity, and
energy to each engagement as we strive to become America’s Finest Professional Services Firm.
Our focus on delivering high-quality audit engagements and the policies our professionals adhere to in
performing their work are shared in the following pages. Topics include quality control standards, ethical and
independence requirements, client acceptance procedures, and leadership responsibilities.
While similarities exist, accounting firms are not all the same. Baker Tilly rises above others when it comes
to providing Exceptional Client Service through professionals dedicated to understanding their clients’
industry and conducting high-quality audit engagements. The key differences that provide more value to
you are:
>>Professionals who operate on a risk-based model that aligns to a specific understanding of the client’s
business, industry, and internal controls
>>Proactive, personal, and responsive client service through a collaborative team that brings service
expertise together into an integrated approach, and ensures continuity and access to partners and
managers
>>Active communication of findings and knowledge-based insights throughout the engagement
>>Informed observations and recommendations from experienced professionals who know your industry
>>In-depth technical experience allows us to keep clients apprised of significant developments related to
new accounting or auditing standards and how they may affect their organizations
>>Strong global network through Baker Tilly International
We understand an auditor plays an important role for an organization and its stakeholders.
This drives our desire to collaborate and clearly communicate while delivering a high level of service. Timothy L. Christen Chief Executive Officer Baker Tilly Virchow Krause, LLP Alan D. Whitman Chief Executive Officer-Elect Baker Tilly Virchow Krause, LLP Christine M.
Anderson Managing Partner of Assurance Baker Tilly Virchow Krause, LLP 2 . System of quality control Baker Tilly Virchow Krause, LLP (Baker Tilly or the firm) has adopted a system of quality control and other safeguards that are applicable to every audit engagement completed by the firm. These controls and safeguards provide a comprehensive system that serves to prevent or detect, in a timely manner, matters that without corrective action could result in substandard performance. As a result, we believe that the firm’s system of quality control meets the requirements of quality control standards adopted by the Public Company Accounting Oversight Board (PCAOB) and the American Institute of Certified Public Accountants (AICPA). The following describes our system of quality control. A. Tone at the top — our commitment to quality Baker Tilly is committed to providing quality service to all of our clients.
Our firm’s strategic plan, Advancing our Agenda for Excellence, describes a road map for Baker Tilly’s journey to become America’s Finest Professional Services Firm. The strategic plan defines the firm’s values and critical success factors. Three values uniquely resonate with associates across the firm — integrity, passion, and stewardship — and act as a filter for every business decision. Four critical success factors give dimension to Baker Tilly’s success.
One of the ï¬rm’s critical success factors is Best Quality, as we believe that any professional services ï¬rm striving to be the ï¬nest must focus on quality. The ï¬rm’s Managing Partner–Risk is charged with leading the ï¬rm’s quality initiatives and reports directly to the ofï¬ce of the CEO. This establishes an appropriate sense of focus regarding Baker Tilly’s client acceptance, client continuance, internal monitoring, compliance with Baker Tilly’s internal policies and procedures, and the development of risk mitigation strategies.
In this regard, the ï¬rm’s Managing Partner–Assurance, who oversees all of our audit and attestation activities, works closely with the Managing Partner–Risk in establishing policies, monitoring compliance, and providing training and development to our professionals focused on audit and attest services. B. EthicsPoint To encourage employees to report any unethical behavior on the part of any of our partners or employees, the firm has subscribed to EthicsPoint, a 24-hour online anonymous reporting system. EthicsPoint is available through our intranet.
Complaints are routed to specific individuals in the firm that have responsibility for the various areas. Generally, areas designated by the EthicsPoint system include: >>Accounting and auditing matters >>Falsification of contracts, reports, or records >>Securities violations 3 . . . System of quality control (continued) F. Acceptance and continuance of client relationships and specific engagements Factors that we consider during our client acceptance procedures are included in our Quality Control Document. The firm’s Client Acceptance Checklist includes such matters as: >>Financial condition of the client >>An assessment of the apparent integrity of management >>Possible independence issues or conflicts of interest >>Adequacy of the firm’s professional competence to perform the engagement >>Known disagreements with prior accountants >>Risks associated with the engagement Baker Tilly has developed an electronic system to document compliance with our client acceptance and reacceptance policies. The system requires the completion of various approvals before the creation of a client account. The approvals vary depending upon the type of services being rendered, the size of the engagement, and whether or not the engagement involves an issuer.
For engagements involving issuers, approval is required by not only the engagement partner, but also by the firm’s SEC Client Acceptance Committee, comprised of the firm’s Managing Partner-Risk and Managing Partner-Assurance, among other partners. We also conduct formal background checks on select members of management and the board of directors for potential issuer clients. The firm annually re-evaluates the decision to continue serving each client. For issuers, background information is accumulated, a questionnaire is completed regarding client management and risk attributes, and a continuance decision is reached by the SEC Client Acceptance Committee. For our non-issuer clients, the ï¬rm utilizes an electronic client continuance system. The system requires completion of a series of questions at the individual client level, similar to those asked for issuer clients. When certain “red flag” questions are answered negatively, approval of the Managing Partner–Assurance is required to reach the decision to continue serving the client.
As part of this evaluation process, some engagements are identiï¬ed as “closely-monitored” engagements. Those engagements are then subject to additional ï¬rm oversight through the assignment of appropriate engagement quality reviewers and enhanced engagement quality review procedures. 6 . System of quality control (continued) G. Human resources Recruitment and hiring Baker Tilly has established hiring standards for accounting and auditing personnel. We hire extensively at both the entry and experienced personnel levels and have established successful recruiting programs with a number of colleges and universities where we have traditionally hired successful candidates. For entry-level personnel, we require copies of transcripts evidencing that the prospective employee meets our requirements and has obtained the appropriate degrees.
For experienced personnel, we also require reference checks. Determining capabilities and competencies Capabilities and competencies are the knowledge, skills, and abilities that qualify personnel to perform an engagement. Capabilities and competencies are not measured by periods of time, but by qualitative, rather than quantitative, measures. The Professional Practice Group evaluates the competencies of our engagement personnel, particularly at the engagement partner level, through our monitoring and inspection procedures discussed below. Assignment of engagement teams The engagement partner has responsibility for the assignment of the engagement team. For each engagement, the name and responsibilities of the engagement partner are communicated to management and the audit committee or others charged with governance. In assigning personnel to engagements, numerous factors are considered including: >>understanding of the engagement and familiarity with the industry; >>engagement size, significance, complexity, and risk profile; >>special expertise required; >>new or emerging professional standards; >>recent relevant industry training; >>time and length of the engagement; >>personnel continuity; >>on the job training opportunities; >>previously demonstrated competencies; >>personnel availability; >>involvement of supervisory personnel; and >>potential independence issues. 7 . . System of quality control (continued) H. Engagement performance The ï¬rm has customized its audit methodology and tailored it for many specialized industries including ï¬nancial institutions, construction contractors, not-for-proï¬ts, governmental entities, employee beneï¬t plans, and others. The ï¬rm uses an electronic document manager to facilitate the organization of, and access to, work papers on all engagements. The Professional Practice Group develops the overall integration of the audit methodology materials into the electronic document manager for all audit staff to use as an integrated paperless system.
Individual industry teams then tailor the overall framework provided by the ï¬rm to ï¬t the unique matters related to the various specialized industries. Additional tailoring is encouraged to better address the risks of speciï¬c engagements. Our ï¬rm’s engagement oversight and review policies and procedures are included in an appendix to our Quality Control Document. These policies and procedures are expected to be complied with on all audit engagements.
The nature of the review process varies depending on the nature of the engagement. For audits of issuers, an independent engagement quality review is required for the ï¬nancial statements and critical work papers by a partner experienced in SEC matters and the client’s industry, who is not otherwise associated with the engagement. As part of our system of quality control, we have deï¬ned review procedures for the engagement quality review process, which is documented in our review tools and templates. The following have been implemented at the ï¬rm. >>Annually, we update the engagement quality reviewer listing which is categorized by engagement type and industry. >>Annually, we examine our review policies and procedures to ensure compliance with professional standards. >>Periodically, we require all engagement quality reviewers to attend a training session on the requirements of our engagement quality reviews. >>At least every five years, the audit engagement partner and engagement quality review partner are rotated from issuer engagements in accordance with SEC requirements. All ï¬rm personnel working on audit engagements are encouraged to consult with a Professional Practice Liason on technical issues. For more complex technical issues that cannot be resolved locally, engagement personnel are encouraged to consult with the Professional Practice Group.
The ï¬rm maintains a list of designated specialists in various matters in an appendix to our Quality Control Document. In addition, the ï¬rm has identiï¬ed areas which, if encountered on an engagement, personnel are encouraged to consult. 9 . . . Recent quality control reviews A. PCAOB inspections The Sarbanes-Oxley Act requires that the PCAOB inspect ï¬rms on a periodic basis. Firms with more than 100 issuers audits are inspected annually and firms with fewer than 100 issuers are required to be inspected at least once every three years. Baker Tilly was inspected by the PCAOB in 2015. The PCAOB, in conducting their inspection, reviewed speciï¬c engagements selected based on their own criteria.
For each engagement, the PCAOB reviewed the issuer’s ï¬nancial statements and certain SEC ï¬lings; and, for selected high-risk areas, inspected the work papers and interviewed engagement personnel regarding those areas. For certain engagements, the PCAOB reviewed written communications between the audit team and the issuer’s audit committee and interviewed the audit committee chair. In addition to the speciï¬c audit engagement reviews, the PCAOB reviewed six functional areas, examining both the firms system of quality control and the selected practice offices for the following: >>Tone at the top >>Independence implications of non-audit services, business ventures, alliances and arrangements, and commissions and contingent fees >>Practices for partner evaluation, compensation, promotion, and assignment of responsibilities >>Client acceptance and continuance policies >>Internal inspection program >>Practices for establishment and communication of audit policies, procedures, and methodologies, including training As of the date of this report, the results of the firm’s 2015 inspection are still pending. The firm was last inspected by the PCAOB in 2012.
A copy of the PCAOB’s ï¬nal 2012 report dated May 23, 2013 is available on the PCAOB’s website. We have been informed that we have satisfactorily addressed the PCAOB’s nonpublic comments in Part II of that report. B. Peer review The AICPA requires all member firms to participate in an external peer review process.
Firms are required to be reviewed at least once every three years. Our most recent peer review was accepted in December 2015 for our peer review period ended March 31, 2015. Our next peer review is scheduled to take place in 2018. Our most recent peer review was completed by Moss Adams, LLP, a CPA firm similar in size to Baker Tilly. In Moss Adams’ opinion, our system of quality control for our accounting and auditing practice applicable to non-SEC issuers in effect for the year ended March 31, 2015 was suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects.
Firms can receive a rating of pass, pass with deficiency(ies), or fail. Baker Tilly received a peer review rating of pass. A copy of our most recent peer review report is available on the AICPA’s website. 12 . Recent quality control reviews (continued) C. Department of Labor (DOL) inspection During 2013 and 2014, the DOL inspected eleven employee benefit plan audit engagements covering five office locations that audit employee benefit plans. The DOL suggested certain areas that need strengthening, but there were no engagements that required remediation or corrective actions to be taken against individual partners or the firm. The firm will address areas that need strengthening through the annual training process and by enhancing the firm’s tools and templates. The DOL did not inspect any employee benefit plan audit engagements during 2015. D.
Internal quality control reviews Firms are required to have internal quality control review procedures completed annually. The peer review process incorporates a review of the firm’s monitoring function, including internal inspection, and there were no findings in this area as a result of the review. The internal quality control review generally includes engagement reviews and monitoring compliance with the firm’s quality controls.
Baker Tilly conducts internal inspections annually. The firm requires all partners to be covered by our internal inspection procedures or by our external peer review or PCAOB inspection at least once every other year. Internal inspection generally covers the major business units of the firm, new audit partners, merged in practices, and other selected partners throughout the firm. Inspections are completed by partners and managers who have appropriate industry expertise based upon the type of engagement being reviewed.
The inspectors are individuals who do not have any involvement with the engagement being inspected. Where possible, the inspectors are from offices separate from the engagement team. The firm believes that our internal inspection process is rigorous and allows us to continue to achieve the high standards for quality necessary in the industry. We utilize the results of our internal inspection and our external reviews, including peer review and PCAOB inspections, as a means for us to challenge our practitioners to improve.
This information is widely communicated to our practitioners and is incorporated into our training programs. None of the findings from our internal or external reviews represent issues that impact our firm’s ability to provide companies with audits conducted in accordance with the standards of the PCAOB. 13 . .
This drives our desire to collaborate and clearly communicate while delivering a high level of service. Timothy L. Christen Chief Executive Officer Baker Tilly Virchow Krause, LLP Alan D. Whitman Chief Executive Officer-Elect Baker Tilly Virchow Krause, LLP Christine M.
Anderson Managing Partner of Assurance Baker Tilly Virchow Krause, LLP 2 . System of quality control Baker Tilly Virchow Krause, LLP (Baker Tilly or the firm) has adopted a system of quality control and other safeguards that are applicable to every audit engagement completed by the firm. These controls and safeguards provide a comprehensive system that serves to prevent or detect, in a timely manner, matters that without corrective action could result in substandard performance. As a result, we believe that the firm’s system of quality control meets the requirements of quality control standards adopted by the Public Company Accounting Oversight Board (PCAOB) and the American Institute of Certified Public Accountants (AICPA). The following describes our system of quality control. A. Tone at the top — our commitment to quality Baker Tilly is committed to providing quality service to all of our clients.
Our firm’s strategic plan, Advancing our Agenda for Excellence, describes a road map for Baker Tilly’s journey to become America’s Finest Professional Services Firm. The strategic plan defines the firm’s values and critical success factors. Three values uniquely resonate with associates across the firm — integrity, passion, and stewardship — and act as a filter for every business decision. Four critical success factors give dimension to Baker Tilly’s success.
One of the ï¬rm’s critical success factors is Best Quality, as we believe that any professional services ï¬rm striving to be the ï¬nest must focus on quality. The ï¬rm’s Managing Partner–Risk is charged with leading the ï¬rm’s quality initiatives and reports directly to the ofï¬ce of the CEO. This establishes an appropriate sense of focus regarding Baker Tilly’s client acceptance, client continuance, internal monitoring, compliance with Baker Tilly’s internal policies and procedures, and the development of risk mitigation strategies.
In this regard, the ï¬rm’s Managing Partner–Assurance, who oversees all of our audit and attestation activities, works closely with the Managing Partner–Risk in establishing policies, monitoring compliance, and providing training and development to our professionals focused on audit and attest services. B. EthicsPoint To encourage employees to report any unethical behavior on the part of any of our partners or employees, the firm has subscribed to EthicsPoint, a 24-hour online anonymous reporting system. EthicsPoint is available through our intranet.
Complaints are routed to specific individuals in the firm that have responsibility for the various areas. Generally, areas designated by the EthicsPoint system include: >>Accounting and auditing matters >>Falsification of contracts, reports, or records >>Securities violations 3 . . . System of quality control (continued) F. Acceptance and continuance of client relationships and specific engagements Factors that we consider during our client acceptance procedures are included in our Quality Control Document. The firm’s Client Acceptance Checklist includes such matters as: >>Financial condition of the client >>An assessment of the apparent integrity of management >>Possible independence issues or conflicts of interest >>Adequacy of the firm’s professional competence to perform the engagement >>Known disagreements with prior accountants >>Risks associated with the engagement Baker Tilly has developed an electronic system to document compliance with our client acceptance and reacceptance policies. The system requires the completion of various approvals before the creation of a client account. The approvals vary depending upon the type of services being rendered, the size of the engagement, and whether or not the engagement involves an issuer.
For engagements involving issuers, approval is required by not only the engagement partner, but also by the firm’s SEC Client Acceptance Committee, comprised of the firm’s Managing Partner-Risk and Managing Partner-Assurance, among other partners. We also conduct formal background checks on select members of management and the board of directors for potential issuer clients. The firm annually re-evaluates the decision to continue serving each client. For issuers, background information is accumulated, a questionnaire is completed regarding client management and risk attributes, and a continuance decision is reached by the SEC Client Acceptance Committee. For our non-issuer clients, the ï¬rm utilizes an electronic client continuance system. The system requires completion of a series of questions at the individual client level, similar to those asked for issuer clients. When certain “red flag” questions are answered negatively, approval of the Managing Partner–Assurance is required to reach the decision to continue serving the client.
As part of this evaluation process, some engagements are identiï¬ed as “closely-monitored” engagements. Those engagements are then subject to additional ï¬rm oversight through the assignment of appropriate engagement quality reviewers and enhanced engagement quality review procedures. 6 . System of quality control (continued) G. Human resources Recruitment and hiring Baker Tilly has established hiring standards for accounting and auditing personnel. We hire extensively at both the entry and experienced personnel levels and have established successful recruiting programs with a number of colleges and universities where we have traditionally hired successful candidates. For entry-level personnel, we require copies of transcripts evidencing that the prospective employee meets our requirements and has obtained the appropriate degrees.
For experienced personnel, we also require reference checks. Determining capabilities and competencies Capabilities and competencies are the knowledge, skills, and abilities that qualify personnel to perform an engagement. Capabilities and competencies are not measured by periods of time, but by qualitative, rather than quantitative, measures. The Professional Practice Group evaluates the competencies of our engagement personnel, particularly at the engagement partner level, through our monitoring and inspection procedures discussed below. Assignment of engagement teams The engagement partner has responsibility for the assignment of the engagement team. For each engagement, the name and responsibilities of the engagement partner are communicated to management and the audit committee or others charged with governance. In assigning personnel to engagements, numerous factors are considered including: >>understanding of the engagement and familiarity with the industry; >>engagement size, significance, complexity, and risk profile; >>special expertise required; >>new or emerging professional standards; >>recent relevant industry training; >>time and length of the engagement; >>personnel continuity; >>on the job training opportunities; >>previously demonstrated competencies; >>personnel availability; >>involvement of supervisory personnel; and >>potential independence issues. 7 . . System of quality control (continued) H. Engagement performance The ï¬rm has customized its audit methodology and tailored it for many specialized industries including ï¬nancial institutions, construction contractors, not-for-proï¬ts, governmental entities, employee beneï¬t plans, and others. The ï¬rm uses an electronic document manager to facilitate the organization of, and access to, work papers on all engagements. The Professional Practice Group develops the overall integration of the audit methodology materials into the electronic document manager for all audit staff to use as an integrated paperless system.
Individual industry teams then tailor the overall framework provided by the ï¬rm to ï¬t the unique matters related to the various specialized industries. Additional tailoring is encouraged to better address the risks of speciï¬c engagements. Our ï¬rm’s engagement oversight and review policies and procedures are included in an appendix to our Quality Control Document. These policies and procedures are expected to be complied with on all audit engagements.
The nature of the review process varies depending on the nature of the engagement. For audits of issuers, an independent engagement quality review is required for the ï¬nancial statements and critical work papers by a partner experienced in SEC matters and the client’s industry, who is not otherwise associated with the engagement. As part of our system of quality control, we have deï¬ned review procedures for the engagement quality review process, which is documented in our review tools and templates. The following have been implemented at the ï¬rm. >>Annually, we update the engagement quality reviewer listing which is categorized by engagement type and industry. >>Annually, we examine our review policies and procedures to ensure compliance with professional standards. >>Periodically, we require all engagement quality reviewers to attend a training session on the requirements of our engagement quality reviews. >>At least every five years, the audit engagement partner and engagement quality review partner are rotated from issuer engagements in accordance with SEC requirements. All ï¬rm personnel working on audit engagements are encouraged to consult with a Professional Practice Liason on technical issues. For more complex technical issues that cannot be resolved locally, engagement personnel are encouraged to consult with the Professional Practice Group.
The ï¬rm maintains a list of designated specialists in various matters in an appendix to our Quality Control Document. In addition, the ï¬rm has identiï¬ed areas which, if encountered on an engagement, personnel are encouraged to consult. 9 . . . Recent quality control reviews A. PCAOB inspections The Sarbanes-Oxley Act requires that the PCAOB inspect ï¬rms on a periodic basis. Firms with more than 100 issuers audits are inspected annually and firms with fewer than 100 issuers are required to be inspected at least once every three years. Baker Tilly was inspected by the PCAOB in 2015. The PCAOB, in conducting their inspection, reviewed speciï¬c engagements selected based on their own criteria.
For each engagement, the PCAOB reviewed the issuer’s ï¬nancial statements and certain SEC ï¬lings; and, for selected high-risk areas, inspected the work papers and interviewed engagement personnel regarding those areas. For certain engagements, the PCAOB reviewed written communications between the audit team and the issuer’s audit committee and interviewed the audit committee chair. In addition to the speciï¬c audit engagement reviews, the PCAOB reviewed six functional areas, examining both the firms system of quality control and the selected practice offices for the following: >>Tone at the top >>Independence implications of non-audit services, business ventures, alliances and arrangements, and commissions and contingent fees >>Practices for partner evaluation, compensation, promotion, and assignment of responsibilities >>Client acceptance and continuance policies >>Internal inspection program >>Practices for establishment and communication of audit policies, procedures, and methodologies, including training As of the date of this report, the results of the firm’s 2015 inspection are still pending. The firm was last inspected by the PCAOB in 2012.
A copy of the PCAOB’s ï¬nal 2012 report dated May 23, 2013 is available on the PCAOB’s website. We have been informed that we have satisfactorily addressed the PCAOB’s nonpublic comments in Part II of that report. B. Peer review The AICPA requires all member firms to participate in an external peer review process.
Firms are required to be reviewed at least once every three years. Our most recent peer review was accepted in December 2015 for our peer review period ended March 31, 2015. Our next peer review is scheduled to take place in 2018. Our most recent peer review was completed by Moss Adams, LLP, a CPA firm similar in size to Baker Tilly. In Moss Adams’ opinion, our system of quality control for our accounting and auditing practice applicable to non-SEC issuers in effect for the year ended March 31, 2015 was suitably designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects.
Firms can receive a rating of pass, pass with deficiency(ies), or fail. Baker Tilly received a peer review rating of pass. A copy of our most recent peer review report is available on the AICPA’s website. 12 . Recent quality control reviews (continued) C. Department of Labor (DOL) inspection During 2013 and 2014, the DOL inspected eleven employee benefit plan audit engagements covering five office locations that audit employee benefit plans. The DOL suggested certain areas that need strengthening, but there were no engagements that required remediation or corrective actions to be taken against individual partners or the firm. The firm will address areas that need strengthening through the annual training process and by enhancing the firm’s tools and templates. The DOL did not inspect any employee benefit plan audit engagements during 2015. D.
Internal quality control reviews Firms are required to have internal quality control review procedures completed annually. The peer review process incorporates a review of the firm’s monitoring function, including internal inspection, and there were no findings in this area as a result of the review. The internal quality control review generally includes engagement reviews and monitoring compliance with the firm’s quality controls.
Baker Tilly conducts internal inspections annually. The firm requires all partners to be covered by our internal inspection procedures or by our external peer review or PCAOB inspection at least once every other year. Internal inspection generally covers the major business units of the firm, new audit partners, merged in practices, and other selected partners throughout the firm. Inspections are completed by partners and managers who have appropriate industry expertise based upon the type of engagement being reviewed.
The inspectors are individuals who do not have any involvement with the engagement being inspected. Where possible, the inspectors are from offices separate from the engagement team. The firm believes that our internal inspection process is rigorous and allows us to continue to achieve the high standards for quality necessary in the industry. We utilize the results of our internal inspection and our external reviews, including peer review and PCAOB inspections, as a means for us to challenge our practitioners to improve.
This information is widely communicated to our practitioners and is incorporated into our training programs. None of the findings from our internal or external reviews represent issues that impact our firm’s ability to provide companies with audits conducted in accordance with the standards of the PCAOB. 13 . .
