Exceptions From the CPE Requirements - North Carolina Department

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Exceptions From the CPE Requirements - North Carolina Department

     Memorandum #741

    June 24, 1991

To: Certified Public Accountants

From: K. Lee Carter, Director, Fiscal Management Section

Subject: Qualifications Standard for Auditors Performing Audits Under Government

    Auditing Standards (the “Yellow Book”)

    Our staff issued Memorandum #716 dated May 22, 1990, regarding the qualifications

    standard and the quality control review standard for auditors performing audits under

    Government Auditing Standards (the “Yellow Book”). The discussion of the qualifications

    standard was based on an exposure draft that the General Accounting Office (GAO) issued in

    early 1990. In April 1991, the GAO issued a publication entitled Interpretation of Continuing

    Education and Training Requirements. Some of the GAO’s interpretations of the CPE requirements differ from the interpretations in the exposure draft. This memorandum discusses

    the continuing professional education (CPE) requirements as interpreted in the April 1991

    document. This memorandum supersedes the discussion of the qualifications standard in

    Memorandum #716; however, the discussion of Quality Control Standard Memorandum #716 is

    still valid and should be used for reference.

    Applicability of the CPE Requirements

    The “Yellow Book” prescribes general standards that apply to all audit organizations. The minimum CPE requirements apply to external and internal auditors, both certified and

    noncertified, of both governmental and nongovernmental entities, who work on government

    audits performed under the standards of the “Yellow Book”. Paragraph three, of Chapter 3,

    contains a qualification standard. This standard states that the staff assigned to conduct the audit

    should collectively possess adequate professional proficiency for the tasks required. It is the

    audit organization’s responsibility to ensure that the staff is qualified. Audit firms performing

    single audits of North Carolina units of government must meet the standards established in the

    “Yellow Book”.

     To meet qualifications standard for government auditing, auditors should complete the

    following CPE requirements. Every two years, auditors responsible for planning, directing,

    conducting or reporting on a single audit should complete at least 80 hours of CPE. All CPE

    should contribute to the auditor’s professional proficiency. At least 20 hours should be

    completed in any one year of the two-year period. For purposes of the qualifications standard,

Memorandum #741

    June 24, 1991

    Page 2

the GAO defined planning, directing, conducting, and reporting in the following manner:

    Planning - determining audit objectives, scope, and methodology; establishing criteria to

    evaluate matters subject to audit; or coordinating the work of other audit organizations.

    This excludes individuals whose role is limited to gathering information used in planning

    the audit.

    Directing - supervising the efforts of others who are involved in accomplishing the

    objectives of the audit or reviewing audit work to determine whether those objectives

    have been accomplished.

    Conducting - performing audit tests and procedures necessary to accomplish the audit

    objectives in accordance with generally accepted government auditing standards.

    Reporting - determining report contents and substance and/or reviewing reports for

    technical content and substance prior to issuance.

Basically, anyone who performs any audit work must meet the 80-hour requirement.

    Individuals responsible for planning, directing, conducting substantial portions of the

    field work, or reporting on a government audit must complete at least 24 hours of the 80 hours of

    CPE in subjects directly related to government and to government auditing, or the specific and

    unique environment in which the audited entity operates. Individuals are considered responsible

    for “conducting substantial portions of the field work” when, in a given CPE year, their time

    chargeable to “Yellow Book” audits is 20 percent or more of their total chargeable time. (Note:

    This is a change from the exposure draft.) If auditors conduct “Yellow Book” audits of a

    government entity and other types of entities, such as not-for-profit organizations, they are not

    required to get 24 hours of CPE related to not-for-profit organizations. The 24 hours of CPE can

    be allocated in any manner among topics related to government and/or other specific or unique

    environments that would meet the requirement.

     The CPE requirements apply to other external auditors (e.g., subcontractors) who perform

    a portion of an audit made in accordance with the “Yellow Book”, and internal auditors who also

    provide direct assistance to an external auditor performing an audit in accordance to the “Yellow


     The requirements apply to full time, part-time, peak-time, and self-employed auditors. It

    should be noted that the financial audits of units of government in North Carolina do not usually

    come under the “Yellow Book” standards if a single audit is not performed. Consequently, audit

    firms performing only financial audits of units of government in this State may not be subject to the CPE requirements.

Memorandum #741

    June 24, 1991

    Page 3

    Exceptions From the CPE Requirements

     External consultants; internal experts; specialists, such as actuaries, appraisers, attorneys,

    engineers, geologists, medical doctors, and statisticians; and auditors performing nonaudit

    activities within the audit organization are not required to meet the CPE requirements.

    Exceptions also apply to auditors performing services not considered to be audits, such as

    gathering information about a program without analyses, conclusions and recommendations.

    Employees who assist in the audit by performing nonaudit tasks, such as footing schedules,

    typing, collating, reproductions of pages, performing literature searches and editing reports also

    are not required to meet the requirements. College and university students employed on a

    temporary basis for a limited period of time (e.g., during a semester or term break) or enrolled in

    a formal program sponsored by the college or university for a specific period of employment,

    such as a term or a semester, also are exempt from the standards.

     The audit organization may grant exemptions for foreign residency, health problems,

    maternity leave, or military service. The audit organization should document the reasons for any

    exemptions granted and retained that the documentation for an appropriate period of time.

    Measuring Compliance After Beginning of a 2-Year Period

     For entry-level employees with less than two years with the audit organization on the

    effective date of the CPE requirements, a pro rata number of hours would be acceptable.

    Similarly, a pro rata number of hours would be acceptable for other auditors hired or assigned to

    a “Yellow Book” audit after the beginning of a 2-year CPE period. An audit organization may

    define a “pro rata number of hours” as follows:

    a) Auditors who have been employed for less than 1-year of a given 2-year period are

    not required to obtain a minimum number of CPE hours.

    b) Auditors who have been employed at least 1-year, but less than 2, in a given 2-year

    period are required to meet at least the 20-hour per year minimum in the second year

    of the 2-year period.

    Effective Date of the CPE Requirements

     The CPE requirements must be satisfied every two years; therefore, the auditors who

    were subject to the “Yellow Book” on its effective date should have met the first two-year period

    as of December 31, 1990. Audit organizations that were not subject to the “Yellow Book” on its

    effective date subsequently may perform “Yellow Book” audits. The staff assigned to perform

    “Yellow Book” audits should collectively possess adequate professional proficiency prior to starting the audit, and satisfy the CPE requirements within two years of the date they start audits

    made in accordance with the “Yellow Book”. The date that audits started is left to the judgement

    of the audit firm. Examples of dates would be the date that the audit contract is approved or the

    first day of audit planning.

Memorandum #741

    June 24, 1991

    Page 4

     To simplify administration of the CPE requirements, an audit organization may establish a standard two-year CPE period for all of its auditors. An audit organization may use a measurement date other than the effective date of the “Yellow Book” or the date it started its first “Yellow Book” audit to coincide with a fiscal year or another reporting requirement (e.g., State Board requirements). For simplicity, the staff of the Local Government Commission strongly encourages audit firms to use the North Carolina State Board reporting year as their standard. During the transition period to another measurement date, the staff should complete at least a pro rata number of the required 20 hours of CPE per year. An auditor cannot carry over CPE hours earned in excess of the 80- and 24-hour requirements from one period to the next 2-year period.

     If an audit organization discontinues conducting “Yellow Book” audits before its auditors

    complete the CPE requirements, those auditors are not required to finish completing the CPE requirements. However, the audit organization should have its auditors complete those requirements if it is reasonably possible that it will be performing “Yellow Book” audits in the

    future. This provision should not be used to avoid the CPE requirements.

    CPE Programs and Qualified Activities

     CPE programs are structured, educational activities designed to maintain or enhance participants’ knowledge and skills in areas applicable to the discipline in which they work. Both group programs and individual study programs can achieve this objective. CPE programs must be selected that contribute to the auditor’s professional proficiency.

     Several types of group programs qualify for CPE. Internal training programs can qualify for CPE hours. Also, audit organization staff meetings qualify when an educational program is presented. University and college courses, both for credit and not for credit, qualify for CPE hours. Education and development programs presented at conferences, conventions, meetings, seminars, and workshops of professional organizations qualify. Training programs presented by other audit organizations, educational organizations, foundations, and associations also qualify.

     Correspondence courses, self-study guides, workbooks, and courses given through audio cassette tapes, videotapes, and computers can qualify for CPE credit as well. Certain other professional activities qualify for CPE credit. CPE credit is earned for serving as a speaker, instructor, or discussion leader at group programs that qualify for CPE hours. CPE credit also is earned for publishing articles, books or developing CPE courses on subjects and topics that qualify for CPE hours and that contribute directly to the author’s professional proficiency.

     For both group and individual study programs to qualify for CPE, the following

    conditions must be met. 1) An agenda or outline stating the name(s) of the instructor(s), the subject(s) or topic(s) covered, the program learning objectives, and the date (s) and length of the program should be prepared in advance and retained. 2) The program should be developed by individuals qualified or experienced in the subject matter. 3) Program materials are technically accurate, current, and sufficient to meet the program’s learning objectives. 4) The program is reviewed , when appropriate, by other qualified or experienced individuals. The nature and

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    June 24, 1991

    Page 5

    extent of any review may vary depending on characteristics of the program. 5) Evaluations of the program are obtained from instructors and participants, when appropriate. For group programs, attendance should be maintained and the program should be presented by an instructor or discussion leader who is qualified or experienced in the program content. For individual study programs, participants are required to register for the program; and the program sponsor should provide evidence of satisfactory completion (e.g., a certificate).

    Qualifying and Non-Qualifying Subjects and Topics for CPE

     An individual’s particular audit area will determine which CPE programs will qualify for

    credit. Examples of subjects that may qualify as acceptable CPE are listed in Exhibit 1.

     Except as noted below, instruction in subjects and topics that meet CPE requirements of the State licensing board and the AICPA also would satisfy the 80-hour CPE requirement. The following educational and training programs do not qualify for CPE credit: on-the-job training, basic courses in subjects and topics in which the auditor already has the necessary knowledge and skills, and programs that are not designed to maintain or enhance the auditor’s professional proficiency. The last area includes topics such as resume writing, improving child-parent relations, personal investments, money management, and retirement planning. Also sales-oriented programs to demonstrate office equipment; programs restricted to the audit organization’s administrative operations; business sessions at professional organization

    conferences, conventions, and meetings; participation as a member of a committee of a professional organization; preparation and presentation time for repeated presentations within two-year period; and conducting external quality control reviews do not qualify.

    Meeting CPE Hours

     A CPE hour will be granted for each 50 minutes of participation in programs and activities that qualify. Fractional hours also may be granted if appropriate. At conferences and conventions where individual presentations are less than and/or more than 50 minutes, the sum of the presentation should be considered as one total program. For example, two 90-minute, two 50-minute, and three 40-minute presentations equal 400 minutes or 8 CPE hours.

     Sponsors of CPE programs should monitor their programs. They should accurately assign the appropriate number of hours. Participants should receive CPE hours only for the actual time they attend the program. Preparation time for participants in a CPE program will not

    be counted.

     For university or college credit courses, each semester hour will equal fifteen CPE hours, and each quarter hour will equal ten CPE hours.

     Participants in correspondence or individual study programs should be granted CPE hours when they satisfactorily complete the program. The programs should generally be pretested by the vendor or the sponsor to determine the average completion time. CPE hours for these programs should be granted in an amount equal to the average completion time. For

Memorandum #741

    June 24, 1991

    Page 6

    example, a correspondence course that takes an average of 600 minutes to complete would be granted twelve CPE hours. If the program has not been pretested, a participant may still be

    granted CPE hours. The credit will equal one-half of the time the participant actually spent on the program. For example, a person who takes 800 minutes to complete an individual study program may be granted eight CPE hours.

     Speakers, instructors, and discussion leaders at programs that qualify for CPE should receive CPE hours for preparation and presentation time to the extent the subject matter contributes directly to their professional proficiency. One hour of CPE should be granted for each 50 minutes of presentation time. Up to two additional hours may be granted for advance preparation for each 50 minutes of presentation. An individual would not receive CPE hours for repetitions of the same presentation that he or she makes within a two-year period, unless the subject matter involved was changed significantly. An auditor may only be granted 40 speaking-related hours for any two-year period.

     Articles, books, or CPE courses written by auditors on subjects and topics related to their expertise and/or work that contribute directly to professional proficiency will qualify for CPE hours in the year they are published. One hour of CPE should be granted for each hour devoted to writing an article or book that is published, or course materials that are published. However, CPE hours for published writings should not exceed 20 hours for any two-year period.

    Audit Organization’s and Auditor’s Responsibilities for Meeting CPE Requirements and

    Maintaining Documentation

     The audit organization is responsible for ensuring that its auditors meet the CPE requirements. The audit organization is ultimately responsible for determining whether a subject or topic qualifies as acceptable CPE for its auditors. Therefore, the audit organization is responsible for identifying each of its employees who must meet the CPE requirements. The audit organization is responsible for determining programs, activities, subjects, and topics that qualify for CPE. The audit firm should make program information available to its employees, provide them with opportunity to attend programs, and assign the number of CPE hours to each CPE program it presents. It also should identify the number of CPE hours each employee receives from external programs and other professional activities. The audit organization is responsible for documenting the number of CPE hours completed by each employee and monitoring employee progress towards meeting the CPE requirements.

     For each CPE program or activity attended or completed by an auditor, certain information should be maintained by the audit organization, such as the sponsoring organization, the dates attended, and the location at which the program was held. The title of the program and a description of its contents also should be documented. For individual study programs, the date on which the auditor completed the program should be documented. Documentation of the number of CPE hours earned toward the 80- and 24-hour requirements also should be maintained.

     Individual auditors are responsible, in consultation with their supervisors, for selecting CPE programs that will maintain or enhance their professional proficiency in their areas of

Memorandum #741

    June 24, 1991

    Page 7

responsibility. Among the considerations in exercising that judgement are the auditor’s

    experience and the responsibility they assume in performing the “Yellow Book” audits. They

    are responsible for successfully completing the CPE programs and activities, monitoring their

    own progress towards meeting the CPE requirements, and documenting the CPE hours

    completed. The “Yellow Book” CPE requirements are similar to AICPA and state boards of

    accountancy requirements, but they are not identical.

     The auditor is responsible for providing the required information to his/her audit

    organization for all external programs and activities. For group programs, the auditor should

    provide the audit organization with an outline and evidence of completion or evidence of having

    been the instructor or discussion leader. This information should be obtained from the program


     For each CPE program that the audit organization is responsible for presenting, the audit

    organization should also maintain a record of the following information: a record of attendance

    and/or completion and the number of CPE hours earned by each participant and documentation

    of the location where the program was held. The audit organization also should maintain an

    agenda or outline of the program that shows the name(s) of the instructor(s); the subjects and the

    topics covered; the dates and the length of the program; and, when appropriate, the learning


     All CPE records should be maintained for an appropriate period of time to satisfy legal

    and administrative requirements. Audit organizations are not required to prepare reports on CPE;

    however, they may consider preparing a semiannual CPE report to monitor their staff’s progress

    towards meeting the CPE requirements. Compliance with the CPE requirements would be

    evaluated during the performance of an external quality control review.

    CPE Deficiency Make-Up

     Auditors who have not completed the required number of CPE hours for any two-year

    period may correct their deficiency within two months immediately following the two-year

    period in question. Any CPE hours toward a deficiency may not be counted toward requirements

    of the actual period in which they are completed. Auditors who still have not satisfied the CPE

    requirements after the two-month grace period should not participate in “Yellow Book” audits

    until those requirements are satisfied.

     We hope that this memorandum will help provide the guidance on continuing education

    and training requirements prescribed by the “Yellow Book”. A copy of the Interpretation of

    Continuing Education and Training Requirements can be purchased by writing the

    Superintendent of Documents, U.S. Government Printing Office, Washington, D.C. 20401; stock

    number 020-000-00250-6, or by telephoning their office at (202) 783-3238. If you have any

    questions concerning the information we have provided, please contact Cheryl Jordan of this

    office at (919) 733-3064.


Memorandum #741

    June 24, 1991

    Page 8



80-Hour Requirement - Examples of subjects and topics include accounting principles and

    standards, analytical procedures, assessment of internal controls, audit methodologies, audit risk and materiality, audit standards, compliance with laws and regulations, budgeting, computer science, contracting and procurement, cost accounting, data analysis, economic, evaluation design, financial management, financial reporting, forecasts and projections, industrial engineering, interviewing techniques, mathematics, operations, research, oral and written communication, pension accounting, principles of management and supervision, probability, productivity, program evaluation, public administration, public finance, social sciences, sampling, taxation, and workpaper preparation.

24-Hour Government Requirement

    Government Environment - Examples of subjects and topics directly related to the government environment include relevant laws and regulations, governmental accounting principles and budgeting, procurement and contracting in government, legislative policies and procedures, effects of current economics conditions on government operations, and government program and service performance measurement and reporting.

    Government Auditing - Subjects and topics relating to government auditing may include the “Yellow Book” and, because they are incorporated by reference in the “Yellow Book”, the

    AICPA’s statements on auditing standards for field work and reporting. Other topics include special government auditing requirements established by law or regulation, such as the Single Audit Act of 1984.

    24-Hour Specific or Unique Environment - Examples of subjects and topics directly related to a specific or unique environment include relevant accounting principles; economic, operating, or regulatory developments in the specialized area in which the audited entity operates; and relevant laws and regulations.

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