Internal Inspection Reports
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In accordance with the firm's Quality Control Policies and Procedures, Chapter 6, Monitoring, we evaluated compliance with Cotton & Company quality control policies and procedures through a periodic inspection completed on January 13, 2006. We planned and performed our work to exceed the requirements of the Peer Review Program Manual (April, 2005 revision) promulgated by the American Institute of Certified Public Accountants (AICPA), as explained in the next section. Charles Hayward, CPA, was the principal reviewer and responsible for this report's content. Alan Rosenthal, CPA, assisted by selecting a sample of Mr. Hayward's engagements and evaluating compliance against the firm's quality control criteria. Mr. Rosenthal also assisted by providing consultation services with respect to the firm's compliance with Statements on Standards for Accounting and Review Services, discussed below. Both Mr. Hayward and Mr. Rosenthal are partners in the firm.SCOPE AND METHODOLOGY The scope of our inspection addressed all elements of the firm's quality control:
We selected samples from a universe that included all engagements in the firm, including so-called A&A (accounting and auditing) and non-A&A engagements. A&A engagements are those which are required to comply with the Government Accountability Office (GAO) Yellow Book or any of the following AICPA Standards:
Non-A&A engagements are all others covered by the firm's practice-they primarily consist of management consulting and training engagements. While we were not required by AICPA standards to evaluate non-A&A engagements, we did so because the firm's QC Manual stipulates certain requirements for all engagements regardless of their character. Our representative sample of engagements assured at least one for each firm partner who performed auditing, accounting, and review or attestation engagements or Yellow Book engagements during the year covered by the inspection (A&A engagements). One or more engagements per partner were selected. The engagements covered our major industry concentration (governmental audit) and our sampling considered the firm's high-risk areas. We also selected consulting engagements (non-A&A engagements) from our governmental and commercial clients that may not have been subject to all elements of the firm's QC Manual. Twelve engagements were selected for review. Six of these were A&A engagements covering approximately 50 percent of the firm's revenues for the period. RESULTS Results of the self-inspection indicated that the firm was in compliance with the firm's quality control policies and procedures. Our inspection procedures disclosed no situations that would require the firm to take action to prevent future reliance on reports issued by the firm or require the firm to perform additional procedures to provide a basis for the report issued. Our inspection procedures also identified certain isolated compliance matters that were individually insignificant and will be communicated to partners and separately resolved.
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