Who Conducts Peer Reviews of Firms That Audit Nonpublic Entities
| EXECUTIVE SUMMARY | |
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| GARY FREUNDLICH, CPA, is a senior technical manager in the AICPA practise monitoring division. His e-mail address is GFreundlich@aicpa.org . WALTER H. WEBB, CPA, is a partner of Call, Barrick, Ethridge, Webb & Co. LLP in Cushing, Oklahoma, and chairman of the AICPA peer review lath. Mr. Freundlich is an employee of the American Institute of CPAs and his views, as expressed in this commodity, do non necessarily reflect the views of the AICPA. Official positions are adamant through certain specific committee procedures, due process and deliberation. |
s part of the evolution of the peer review process, the AICPA reevaluated and revised its standards for performing and reporting on peer reviews for CPA firms that practice not audit SEC registrants. Once firms begin to implement them side by side January, the revisions should event in meaning efficiencies in the way peer reviews are conducted and administered; the changes also should meliorate the quality of fiscal reporting and protect members of the public who use and rely on those reports.
Almost 18,000 of the xxx,000-plus firms in the AICPA peer review program perform reviews or compilations every bit their highest level of service as follows:
| Engagement review firms | |
| Reviews only | 393 |
| Reviews and full-disclosure compilations only | 467 |
| Reviews and omit-disclosure compilations merely | 2,355 |
| Reviews and full- and omit-disclosure compilations merely | 4,106 |
| Total-disclosure compilations only | 500 |
| Full- and omit-disclosure compilations only | 2,540 |
| Total firms | 10,361 |
| Report review firms | |
| Omit-disclosure compilations only | 7,404 |
| Total engagement and study review firms | 17,765* |
*Does not include firms performing engagements nether the SASs, examinations of prospective financial statements under the SSAEs or under Government Auditing Standards (the yellow volume).
Source: AICPA practice monitoring division, 2000.
While at least some of the changes use to all of the more than 30,000 firms enrolled in the AICPA peer review program, they about notably impact the nearly 18,000 minor firms (mostly sole practitioners) that perform only review or compilation engagements and not audits. The revised standards also bear upon regulators (such as state boards of accountancy, which crave peer review for licensure), CPAs who perform the peer reviews and state CPA societies, which administer the peer review program (see the box). This article focuses on how the key revisions will impact the peer reviews of minor firms.
TYPES OF PEER REVIEWS
The most significant modify is that there volition exist three types of peer reviews (arrangement, engagement and report) instead of two (on-site and off-site). The engagements in a firm'south bookkeeping and auditing practice currently covered nether peer review withal will be covered under the revised standards. For purposes of the standards, an accounting and auditing practice is defined as all of a CPA business firm'south engagements (with few exceptions) that are covered past AICPA statements on auditing standards (SASs), statements on standards for bookkeeping and review services (SSARSs) and statements on standards for attestation engagements (SSAEs) likewise as by Government Auditing Standards (the yellow book), issued past the U.S. General Accounting Function.
System review. This type of review is for firms that perform engagements nether the SASs, or the yellow book or examinations of prospective financial information nether the SSAEs. Essentially information technology is the same as an on-site peer review with a proper name change. A system review is intended to provide the reviewer with a reasonable footing for expressing an opinion whether—for the year under review—the reviewed firm
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Has designed its system of quality control for its accounting and auditing practice in accord with AICPA quality control standards.
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Is complying with its quality command policies and procedures in a way that will provide the firm with reasonable assurance of befitting with professional standards.
On-site peer review was renamed system review to more than accurately describe the type of peer review since the reviewer expresses an opinion on the business firm's system of quality control. Approximately 15,000 firms are likely to have a organisation review over the adjacent iii years.
So the AICPA tin focus its efforts on establishing standards, programs, checklists and procedures, the Institute annually asks each of the 54 country CPA societies (including those in the Commune of Columbia, Guam, Puerto Rico and the Virgin Islands) to administer the AICPA peer review program or to arrange to take the peer reviews of firms with their main offices in that state administered by another state CPA guild. Currently there are 41 administering entities for the 54 jurisdictions. All are state CPA societies except New England Peer Review, Inc., an approved entity that administers the AICPA peer review program for Vermont, Rhode Isle, Maine and New Hampshire.
Date review. This type of review is for firms that are not required to have system reviews (and are not eligible to have report reviews,which are discussed below). An engagement review's objectives are to provide the peer reviewer with a reasonable footing for expressing limited assurance that
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The fiscal statements or information and the related accountant's study on the accounting, review and attestation engagements the firm submits for review conform in all material respects with professional standards (the same as an off-site peer review).
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The reviewed house's documentation conforms with the requirements of the SSARSs and the SSAEs, as applicative, in all textile respects (new under the revised standards).
This type of review does not comprehend the firm'due south arrangement of quality control, then the reviewer cannot express an stance on the firm'due south compliance with its own quality command policies and procedures or with AICPA quality control standards. The reviewer tin express only limited assurance on the firm'southward conformity with the SSARSs and the SSAEs.
An engagement review does not require the reviewed firm to certificate any work other than that required by the SSARSs and the SSAEs, so the peer reviewer expresses express assurance on whether the firm's documentation conforms with those standards. Some examples of documentation include
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Direction representation messages on a review engagement.
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Working papers documenting the matters covered in the auditor's inquiry and belittling procedures on a review of fiscal statements.
The appointment review too encompasses documentation required under the SSAEs, such equally might be the case on a WebTrust appointment. Currently, there are no documentation requirements for compilation engagements under the SSARSs. If a firm has an appointment review and performs simply compilations under the SSARSs, the review volition non include any of the firm'due south documentation.
These changes should improve the quality of engagements—protecting the public that uses and relies on those reports—without imposing whatsoever additional burden on reviewed firms. The new procedures peer reviewers must perform are based on the minimal documentation requirements under the SSARSs and the SSAEs. More than than ten,000 firms are likely to have an engagement review over the adjacent iii years.
Study review. Firms performing only compilations that omit substantially all disclosures volition have report reviews. All the same, a business firm must have an engagement review if information technology performs—as its highest level of service—compilations referred to in the SSARSs every bit "selected information—substantially all disclosures required are non included." A written report review retains the overall integrity of peer review through a streamlined process.
A study review's objective is to help a house that performs omit-disclosure compilation engagements as its highest level of service improve the overall quality of its practice. To accomplish this, the peer reviewer selects a sample of engagements and gives the firm a report listing comments and recommendations based on whether the fiscal statements and the related accountant's reports announced to conform with the requirements of professional standards in all material respects.
A peer reviewer's comments should exist relevant and supportable by professional person standards, giving the firm sound guidance for improving the overall quality of its omit-disclosure compilation engagements. Although materiality and relevance are sometimes subjective, peer reviewers should not constitute their own professional standards or impose their own personal preferences on the firms they review. The comments and recommendations should exist reasonably detailed so that a firm can determine what actions it should take.
An authorized member of the reviewed firm is required to sign the report—whether or not in that location are comments—acknowledging that in that location are no disagreements on significant matters and that the business firm agrees to correct the matters commented on. The firm so must submit the signed copy of the report to the entity administering the peer review. In that location is no separate letter of comment or letter of the alphabet of response (as is the case with system and engagement reviews). However, a firm will not be prohibited from attaching a response to the re-create of the peer review report it signed.
The administering entity must technically review all peer reviews. On report reviews, however, the entity's peer review committee does not always demand to be directly involved in accepting peer review documents. The technical reviewer, selected by the administering entity, normally helps the committee by reviewing the documents the peer reviewer submits. In a report review, however, the technical reviewer generally should have the say-so to have report reviews on the committee'southward behalf when the technical reviewer determines in that location are no significant issues. This process is allowed only on report reviews.
By streamlining the process, including not requiring a formal response, the technical reviewer may exist able to take 85% or more of report reviews on the committee's authority within xxx days of receiving the signed peer review study. Currently, the process oftentimes takes betwixt 3 and six months. The AICPA peer review board is request the 41 entities that administrate the program to reevaluate the current scheduling, administrative and other related fees they charge firms based on this streamlined process.
If the technical reviewer finds significant deficiencies or issues with the peer review, that reviewer may not accept the report review. He or she should submit it for peer review committee consideration. Examples of such deficiencies include matters material to understanding the report, fiscal statements or other concerns such as significant repeat comments from the house's previous peer review or problems with the peer reviewer's functioning. Since a report review's objective is to enable the firm to improve its omit-disclosure compilation engagements, the commission may need to ask the firm for evidence that it has taken corrective action to the committee's satisfaction.
The technical reviewer alone may not impose corrective actions on the firm or peer reviewer; the committee must determine any cosmetic deportment. The AICPA peer review lath, country boards of accountancy and other interested parties responding to the revisions in the exposure draft stressed the importance of ensuring that firms with significant deficiencies have their corrective deportment monitored by the committee. Since more than 7,000 firms are likely to have report reviews over the next three years, this is a significant improvement to the process.
Footstep-UP IN PEER REVIEW
If a firm is required to take only a report review, it may elect to have an engagement or arrangement review; a firm required to have an engagement review may elect to have a system review. A firm can make such an election to qualify its members to be peer reviewers or peer review commission members. Although most 18,000 firms are not required to have system reviews, every CPA business firm must have a system of quality control in place. Some of those firms, therefore, may find it useful to have peer reviews covering that system.
AICPA BYLAW Modify
The AICPA amended its bylaws to crave members practicing public accounting in organizations not eligible to enroll in an Institute-approved exercise-monitoring program (a non-CPA-owned entity) to enroll individually if the services they perform and the reports they issue are subject to peer review. Currently, the merely services covered by this situation are compilations performed and reported on under the SSARSs. Those individual members volition be subject field to engagement or report reviews.
Effective DATE
The revised standards are effective for all peer reviews commencing on or later on January 1, 2001. Early implementation is not allowed either in role or whole primarily because the entire AICPA peer review computer organization, used to administer the program for more than 30,000 firms, is beingness rewritten.
EVERYBODY WINS
The goal of the AICPA peer review programme is quality in the performance of bookkeeping and auditing engagements by programme members. The revised peer review standards have not changed this goal. Creating new, efficient and less burdensome ways to conduct and administer peer reviews for the many small CPA firms required to take them benefits everyone—clients, practitioners, regulators and reviewers. In the cease, everyone wins, particularly CPA firms that tin can spend more fourth dimension serving their clients.
CPAs who have questions about peer review should call the land CPA club that administers their reviews or the AICPA peer review programme staff (201-938-3030). The revised standards tin be obtained on the AICPA peer review Spider web site at world wide web.aicpa.org/members/div/practmon/index.htm .
Source: https://www.journalofaccountancy.com/issues/2000/aug/peerreviewforsmallfirms.html