Peer Review Process
INTRODUCTION
The MSCPA administers the Peer Review Program for the AICPA as a service to its members, providing assistance and support to enable its members to achieve a higher level of performance and stand apart as leaders in the accounting profession.
According to STANDARDS FOR PERFORMING AND REPORTING ON PEER REVIEWS:
“Quality in the performance of accounting and auditing engagements by its members is the goal of the American Institute of Certified Public Accountants (AICPA) Peer Review Program. The program seeks to achieve its goal through education and remedial, corrective actions. This goal serves the public interest and enhances the significance of AICPA membership.
The objectives of the AICPA Peer Review Program are achieved through the performance of peer reviews involving procedures tailored to the size of the firm and the nature of its practice.
The program is based on the principle that a systematic monitoring and education process is the most effective way to attain high-quality performance throughout the profession. Thus, it depends on mutual trust and cooperation. The reviewed firm is expected to take appropriate actions in response to deficiencies in its system of quality control, its compliance with that system or both. These actions will be positive and remedial.”
AICPA members active in the practice of public accounting must be associated with a firm that participates in an AICPA practice-monitoring program if the firm performs services within the scope of the peer review standards and issues reports in accordance with AICPA Professional Standards.
Quality through education is one of the goals of the AICPA Peer Review Program. Through this program CPAs help firms maintain a consistent quality control system and a higher level of service in the accounting profession. The program helps protect the public by providing assurance that CPA firms’ reports adhere to professional standards.
The Uniform Accountancy Act was passed in August of 2001. Peer Review was added as a requirement for licensure in the State of Missouri. Please click here for details on the legislation.
The reviewed firm has the responsibility to ascertain that the firm engaged to perform its review has the appropriate qualifications including licensure with the Missouri State Board of Accountancy.
THE REVIEW PROCESS
Once a firm has enrolled in the Peer Review Program, a due date will be assigned. This date is usually 18 months after enrollment. Due date is defined as the date by which all documents must be submitted to the MSCPA.
Scheduling
In the year preceding the review, the firm will receive an “Information Required for Scheduling Reviews” (background) form. Background forms are sent in August to firms with due dates in January through April of the next year, or in early December to firms with due dates May through December. The MSCPA asks that you return this information within 30 days. You can also download a copy of the form.
The background form requests information about the firm, the type of services it performs, if the firm desires to have a firm-on-firm, CART or association review and information regarding the reviewer.
The firm will need to determine whether they are required to have a system, engagement or report review. Click here to see the definition of an accounting and auditing practice and to determine the type of review required.
Firms that perform audits of historical financial statements, agreed-upon procedures under SAS No. 75, Engagements to Apply Agreed-Upon Procedures to Specified Elements, Accounts or Items of a Financial Statement (AICPA Professional Standards, Vol. 1, AU Sec. 622), or examinations of prospective financial statements are required to have a system review.
If the firm does not perform these types of engagements, it is able to have an engagement or report review. There are three different types of reviews: 1) firm-on-firm review 2) committee appointed review team (CART) or 3) association review.
A firm-on-firm review is one in which the firm selects the review team. If the firm is a member of an authorized association of CPA firms, it can have the association organize the review. Both of these options are available for a system review.
If the firm is eligible for an engagement or report review, the firm is able to have a firm-on-firm review, an association review, or a CART review. Click here for more information on Missouri’s CART program.
Please remember that regardless of your review type, all review teams must be approved by the MSCPA prior to the commencement of the review.
The Review
The review will cover a one-year period mutually agreed-upon by the reviewer and the reviewed firm. The year-end is normally six months prior to the due date of the review. The year-end of the review should remain the same from review to review.
To ensure the review is completed on time, we recommend that the exit conference be scheduled 2-3 months prior to the due date of the review.
For system reviews, the review will normally take place at the firm’s office. The date and time should be mutually agreed-upon by the firm and the reviewer. Engagement and Report Reviews are eligible to be performed at the Reviewer’s office or the MSCPA office, if a CART review is selected.
Once the review is completed and the Report and Letter of Comments (LOC), if necessary, has been issued the reviewer will submit the working papers to the MSCPA. If a LOC has been issued, the firm is required to submit a Letter of Response (LOR). Please click here for guidance in writing an acceptable LOR.
Acceptance and Completion
Once the MSCPA has received all documents pertaining to the review, such as workpapers, report, letter of comments and letter of response, it performs an administrative review. The administrative review ensures that all required documents have been received and properly completed. The technical reviewer then reviews the review. The technical reviewer is a CPA contracted by the Society to review the workpapers, the letter of comments, and the letter of response to ensure the reviewer’s conclusions are consistent with the AICPA standards. The technical reviewer may request that the reviewer make changes to the report, letter of comments and letter of response before these materials are submitted to the Peer Review Report Acceptance Body (RAB).
The review is then sent to the Report Acceptance Body. The committee also reviews the conclusions and findings of the reviewer to make sure they comply with Peer Review standards. The committee may then accept the review, assign follow-up, or request revisions be made before accepting the review. If the firm isn’t assigned follow-up, an acceptance letter that indicates that the review process is complete and sets the firm’s next due date will be sent. If the committee assigns follow-up, a letter describing the follow-up required and the date by which the follow-up must be completed will be sent. Once all follow-up actions are completed, a final acceptance letter will be sent.
Follow-up is assigned if the review is modified or adverse, or if there are significant repeat findings. Follow-up action may include a team captain revisit, pre-issuance review, required continuing professional education courses, submission of an inspection report or an accelerated next review.
TYPES OF REVIEWS
SYSTEM REVIEW
A system review is for firms that perform engagements under the Statements of Auditing Standards (SAS), the Government Auditing Standards (Yellow Book) or examinations of prospective financial information under the SSAEs. A system review is basically the same as the previous “on-site” peer review with a name change. It was renamed “system” review to more accurately describe the type of peer review since the reviewer expresses an opinion on the firm’s system of quality control. A system review provides the reviewer with a reasonable basis for expressing an opinion for the year under review, including as to whether or not the firm has designed its system of quality control for its accounting and auditing practice in accordance with AICPA quality control standards. A system review also provides the reviewer reasonable assurance that the firm is complying with its quality control policies and procedures and conforming with professional standards.
In a system review, the reviewer will evaluate the firm’s quality control policies and procedures, which were in effect during the year under review. This will include interviewing firm personnel and examining administrative files. The reviewer will review a cross-section of the firm’s practice to test the effectiveness of the system and the level of compliance with the firm’s system.
The team captain will most likely select engagements representing 5-10 % of the firms accounting and auditing hours. The reviewer will review a cross-section of the accounting and auditing practice with greater emphasis being placed on specific engagements with greater peer review risk, as required by the Standards. Engagements required by a regulatory agency or engagements in which public interests exist, may by Interpretations, be required by the Board to be selected for review. The team captain should make sure that these engagements are included in the scope of the review. Segments of the firm’s practice such as tax services or advisory services are not included in the scope of the review unless they are directly associated with financial statements.
Under Interpretation No. 1 of the current Standards, a system review can be performed at another location for a sole practitioner with four or fewer staff, if all the requirements are met.
ENGAGEMENT REVIEW
Engagement reviews are required for firms that perform reviews, compilations with disclosures, agreed upon procedures under SSAE and Web or Systrust engagements under SSAE. There is no opinion expressed on the reviewed firms system of quality control.
For engagement reviews, the firm is required to submit a form providing information about the type of engagements the firm performs, including the number and nature of compilations, reviews and attestation engagements and the industry in which those clients operate. The reviewer or the administering entity will notify the firm which engagements should be submitted for review. The firm is asked to submit a copy of the financial statements or information and accountant’s report, including specific background information and representations on each engagements. For review engagements, representation letters and proof of inquires and analytical procedures should also be submitted.
Engagements will be selected based on the following:
• One engagement will be selected from each level of service performed by the firm.
• One engagement from each partner will be selected for review.
• At least two engagements will be selected for review.
These are not exclusive criteria; one of each level of service performed by each partner doesn’t need to be reviewed as long as each level of service is represented.
An engagement review provides the reviewer with limited assurance that the financial statements, and related information on the accounting, review and attestation engagements that the firm submits for review conform, in all material respects with professional standards. This is the same as the previous off-site review. An engagement review also provides the reviewer limited assurance that the reviewed firm’s documentation conforms with the requirements of SSARSs and the SSAEs, as applicable in all material respects. This is new under the revised standards.
An engagement review does not cover the firm’s system of quality control, so the reviewer cannot express an opinion on the firm’s compliance with its own quality control policies and procedures or compliance with AICPA quality control standards.
Engagement reviews do not require the reviewed firm to document any other work than required by the SSARSs and the SSAEs, so the reviewer expresses limited assurance on whether the firm’s documentation conforms with those standards. Such documentation includes:
• Management representation letter on review engagements.
• Working papers documenting the matters covered in the accountant’s inquiry and analytical procedures on a review of financial statements.
These changes should improve the quality of engagements and should protect the public that uses and relies on those reports.
REPORT REVIEW
Firms performing only compilations that omit substantially all disclosures will have a report review. However, a firm must have an engagement review if its highest level of service is compilations referred to in the SSARSs as "substantially all disclosures required are not included."
The objectives of a report review are to enable the reviewed firm to improve the overall quality of its compilation engagements that omit substantially all disclosures.
The reviewer, or the MSCPA, will select the number and type of engagements for the review in accordance with Peer Review Standards. Engagement selection is the same as the engagement review.
Engagements will be selected based on the following:
• One engagement will be selected from each level of service performed by the firm.
• One engagement from each partner will be selected for review.
• At least two engagements will be selected for review.
These are not exclusive criteria; one of each level of service performed by each partner doesn’t need to be reviewed as long as each level of service is represented.
The firm is then asked to submit your reports, engagements and engagement questionnaires to the reviewer or the Society.
After the review is complete, the firm will receive a report. The report will list comments and recommendations by the reviewer based on whether the financial statements and the related accountant's reports appear to conform with professional standards in all material respects. The reviewer's comments should be relevant and supportable by professional standards, providing the firm with guidance for improving their engagements. An authorized member of the reviewed firm is required to sign the report, whether or not there are comments, acknowledging that there aren't any disagreements on significant matters and that the firm agrees to correct the matters.
If a firm is only required to have a report review, it may elect to have a system or engagement review. This voluntary increased level of review would be done to qualify its members to be peer reviewers or report acceptance committee members.
