Instructions for Firms Having a System Peer Review

General

.01 A system review is required for all firms that perform engagements under the Statements on Auditing Standards (SASs), Government Auditing Standards or examinations of prospective financial statements under the Statements on Standards for Attestation Engagements (SSAEs) because of the public interest in the quality of such engagements and the importance to the accounting profession of maintaining the quality of those services. 

.02 System reviews are administered by state CPA societies that elect to participate in the program. Generally, the appropriate society will contact your firm before the beginning of the calendar year in which your firm is scheduled to have a system review to begin to make arrangements for the conduct of the review. Well before then, you should have read the applicable sections of Standards for Performing and Reporting on Peer Reviews (the Standards) issued by the AICPA Peer Review Board, as well as these instructions and the quality control policies and procedures questionnaire and review guidelines applicable to your size firm.

.03 These instructions have been designed for reviews conducted by committee-appointed review teams. However, they should be helpful in reviews conducted by firms or with the assistance of an association of CPA firms. Also, completing the procedures listed under “Prior to the Review” should expedite the conduct of the review.

.04 It is the reviewed firm’s responsibility to be certain that the quality control policies and procedures in effect for the period covered by the review have provided the firm with reasonable assurance that it has met its responsibility to provide accounting and auditing services that conform with professional standards. Also, firms should carefully evaluate the effectiveness of the way in which quality control policies and procedures are communicated to all professional personnel and should determine that appropriate action is taken when monitoring or other procedures reveal design or compliance deficiencies.

Prior to the Review

.05 Identify the individual—usually a partner—who will be responsible for acting as a liaison with the review team.

.06 Review and sign the engagement letter for the review.

.07 Agree with the team captain on the date the review will commence, the 12-month period to be covered, and the anticipated exit conference date. The firm is expected to maintain the same year end on subsequent reviews. However, circumstances may arise that necessitate the firm changing its peer review year end. In such a situation, the firm may do so with the prior approval of the state CPA society administering its review. Ordinarily the review should be conducted within three to five months following the end of the year to be reviewed. The firm and team captain should schedule the review to begin sufficiently ahead of the firm’s due date to allow time for submission of all peer review documents to the state CPA society administering the review by the firm’s due date.

.08 Submit the following to the team captain as soon as possible:

a    A completed “Quality Control Policies and Procedures Questionnaire.” (There is one form of questionnaire for sole practitioners without professional staff and one for all other firms.)

b.   Relevant manuals, checklists, etc., if practicable.

c.    A list of accounting and auditing engagements prepared in the form shown in Appendix A to these instructions. The list should include all engagements with periods ending during the year under review and covered by the definition of an accounting and auditing practice for peer review purposes. See exhibit 1 for a copy of that definition.Copyright © 2001 16 4-01 4110

d.   A list of the firm’s professional personnel, showing name, position, and years of experience (i) with the firm and (ii) in total.

e.   Other information requested by the team captain.

.09 Based on that information, the team captain will make a preliminary advance selection of engagements for review. Complete profile sheets on those engagements and assemble all working papers, including the permanent files and reports, before the review begins.

.10 Review the applicable guidelines for review of quality control policies and procedures that will be followed by the team captain and make sure documentation that the team captain will ask for will be readily available. Examples of such documentation are noted in the following list, which is not all-inclusive:

a.   Independence confirmations, documentation of independence of correspondents, and documentation supporting the resolution of independence questions

b.   Personnel files

c.    CPE records

d.   Documentation regarding consultations with outside parties

e.   Dues paid to the AICPA

During the Review

.11 Make sure firm personnel will be available for discussion with the reviewer(s) as necessary. The reviewers will endeavor to have these discussions and interviews without disrupting the firm’s operations.

.12 The team captain will inform the firm of any deficiencies noted during the peer review on a form entitled, “Matter for Further Consideration” (MFC), and ask your firm to respond. Typically, the team captain will provide these forms as the review progresses so that the firm is fully prepared to respond to all issues by the exit conference. The firm should provide a thorough written response to those forms to avoid any misunderstanding about its quality control policies and procedures or the circumstances of the individual engagement.

.13 Arrange for appropriate partners and staff to attend the exit conference. If the firm disagrees with any of the reviewer’s findings, those differences should be discussed as they arise. Any differences of opinion that have not been previously discussed should be covered during the exit conference.

After the Review

.14 Obtain the report and letter of comments, if any, from the team captain. These documents should be delivered to the firm within 30 days of the exit conference date or by the firm’s peer review due date, whichever date is earlier.

.15 Prepare a letter of response to the report and letter of comments and submit all three documents to the administering entity within 30 days of the date the report and letter of comments are received from the team captain or by the firm’s peer review due date, whichever date is earlier. The firm should submit a draft of its letter of response to the team captain for review and comment prior to submitting the response to the administering entity. As indicated in the Standards, the letter of response should be carefully prepared because of the important bearing it may have on the decisions reached in connection with acceptance of the report on the review.opyright © 2003 18 4-03 411

.16 The state CPA society administering the review will not make the report on the review available to the public. The firm itself may do so, if it wishes. However, the firm should not publicize the results of the review or distribute copies of the report to its personnel, clients, or others until it has been advised that it has been accepted by the administering entity.

.17 After the peer review documents are accepted on a review of a member of the PCPS, a copy of the report, letter of comments, and the reviewed firm’s response thereto, and the letter indicating that the committee has accepted the report will be forwarded to the public files of the Division for CPA Firms and will be retained in those files until acceptance of the report on the subsequent review.

Disagreements

.18 Because peer review is a subjective process and professional standards require the use of professional judgment, there may be differences of opinion between the reviewed firm and the team captain as to whether an engagement deficiency exists. Most disagreements can and should be resolved before the exit conference. In responding to findings involving technical issues the firm should not automatically assume the team captain’s interpretation of the standards is the correct one. The firm should ask the team captain to cite the applicable section of the professional standards that supports his or her conclusion and read the applicable section to verify that the comment is applicable to the particular situation. If necessary, the firm should consult with the state CPA society administering the peer review, a knowledgeable outsider, or the AICPA Technical or Ethics hotline.

.19 The reviewed firm should respond in writing to the specific comments on the response section of the “Matter for Further Consideration” (MFC) form. Since MFC forms are read by the state CPA society’s technical reviewer and possibly by members of acceptance committees, the firm’s response should present the reasons for disagreement or the circumstances that caused the deficiency. Such a response may not only cause the team captain to change his or her mind, but may cause the acceptance committee to question the significance of the deficiency.

.20 In those rare instances where the matter cannot be resolved, the reviewed firm should respond to the letter of comments by addressing each deficiency noted and citing the section of the professional standards that supports its views. The state CPA society peer review committee will attempt to resolve the disagreement.opyright © 2003 18 4-03 41

Exhibit 1

Definition of an Accounting & Auditing Practice for Peer Review Purposes

Paragraph 4 of the AICPA Standards for Performing and Reporting on Peer Reviews states:

An accounting and auditing practice for the purposes of the AICPA Standards for Performing and Reporting on Peer Reviews is defined as all engagements covered by Statements on Auditing Standards (SASs), Statements on Standards for Accounting and Review Services (SSARS)1,1 Statements on Standards for Attestation Engagements (SSAEs) Government Auditing Standards (the Yellow Book) issued by the U.S. General Accounting Office (GAO).