Review: How Well Does It Fit the Profession?
2005 - As the NYSSCPA’s Quality Enhancement Policy Committee
continues to look at peer review, I’ve noticed that
many people know relatively little about the types of peer
reviews that may be performed as well as their scope.
Report review is somewhat like
a management letter. Report reviews are done for CPA practices
that issue compilations that omit most disclosures. They
are performed off-site and are restricted to the contents
of the compilation reports that the review team examines.
Reviewers can make recommendations for improvement, and
the reviewed firm does not receive a “pass”
or “fail.” If the reviewers make no comments,
the technical reviewer (in New York, a member of the NYSSCPA
staff) can accept the review without the peer review committee
(PRC) of the agent organization (which in New York is
NYSSCPA) reviewing it further.
Engagement review encompasses
the evaluation of reviews, compilations with disclosures,
and agreed-upon procedure engagements under the Statements
on Standards for Attestation Engagements (SSAE), but not
audits. After the technical reviewer analyzes the review
team’s report, it is submitted to the PRC, which
determines whether to accept the review team’s and
the technical reviewer’s recommendation, which takes
the form of an unmodified, modified, or adverse report.
An unmodified report is basically a clean bill of health.
It may, however, include a letter of comment (LOC), which
is a recommendation for improvement of items that are
not a material departure from professional standards.
The reviewed firm must respond in writing to an LOC. LOCs
are generally required for modified reports. In an adverse
report, all findings are included in the body of the report
and no LOC is issued.
System review is for firms that
perform audits or examinations under the Statements of
Auditing Standards (SAS) or Government Auditing Standards
(Yellow Book), or examinations of prospective financial
information under the SSAEs. It focuses on the firm’s
system of quality control. Review steps include staff
interviews, examination of professional hiring and library
resources, and the firm’s ongoing monitoring of
its quality-control system. In addition, engagements and
their related workpapers are reviewed.
most people think that every firm is peer reviewed, 25%
of the states, including New York, do not require peer review
for licensing. Moreover, although it is commonly believed
that every peer review is as extensive as a system review,
in New York only about 47% of all reviews are system reviews.
Nationally, peer review is a requirement of AICPA membership,
and any firm that is not reviewed every three years will
be dropped. In addition, GAO standards require peer reviews
for auditors of governments and certain other entities.
Firms that are registered with and inspected by the Public
Company Accounting Oversight Board can choose to also join
the AICPA’s Center for Public Company Audit Firms
(CPCAF), which requires participation in the CPCAF peer
How Well Peer Review Fits
concerns about peer review crystallize into important issues.
Some say we should keep the current three types of reviews
because they make sense in terms of what is reviewed. Others
believe that system review standards should extend to all
reviews, although others say that a one-size-fits-all program
cannot work. Some people believe the current program is
too checklist-focused, and that a broader, quality review
is necessary. However, some people say that such changes
would be overkill and cost-prohibitive.
share with me your thoughts on this subject. I always value
members’ input, and the dialogue will help the Society
focus its agenda.
Publisher, The CPA Journal
Executive Director, NYSSCPA