November 1999
Common Questions and Answers on Peer Review Changes
The AICPA recently adopted changes to its peer review program. (See the article on page 3.) Below are answers to some common questions that members may have. For more information, contact NYSSCPA Manager of Technical Services William Prue at (212) 719-8309, (800) 633-6320, or wprue@nysscpa.org, or NYSSCPA Peer Review Committee Chair Henry Krostich at (516) 621-4995 or krostich@worldnet.att.net.
The revised standards are effective for peer reviews commencing on or after January 1, 2001. Is early implementation allowed in part or whole?
No. The January 1 effective date stands and early implementation is not permitted.
What is the objective of a report review?
The objective of a report review is to enable the reviewed firm to improve the overall quality of its compilation engagements that omit substantially all disclosures. To accomplish this, the reviewer provides a report with a list of comments and recommendations based on whether the financial statements and the related accountant's reports appear to conform with the requirements of professional standards in all material respects. The comments and recommendations should be reasonably detailed so that the reviewed firm can evaluate what appropriate actions to take.
How many engagements does a firm select for a report review?
A firm should select one engagement from each partner responsible for the issuance of compiled financial statements that omit substantially all disclosures and ordinarily at least two engagements.
On a report review, are there a separate letter of comments and letter of response?
No. After discussing the comments and recommendations with the firm, the peer reviewer prepares a written report and submits it to the reviewed firm and the administering entity. An authorized member of the firm must then sign the report--whether or not there are comments--and acknowledge that there are no disagreements on significant matters and that the firm agrees to correct matters included as comments. The firm must then submit the signed copy of the report to the administering entity. The report review requires no separate response letter; however, a firm can attach one to the signed copy of the report if it desires.
On a report review, what is the technical review/committee acceptance process?
A technical review must be performed by the administering entity on all report reviews, but committee consideration is not always required--a process allowed only on report reviews. The technical reviewer should be delegated the authority to accept report reviews on the committee's behalf when the technical reviewer determines there are no significant issues. When the technical reviewer determines there are significant issues (and there may be other issues as well), the report review should be submitted for committee consideration. The technical reviewer may recommend but cannot impose corrective actions. The committee must consider any corrective actions.
Statements on Standards for Accounting and Review Services discusses compilations where "Selected Information--Substantially All Disclosures Required Are Not Included." What type of peer review must a firm have when this type of engagement is the highest level of service performed?
Engagement review.
How many engagements will be selected on an engagement review?
The guidelines for engagement selection for engagement reviews are similar to those under the current off-site peer review. This includes one engagement from each area of service performed by the firm: review of historical financial statements, compilation of historical financial statements with disclosures, compilation of historical financial statements that omit substantially all disclosures, and attestation. The engagements also must include at least one engagement from each partner of the firm responsible for the issuance of reports mentioned above. The above criteria are not mutually exclusive; that is, one of every type of engagement that a partner performs would not have to be reviewed as long as all types of engagements for the firm as a whole are among those reviewed.
Are there any procedures relating to firms that do not correct deficiencies from prior peer reviews?
Yes. A firm that repeatedly receives peer reviews with consistent significant deficiencies that are not corrected may be deemed a firm refusing to cooperate. The AICPA Peer Review Board may decide for such firms that fail to cooperate, pursuant to due process procedures that it has established, to appoint a hearing panel to consider whether the AICPA should terminate the firm's enrollment in the peer review program or take some other action.
When can a system review be performed at a location other than the reviewed firm's office?
Interpretation No. 1 to the current standards (effective for peer reviews commencing on or after January 1, 1999) states that an on-site peer review can be performed at another location for a sole practitioner with four or fewer staff. This ruling remains in effect and the revised standards allow an additional situation when, irrespective of the firm's size, the firm does not perform engagements covered by the Statements on Auditing Standards (SASs) or examinations of prospective financial statements under the Statements on Standards for Attestation Engagements (SSAEs).
If a firm is only required to have a report review, may the firm have an engagement or system review?
Yes. Similarly, if a firm is required to have an engagement review, it may elect to have a system review.
Did the revised standards have to be re-exposed?
No. It was not required because the final revised standards are not more restrictive than both the current standards and those that were exposed. *
