2015 Peer Review Manual and Team and Review Captain Checklists
The 2015 Peer Review Manual and Team and Review Captain Checklists are now available for download on the AICPA’s peer review website. Version “00-11 May 2015” of the manual and checklists must be utilized for all reviews commencing on or after May 1, 2015. Due to the number of changes in the manual, any review submitted that commenced on or after May 1, 2015 that does not use version 00-11 May 2015 will be returned to the Team or Review Captain for revision. This newsletter outlines some of the more important highlights of the 2015 Peer Review Manual, but is not meant to be an all-inclusive list of updates. Reviewers should refer to the 2015 manual and checklists for a summary of all updates.
Update to the Risk Assessment Practice Aid
In 2015, the AICPA added new risk factors to consider related to tone at the top, the firm’s EQCR policies and procedures, and the firm’s ability to monitor compliance with legal and regulatory requirements.
The ICPAS Practice Aid has been updated to address these risk factors and all risk factors reviewers must consider on System Reviews. A copy of the practice aid can be found here
Effective January 1, 2015, if all the engagements selected for review contain deficiencies (“substandard” or “nonconforming”) the peer review report rating is fail, regardless of whether it is one issue or multiple issues.
If one or more engagements, but not all of the engagements selected for review contain deficiencies, the peer review report rating is pass with deficiencies, regardless of whether the deficient engagements contain one or multiple deficiencies.
The 2015 Peer Review Manual removed the clause that called for a pass with deficiencies report if there are multiple engagements, but only one deficiency that covers all the engagements selected for review. If there is only one deficiency that covers all the engagements selected for review, the peer review report rating should be fail.
Firm Representation Letters
Effective in 2014, the firm representation letter became a required submission to the Administering Entity. The letter must follow the language in Appendix B of the Peer Review Standards.
Reviewers should not tailor the paragraph regarding the completeness of the engagement listing (and should consider not modifying the language at all), even on an engagement review.
The letter must be signed by the Managing Partner and Head of Quality Control (if applicable) in their individual names rather than the firm name (the letter still goes on firm letterhead).
Firm and Individual License Verification
For firm licenses, reviewers are now required to verify license(s) in the state where the firm’s main office is located.
For individual licenses in the state where the individual primarily practices public accounting, the reviewer is now required to verify individual licenses as follows:
• For System Reviews, a sample of appropriate personnel
• For Engagement Reviews, the appropriate personnel on engagements selected for review
Non-Pass Peer Review Reports
Pre-January 1, 2015, a firm would receive a warning after 2 consecutive pass with deficiencies or fail reports that receipt of one more could lead to the firm being sent to the AICPA Peer Review Board (or ICPAS Peer Review Executive Committee for non-AICPA member firms enrolled in the Illinois or Iowa Peer Review Programs) for termination consideration.
Effective January 1, 2015, a firm receives a warning after 1 pass with deficiencies or fail report that receipt of one more could lead to the firm being sent to the AICPA Peer Review Board (or ICPAS Peer Review Executive Committee for non-AICPA member firms enrolled in the Illinois or Iowa Peer Review Programs) for termination consideration.
Preparation of Financial Statements Under SSARS 21
Preparation engagements are included in the scope of peer review if the firm performs other levels of service subject to a peer review.
As it relates to engagement selection:
• For System Reviews, the reviewer should use a risk-based approach just like with any other engagement.
• For Engagement Reviews, it depends on whether the firm performs compilations with or without disclosures.
o If a firm does not perform compilations with disclosures but performs preparation service engagements with disclosures, a preparation service engagement with disclosures should be selected for review.
o If a firm does not perform compilations without disclosures but performs preparation service engagements without disclosures, a preparation service engagement without disclosures should be selected for review
o If a firm performs both compilations with and without disclosures, no preparation service engagements would be selected for review, however please note that a preparation service engagement may still need to be selected for review for partner coverage
Firms performing only preparation service engagements are not required to undergo a peer review for AICPA membership, Illinois licensure or Iowa licensure purposes. However, firms that remain enrolled in the program even though not required to do so, must have an engagement peer review.
The AICPA has updated Section 6200, Appendix E of the Peer Review Manual to discuss the impact of SSARS No. 21 on peer review for Engagement Reviews.
AICPA Online Professional Library (OPL)
Starting in January 2016, certain areas of the Peer Review Manual content will move exclusively to the AICPA Online Professional Library (OPL). The 2015 update was the last paper version / CD ROM of the Peer Review Manual and Checklists.
OPL is the primary online distribution channel for AICPA publications. It provides access to the most up-to-date guidance (including FASB and GASB) depending on your subscription. It also provides a search engine, linking between titles, the ability to save bookmarks and notes, as well as other features.
OPL is subscription based. There are different individual and multi-user subscriptions available with different levels based on access rights. It is expected to assist in the migration of the peer review program to a fully electronic resource.
While certain sections of the Peer Review Manual will still be available on the website, the profiles and checklists, as well as certain other information will only be available on OPL. Current subscribers to the paper / CD ROM versions of the Peer Review Manual will have their subscriptions automatically converted to a peer review OPL subscription. Non-subscribers of the paper / CD ROM versions of the Peer Review Manual will need to obtain an OPL subscription that includes the Peer Review Manual to access the profiles and checklists. Subscribers access all OPL subscriptions in “My Account” section of CPA2Biz.com.
Peer Review Work Paper Submission Reminders
Reviewers are no longer required to submit the Team Captain Checklist to the Administering Entity.
The “Illinois CPA Society Peer Review Report, FFC, and MFC Checklist” is no longer a required submission.
If the reviewer does not want to complete the checklists in Excel, they should use the fillable pdf versions of the checklists, however, whenever possible, we strongly encourage all reviewers to use the Excel version of the documents.
We are asking reviewers to email us a copy of the excel SRM and Review Captain Summary as part of their submission so we can make sure the reviewer addressed all required questions. Reviewers will not be allowed to handwrite responses into the Excel versions of the checklists.
Discrepancies on the Scheduling Form
Frequently, a Team Captain will discover discrepancies between the industries and levels of service indicated by the reviewed firm on its scheduling form and list of clients actually performed during the period under review. Since these discrepancies could potentially affect the eligibility of the review team to perform the peer review, the Team Captain must immediately notify the Illinois CPA Society of any such discrepancies prior to commencement of the review. Failure to notify Society staff of the discrepancy could lead to a significant delay in the peer review acceptance process and/or result in the review team having to make arrangements for the review of additional engagements after having left the field.
Review of Engagements with Year Ends Outside the Peer Review Year
While Peer Review Standards allow for the review of a prior year engagement when a current year engagement is not yet complete and there are no similar engagements available for review, such instances are meant to be rare. For instance, if the engagement in question is in a high-risk industry, makes up a large portion of the firm's audit practice, or covers a risk factor that can only be addressed by looking at the current year engagement, the reviewer should consider:
1. Requesting an extension of time to complete the peer review in order that the engagement(s) in question might be completed by the firm.
2. Adjusting the peer review year-end to encompass the prior year engagement. If the firm expects this to be a recurring issue, its peer review year-end may not be the most appropriate year-end for the firm. In that case, reviewers should encourage the firm to consult with Society staff and/or request a permanent year-end change.
Regardless of the circumstance, the reviewer should consult with the administering entity prior to reviewing an engagement with a year-end outside of the peer review year to determine whether or not it is reasonable in the circumstances.
Reviewer Resume Verification
As you know, peer review administering entities are required to verify all active reviewer resumes once every three years. One of the steps in this process is to compare the codes on the reviewer resume to the background form for the most recent peer review for the reviewer’s firm. Any discrepancies must be explained by the reviewer or the reviewer must remove the code from their resume. Over the past few years, we have noted several instances where the peer reviewer’s firm either left a code off its peer review scheduling form that was included on the reviewer’s resume form or included an engagement under a different code than the code being used by the reviewer on his or her reviewer resume form.
We strongly encourage that reviewers participate in the completion of their firm’s peer review scheduling form to ensure that all codes from the reviewer resume are properly captured on the scheduling form. This will help prevent any issues / delays during the reviewer resume verification process.
On the Horizon
Reviewer Qualifications for Must-Select Engagements
Starting January 1, 2016, current experience will be required on the reviewer’s resume to review these engagements. Also, reviewers with these codes on their resume will be required to be associated with a firm enrolled in the related AICPA Audit Quality Center.
Starting May 1, 2016, additional training will be required for reviewers with must-select codes on their resume.
The AICPA Peer Review Board approved a complete re-tooling of peer reviewer training effective for reviews commencing on or after May 1, 2016. A summary of their decision can be found here