Previous three posts are the beginning of a discussion of consequences from having a peer review report withdrawn. Also, there has been an ongoing conversation in the comment section of each of those posts.
Before we jump into more consequences, here’s additional background: The Illinois CPA Society has good info on their Peer Review page. It describes the AICPA/DOL project. The DOL sent the AICPA a list of around 5,000 firms that perform ERISA audits. Then AICPA did the match to peer review reports.
Article mentions that in addition to some firms that didn’t have an EBP plan in the review, there are other firms that are not enrolled in the peer review program.
Let me say that again: the AICPA found firms that provide pension audit that are not even in the peer review program; they are getting neither an engagement review nor system review. Since I’m making some wild guesses about consequences, those firms may have a rough time explaining themselves to their state board. You don’t want to be in their company.
A few comments on the page about replacement reviews. There won’t be any extensions on the 90 day deadline. The page also says the replacement review must include a pension audit, so the year-end cutoff for the replacement review may have to be adjusted back in time to pick up an ERISA audit. There’s also a reminder on watching reviewer independence.
One last comment – I’m hearing more hints in the air that the number of reviews being withdrawn is in the range of 1,100.
Here’s a few more consequences to ponder of not reporting all your must-select engagements:
Wording on audit reports – Here’s where things compound faster. I’m not current on performing and reporting upon audits under government auditing standards, but I understand if you do not have a peer review report you must make reference to that in your audit opinion. If your peer review report is withdrawn, you may have issued incorrect audit opinions. Those incorrect opinions will probably surface in your replacement peer review.
There’s a good chance that engagement would be assessed as a non-compliant engagement (that’s a very bad thing). As a wild guess, the systemic cause would likely be the same as the underlying cause for not reporting all engagements. If the systemic cause is linked, there wouldn’t be an additional impact on the report.
All that to say, the ripple effect on current engagements could be either no big deal, a big deal but not affecting the overall results, or a downgrade in the report.
Impact on replacement peer review – As mentioned in the previous post and at the ICPAS article above, the failure to include a pension plan in the list of engagements provided to the peer reviewer is required to be an MFC (building block of issues identified, similar to a point listed on the page of possible LOR comments in an audit). This could be escalated to an FFC (not that big a deal; easy to resolve), or deficiency (means the report will be pass with deficiency) or significant deficiency (will be a fail report).
Guidance to peer reviewers says they should consider whether the failure to include pension audits in the list of engagements performed is a breakdown in the system of quality control. Given the serious impact of overlooking such engagements, it is likely there will be many conclusions of a QC breakdown. That moves the assessment to at least a deficiency, which means at least a pass with deficiency report.
Depending on your firm’s situation, a pass with deficiency or fail report may be either a minor, major, or severe issue.
Regardless, you could have some combination of an action plan to implement, followup with the Peer Review Committee, or correspondence with your state board. That means extra time and extra cost.
Noncooperation – Here is where things could get really, really bad. The administering entities will consider whether a particular firm’s actions constitute noncooperation with the peer review program.
So what?, I hear you think. Okay, a firm doesn’t cooperate; makes it sound like they don’t play well with others on the playground. Why is that a problem?
Here’s the issue: noncooperation is grounds for expulsion from the peer review program and referral to the AICPA ethics team for possible disciplinary action.
Follow along with me. If you are kicked out of the peer review program, that means you can’t get a peer review.
So, the next step – if you are in a state with mandatory peer review, how do you explain to your state board on your next licensing renewal that you did not get a peer review? After you get a nasty letter from them, you will have to tell them that not only did you not get a review, it is not possible for you to do so. I don’t know how that works out, but I think there’s a measurable chance you could wind up going through the disciplinary process. You will probably keep your license (I think), but there may be some sort of sanctions for failure to comply with state regs.
I can picture the scenario that some firms may even have to stop performing attestation work until they work their way back into the program and return to the good graces of their state board.
How will your practice look to clients if you have a disciplinary action posted on the state board’s public web site? What happens to your annual billings if you halt attestation work for a short time? Oh, just as another wild guess, any attestation work performed while your license is on hold or in non-renewal status could trigger another disciplinary action.
Maybe I’m completely off base in the likely consequences of not being in a practice monitoring program. Maybe it isn’t a big deal, but I don’t think that’s likely. Even if I’m vaguely correct, you really don’t want to be gaining experiential knowledge of those rules.
Moral of the story:
Make very sure you tell your peer reviewer about all audit and other attestation work you perform.
Next post: time to clean up our act
- Part 1 – Make sure you tell your peer reviewer about all the audits you do or things could get ugly
- Part 2 – Impact on replacement report
- Part 3 – Cascading consequences of your peer review report going away
- Part 4 – More cascading consequences of your peer review report going away
- Part 5 – Time to clean up our act
What do you think?
Am I off track? Overreacting? Misunderstanding?
All comments welcome. Assuming said comments are professional, of course.