peer review

Brief overview of peer review issues – 11/21.

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To help auditors in the CPA community, the AIPCA peer review staff publishes PR Prompts, a newsletter with information for firms providing audits, review, compilations, and other attestation services.

The newsletter is unbranded and AICPA gives explicit permission to peer reviewers to put their logo and branding information on the newsletter. Those of us who are peer reviewers have specific permission to send it to our clients.

The following comments are provided to you courtesy of the AICPA.  I gratefully acknowledge their work in preparing this info and gladly share it with you. 

For ease of reading, I will not put all the following material in quotations.

Topics in this post:

  • Revenue recognition: 4 top concerns noted by peer reviewers
  • Have you considered reviewer independence implications if additional services are performed for your firm?
  • Do your clients need a single audit?

PR Prompts – Fall 2021:

Revenue recognition: 4 top concerns noted by peer reviewers

To learn where challenges exist for entities and their auditors, the AICPA conducted a survey of peer reviewers, asking them to identify the areas where their firm or their peer review clients have experienced challenges in auditing revenue recognition. Over 230 peer reviewers responded to the survey to share what they’ve seen or experienced relative to the new accounting standard, FASB Accounting Standards Codification (ASC) Topic 606, Revenue From Contracts With Customers. The biggest Topic 606-related challenges were identified as the following:

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Major revision to Quality Control Standards on the horizon.

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Let’s dial up the quality of our A&A work. Image courtesy of Adobe Stock.

The AICPA’s Auditing Standards Board is proposing a massive overhaul of the Quality Control Standards.

Who will this affect? All CPA firms who provide any audit, review, compilation, preparation, or attestation engagements. In other words, anyone with any accounting & auditing work.

As a mere starting point, the new standards will be relabelled as Quality Management Standards.  Instead of QC system, we will now have a QM system.

As a reminder, QC or QM standards apply regardless of whether you go through a system review or engagement review during your tri-annual peer review. The QC/QM system is tested in a system review but you still must have a formal QC/QM system even if you only do comps and reviews.

This post will provide a quick mention of what I see as the three biggest changes followed by a lengthy summary.

Major changes

A massive change that will impact small firms is that the annual inspection (which is currently required and will continue to be required) may not be performed by anyone who worked on the engagement.

For one person firms, this will require us to get someone outside the firm to perform the annual inspection. Two or three partner firms where the partners do essentially all of the work will also have to get someone from outside to do the inspection.

Two of the other changes of note: new risk assessment process and annual evaluation of quality management system.

The risk assessment process will require establishing quality objectives, identifying risks to achieving those quality objectives, and implement responses to address the quality risks.

After a one year delay to allow running the new QM system for a while the new requirement of an annual assessment of the QM system will kick in.

Proposed effective dates

The first Statements on Quality Management Standards, referred to as SQMS #1, is proposed to require the new quality management system be designed and implemented by December 15, 2023. The first annual evaluation of the system of quality management is proposed to be required within one year following December 15, 2023.

Rephrasing the effective date, the new QM system has to be in place before the end of 2023 (by 12/15/23 to be exact). That is about 2½ years from now. The first annual evaluation will be required one year after that, by the end of 2024 (specific deadline 12/15/24).

Summary of exposure drafts

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Resources for auditors during the pandemic – Extract from PR Prompts!, part 1

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In May 2020, the AICPA published the second of their PR Prompts! newsletter. This semi-annual publication is designed to help firms stay current.

The format of the newsletter is set up to allow firms who provide peer reviews to put their logo and branding information at the top of the newsletter, print it, and send it to all their clients.

I received explicit permission to reprint items from the first newsletter. Since the email that accompanied the newsletter and the description of the top indicates firms are free to put their name on the material then distribute it, I am comfortable in posting information on my blog without further permission.

So here goes. The following information is from the AICPA. For ease of reading, following text will not be put into quotation marks even though it is a verbatim quote.

 

COVID-19 Updates and Resources

Many standard setters, including the ASB, FASB, GASB and PEEC, have evaluated, or are evaluating, effective dates and standard setting agendas. There are known and potential delays of effective dates of new standards and deadlines. As auditors navigate the challenges presented by the COVID-19 pandemic, the AICPA is working hard to provide help. They have launched an A&A resource center at aicpa.org/covidaudit where you can access free resources addressing pressing topics like remote auditing, subsequent event disclosures and going concern.

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“Resources from the AICPA’s Enhancing Audit Quality (EAQ) Initiative” – PR Prompts!, part 6

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Image courtesy of Adobe Stock.

In November 2019, the AICPA published the first of a new semi-annual newsletter, PR Prompts!, designed to help CPAs keep current on peer review news.

The AICPA gave me permission to reprint portions of the newsletter on my blog.

This is the last of six posts to help you stay up to date.

The following comment is quoted verbatim. For ease of reading it will not be set inside quotation marks:

 

Resources from the AICPA’s Enhancing Audit Quality (EAQ) Initiative

Through the EAQ, the AICPA provides resources and education to help you avoid the most common audit quality issues. Check out their latest resources:

Risk Assessment and Response

In a survey of peer reviewers, over 50% of firms reviewed failed to comply with the risk assessment standards. Access free risk assessment tools, including industry-specific resources, to help you avoid common issues.

Also, watch the EAQ’s ENGAGE conference presentation with methodology providers to learn how to properly apply their methodologies and avoid the areas creating the most challenges for practitioners.

Internal Control

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“Auditor Reporting” – PR Prompts!, part 5

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A complete overhaul of the auditor’s report for audits of 12/31/20 financial statements is going to be a very big deal. Please tune in to the new standards!

In November 2019, the AICPA published the first of a new semi-annual newsletter, PR Prompts!, designed to help CPAs keep current on peer review news.

The AICPA gave me permission to reprint portions of the newsletter on my blog.

This is the fifth of six posts to help you stay up to date.

I have looked at this page on the AICPA website. It is quite helpful. If you provide audits to your clients, it would be worth your time to find, browse, and bookmark this page.

The following comment is quoted verbatim. For ease of reading it will not be set inside quotation marks:

 

Auditor Reporting

The form and content of the auditor’s reports will change substantively which will be effective for audits of financial statements for periods ending on or after December 15, 2020. Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, was issued in May 2019. SAS No. 134 includes a new AU-C section 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and replaces the following AU-C sections in AICPA Professional Standards:

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“Auditing Standards Issued in 2019: Information and Resources” – PR Prompts!, part 4

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Image courtesy of Adobe Stock.

In November 2019, the AICPA published the first of a new semi-annual newsletter, PR Prompts!, designed to help CPAs keep current on peer review news.

The AICPA gave me permission to reprint portions of the newsletter on my blog.

This is the fourth of six posts to help you stay up to date.

 

I have looked at the following page on the AICPA website. It is quite helpful. If you provide audits to your clients, it would be worth your time to find, browse, and bookmark this page.

The following comment is quoted verbatim. For ease of reading it will not be set inside quotation marks:

 

Auditing Standards Issued in 2019: Information and Resources

This is an exciting time in the auditing space. Standards are changing to keep up with today’s business environment. To set you up for success, we’ve gathered resources on auditing standards that include on changes to the auditing reporting standard, the employee benefit plan auditing standard and the other information standard. These include backgrounders, FAQs and news articles.

 

As mentioned at the top of this post, this article is reprinted with permission of the AICPA.

 

“Single Audits – 2019 Compliance Supplement” – PR Prompts!, part 3

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Image courtesy of Adobe Stock.

In November 2019, the AICPA published the first of a new semi-annual newsletter, PR Prompts!, designed to help CPAs keep current on peer review news.

The AICPA gave me permission to reprint portions of the newsletter on my blog.

This is the third of six posts to help you stay up to date.

The following comment is quoted verbatim. For ease of reading it will not be set inside quotation marks:

 

Single Audits – 2019 Compliance Supplement

The 2019 Compliance Supplement (Supplement) used for conducting single audits includes extensive changes from prior years. The most significant change relates to the Office of Management and Budget (OMB) requirement for federal agencies to limit the number of requirements identified as being subject to the compliance audit; it was decreased from a maximum of 12 to 6. …

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“New Requirement to Complete Your Firm’s Peer Review Information Annually” – PR Prompts, part 1

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Image courtesy of Adobe Stock.

In November 2019, the AICPA published the first of a new semi-annual newsletter, PR Prompts!, designed to help CPAs keep current on peer review news.

The AICPA gave me permission to reprint portions of the newsletter on my blog. My thanks to the AICPA for producing this information and for giving me reprint permission.

This is the first of six posts to help you stay up to date.

The following comment is quoted verbatim. For ease of reading it will not be set inside quotation marks:

 

New Requirement to Complete Your Firm’s Peer Review Information Annually

The AICPA Peer Review Program (Program) is committed to support and enhance audit quality of firms on an ongoing basis, not just during the formal process of peer review. As such, starting in mid-2020 the AICPA Peer Review Board (PRB) will require annual submission of peer review information from all firms enrolled in the Program.

The PRB expects that annual submission of peer review information will benefit firms in the following ways:

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Peer review tips – tidbits from the 2019 Peer Review Conference

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If you get a peer review of your attestation practice, I heard a few ideas in the AICPA’s Peer Review Conference you might want to know about.  I attended this year’s conference via webcast. First time I’ve gone through a 16 hour class online. The technology worked acceptably well. Saving the travel time was wonderful.

Annual update to Peer Review Information form

Starting next year, May 2020 specifically, every firm enrolled in the peer review program will need to update the Peer Review Information (PRI) form annually. Each firm will have to log into PRIMA and update the list of the type of engagements performed.

Not sure the reasons this change is going into effect. One component is so AICPA can monitor for changes the nature of a firm’s client base to see if a higher level of service is needed.

Focus areas in system reviews

The AICPA surveyed CPAs who provide a large number of reviews asking them what portion of their peer review clients had significant struggles with complying with the risk assessment standards. …

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Comments from recent continuing education classes worth repeating: “get in or get out”

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If you are an auditor and that is a diagram of new audit rules, then you need to completely understand the graph. Image courtesy of Adobe Stock.

Here are some fun or interesting or useful tidbits from the October 2018 A&A and the June 2019 Not-for-profit conferences presented by California Society of CPAs.

Previous posts had comments on accounting and auditing as well as peer review.

“Get in or get out”

The second speaker who discussed peer review in previous post also said that if you are doing A&A work you need to “get in or get out.”

Let me translate that…

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Comments from recent continuing education classes worth repeating: peer review

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Image courtesy of Adobe Stock.

Here are some fun or interesting or useful tidbits from the October 2018 A&A and the June 2019 Not-for-profit conferences presented by California Society of CPAs.

Previous post had comments on accounting and auditing.

Peer review

One speaker said there are several common issues for weaknesses in risk assessment:

  • Limited assessment
  • No linkage (relating the assessment of risks to further audit procedures)
  • Poor use of third-party practice tools
  • No assessment of IT risks

Not doing any risk assessment is now a major problem for you in a peer review if you missed the boat on the risk suite of standards.

For Yellow Book audit, the workpapers must document SKE (skills, knowledge, experience) of staff overseeing non-attest services.  Although the professional standards do not exactly require documentation of SKE for non-attest service on a non-yellow book audit, the speaker said (if I heard correctly) that the California Peer Review Committee has a considered opinion that such documentation is required.

So, if you have non-attest services on a non-yellow book audit, …

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More disciplinary actions from California Board of Accountancy

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The Update #87 newsletter from California Board of Accountancy for Summer/Fall 2018 lists 38 disciplinary actions, by my count.

You can read my previous posts on CBA actions by clicking on this tag.

Here is my tally of license revocations, surrendered licenses, and revocations with stay (there are no suspensions or stayed suspensions this time around):

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Summary of disciplinary actions from California Board of Accountancy, Winter 2018

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What you will be doing if you ignore professional standards and then get caught messing up your audits and reviews, although the amount won’t be quite as large. Image courtesy of Adobe Stock.

The new Update newsletter from the California Board of Accountancy goes back to providing details on disciplinary actions. The Winter 2018 edition (#86) takes 20 pages to describe the 24 actions. The previous Update provided far less detail, which generated lots of feedback to the board, so the newsletter will again give the ugly details for the causes for discipline.

Update 11/30/18:  Thanks to CBA for listing the messy details on what CPAs are doing to earn their consequences.

Three things jump out at me from the current list of discipline.

First, every action comes with a substantial financial penalty in the form of reimbursing the CBA for their investigative costs.

Second, just about every CPA that got in trouble for audit or review problems was given a ban from performing attestation work until some time in the future when the firm requests and receives permission from CBA to again perform such work.

Third, several CPAs received a suspension from their CPA practice. This means the individual may not perform any actions which would otherwise require a license. I think that means the firm halts all their attestation work and unless also holding an enrolled agent credential ceases their tax compliance work.

Here is my summary of the causes of discipline for the license surrenders and the stayed revocations:

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Lots more disciplinary actions from California Board of Accountancy

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It takes thirty-two pages to describe the current round of disciplinary actions from the California Board of Accountancy in the Spring/Summer 2017 edition of the Update newsletter (Issue #84). By my count there are 38 actions, exclude one situation where a firm and the CPA are listed separately.

The overwhelming portion of cases are for CPAs who have an audit or review or compilation failure. Most of those firms also have a peer review problem, either not getting a peer review, failing two consecutive reviews, or getting a very late review.

Just in case you were wondering whether CPAs are regular people with the same, um, foibles as the general population, there were 7 CPAs disciplined for conviction of a crime.

I tallied the results for this edition of Update and came up with these results:

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Various thoughts from continuing education classes this year, part 3. Not so good news on audit and peer review quality.

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The road we CPAs need to be on, but not all of us are…
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As I’ve mentioned here and here, I have reread my notes from several continuing education classes this year. Thought I would share a variety of stray ideas.

Probably need to note again that I have not gone back and read the original pronouncements supporting each idea and therefore I do not have a specific citation for you. (Reading three of the documents is the next step for  my writing project.)

(Cross-posted from my other blog, Nonprofit Update.)

I should probably throw in a disclaimer. All of the comments I’m mentioning were the opinion of the presenter, not the agency from whom the person was drawing a paycheck. That is why I’m not mentioning the names of the presenters, or even the CPE event. In addition, the rephrasing of their comments is my interpretation, not their words.

Here are some tidbits you might enjoy:

More interest in Financial Reporting Framework for Small- and Medium-sized Entities (FRF-SME)?

The FRF-SME framework is a non-GAAP alternative to GAAP. It is dramatically less complicated with the promise it will not be revised more often every three years.

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