What I like about this particular list is that it is short enough to actually provide focus. Frequently such lists have the filter set so broadly that the list covers practically all the findings that have surfaced during all peer reviews. Sometimes I’m left with the feeling that a list of findings reads like a list of every single step you need to perform during an audit.
Here is the short list provided in the risk alert, along with my explanation:
Incorrect dating of audit report – The auditor’s report needs to be dated no earlier than when sufficient appropriate audit evidence has been obtained to support the opinion. This means …
The following article provides a superb update on recent developments in the peer review program. The article is graciously provided by the California Society of CPAs and the information described here applies in all jurisdictions across the U.S.
Because the entire article is quoted verbatim without any additional comments from me, none of the article will be placed in quotation marks.
Originally published by CalCPA (www.calcpa.org) in the October issue of California CPA magazine.
Used with written permission of the California Society of CPAs.
Be Prepared – A Comprehensive Peer Review Update
By Linda McCrone
Peer review is a successful program that helps firms improve their quality control systems and elevate the quality of accounting and auditing engagements. The AICPA contributed the software program that tracks peer reviews and the staff that manages the program. AICPA member volunteers contribute their time to oversee the program, keep the peer review program forms current and make certain that the peer review standards remain relevant. But like any successful program, peer review must continue to evolve to keep up with events.
If your peer review resulted in anything other than a pass report there are a couple of deadlines you need to remember if you are in California.
Keep in mind you are responsible for your compliance with regulations. Here are a few tips to point you in the right direction. These comments discuss the regs in California. If you are in another state, you really ought to check out what your board of accountancy has to say. I’ll guess there is some comparable reporting requirement when a peer review does not turn out well.
Notification requirement for reports less than pass — 45 days
If you received either a pass with deficiency or a fail report, you need to be in touch with the California Board of Accountancy (CBA).
Seriously, if you are providing audit, review, or compilation services to your clients, you really need to be in the peer review program. And you really, really need to be doing fairly good work. I doubt any CPAs in California who desperately need to read this post will be doing so, but it is still worth mentioning.
The California Board of Accountancy is coming down hard on CPAs who have avoided the peer review program. Seriously missing the boat on audit quality is getting hammered as well.
The Spring/Summer 2016 edition of the quarterly Updatenewsletter from CBA, issue 81, has several reports of firms drawing serious sanctions. There are 21 pages of narrative describing the sanctions through April 24, 2016. Of 28 disciplinary issues, 7 deal with peer review, which are the ones I will highlight.
First, the AICPA pulled in a selection of peer reviews performed on “must-select” engagements. The oversight was performed by highly experienced peer reviewers, meaning it is our calling CPAs who looked at the audit workpapers and peer review workpapers.
I’ve previously discussed at length my journey through the peer review process in 2012. I did not update the narrative for my journey through the peer review process in 2015. Here are a few tidbits on the timing this time around: …
I am pleased to report my firm passed peer review in 2015.
Peer review is a process CPAs go through to inspect their audit and review work. Experienced CPAs from another firm look at your quality control procedures and read through workpapers for a selection of engagements.
In the current system there are three grades from a peer review inspection:
Pass with deficiency
I am pleased to report my firm received a pass report, the highest level currently available. I have gone through peer reviews in 2015, 2012, 2009, 2006, and 2003. Each time I received the highest grade possible.
Previously mentioned that I looked disciplinary actions reported in the last four newsletters from the California Board of Accountancy (CBA). Want to better understand what happened with firms that got in trouble for audit quality or for not getting a peer review when one was required.
Will continue that discussion by looking at sanctions imposed on smaller firms and then self-imposed trouble generated by some larger firms.
Three times a year the California Board of Accountancy issues a newsletter. It contains a variety of information useful for CPAs. If you are a CPA, you really ought to be reading the newsletter.
That newsletter is also where the board publicizes disciplinary actions against CPAs.
In the last few newsletters I’ve noticed a number of cases where firms are sanctioned for substandard audits. Have also noticed a number of firms sanctioned for not getting a peer review when it was required or fibbing to the board whether they had complied with the peer review standards.
I wanted to understand better what I’ve noticed in passing so decided to dive into the disciplinary reports to get a better picture of the extent of sanctions for audit quality and peer review issues. I looked at the Fall 2014, Winter 2015, Summer 2015, and Fall 2015 newsletters.
That covers 16 months of reporting for disciplinary actions by CBA.
I focused on sanctions for audit issues excluding anything that was a follow-up to PCOAB or SEC sanctions. That rules out quite a few cases.
Also ignored a long list of social misbehavior such as DUIs (several incidents), fabricating Form E (once – fabricating the experience report? – really??), embezzlements, disbarment (once), and other such human foibles. Also excluded a variety of contingency fee violations, breaches of client trust, and sundry tax fiascos.
For context, the Fall 2015 newsletter had 28 disciplinary actions of which 5 were of interest for this little bitty research project. Of those 5 cases, the public notices refer to 2 firms which had substandard audits, 1 had a substandard compilation, and 4 included failures to get a peer review when required of which 2 fibbed to CBA about compliance with the peer review requirement.
The AICPA has provided a number of new documents to help firms improve the quality control systems and to start looking at the enhancing audit quality initiative. I’ll list a few of them. It’s easy to copy & paste and at a great price.
Tools to develop a quality-control document
Every CPA firm performing assurance services is required to have a quality-control document. That applies even if you only do comps and reviews. Even if you aren’t going through a system review.
The AICPA has free practice tools to explain the QC standards along with a sample document based on the size of the firm.