Peer Review: Getting Started and How You’ll Benefit
Quality has never been more important as individuals and businesses seek the most accurate financial information to make the most informed decisions possible. That’s why the American Institute of Certified Public Accountants requires CPA firms offering audit and attestation services to undergo an in-depth peer review every three years to ensure the highest quality standards are being followed in all phases of audit delivery.
However, a recent survey of peer reviewers found that more than half of 400 audits they reviewed were nonconforming because the auditors had not complied with the risk assessment standard and in reviewing data collected by the AICPA’s Peer Review Program in 2016, more than 1 in 10 firms failed to comply with the two sections – AU-C Section 315 and AU-C Section 330 – that outline how auditors should understand and, if necessary, respond to the risk of material misstatement.
If you’re a CPA firm providing audit and attestation services, these numbers bode well for your efforts to grow and position your firm as a model of excellence as the AICPA expects more than 32,000 firms to engage a review over the next few years.
Benefits of Peer Review
If these firms are passing with deficiencies or even failing, it opens the door to establish your firm as a quality leader. Engaging a peer review can take you even further by providing:
- Insights to continually improve and evolve your processes and strengthen internal control.
- A better understanding of recent professional pronouncement and an awareness of those under consideration.
- Demonstrable evidence of your firm’s quality, which you can share with existing clients and use as a marketing tool to demonstrate your firm’s commitment to quality.
- A reduction in recurring issues.
- Learning potentially new best practices and other ideas from your reviewer’s experience working with other firms.
- Benchmark information to compare your firm against similar firms.
Finding a Peer Reviewer
Whether this is your first peer review or you’ve been undergoing them for years, it’s always good to periodically evaluate your peer reviewer, much like best practices often call for organizations to rotate their auditor. There are two main qualifications to help you evaluate who will be the best for your firm:
- How many years they’ve been performing audits, including the number and type of engagements they’ve managed and for what industries.
- How many years they’ve been a peer reviewer, including the number of type of firms they’ve worked with and for what industries.
It’s also worthwhile to consider if the peer reviewer is compatible with you and your firm’s. You want to be able to like and trust your reviewer and believe you can build a long-term relationship with them.
What Type of Review Do I Need?
There are three types of peer reviews: system, engagement and report. The type of review will depend upon the type of services you deliver.
Firms that perform engagements under the Statements on Auditing Standards (SASs), Government Auditing Standards (Yellow Book) or examinations of prospective financial statements under the Statements of Standards for Attestation Engagements (SSAEs) are subject to system reviews.
The quality control system represents the policies and procedures your firm has designed – and is expected to follow – when conducting an engagement. The peer reviewer will determine whether the quality control system is designed to ensure compliance with professional standards and whether your firm follows its system appropriately.
A system review does not encompass other segments your firm, such as tax services or management advisory services, except to the extent they are associated with financial statements, such as reviews of tax provisions and accruals contained in financial statements.
Firms that are not required to have a system review – and are not eligible to have a report review – often undergo an engagement review. Firms that only perform compilations and reviews under Statements on Standards for Accounting and Review Services (SSARS) and/or services under the SSAEs not included in system reviews have engagement reviews. Firms required to have an engagement review may also elect to have a system review.
Unlike system reviews, where a firm’s system for quality control policies and procedures are evaluated, an engagement review evaluates how your financial statements and documentation conform to AICPA standards. With engagement reviews, the peer reviewer will not express an opinion on your firm’s compliance with its own quality control policies and procedures or compliance with AICPA quality control standards.
An engagement review provides the peer reviewer with a reasonable basis for expressing limited assurance that:
- The financial statements or information and the related accountant’s report on the accounting, review and attestation engagements the firm submits for review conform to professional standards.
- The reviewed firm’s documentation conforms with the requirements of professional standards.
Firms that only perform compilation engagements under SSARS where the firm has compiled financial statements that omit substantially all disclosures are subject to report reviews. Firms required to have a report review may also elect to have a system or engagement review.
A report review enables your firm to enhance the overall quality of the compilation engagements that omit substantially all disclosures. The peer reviewer will not express an opinion on your firm’s system of quality control for your accounting and auditing practice but they may provide comments and make recommendations as to whether the submitted financial statements and related accountant’s reports appear to conform with the requirements of professional standards.
About Ericksen Krentel
Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.
That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; wealth management; loss calculations; and estate planning.
Learn more at www.ericksenkrentel.com.