Upcoming Peer Review: Is Your Firm Ready?

• Chapter 1 - Introduction
  • Learning Objectives
  • What Is a Successful Peer Review?
  • Course Perspective
  • The AICPA Peer Review Program (PRP)
  • How This Course Is Organized
  • How This Course Will Help You Learn
  • Topics
  • Consideration of SQCS No. 7
  • A Final Note
• Chapter 2 - Peer Review Timeline
  • Learning Objectives
  • Introduction
  • Initial Considerations
  • Between Reviews
  • Scheduling Your Review
  • Select and Schedule Your Reviewer
  • Just Before Your Peer Review Starts
  • During the Peer Review
  • After the Peer Review
• Chapter 3 - Review of Applicable Standards and Related Topics
  • Learning Objectives
  • Introduction
  • Establishing and Maintaining a System of Quality Control for a CPA Firm’s Accounting and Auditing Practice (QC Practice Aid)
  • Statements on Standards for of Quality Control – Summary
  • SQCS No. 7, A Firm’s System of Quality Control
  • How the New Standard Differs from Existing Standards
  • A Firm’s System of Quality Control
  • Parameters of a System of Quality Control
    • What Is a System of Quality Control?
    • What Is an Accounting and Auditing Practice?
  • Elements of Quality Control
    • Element 1: Leadership Responsibilities for Quality within the Firm
    • Element 2: Relevant Ethical Requirements
    • Element 3: Human Resources
    • Element 4: Client Relationships and Specific Engagements
    • Element 5: Engagement Performance
    • Element 6: Monitoring
  • Administration of a System of Quality Control
    • Assigning Responsibility
    • Communicating Policies and Procedures
    • Documenting Compliance
  • Monitoring
    • Goal of Monitoring
    • Monitoring Procedures
    • Inspection as a Component of Monitoring
    • Alert If You Include Pre-Issuance or Post-Issuance Review of Engagements as a Component of Monitoring
    • Monitoring Issues in Small Firm
  • Standards for Performing and Reporting on Peer Reviews – Summary
    • Revisions to the Peer Review Standards Effective January 1, 2009
  • Types of Reviews
    • System Review
    • Engagement Review
    • Report Reviews are No Longer Available
  • Peer Review Risk
    • Risk-Based Approach to Selecting Office and Engagements for Review
    • Peer Review Risk Equation
    • Assessing Inherent Risk
    • Assessing Control Risk
    • Assessing Detection Risk
  • Selection of Engagements
  • AICPA Peer Review Standards
    • Interpretations 20-1 through 20-20 – Independence, Integrity, and Objectivity
    • Interpretation 83-1 – Determining the Cause for a Finding in a System Review
    • Interpretation 97-1 – Firm Responses in a System or Engagement Review
    • Interpretation 99-1 – Submission of Finding for Further Consideration Forms to the Administering Entities by the Team Captain or Review Captain
    • Interpretation 143-1 – Cooperating in a Peer Review—Implementation Plans and Correction Action Plans
    • Interpretation No. 181-1-1 – Firm Representations
    • Interpretation No.181-1b-1– Communications Received by the Reviewed Firm Relating to Allegations or Investigations in the Conduct of Accounting, Auditing, or Attestation Engagements from Regulatory, Monitoring, or Enforcement Bodies
  • Peer Review Firm Licensure Guidance
    • Peer Review Requirements
    • Interpretation No. 181-1a-1 Firm and Individual Licenses
  • Granting Peer Review Extensions
    • Scenario 1
    • Scenario 2
    • Scenario 3
  • Background and Reviewer Résumé Forms
  • Scope Limitations when a Firm’s Only Audit Subject to Government Auditing Standards Cannot Be Selected on the Peer Review
• Chapter 4 - Quality Control Considerations
  • Learning Objectives
  • Introduction
  • Definition of Quality Control
    • Definition of a System of Quality Control
  • Elements of Quality Control
    • Overview
  • Design Effective and Efficient Policies and Procedures
    • Compensating Controls
  • Choose the Right Reference Material and Practice Aids
    • Choose Appropriate Technical References
    • Establish Guidance for Using Practice Aids
    • How to Tailor Practice Aids for Specific Engagements
    • Documenting Changes in Your Work Programs
    • Completing Forms Correctly
    • Mix and Match
    • Electronic Documentation
    • Establish Outside Reference Sources
    • Summary
  • Place Your Quality Control System in Operation
    • Assign Monitoring Responsibility
    • Monitor the System during Engagement Review
  • Communicate the Firm’s Policies and Procedures
    • Communication Objective
    • Formal Policies and Practices
    • Informal Policies and Practices
    • Informal versus Vague Policies
  • Issues Related to Relevant Ethical Standards
    • Summary of Interpretation 101-3
    • Other Documentation Considerations
    • Independence and Government Auditing Standards
  • Issues Related to Human Resources
    • CPE under Government Auditing Standards
  • Sample Templates for a Quality Control Document
    • Introduction
  • Appendix – AICPA Audit and Accounting Practice Aid: Establishing and Maintaining a System of Quality Control for a CPA Firm’s Accounting and Auditing Practice
• Chapter 5 - Basics of Monitoring
  • Learning Objectives
  • Introduction
  • An Overview of What an External Reviewer Does
    • Understanding the Firm’s System of Quality Control
    • Interviews with Firm Partners
    • Discussions with Professional Staff
    • Engagement Review
    • Matters for Further Consideration
    • The Conclusion of the Review
  • Monitoring Basics
    • Are You a Reviewer, Inspector, or Monitor?
    • Areas to Cover in Your Monitoring Procedures
    • Assessments to Make While Monitoring
    • Monitoring Procedures to Use
    • Does a Post-issuance Review Qualify as Monitoring?
    • What Should You Expect to Find When Monitoring?
  • Planning for Monitoring
    • Assign Individuals to Perform Monitoring Procedures
    • Determine the Timing of the Monitoring Procedures
    • Determine the Work Programs and Documentation Required
    • Planning Inspection Procedures
    • Develop Monitoring Scope Guidelines
    • Design a Process to Resolve Differences That Might Arise During Monitoring
    • Common Monitoring Problems to Avoid
  • Making the Four Assessments
    • Assessing the Relevance of the Firm’s Policies and Procedures
    • Assessing the Adequacy of the Firm’s Guidance Materials and Practice Aids
    • Assessing the Effectiveness of Professional Development Programs
    • Assessing Compliance with the Firm’s Policies and Procedures
  • Monitoring Procedures
    • Approaches to Monitoring Selected Engagements
    • Conduct Tests of Selected Engagements
    • Evaluate Engagement Review Matters and Findings
    • Document a Summary of Monitoring Results
    • Determine Corrective Action
    • Monitor the Implementation of Corrective Action
  • How to Ask “Why” (and Find the Right Solution)
    • Is the Systemic Deficiency Identified?
    • Are the Symptoms Described?
    • Is the Impact of Engagement Matters Determined?
    • Is the Recommendation Appropriate?
  • Engagements Not Performed and/or Reported on in Conformity with Professional Standards: How to Handle Them
    • The Firm’s Responsibility
    • Omitted Procedures
    • Subsequent Discovery of Facts
  • Common Matters: Relevant Ethical Requirements
    • Objectives
    • Conditions That Might Increase the Risk of Deficiencies
    • Common Matters Noted in Peer Reviews
    • Developing Solutions
  • Common Matters: Human Resources
    • Objectives
    • Hiring: Common Objectives and Procedures
    • Assignment of Personnel to Engagements
    • Advancement
    • Professional Development
    • Conditions That Might Increase the Risk of Deficiencies
    • Common Findings Noted in Peer Reviews
    • Developing Solutions
  • Common Matters: Acceptance and Continuance of Client Relationships and Specific Engagements
    • Objectives
    • Conditions That Might Increase the Risk of Deficiencies
    • Common Findings Noted in Peer Reviews
    • Developing Solutions
  • Common Matters: Engagement Performance
    • Objectives
    • Engagement Planning
    • Engagement Performance
    • Engagement Review
    • Consultation
    • When to Consult
    • Conditions That Might Increase the Risk of Deficiencies
    • Common Findings Noted in Peer Reviews
    • Developing Solutions
  • Common Matters: Monitoring
    • Conditions That Might Increase the Risk of Deficiencies
  • Engagement Reviews
    • Common Findings Noted in Peer Reviews
• Chapter 6 - Inspection of Engagements
  • Learning Objectives
  • Introduction
  • Inspecting Engagements – General
    • Objectives of Inspecting Engagements
    • Decisions Based on the Inspection
    • Assessing the Use of Firm’s Disclosure Checklist in an Engagement
  • Accounting and Auditing Alerts for 2009
    • Risk Assessment Auditing Standards
    • SAS No. 114, The Auditor’s Communication With Those Charged With Governance
    • Audit Quality Problems Noted with OMB Circular A-133 Audits
  • Documentation Requirements – Specific References
    • Effect of SAS No. 104 – SAS No. 114 on Documentation
  • Common Matters Noted in Engagements
  • Peer Review Engagement Matters and Findings – Indicative of Engagements That Are Not Performed and/or Reported on in Conformity with Professional Standards
    • Accountant and Auditor Reports
    • Financial Statement Recognition/Measurement, Presentation, and Disclosure
    • Audit Procedures and Documentation
    • SSARS Procedures and Documentation
    • Attestation Procedures and Documentation
  • Peer Review Engagement Matters and Findings – Minor
    • Accountant and Auditor Reports
    • Financial Statement Recognition/Measurement, Presentation, and Disclosure
    • Audit Procedures and Documentation
    • SSARS Procedures and Documentation
  • Common Matters and Findings in Specific Financial Statement Elements
    • Assets
    • Liabilities
    • Equity
    • Statement of Income
    • Statement of Cash Flows
    • Disclosures (Incomplete or Missing)
  • Common Matters and Findings Unique to Specialized Engagements
    • Engagements Subject to Government Auditing Standards and OMB A-133
    • Common Interest Realty Associations (CIRAs)
    • Not-for-Profit Organizations
    • Employee Benefit Plans
    • Personal Financial Statements
    • Construction Contractors
    • Other Comprehensive Basis of Accounting (OCBOA) Engagements
  • Handling Specific Engagement Matters or Findings
    • Questionable Matters
    • Investigating the Issues
    • Advising the Inspection Team
    • Considering the Response
  • Other Engagement-Related Matters
    • Variations from Illustrative Reports
    • Reporting vs. Financial Statement Departures
    • Communication of Reporting Departures
    • Consideration of Personal Preferences
    • Over-Reliance on Third-Party Practice Aids
    • Handling Engagements That Do Not Meet Professional Standards in All Material Respects
    • Literature Reference
    • Factors to Consider
    • Suggested Actions
    • Disclosure in Subsequent Statements
    • Consulting an Attorney
  • Disagreements Regarding Engagement Findings
  • Considerations When Encountering Engagements That Do Not Meet Professional Standards in All Material Respects
    • Overall Inspection Team Considerations
    • Matters Related to Possible Omitted Procedures
  • Determining the Cause of Engagement Matters or Finding
    • Quality Control System Perspective
    • Expanding the Scope of the Inspection
  • Isolated Matters
    • Definition
    • How to Evaluate Whether a Matter Is Isolated – Summary
    • Inability to Expand Scope
    • What If You Cannot Determine a Systemic Cause?
    • Focus on the System
    • System Weakness Not Evidenced by Engagement Matters
• Chapter 7 - Methods of Strengthening Quality Control
  • Learning Objectives
  • Introduction
  • What Is a System Weakness?
    • Design Weaknesses
    • Compliance Weaknesses
    • Performance Matters
  • Relevant Ethical Requirements
    • Reporting
    • Recognition of Impairment
    • Noncompliance with Firm Policy
    • Failure to Consider Independence
    • Documentation
  • Human Resources
    • Hiring
    • Engagement Assignment
    • Individual Skill and Training
    • Firm-Wide Knowledge
    • Other Knowledge-Related Matters
    • Advancement
  • Acceptance and Continuance of Client Relationships and Specific Engagements
    • Client Integrity
    • Completion of the Engagement with Competency and Due Care
    • Client Understanding
  • Engagement Performance
    • Engagement Planning
    • Engagement Performance
    • Engagement Review
    • Financial Statement Presentation and Disclosure
    • Reporting on Engagements
    • Reference Sources
    • Identification of Need for Consultation
    • Consultation Documentation
  • Monitoring
    • Relevance and Adequacy of Policies and Procedures
    • Appropriateness of Guidance Materials and Practice Aids
    • Effectiveness of Professional Development Programs
    • Compliance with Firm Policies and Procedures
  • CPA Firm’s Quality Control Compared to a Client’s Internal Control
    • Control Environment
    • Risk Assessment
    • Control Activities
    • Information and Communication Systems
    • Monitoring
• Chapter 8 - Peer Review Wrap-Up and Other Matters
  • Learning Objectives
  • Written Representation Letter
    • Example of a Written Representation Letter
    • Refusal to Furnish the Written Representation Letter Is a Scope Limitation
  • Peer Review Exit Conference
  • Engagement Reviews
  • Letters of Response
  • Guidance for Writing Letters of Response
    • Objective
    • Focus Your Response on the Underlying Issue Not the Symptom
    • Ten Steps to Preparing Your Letter of Response
    • Sample Letters of Response
  • Common Letter of Response Deficiencies
    • Introduction
    • Threshold for a Reviewer’s Findings
    • Tailoring a Response to a Finding
    • Deficiencies or Significant Deficiencies Noted in the Previous Peer Review
    • Common LOR Deficiencies
  • Potential Accelerated Reviews for Some Firms
  • Presentation of Reviews to the Peer Review Committee
  • Considering Monitoring Actions
    • Monitoring Philosophy of the AICPA Peer Review Program
    • Implications of the Philosophy for System Reviews
    • Common Types of Follow-Up Actions
  • Notifying the Firm of a Monitoring Action
• Chapter 9 - Latest Developments

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Chapter 1 - Introduction

Learning Objectives

• To review the course learning objectives.

• To review the organization of the course.

• To highlight the course topics.

What Is a Successful Peer Review?

This course is designed to provide you with the information necessary to achieve a successful peer review. What is a successful peer review? It depends on your point of view. The honest answer is that a successful peer review helps a firm improve its ability to perform engagements in conformity with professional standards. Therefore, this course assumes that participants are committed to establishing, maintaining, and improving the quality of their accounting and auditing practices. Often this attitude and commitment yields a peer review rating of pass.

Of course, no one can guarantee a peer review rating of pass. However, if you properly implement the information in this course, you can certainly put the odds in your favor. A firm adds the most important ingredient of a successful peer review recipe well before the peer review starts. That ingredient is an environment within the firm that focuses on quality control. It starts with proper leadership at the top and a quality-oriented tone throughout the firm. Few firms can consistently achieve a successful peer review without this environment.

Course Perspective

This course presents quality control information from a firm's perspective. Since the objectives of firms and peer reviewers converge at the point of the peer review, information that is critical to one group is critical to the other. Consequently, much of the information in this course forms important components in the training of peer reviewers.

The standards applicable to a system of quality control apply to all firms, from the smallest practices to firms with SEC practices. However, firms with SEC practices are required to have additional quality control features in place. These firms are subject to inspection procedures by the Public Company Accounting Oversight Board (PCAOB) with respect to their SEC clients. The PCAOB is required to inspect and discipline auditors of SEC issuers. PCAOB activities also include establishing auditing, quality control, and independence standards for auditors of issuers, as defined by the SEC.

While the concepts in this course apply to all firms, the additional PCAOB requirements are beyond the intent and scope of this course. As a result, PCAOB inspections and the engagements subject to them are not covered in this course.

The AICPA Peer Review Program (PRP)

Effective January 1, 2009, one peer review program - the AICPA Peer Review Program (PRP) - will apply to all AICPA members subject to peer review. The PRP combined the peer review programs of the AICPA and the Center for Public Company Audit Firms (CPCAF) into one program. The nature of the firm's practice will determine who administers the PRP. The peer reviews of firms not subject to inspection by the PCAOB will continue to be administered by the designated state CPA society. For a firm required to be registered with and inspected by the PCAOB and any firm voluntarily enrolled in the NPRC PRP (formerly CPCAF), a new National Peer Review Committee (NPRC) will administer the peer reviews for the portion of the firm's practice not subject to PCAOB inspections. The National PRC was established as a successor to the CPCAF Peer Review Committee.

As a result of the expiration of an SEC Order on January 1, 2009, financial statements of nonpublic broker-dealers for fiscal years ending after December 31, 2008, must be certified by a registered public accounting firm. Although firms performing these audits must register with the PCAOB, the firms are not required (as of April 2009) to be inspected by the PCAOB. Since the PCAOB inspection requirements do not include firms auditing non-public broker-dealers, these firms can chose whether to have their peer review administered by the NPRC PRP or the state CPA societies.

How This Course Is Organized

The course content generally follows the sequence of events in a typical peer review cycle. Chapter 2 outlines the general timeline of significant peer review milestones. Understanding the flow of the cycle can help keep you on track between reviews. The timeline starts at the inception of a system of quality control and finishes with the completion of your peer review. It also includes elements for planning for your external peer review. Chapter 3 provides a summary of relevant quality control concepts, including the performance and reporting standards used by external reviewers. This knowledge provides the context in which to evaluate your system of quality control. It is also the context in which your external peer reviewer will evaluate it.

Chapter 4 shows you how to properly implement QC concepts into a workable system that fits the size, nature, and service mix of your firm. Topics include considerations for external practice aids and sample quality control documents. Even if your firm already has a system in place, it is important to monitor that system. Chapter 5 covers the basics of monitoring and includes examples for four different types of monitoring reports. Monitoring includes both administrative reviews and inspection of engagements. Since it can help to know the types of matters and findings that other firms have encountered, Chapter 6 includes a summary of common areas of noncompliance with professional standards as well as other information that can help you perform effective inspections of engagements. Chapter 6 also provides guidance for addressing specific matters and findings through effective and efficient prevention. Chapter 7 shows examples of ways that firms can strengthen the design of their quality control and individuals' compliance with it. Finally, Chapter 8 wraps up the process by highlighting important areas to consider when completing a peer review.

How This Course Will Help You Learn

Each chapter explains and refreshes the main concepts of quality control, monitoring, and peer review. Key areas are illustrated through presentation, examples, exercises, and group discussion. Please share your quality control experiences, ideas, and questions. It adds to the quality of information and can make the day more interesting. If there a particular QC process you want to streamline, ask about it. Someone in the class might have just the answer you are looking for.

Topics

Course topics focus on areas of Professional Standards and Standards for Performing and Reporting on Peer Reviews that relate directly to organizing and monitoring your firm's system of quality control and preparing for your external review. Group exercises are provided as a starting point for practical group discussions. The following topics are included:

• Peer review timeline

• Review of Statements on Standards for Quality Control and Standards for Performing and Reporting on Peer Reviews. This includes consideration of Statement on Quality Control Standard No. 7, A Firm's System of Quality Control (SQCS No. 7)

• Quality control considerations for designing a system that best fits your firm

• The basics of performing monitoring procedures

• How to perform an inspection of engagements

• Areas of common noncompliance with professional standards

• Methods of strengthening a system of quality control

Consideration of SQCS No. 7

SCQS No. 7, A Firm's System of Quality Control, is effective for a firm's accounting and auditing practice as of January 1, 2009, and supersedes all previous quality control standards. The new standard will require firms to compare the policies, procedures, and terminology used in their existing system of quality control to the new requirements. This is considered a monitoring procedure that all firms should have performed prior to January 1, 2009. Chapter 3 summarizes SQCS No. 7. Where applicable, notations have been incorporated into the text to show how the new standard might affect your current system of quality control.

Peer reviews will begin to address the implementation of SQCS No. 7 starting with peer review for years ending after December 31, 2008. For example, a firm with a peer review year ending June 30, 2009, will have operated under slightly different systems during each half of their peer review year. Peer reviewers will need to consider this when evaluating matters related to the design of the firm's system of quality control or its compliance with that system.

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