Be prepared: a comprehensive peer review update.

• Author: McCrone, Linda

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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.

Background

Firms that perform audits under the Statements on Auditing Standards (SASs) or Government Auditing Standards (GAS), or examinations under the Statements on Standards for Attestation Engagements (SSAEs), are required to have system peer reviews. The primary objective of this review is to evaluate the system of quality control that the firm has over its accounting and auditing practice. An integral part of that evaluation, especially for smaller firms, is the review of accounting and auditing engagements performed during the year under review.

Firms that only perform services under Statements on Standards for Accounting and Review Service (SSARs) or sendees under SSAEs not included in system reviews arc required to have an engagement review. Engagement reviews focus on the review of selected engagements and limited documentation.

There are three types of peer review reports: pass, pass with deficiency or fail. Generally, to receive a pass with deficiency or fail, a firm must have one or more matters that result in an engagement not performed, presented or reported in accordance with professional standards in all material respects (i.c. a nonconforming engagement).

Department of Labor

In May 2015, the Department of Labor released a report that found a greater percentage of nonconforming ERISA audits than were found by peer reviewers. The AICPA selected its own statistical sample of ERISA audits to review and agreed with the DOL assessment.

Peer review program administering entities--in other words, state CPA societies--are required to perform oversight on peer reviewers. In an oversight, a peer review committee member looks at some of the engagements, including work papers that the peer reviewer reviewed. Any additional matters noted by the oversighter are included in the peer review of the firm. A written report detailing the oversighter's evaluation of the quality of the peer reviewer's work is sent to the peer review committee. If the oversighter...