A little help from your friends.

In April, the AICPA issued the new Standards for Performing and Reporting on Peer Reviews, which will be implemented for peer reviews commencing on or after Jan.1, 2009. The AICPA Peer Review Board rewrote the standards with a focus on transparency, understandability and clarity and the changes are substantial.

"I must admit, I had my doubts when I first heard of the proposal for the new peer review reporting model, and I questioned how the elimination of the letter of comments could lead to more transparency," says Thomas J. Parry, chair of the California Peer Review Committee and a former member of the AICPA Peer Review Board.

"I realize now that few people, outside of those performing and overseeing peer reviews, understood the relevance of the comments contained in the letter. I believe that this new reporting model is easier for all users of peer review reports to understand."

Firms will now receive peer review reports with a "pass," "pass with deficiencies" or "fail" designation. In addition, the letter of comments will be eliminated, but some documentation of findings that do not affect the report will be retained until the next peer review.

These changes were considered necessary for clarity and ease of understanding of the peer review reporting process.

The Big Picture

While peer review has been around since the late 1970s, it wasn't until 1988 that AICPA members voted to make peer review mandatory. Since that time, a CPA firm has had to undergo peer review every three years for their partners and staff to maintain AICPA membership.

A peer review is only required if the firm provides services that fall within the peer review standards, such as audits, reviews, attest and compilation services of non-public companies. A peer review covers a one-year period and is conducted by an independent person: a "peer reviewer."

AICPA membership, however, is not the only catalyst for peer review. There are 41 state boards of accountancy that require some form of peer review for licensing purposes. California is not among that group, but if you have licenses in states other than California, you may be affected.

In addition, the Government Accountability Office requires a peer review to be completed within three years from the date a firm begins its first audit under generally accepted government auditing standards. Generally, audits are performed under these standards if a governmental unit or nonprofit organization expends $500,000 or more in a year in federal awards.

California law also can require audits of certain governmental units, such as California redevelopment agencies, to be performed under government auditing standards. Contracts with state departments, cities, counties or other grantors also may have a clause requiring that the audits be performed under these standards.

The new standards merge the AICPA Peer Review Program and the Center for Public Company Audit Firms (GPCAF) Peer Review Program. This is a natural progression of the changes that occurred in 2004 when the Public Company Accounting Oversight Board was established to inspect a firm's SEC practice.

The AICPA will oversee the merged program, and peer reviews will be administered by an entity approved by the AICPA. For most California firms, that entity is CalCPA. Firms that perform audits of non-SEC issuers pursuant to the standards of the PCAOB, however, will have their peer reviews administered by the National Peer Review Committee.

Firms performing...