Cpcaf Peer Review Manual Section 18100 Monitoring Guidance

Editor's note: K. William Graham is the AICPA Peer Review Board chair.

The effects of the newly revised AICPA Standards on Performing and Reporting on Peer Reviews (Standards) will be far-reaching. They directly impact more than 30,000 firms enrolled in the AICPA's practice-monitoring plan. In addition, the revised standards impact other stakeholders including those responsible for firms' quality-control functions, administering entities, peer reviewers, and regulators. The revisions went into effect for peer reviews beginning on or after Jan. 1, 2009.

The Peer Review Board expects the revised standards will ameliorate peer review execution, clarity, transparency and precision. In fact, the board designed the revisions to meet stakeholders' needs (encounter sidebar, "Answering the Call for Alter," at the bottom of the page). For instance, the revisions recognize the importance of peer review in the state lath of accountancy licensure process. Forty-4 country boards require peer review (see sidebar below, "Groundwork on Peer Review"). Other agencies, such every bit the Government Accountability Office, also rely on peer review.

The lath is excited about the revised standard's new reporting model. The board expects it will raise the clarity, comparability and understandability of peer review reports—a welcome change for all stakeholders. And as stakeholders implement the revised standards, they will begin to appreciate how the principles-based standards issue in a more efficient and constructive peer review procedure.

Background on Peer Review
To be admitted to or retain their membership in the AICPA, CPAs engaged in the practice of public accounting in the United States or its territories as an owner or as an employee must either be practicing in a business firm enrolled in an approved practice-monitoring programme if the services performed by such a house are within the scope of the AICPA's practice-monitoring standards and the business firm issues reports purporting to be in accordance with AICPA professional person standards, or if authorized by the AICPA Governing Council, are themselves enrolled in such a plan.

Firms have peer reviews because of the public involvement in the quality of accounting, auditing and attestation services. Likewise, 44 state boards (46 by 2012) require their licensees to undergo peer review, or what some call "compliance balls," to do in their land. Other regulators, such as the Authorities Accountability Office, require peer review to perform engagements and to issue reports under their standards.

Firms and individuals enrolled in the AICPA Peer Review Program are required to have a peer review, applicable to non-SEC issuers, once every 3 years roofing a i-year period. The goal of the practice monitoring, and the program itself, is to promote quality in the accounting and auditing services provided by AICPA members and their CPA firms. This goal serves the public interest and enhances the significance of AICPA membership.

Firms take the option to make public their ain peer review reports once those reports are accepted by the applicable body. In sure cases, firms are required past regulators or nether certain AICPA section or audit quality center membership rules to brand their reports public.

Practice Tip

Information technology is crucial for peer reviewers and firms to focus on these changes now considering the impact is firsthand. If peer reviewers have already performed such services for a firm in 2008, they volition be precluded from performing that firm's peer review in 2009.

Vi Key CHANGES
The following discussion is not exhaustive, only it describes those changes the board considers the virtually significant.

1. INDEPENDENCE Harm
Nether the revised standards, a team helm, review helm or team fellow member (reviewer) may perform certain procedures for a reviewed firm before the peer review without impairing independence. These include monitoring (such equally internal inspection), consulting review, quality-command certificate review or preliminary quality-control procedures, as long as the peer reviewer does not perform those services for the year immediately preceding or during the peer review twelvemonth. A peer reviewer may perform a pre-issuance review without impairing independence every bit long as:

• The frequency and extent of the preissuance review(s) is such that the peer reviewer's firm is not an integral office of the reviewed firm's accounting or auditing practice (and thus the services would be considered monitoring).

• The peer reviewer did non perform the pre-issuance review within the year immediately preceding or during the peer review yr.

Peer reviewers need to focus on these changes now, equally they took result upon the issuance of the standards. Equally a effect, peer reviewers who performed these services in 2008 would not be independent and would be precluded from performing the firm's peer review in 2009.

2. REPORTING MODEL
Based on significant input, the board knew updating the reporting model was clearly ane of the nearly needed changes. A simple and easy-to-empathise set of terms forms the reporting model's foundation. Those terms—matter, finding, deficiency and pregnant deficiency—and their related definitions describe weather that could be noted during a organisation review or an engagement review. The revised standards establish a flow that shows how a affair may drag to a finding, a deficiency or a meaning deficiency. The standards provide guidance on how to:

• Combine and evaluate these atmospheric condition;

• Document them; and

• Make up one's mind how they might affect the type of report issued.

At offset, the terms, their definitions and their menstruation through the process may seem circuitous. In response, several visual tools were designed to assist users. Exhibit 1 illustrates possible flows a peer review could follow, how the weather are documented, and the possible consequences to peer review conclusions and reporting. The board also believes the engagement review and organisation flowcharts are integral to understanding the peer review process and reporting model. (Encounter Exhibit iii and Exhibit 4.)

Under the sometime standards, findings were reflected in messages of comments (LOC). These were confusing when read with a clean or unmodified written report. Since the findings were not pregnant enough to affect the opinion or type of report issued, the LOC has been eliminated. Nonetheless, to carry on the program's objective of promoting quality, the board wanted peer reviewers to continue educating and informing firms nigh their findings. Therefore, peer reviewer documentation has been expanded (outside of the reporting and acceptance process) to communicate findings to the reviewed firm that do not bear on the type of peer review report issued.

The new process introduces the Finding for Further Consideration (FFC) form, which allows peer reviewers to offer substantive comments and recommendations on the business firm'southward practices related to findings. It as well facilitates the firm's responses to the findings. Determining the demand for an FFC form in the revised system review reporting model is like to determining the need for an LOC in the previous model.

In the same spirit as the changes above, peer review reports have been revised to be more concise and understandable. Contrary to the previous grades of unmodified, modified and adverse, the new grades are pass, laissez passer with deficiency and fail.

Determining the most advisable report blazon can be challenging. Under the revised standards, the peer reviewers must brand difficult decisions and consider multiple threshold questions. Equally a result, the board expects to meet more pass with deficiency reports than the previous modified reports. Showroom two all-time illustrates the changes past comparison the old and new reporting models.

3. MERGING TWO AICPA PEER REVIEW PROGRAMS
Since 2003, the board and the former CPCAF Peer Review Committee (Prc) discussed various harmonization and merger problems. Similarities existed betwixt the programs; both focused on the non-SEC issuer practice and had the same objectives; and their enrolled firms provided the same services using the same professional standards. Therefore, the board and the PRC ended that one program, one set of standards, and a national administration and acceptance torso (the PRC is at present the National Peer Review Committee) was appropriate. This merger enhances the unabridged peer review procedure because it simplifies the AICPA's Peer Review Programme, allows communication with stakeholders via one vox, and volition improve peer review functioning, reporting and administration.

4. NONCOOPERATION AND POTENTIAL BOARD ACTIONS
A cornerstone of the programme is the responsibility of all parties to cooperate. The revised standards expand this concept. Enhanced guidance on noncooperation includes, but is not limited to, situations in which a reviewed firm:

• Does not respond to inquiries;

• Withholds data significant to the peer review;

• Limits access to offices, personnel or others; or

• Fails to cooperate during oversight.

In these situations, the board may appoint a hearing console to consider termination from the program or another action.

five. OBTAINING FIRM REPRESENTATION LETTERS
The team captain (arrangement review) or review captain (engagement review) obtains representation letters from the reviewed house'south management that draw matters meaning to the peer review. Former guidance prescribed representation letter of the alphabet content. The revised standards use a principles-based approach encouraging peer reviewers to tailor the letter by adding representations, over and above the required core matters, of import to that peer review. The revised standards provide sample messages.

6. COMPLETION OF A PEER REVIEW Grade
Under the revised standards, team members may consummate interviews or review functional areas in add-on to preparing and completing the appointment checklists and forms, without completing a peer review training course or courses. The board felt it was important to allow such procedures without taking more than formalized training and believes performing such peer review tasks provides new peer reviewers valuable experience.

Conclusion
These are just some of the important changes in the new standards. The revisions underscore the public involvement in the quality of the accounting, auditing and attestation services provided by members' firms. The board expects the revised standards to result in a more efficient and effective peer review procedure. In improver, the board believes that the revisions volition ameliorate peer review execution and rigor, while helping to assure its integrity and usefulness.

Answering the Call for Modify

Many factors influenced the call to re-evaluate the standards, interpretations and guidance, but results from a 2004 online poll jump-started the momentum for modify. The poll gave the AICPA, its board of directors (BOD) and others significant feedback about stakeholders' needs and concerns. The BOD, through its Peer Review Job Force, was one of several groups that considered the feedback.

The Peer Review Board (the "Lath") and its Standards Task Force devoted considerable fourth dimension and resources to re-evaluating the standards, interpretations and guidance. After several years considering inputs, evaluating potential responses and formulating an approach to revising the standards, the Lath began the revision process.

The nigh fundamental of many changes included threshold decisions to:

1. Merge the AICPA'south two peer review programs—the Heart for Public Company Inspect Firms (CPCAF) Peer Review Program and the AICPA Peer Review Program;

2. Use a principles-based foundation; and

3. Re-engineer the reporting procedure.

The Lath used these overarching concepts to write the revised standards. The resulting principles-based standards also laid the foundation upon which the Board updated interpretations and created practical implementation guidance. The relationship between principles-based standards, interpretations and guidance is noteworthy. While the revised standards communicate the principles, the interpretations and guidance explain how to implement them. The principles-based standards are less likely to require frequent changes than prior interpretations and guidance. In add-on, under the revised standards, changing interpretations and guidance is easier and involves fewer steps.

EXECUTIVE SUMMARY
  The AICPA revised its standards for performing and reporting on peer review. The revised standards, which went into effect for reviews beginning on or after Jan. 1, 2009, will raise the quality of peer reviews and increase the clarity of peer review reports to the public, regulators and reviewed firms.

  The revised standards affect all of the more than 30,000 firms enrolled in the AICPA Peer Review Plan likewise as peer reviewers and peer review users, including regulators.

  Firms volition observe pregnant changes in their peer review reports. Through changes that brand the reports simpler and more readable, users of peer review reports tin can improve sympathise the peer review process.

  The revised standards require a elementary pass, laissez passer with deficiency or fail grade.

G. William Graham , CPA, MBA, is the partner-in-charge of do quality at Grant Thornton LLP and is chair of the AICPA Peer Review Board. His e-mail address is william.graham@gt.com.

AICPA Resources

Web site

AICPA Standards for Performing and Reporting on Peer Reviews , www.aicpa.org/members/div/practmon/pr_stds.htm

Infocast

"Revised Peer Review Standards" infocast sound file, world wide web.aicpa.org/members/div/practmon/webinar.htm

Publications

- AICPA Peer Review Programme Manual (#QR-XX)

- Navigating Through the Revised AICPA Standards for Performing and Reporting on Peer Reviews and Related Interpretations, www.aicpa.org/download/centerprp/White_Paper_final_6_23_08.pdf

For more information or to place an society, get to world wide web.cpa2biz.com or telephone call the Plant at 888-777-7077.

CPE Peer Review Preparation Courses

AICPA Advanced Grade: Overview of the AICPA Peer Review Program Standards, www.aicpa.org/members/div/practmon/Reviewer_Training_Courses.htm

On-Site Preparation

How to Behave a Review Nether the AICPA Do-Monitoring Program (Acronym #HCRPM)

To admission On-Site Preparation courses, go to www.aicpalearning.org, click on "On-Site Training" and search by "Acronym Index." If yous need assistance, delight contact a training representative at 800-634-6780 (option i).

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Source: https://www.journalofaccountancy.com/issues/2009/may/20081101.html

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