The Revised Standards - Important Changes to Note

Independence Impairment
Under Interpretation No. 10 “Independence, Integrity, and Objectivity” of the revised Standards, independence would be considered impaired for purposes of being able to perform a firm’s peer review (whether as a team captain or team member) for anyone also performing an internal inspection, consulting review, quality control document review, preliminary quality control procedures review or pre-issuance review for the firm in the year prior to the peer review. The only exception is if those services were performed for the year immediately following the previous peer review year end. Thus, performing those services in the second year after the peer review or during the year of the next peer review would impair independence for peer review purposes.

It is very important for firms and peer reviewers to focus on this matter immediately because although the Interpretation becomes effective for reviews commencing on or after January 1, 2009, the impact is immediate if peer reviewers have already performed or were planning to perform a firm’s internal inspection, a pre-issuance review or a consulting review in 2008 and wants to remain eligible to perform the firm’s peer review in 2009 (or later).

For example, if a reviewed firm indicates their peer reviewer performed an internal inspection in May, 2008 and the reviewed firm’s previous peer review year ended December 31, 2006, the reviewer’s independence would be impaired and he/she would not be able to perform the firm’s peer review for year ended December 31, 2009. The administering entity should contact the reviewed firm and request they select another peer reviewer. However, if the reviewed firm performed an internal inspection in May, 2007, it would be acceptable for the reviewer to perform the firm’s 2009 peer review.

Reference the Reviewers’ Alert 08-01 for previously issued guidance at:
http://www.aicpa.org/download/practmon/reviewers_alert_08_01.pdf

System Reviews Performed at a Location Other Than the Reviewed Firm’s Office
The process and criteria are different depending upon the commencement of field work.

Current Standards (Peer reviews commencing prior to January 1, 2009)
Follow the guidance of Interpretation No. 1 “System Reviews Performed at a Locations Other Than the Practitioner’s Office” which includes sole practitioner (with no professional staff) who performs a total of 3 or less engagements covered by the SASs, Government Auditing Standards or examination of prospective financial statements under the SSAEs. Reference complete guidance at: http://www.aicpa.org/download/practmon/prp2006/PRP_3200.doc.

Previously the background form included a question that indicated a sole practitioner might be eligible to have a system review performed at a location other than the firm’s office. Due to the deletion of that question, the reviewer should make the determination if the firm qualifies. This is only applicable if the review commences prior to January 1, 2009.

Revised Standards (Peer reviews commencing on or after January 1, 2009)
Follow the guidance of Interpretation No. 7“Performing System Reviews at a Location Other Than the Reviewed Firms Office” which states, if the review can reasonably be performed at the reviewed firm’s office, it should be. Although certain planning procedures may be performed at the peer reviewer’s office, it is expected that a majority of the peer review procedures, including the review of engagements, testing of functional areas, interviews, and concluding procedures should be performed at the reviewed firm’s office. However, it is recognized that there are some situations that make an on-site peer review cost prohibitive or extremely difficult to arrange, or both.

In such situations, the firm and reviewer should mutually agree on the appropriateness and efficiency of an approach to the peer review such that it can be performed off-site.

• The reviewer should request the administering entity’s approval to perform the review at a location other than the reviewed firm’s office.
• This request should be made prior to the commencement of fieldwork, and the firm and reviewer should be prepared to respond to the administering entity’s inquiries about various factors that could affect their determination.
• Interpretation No. 7 “Performing System Reviews at a Location Other Than the Reviewed Firm’s Office” lists factors which should be considered by the administering entity in making a determination. See full details at: http://www.aicpa.org/download/practmon/2009_stds.pdf
• The administering entity should prepare a written communication to the firm and reviewer indicating their approval or disapproval of whether the peer review can be performed off –site.

Reference complete guidance at: http://www.aicpa.org/download/practmon/2009_stds.pdf.