peer review information
The History of the Peer Review Program
In 1977, the AICPA Governing Council (Council) established the Division for CPA Firms to provide a system of self-regulation for its member firms. There were two voluntary membership sections within the Division for CPA Firms created: (1) the Securities and Exchange Commission Practice Section (SECPS) and (2) the Private Companies Practice Section (PCPS). Both sections required that once every three years firms had to have a peer review of their accounting and auditing practices to monitor adherence to professional standards and that the results of peer review information be made available in a public file.
Based upon the tangible results of the peer review process of the SECPS and PCPS, AICPA members voted and adopted mandatory peer review in 1988. Firms were given the choice between becoming a member of the Division for CPA Firms and undergoing an SECPS or PCPS peer review or enrolling in the newly created AICPA Quality Review Program to be administered in cooperation with state CPA societies.
In 1990, a new amendment to the AICPA bylaws mandated that AICPA members who practice public accounting with firms that audit one or more SEC clients must be members of the SECPS.
In 1994, the PCPS Peer Review Program and the AICPA Quality Review Program combined to become the AICPA PRP, governed by the AICPA Peer Review Board (PRB), which became effective in 1995.
The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB) as a private-sector regulatory entity to replace the accounting profession’s structure as it relates to public company audits. As a result, effective January 1, 2004, the SECPS was restructured and became the CPCAF PRP, with the objective of administering a peer review program that evaluates and reports on the non-SEC issuer accounting and auditing practices of firms that are registered with and inspected by the PCAOB as well as certain firms that perform audits of non-SEC issuers pursuant to PCAOB standards.
Since both the AICPA PRP and CPCAF PRP (Programs) were now only peer reviewing non-SEC issuer practices, it was determined that the Programs could be merged into one and have one set of peer review standards for all firms subject to peer review. In October 2007, the PRB approved revised Standards for Performing and Reporting on Peer Reviews effective for peer reviews commencing on or after January 1, 2009. This coincided with the official merger of the Programs at which time the CPCAF PRP was discontinued, and the AICPA PRP became the single program for all AICPA firms subject to peer review.
Who is required to have a peer review?
AICPA bylaws require that members engaged in the practice of public accounting be with a firm that is enrolled in an approved practice-monitoring program if the services performed by such a firm or individual are within the scope of the AICPA’s practice monitoring Standards, and the firm or individual issues reports purporting to be in accordance with AICPA professional standards. In addition, there are currently 13 state CPA societies that have made participation of a member’s firm in an approved-practice monitoring program a condition of continued state CPA society membership. Also, there are currently 44 state boards of accountancy that have made participation in a type of practice monitoring program mandatory for licensure with 2 more in the process of implementing this requirement.
Who administers a CPA firm’s peer review?
The AICPA Peer Review Program is administered in cooperation with a state CPA society. The state CPA society may elect to arrange for another state CPA society or a regional group of state societies to administer the Program. The AICPA Peer Review Board has final approval of all administering entities.
What are the types of peer reviews?
There are two types of peer reviews - system and engagement.
What is a system review?
A system review includes determining whether the firm’s system of quality control for its accounting and auditing practice is designed and complied with to provide the firm with reasonable assurance of performing and reporting in conformity with applicable professional standards, including SQCS No. 7, in all material respects. This type of review is for firms that perform engagements under the Statement on Auditing Standards (SASs), the Government Auditing Standards (Yellow Book), examinations of prospective financial information under the Statement on Standards for Attestation Engagements (SSAEs) or audits of non-SEC issuers performed pursuant to the standards of the PCAOB.
The scope of the peer review does not encompass other segments of a CPA practice, such as tax services or management advisory services, except to the extent they are associated with financial statements, such as reviews of tax provisions and accruals contained in financial statements.
In a system review, the reviewer will study and evaluate a CPA firm’s quality control policies and procedures that were in effect during the peer review year. This includes interviewing firm personnel and examining administrative files. To evaluate the effectiveness of the system and the degree of compliance with the system, the reviewer will test a reasonable cross-section of the firm’s engagements with a focus on high-risk engagements in addition to significant risk areas where the possibility exists of engagements being performed and/or reported on that are not in accordance with professional standards in all material respects. The majority of the procedures in a system review should be performed at the reviewed firm’s office.
What is an engagement review?
This type of review is for firms that are not required to have a system review and only perform services under SSARS or services under the SSAEs not included in system reviews. The objective of an engagement review is to evaluate whether engagements submitted for review are performed and reported on in conformity with applicable professional standards in all material respects. An engagement review consists of reading the financial statements or information submitted by the reviewed firm and the accountant’s report thereon, together with certain background information and representations and, except for compilation engagements performed under SSARS, the applicable documentation required by professional standards.
This type of review does not cover the firm’s system of quality control, so the reviewer cannot express an opinion on the firm’s compliance with its own quality control policies and procedures or compliance with AICPA quality control standards.