Tips on How to Have a Successful Peer Review

Understand that the reviewed firm, not the reviewer, has final responsibility for the peer review. This includes making sure review documents are submitted to the New England Peer Review (NEPR) by the firm’s due date. Before hiring a reviewer, make sure he or she can complete the review in time to enable you to get all documents to NEPR by that date.

Responsibility also includes:

Understanding the Peer Review Standards

Purchase or otherwise obtain the AICPA Peer Review Program Manual. Having a current AICPA Peer Review Program Manual is a key tool for the successful completion of a peer review. The manual contains guidance on how to prepare for the peer review and include the Standards that govern peer reviews under the AICPA Peer Review Program. The manual also contains the forms and checklists that the reviewer will use to evaluate your quality control system and to review your engagements. You will also find guidance on writing a response to the letter of comments. The manual is available through a subscription service that is updated as changes are made. Manuals may be ordered from the AICPA Order Department at (800) 862-4272.

A firm that has a limited audit practice and knows the Peer Review Program Standards should know which engagements will be selected for review. For example, if you only have one governmental audit, you know it will be selected. It is always a good idea for a firm to perform an inspection of its own files to make sure they are complete before the reviewer arrives. If staff are required to add needed documentation to the files they will do it automatically the next time the engagement is performed.

Although the goal is to receive an unqualified opinion, a firm does not benefit if it receives an unqualified opinion because the reviewer was unable to detect deficiencies. It is better that deficiencies in engagements and in the firm’s quality control system be found by a peer reviewer than by a client, or another outside party such as a government regulator. Firms must question reviewers about their experience to make sure reviewers have the appropriate amount of experience and expertise in the industries they service. This is especially important if the firm performs engagements in high-risk or complex industries such as governmental and/or ERISA audits.

• Review the list of common engagement deficiencies before having the peer review.

• Conduct an in-house CPE session on the findings and recommendations and planned actions for professional personnel to make sure staff are aware of the results of the peer review.

Reducing the Costs of Peer Review

Prepare for the review early by making sure everyone in the firm understands the importance of performing engagements "by the book," properly documenting engagement planning issues, key procedures and conclusions. Fewer deficiencies and the reviewer’s ability to evaluate what was done, without waiting for engagement staff to recount what they did from memory, result in less time to complete the review.

When you have a firm-on-firm review, you choose your own reviewer and negotiate the fee. Firms that need more than one reviewer will find the firm-on-firm review to be less expensive because the reviewers will already be used to working together as a team.   NEPR maintains a database of AICPA approved firms that are interested in performing reviews of other firms.  NEPR sends a list of qualified reviewers, who are located in the four NEPR states with the Request for Scheduling Information Form, however, you may request a list for such firms located within any other particular geographic area.

Other ways to reduce cost:

• Solicit proposals from more than one firm to obtain the best fees.

• When calculating your hours for the proposal do not include bookkeeping, tax, or consultation hours in your accounting and auditing hours.

• Have all files ready when the reviewer arrives. Also have a convenient place for the reviewer to work. Make sure all professionals that might be needed to answer questions are readily available. Try not to have a reviewer have to wait for anything.

• Choose a time that is convenient for the reviewer as well as for the firm.

Responding to Review Findings

During fieldwork of a system peer review, the reviewer will inform the reviewed firm of any deficiencies noted during the peer review. A reviewed firm should not be surprised by any finding in the report or letter of comments.

Disagreements Over Technical Issues

Because peer review is a subjective process, there may be differences of opinion between the reviewed firm and the reviewer as to whether a deficiency exists. Many professional standards require the use of professional judgment.

When responding findings involving technical issues:

• A firm should not automatically assume the reviewer’s interpretation is the correct one. Ask the reviewer to cite the applicable section of the professional standards that supports his or her conclusion and read the applicable section to verify that the comment is applicable to the particular situation. If necessary, consult with NEPR, a knowledgeable outsider or the AICPA Technical or Ethics hotline.

• The reviewer will generally note deficiencies on a form entitled, "Matter for Further Consideration" (MFC). The reviewed firm should respond in writing to the specific comments in the response section of the MFC form. Since MFC forms are read by the NEPR's technical reviewer and members of Report Acceptance Bodies, the firm’s response should present the reasons for disagreement or the circumstances that caused the deficiency. Such a response may not only cause the peer reviewer to change his or her mind, but may cause the acceptance committee to question the significance of the deficiency.

• In an engagement or report review, engagement deficiencies may be communicated to the firm, by the reviewer, in a  telephone conversation or in writing on the MFC form. In most cases the communication is by telephone. It is recommended that firms having an engagement or report review request written MFCs to make sure they clearly understand the nature of the deficiency, and to allow the firm the opportunity of researching the issue and preparing a well thought out response.

• The AICPA Technical Hotline answers questions about accounting, auditing, attestation, compilation, and review services. The number is (800) 862-4272.

• The AICPA Ethics Hotline answers questions about independence and other behavioral issues related to the application of the AICPA Code of Professional conduct.

Most disagreements can and should be resolved before the exit conference in a system review and before the peer review report and letter of comments are issued in an engagement review.

In those rare instances where the matter cannot be resolved, the reviewed firm should respond to the letter of comments by addressing each deficiency noted and citing the section of the professional standards that supports its views. The NEPR Peer Review committee will attempt to resolve the disagreement.

Other Issues:

• Firms often respond to a finding on an MFC by stating that the item in question is immaterial without giving any indication that the matter was considered during the performance of the engagement. The peer reviewer’s concern is whether the firm understands the standards that apply to their engagements. The firm’s consideration of the matter should be documented in the working papers. In this way the peer reviewer is satisfied that it was considered instead of that the only reason the particular engagement was not substandard was that the firm got lucky because the amount happened to be immaterial.

• Firms often respond to a performance issues by saying that a significant procedure was performed but not documented. The way to convince a reviewer in these instances is to have the personnel involved document what was done for the reviewer.

• If a reviewer discovers a significant deficiency that a firm knows is isolated to that one engagement, explain why the deficiency occurred on the one engagement and show the reviewer other engagements where the procedure was performed, or the technical issue was correctly treated.

• Understand the difference between a professional requirement and a peer reviewer’s preference.