Peer reviewers and firms must focus on six changes in the newly revised AICPA Standards on Performing and Reporting on Peer Reviews because the impact is immediate, according to a recent article in the Journal of Accountancy. The revised standards, developed in response to a poll of AICPA members in 2004, went into effect for peer reviews beginning on or after January 1, 2009. All firms enrolled in the AICPA’s practice-monitoring program are affected by the revised standards as are other stakeholders including regulators.
The key changes involve:
- Elimination of requirement for peer review course
- New reporting model
- AICPA peer review programs merged
- Enhanced guidance on noncooperation
- Principles-based rep letters.
Standard for independence of peer reviewer
Under the new standards a peer reviewer may perform a pre-issuance review without impairing independence as long as:
- The frequency and extent of the preissuance review(s) is such that the peer reviewer’s firm is not an integral part of the reviewed firm’s accounting or auditing practice (and thus the services would be considered monitoring).
- The peer reviewer did not perform the pre-issuance review within the year immediately preceding or during the peer review year.
These changes took effect with the issuance of the standards in January. As a result, peer reviewers who performed these services in 2008 would not be independent and could not perform the firm’s peer review in 2009.
Requirement for peer review course eliminated
Peer review participants will no longer be required to take a preparatory course.
In its whitepaper, “Navigating Through the Revised AICPA Standards for Performing and Reporting on Peer Reviews and Related Interpretations" published in June 2008, the AICPA Peer Review Board noted that team members sometimes perform procedures such as interviews or reviews of functional areas, in addition to preparing and completing the engagement checklists and Matter for further Consideration (MFC) forms. This is considered a valuable training ground for new peer reviewers, team captains, and review captains. Reviewers work under the supervision of a qualified team captain or review captain, and their work is reviewed as required by the Standards.
New reporting model
New terms—matter, finding, deficiency, and significant deficiency, and outcomes, Pass, Pass With Deficiency, and Fail have been introduced for the revised standards. There are new reports associated with each. The new reviewing process introduces the Finding for Further Consideration (FFC) form, and the Matter for Further Consideration (MFC) which was the former Letter of Comment.
The Peer Review Board concluded in their white paper that they expect to see more pass with deficiency reports than the previous modified reports, because “under the revised standards, the peer reviewers must make hard decisions and consider multiple threshold questions. Exhibit 2, below, compares the old and new reporting models.
Exhibit 1 illustrates possible flows a peer review could follow, how the conditions are documented, and the possible consequences to peer review conclusions and reporting.
Peer review programs merged
The Center for Public Company Audit Firms (CPCAF) Peer Review Program and the AICPA Peer Review Program have merged.
Enhanced guidance on noncooperation
The guidance includes, but is not limited to, situations in which a reviewed firm:
- Does not respond to inquiries;
- Withholds information significant to the peer review;
- Limits access to offices, personnel or others; or
- Fails to cooperate during oversight.
In these situations, the Journal of Accountancy article says, the board may appoint a hearing panel to consider termination from the program or another action.
Obtaining firm representation letters
Unlike former guidance which prescribed representation letter 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, important to that peer review. The revised standards provide sample letters.
The AICPA recommends use of the whitepaper as a guide to the standards. The paper does not contain detailed guidance but the board believes it will “assist those parties interested in peer review to gain a better understanding of the revised guidance and serve as a helpful resource to navigating through the revised Standards and Interpretations.”