In the last three years, an increasing number of participants at my staff training seminars have shared they were asked technical accounting and auditing questions by their firm's peer reviewer. Specifically, they were asked questions about the theory behind the practice aids they used on audits. I'm surprised that this peer review technique isn't more common because the substance of a CPA firm's system of quality control is the knowledge base of its personnel. My expectations are that in the near future more peer reviewers will be testing a firm's staff resource base by asking techincial questions. Here are some questions that might be asked:
1. How does risk affect materiality levels?
2. How does risk affect the required audit responses at the financial statement and the assertion levels?
3. How do the definitions of planning materiality and tolerable misstatement differ and how does each affect auditing procedures?
4. How does the level of tolerable misstatement affect the lower limit of individually significant items?
5. How does the level of tolerable misstatement affect sampling and non-sampling decisions?
6. What are the major determinants of risk at the financial statement level?
7. What are the definitions of the components of audit risk and how do they affect audit strategies?
8. What are the definitions of the financial statement assertions?
9. What are the definitions of entity-level controls, activity-level controls and key controls, and how can these controls affect the level of risk of material misstatement for financial statement classifications?
10.How does the level of risk of material misstatement affect the nature, extent and timing of detailed tests of balances?
If your firm's peer review pass or fail grade depended on your correct answers to these questions, what grade would you receive? What if a passing grade was 70%! Knowing the answers to these questions and how to apply the knowledge to engagements is the key to audit quality and efficiency! We can't afford to fail this test!
If you'd like to refresh your technical skills, an easy way is to join us for four, two-hour webcasts starting February 16, 2010 that focus on small audits. These webcasts are co-sponsored by AccountingWEB and CPE Link. You can register at: www.cpelink.com/product/detail.php?p=1662.