Peer Review Overview Q & A

• Who needs to be enrolled in the peer review program?
• Do I still need to be enrolled if my firm doesn't perform any audit or accounting engagements?
• How do I enroll?
• When is my firm's initial peer review?
• My peer review due date is coming up this year. What do I need to do?
• How does my firm select a peer reviewer?
• What are the three types of peer reviews and what does my firm need?
• What is a system review?
• What is an engagement review?
• What is a report review?
• Which engagements will my peer reviewer select for my type of peer review?
• My peer review is complete. What do I need to do next?
• Why does my peer review need to go to a technical reviewer?
• What is the peer review acceptance process?
• My firm received its final acceptance letter. What do I need to send to the State Board?

Who needs to enroll in the peer review program?

All firms in public accounting need to be enrolled in the peer review program. This is a requirement for membership with the MNCPA, as well as a requirement for firm licensure with the Minnesota Board of Accountancy.

Do I still need to enroll if my firm doesn't perform audit or accounting engagements?

Firms that do not perform any reviewable engagements (audits, reviews, compilations with or without disclosures) still need to be enrolled in the program, but do not need to pay any fees associated with the program, and must annually confirm this status with the MNCPA by returning the confirmation letter that is sent out in June.

How do I enroll?

A firm needs to complete and return the peer review enrollment form to the MNCPA.
Enrollment form for AICPA members
Enrollment form for non-AICPA members

When is my firm's initial peer review?

A firm's initial peer review is due 18 months after the year-end of the firm's first reviewable engagement. A peer review covers a 12 month period, and the firm is given 6 months to complete the peer review. For example, if a firm's initial engagement has a year-end of December 31, 2006, the firm's peer review would be due June 30, 2008.

My peer review due date if coming up this year. What do I need to do?

Approximately 6-9 months prior to a firm's due date, the MNCPA will send out a scheduling form that needs to be completed and returned. The firm will also need to complete the reviewing firm information, such as the name of the peer reviewer, and the commencement and exit conference date of the peer review. The firm needs to make arrangements with the peer reviewer directly (See question below for help in selecting a peer reviewer).  A list of qualified peer reviewers is available. Upon receipt of the completed form, the MNCPA will enter the information into the electronic peer review system, which will determine if the peer reviewer is qualified to perform the review. If the reviewer is qualified, an acceptance letter is sent to the firm and the peer reviewer authorizing the peer review to take place. A peer review can not be performed without the acceptance letter stating the peer reviewer is qualified.

How does my firm select a peer reviewer?

A list of qualified peer reviewers is available on the MNCPA web site. Many firms select as a peer reviewer a firm that is similar in size and practice. The firm needs to make certain that the peer reviewer is qualified to review any specialized area of its practice, such as governmental audits. CPA colleagues can also be a good referral source for selecting a peer reviewer. In addition, the AICPA has an article on tips for selecting a peer reviewer.

What are the three types of peer reviews and what type does my firm need?

There are three types of peer reviews: System reviews, Engagement reviews, and Report reviews. The type of services performed by your firm will determine what type of peer review your firm is required to have.
 

What is a system review?

This type of review is for firms that perform engagements under the Statement on Auditing Standards (SASs), the Government Auditing Standards (Yellow Book) or examinations of prospective financial information under the Statement on Standards for Attestation Engagements (SSAEs). The objective of a system review is intended to provide the reviewer with a reasonable basis for expressing an opinion during the year under review as to whether the reviewed firm:

• Has designed its system of quality control for its accounting and auditing practice in accordance with AICPA quality control standards.

• Is complying with its quality control policies and procedures in a way that will provide the firm with reasonable assurance of conforming with professional standards.

The scope of the 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 aspects.
 

What is an engagement review?

This type of review is for firms that are not required to have a system review, as discussed above, and are not eligible to have a report review, as discussed below. In general, a firm that performs reviews, compilations of financial statements with disclosures, and/or attestation engagements (other than examinations of prospective financial statements) as its highest level of service will have an engagement review.

The objective of an engagement review are to provide the peer reviewer with a reasonable basis for expressing limited assurance that:

• The financial statements or information and the related accountant's report on the accounting, review and attestation engagements the firm submits for review conform, in all material respects, with professional standards.

• The reviewed firm's documentation conforms with the requirements of Statements on Standards for Accounting and Review Services (SSARS) and the Statement on Standards for Attestation Engagements (SSAEs), as applicable, in all material respects.

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. 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 provided by the reviewed firm on the engagements submitted for review, and reviewing the documentation required by SSARS and the SSAEs submitted by the reviewed firm.

Some examples of documentation include:

• Management representation letter on a review engagement.

• Working papers documenting the matters covered in the accountant's inquiry and analytical procedures on a review of financial statements.

What is a report review?

Firms performing only compilations that omit substantially all disclosures are eligible to have report reviews. However, a firm must have an engagement review if it performs, as its highest level of service--compilations referred to in Statement on Standards for Accounting and Review Services (SSARS) as "selected information-substantially all disclosures required are not included." A report review retains the overall integrity of peer review through a streamlined process. The objective of a report review is to enable the reviewed firm to enhance the overall quality of its compilation engagements that omit substantially all disclosures. To accomplish this objective, the reviewer provides comments and recommendations based on whether the submitted financial statements and related accountant's reports appear to conform with the requirements of professional standards in all material respects. The reviewer provides comments and identifies those considered significant.

Firms required to have a report review may elect to have a system or engagement review. On a report review, a reviewer will evaluate a CPA firm's financial statements, accountant's report, the working paper documentation applicable to the SSARS and SSAEs as applicable to those engagements, and certain background information and representations provided to the reviewer.

Which engagements will my peer reviewer select for my type of peer review?

The reviewer will  send an engagement letter to the firm prior to the commencement of the peer review. He/she will select the types of engagements based on the type of review.

System review selections
The reviewer is required to review a cross-section of the firms accounting and auditing practice with greater emphasis on those engagements in the practice with higher assessed levels of peer review risk. At least one engagement must be a "surprise" engagement.

Engagement review selections
The reviewer must select at least one engagement from each of the following areas of service the firm performs: review of historical financial statements; compilations of historical financial statements with full disclosures; compilation of historical financial statements that omit substantially all disclosures; and attestation, which can be either prospective financial statements or assertions. One engagement must be selected from each partner of the firm responsible for the issuance of reports listed above and ordinarily, at least two engagements should be selected for review.

Report review selections
The reviewer normally selects one engagement from each partner of the firm responsible for the issuance of compiled financial statements that omit substantially all disclosures. Ordinarily, at least two engagements should be selected for review.

My peer review is complete. What do I do next?

After the peer review is completed, the reviewer will mail to the reviewed firm a written report and, if applicable, a letter of comments. The firm must send a copy of the report to the MNCPA. If a firm receives a letter of comments from the reviewer, the firm must provide a letter of response to address those issue. These two additional documents (letter of comments and letter of response) must also be submitted to the MNCPA.

Why does my review need to go to a technical reviewer?

When the peer review has been completed and the report, letter of comments and letter of response, if applicable, are submitted to the MNCPA, all reviews are sent to a technical reviewer for review. This is to ensure that the review was performed in accordance with the AICPA Standards for Performing and Reporting on Peer Reviews.

What is the peer review acceptance process?

The review is ready for acceptance upon completion of the technical review. All reviews are presented for consideration at the RAB (Report Acceptance Body) meeting made up of peer review committee members. The RAB committee meets once a month from May through January to consider reviews for acceptance. The committee will decide, based on the findings of the peer review and technical review, whether to accept the review or request follow up action. If the review is accepted by the committee, the review is closed and a final acceptance letter is sent to the firm. The firm's next review will be due in 3 years and six months from the firm's most recent peer review year-end.

If the committee decides follow-up action is appropriate, a letter will be sent to the firm outlining the follow-up actions and the due date by which these actions must be completed. The firm will submit the documents upon completion of these follow-up actions and it will be presented once again for committee acceptance. Once the committee finds these steps have been successfully completed and implemented, the review will be closed and a final acceptance letter sent to the firm. If the firm does not successfully complete the required follow-up actions the first time, the committee will request additional follow-up until it has been successfully completed.