Who needs to be enrolled in the peer review program?
All firms in public accounting need to be
enrolled
in the peer review program. This is a requirement
for MNCPA membership, and is also required by the Minnesota Board of
Accountancy as a condition for obtaining a firm permit for firms
that perform attest and/or compilation engagements. Do I still need to be enrolled if my firm doesn't perform any audit
or accounting engagements? Firms that do not perform any reviewable
engagements (audits, reviews, compilations with or without
disclosures or other attest engagements) still need to be enrolled in the program.
However, they do not
need to pay any fees associated with the program. They must annually
confirm this status with the MNCPA by returning the confirmation letter that is
sent out in June.
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, 2007,
the firm's peer review would be due June 30, 2009.
My peer review due date is 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
(PDF) 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. 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 two types of peer reviews and what
type does my firm need?
There are two types
of peer reviews: System reviews and Engagement reviews. The type of services performed by your firm will determine
what type of peer review your firm is required to have.
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) or 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.
Approximately 14,000 firms nationwide are likely to have a system
review over the next three years. 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 CPE
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 the System reviews. The objective of
an Engagement review is to evaluate whether engagements submitted
for review are performed 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.
Engagement reviews should improve the quality of engagements and
should protect the public that uses and relies on those reports
without imposing any additional burden on reviewed firms.
Nationally, more than 14,000 firms are likely to have an engagement
review over the next three years.
What is the
impact on my firm's peer review when my firm completes its first
audit engagement after the completion of my engagement review?
When a firm, subsequent to the year-end of its engagement review,
performs an engagement under the SASs, Government Auditing Standards
or examination of prospective financial statements under the SSAEs,
or an audit of a non-Securities and Exchange Commission issuer
performed pursuant to the standards of the PCAOB that would have
required the firm to have a System review, the firm should (a)
immediately notify the administering entity and (b) undergo a System
review. The System review will ordinarily be due 18 months from the
year-end of the engagement (for financial forecasts and projections
18 month from the date of report) requiring a System review or by
the firm's next scheduled due date, whichever is earlier. However,
the administering entity will consider the firm's practice, the
year-ends of engagements and when the procedures were performed, and
the number of engagements to be encompassed in the review, as well
as use its judgment, to determine the appropriate year-end and due
date. Firms that fail to immediately inform the administering entity
of the performance of such an engagement will be required to
participate in a System review with a peer review year-end that
covers the engagement. A firm's subsequent peer review ordinarily
will be due three years and six months from this pee review
year-end.
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 AICPA Peer
Review Program Standards require engagements selected for review
should provide a reasonable cross section of the reviewed firm's
accounting and auditing practice, with greater emphasis on those
engagements in the practice with higher assessed levels of peer
review risk. Examples of the factors considered when assessing
peer review risk at the engagement level include size, industry
area, level of service, personnel (including turnover, use of
merged-in personnel, or personnel not routinely assigned to
accounting and auditing engagement), communications from
regulatory, monitoring, or enforcement bodies; extent of
non-audit services to audit clients, significant clients' fees
to a practice office(s) and a partner(s) and initial
engagements. In addition, at least one of each type of
engagement subject to Government Auditing Standards (GAS),
Employment Retirement Income Security Act (ERISA) or the Federal
Deposit Insurance Corporation Improvement Act (FDICIA), must be
selected for review.
Engagement review selections
The review captain or the administering entity ordinarily
should select the types of engagements to be submitted for
review in accordance with the following guidelines:
a.
One engagement should be selected from each of the following
areas of service performed by the firm:
- Review of historical financial statements (performed
under SSARS)
- Compilation of historical financial statements, with
disclosures (performed under SSARS)
- Compilation of historical financial statements that
omits substantially all disclosures (performed under
SSARS)
- Engagements performed under the SSAEs other than
examinations of prospective financial statements
b. One engagement should be selected from each
partner, or individual of the firm, if not a partner,
responsible for the issuance of reports listed in item (a).
Ordinarily, at least two engagements should be selected for
review.
The preceding criteria are not mutually exclusive. One of
every type of engagement that a partner, or individual if not a
partner, responsible for the issuance of the reports listed in
item (a) in the previous list performs does not have to be
reviewed as long as, for the firm taken as a whole, all types of
engagements noted in item (a) in the previous list performed by
the firm are covered.
My peer review is complete. What do I do next? After the peer review
is completed, the reviewer will mail a written report to the reviewed firm. If the firm receives a rating of
either pass with deficiencies or
fail, the firm must submit a copy of the report and a letter of
response to address those issues to the MNCPA. The firm does not
have to submit a copy of the report if the rating is pass.
Why does my review need to go to a technical reviewer? When the peer review has been completed and
the report
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 (PDF). 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 Peer Review Committee 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 an 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.
My firm received the RAB acceptance letter.
What do I need to send to the State Board?
Send the required documents to:
Minnesota Board of Accountancy
85 E. Seventh Place Ste. 125
St. Paul, MN 55101
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