MNCPA PERSPECTIVES

BOA rule change affects peer review for new firms

Feb. 6, 2018  |  Faye Hayhurst, CPA

Revised administrative rules were published by the Minnesota Board of Accountancy (BOA) on January 10, 2018. The most significant changes have to do with CPE, which are outlined in Lynn Kletscher’s blog post.

A less talked about change affects the peer review process. Minnesota accountancy rules have long required CPA firms to submit certain peer review documents to the BOA after the review has gone through the Report Acceptance Body (RAB) process. The documents to be submitted include the peer review report and RAB letter of acceptance at a minimum, as well as additional letters if the firm received  a report rating of other than “Pass.”

The latest rule change affects the deadline for submitting those documents.

Background

When a firm first performs work subject to peer review, the due date for submitting the documents related to that first peer review is established in the state rules. Once that first due date is established, it generally remains the same going forward into the future.

Old rule
Prior to the recent revision, rule 1105.5100 read as follows:

  • A. As a condition of renewal of a firm permit, a new firm shall:
    • (1) Undergo a peer review during the first year after it becomes subject to the requirements for peer review; and
    • (2) Report the material in part 1105.5400 to the board no later than 15 months after the end of the year.

After the initial report, the firm shall be required to report every three years.

Example:

  • Date firm issues its first report on an engagement subject to peer review: March 2, 2016
  • First peer review year as determined by peer review standards: April 1, 2016 - March 31, 2017
  • Peer review due date to administering entity: Sept. 30, 2017*
  • Peer review documents due to BOA: no later than June 30, 2018*
  • BOA due date for the firm’s next peer review: June 30, 2021

*Notice the nine-month window between the documents being due to the administering entity and the BOA.

New rule
Rule 1105.5100 now states:

  • A. As a condition of renewal of a firm permit, a new firm shall:
    • (1) Undergo a peer review; and
    • (2) Submit the material in part 1105.5400 to the board no later than 21 months from the report date of the initial attest or compilation engagement.

After the due date of the initial peer review report, the firm shall be required to undergo a peer review and submit the material to the board every three years.

Example:

  • Date firm issues its first report on an engagement subject to peer review: March 2, 2018
  • First peer review year as determined by peer review standards: April 1, 2018 - March 31, 2019
  • Peer review due date to administering entity: Sept. 30, 2019*
  • Peer review documents due to BOA: no later than Dec. 2, 2019*
  • BOA due date for the firm’s next peer review: Dec. 2, 2022

*Notice the window between the administering entity’s deadline and the BOA’s deadline has shortened under the new rule.

Why this change is important

When a firm’s peer review is submitted to the administering entity, there is still a process that must be completed. The review is sent to a technical reviewer, who may identify questions or issues that need to be resolved by the peer reviewer and the firm. After technical review, the peer review is assigned to be presented to a RAB of the MNCPA. These RABs meet approximately every six weeks between June and February. The RAB can accept the review as is, accept the review and assign corrective action to the firm, or determine more information is needed, in which case acceptance of the review is deferred to a future meeting. It’s only after a RAB has accepted the review that peer review documents are ready to be submitted to the BOA.

If a firm’s peer review documents are not ready by the BOA’s due date, then the firm will need to request an extension from the BOA.

With the narrowing of the time frame between the due date to the administering entity and the due date to the BOA, it will be incumbent on firms to promptly schedule their peer review and submit it to the administering entity as soon as possible, preferably ahead of the due date. This will help to ensure adequate time for the process to complete by the BOA due date for submitting documents.

This change only affects new firms

A firm whose BOA due date was assigned under the old rule is NOT affected by the change. Those firms will continue to have a BOA due date of 15 months after the end of their peer review year.

Rule 1105.5100 defines new firms as follows: A new firm is one that has not previously been issued a permit in Minnesota or has not had a peer review completed in the three-year period prior to application.

The rule also provides examples of firms that are not considered new.

New firms will need to be prompt in scheduling and completing their peer review in order to stay compliant with their BOA reporting obligations.


Topics: Peer Review, Regulation

Faye Hayhurst, CPA

Faye Hayhurst is the MNCPA director of finance and administration. She is committed to using numbers to tell relevant stories, although she also employs words, charts and occasionally clothing to communicate a message. While some have questioned her about the pressures of being the CPA for the MNCPA, Faye considers presenting financial information to fellow CPAs a dream job. Outside of storytelling with numbers, Faye enjoys directing her church's handbell choir, visiting national parks and other scenic places, and checking out the chocolate products at Trader Joe's. Faye can be reached at 952-885-5540 or fhayhurst@mncpa.org.

Posts by this author


Comment on this post

* Indicates a required field.

Your name*:  

Your website URL:

Comment*: