Peer Review Conference takeaways part No. 4: General peer review information
October 31, 2022 | Faye Hayhurst, CPA
Editor’s note: Read parts No. 1: New standards,
No. 2: Audits of employee benefits plan and No. 3: Engagements under Government Auditing Standards
The AICPA’s annual Peer Review Conference provides training and updates for peer reviewers. But there is also a ton of overall technical information. I met one attendee from Kansas who had never been a peer reviewer or peer review committee member. But he attends the conference each year to gain knowledge and insights that will help him keep his own firm on track.
Here are some highlights from the conference.
Recent peer review clarity standards
Peer reviews commencing on or after May 1, 2022, will be conducted under Clarified Peer Review Standards. The goal of this project was not to make major changes but to reorganize the content in a more understandable way and rewrite it for clarity. But a few modifications did come out of the project:
- After a temporary allowance during the pandemic, the standards now permanently allow for system reviews to be performed remotely. However, a reviewer may still choose to perform the review onsite.
- Engagement reviews no longer have the concept of a “significant deficiency”; instead, there is only “deficiency.”
- On an engagement review, matters must be elevated either to an FFC or a deficiency and cannot stay at the matter level.
- If a firm is required to submit a Letter of Response, it must be signed by an individual, and not with the name of the firm.
Audit and accounting standards with recent effective dates
SAS 134–140 and SSARS 25 will be at the top of the list for reviewers to see that the firm properly implemented them and at the right time. Peer reviewers are allowed some judgment in determining whether an engagement will be considered nonconforming if some part of the new standard was not implemented correctly. The effect on a user of the financial statements is a key consideration.
Risk assessment
Peer reviewers continue to see audits where risk assessment doesn’t contain all the elements required by standards. One finding/deficiency we were often seeing is a lack of linkage between the risk assessment and the audit procedures performed. The pervasiveness and egregiousness of the noncompliance with standards will be evaluated by the reviewer to determine whether an engagement is nonconforming.
Historic federal funding related to the pandemic
Peer reviewers will be looking at whether the firm had sufficient knowledge and experience for any new work taken on related to federal funding programs.
Revenue recognition
Not a new standard anymore, but firms are not always documenting their considerations of the impact of the standard on their client or are missing pieces of required disclosures. Consult guidance or third-party practice aids to ensure it’s being done correctly.
Statements on Quality Management Standards (SQMS)
The recently issued
SQMS standards aren’t effective until 2025. But implementing them is a big project that will require significant effort, and they apply to every firm that performs A&A engagements. Expect your peer reviewer to mention them and don’t put off learning about the standards.
The goal of all parties in the peer review process is for firms to successfully pass their peer review. There have been many big standards changes in the past three years and staying on top of them all has become increasingly difficult. Make sure any third-party practice aids used by the firm are kept up to date. And as always, you can turn to the MNCPA for
educational courses to fill in knowledge gaps and deepen understanding on a host of topics.
Topics: Peer Review, Accounting & Auditing
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.
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