Peer Review Frequently Asked Questions
Does my firm have to enroll in a practice-monitoring program if it does not have an accounting and auditing practice?
If a firm does not perform services that include issuing reports purporting to be in accordance with AICPA professional standards it is not required to enroll in a practice-monitoring program.
For purposes of the AICPA Peer Review Program Standards, an accounting and auditing practice is defined as all of a CPA firm’s engagements performed under the Statements on Auditing Standards (SASs), Statements on Standards for Accounting and Review Services (SSARS)*, Statements on Standards for Attestation Engagements (SSAEs) and Government Auditing Standards (the Yellow Book), issued by the U.S. General Accounting Office (GAO) and audits of non-SEC issuers performed pursuant to the standards of the PCAOB.
* SSARS that provide an exemption from those standards in certain situations are excluded from the definition of an accounting and auditing practice for peer review purposes.
What are the types of peer reviews?
There are two types of peer reviews:
- system
- engagement
What is a system review?
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 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 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 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 System Reviews. The objective of an Engagement Review is to evaluate whether engagements submitted for review are performed and reported 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. More than 14,000 firms are likely to have an engagement review over the next three years.