A new law eases the pressure on firms and sole practitioners who haven’t yet undergone the peer review process. Public Act 1 of 2007, signed into law on March 1st by Governor Jennifer Granholm, provides for an extension and phase-in of mandatory peer review as a condition of licensure for CPA firms and sole practitioners that perform audit, review or compilation engagements provided to a third party.

New Peer Review Extension and Phase-In Dates Michigan CPA firms and sole practitioners (that perform audit, review or compilation engagements provided to a third party) are required to provide proof of participation in a peer review as follows: • Firms that perform an audit as their highest level of service are required to provide proof of completion of a peer review upon license renewal or license application beginning March 1, 2008. • Firms that perform a review or a compilation with disclosures as their highest level of service are required to provide proof of completion of a peer review upon license renewal or license application beginning March 1, 2009. • Firms that perform a compilation without disclosures as their highest level of service are required to provide proof of completion of a peer review upon license renewal or license application beginning March 1, 2010.

“The extension and phase-in resulted, in large part, due to the efforts of the Michigan Association of CPAs and the Michigan State Board of Accountancy,” said Peggy Dzierzawski, president and CEO of MACPA.

The peer review mandate, adopted in December 2005, was part of a package of accountancy law reforms strengthening the integrity of the profession. Essentially, the law requires Michigan CPA firms and sole practitioners who perform attest services (defined by statute as audit, review or compilations relied upon by third parties) to participate in a peer review program in order to renew their licenses. The original effective date was March 1, 2007.

The MACPA and the Michigan State Board of Accountancy recognized the difficulty of meeting the original March 2007 deadline, given that the peer review process itself can take up to 20 months.

The new law provides for a one-year extension of the initial implementation date (to March 1, 2008), and a phase-in over three years depending upon the level of engagements provided by a firm or sole practitioner. See details in accompanying box.

MACPA Technical Peer Reviewer Mary Kline-Cueter addressed common questions about the peer review requirement and the new implementation dates.

Q: Does the new law affect the type of review I am currently having?

Kline-Cueter: No, the requirements are still the same – only the timing has changed. Any firm or sole practitioner that performs audit, review or compilation engagements provided to a third party must supply proof of participation in a peer review in order to renew their license with the State of Michigan. The level of service you provide will determine WHEN you must provide that proof of peer review.

Q: My firm only conducts one SMALL audit. Do I need a system review?

Kline-Cueter: Yes.

Q: My firm only does a few compilations. Do I need a peer review?

Kline-Cueter: Yes, you need a peer review even if you only do compilations. If the compilations omit substantially all disclosures, you qualify for a Report Review. If any of those compilations include disclosures, you qualify for an Engagement Review.

Q: Since the new phase-in date for a review or compilation with disclosures is now March 1, 2009, can I postpone my engagement review until March of 2009?

Kline-Cueter: Technically, yes, you can delay your engagement review, but I wouldn’t wait that long. We strongly encourage firms to enroll early and become familiar with the program. 2009 is a renewal year and the review might not be done by December, particularly if there are any follow-up requirements.

Kline-Cueter reiterated that the MACPA Peer Review Department is committed to providing the information and resources to assist all members through this process. For more information, please contact the MACPA Peer Review Department at 248.267.3700 or peerreview@michcpa.org.