You just gave your peer reviewer your audit, review, and compilation files. Now you wait. You hope everything is right. But what if it isn’t? Whether it’s your first peer review or your fifth, there is always a sense of anticipation. To reduce the stress factor, it helps to know where reviewers tend to find the most common mistakes. This article doesn’t cover everything in detail, but it shows common areas where reviewers find mistakes.

To set the stage, remember that peer reviewers want to help you improve the quality of your audit and accounting practice. They do this by suggesting changes in your policies or internal practices. This strengthens your overall ability to prevent engagement deficiencies. Think of it as internal control for CPAs.

So what do peer reviewers look for in a system peer review? Basically four things:

• Are your policies and procedures appropriate for your practice?
• Do you follow those policies and procedures?
• Do you correctly apply professional standards when performing your work?
• Do you document your work?

This article divides common deficiencies into three areas: 1) accountant auditor reports, 2) financial statements and disclosures, and 3) procedures and documentation. Keep in mind that determining whether a deficiency is significant or not depends on reviewer judgment and the circumstances of the particular engagement. Also, this list does not include matters unique to specialized industries, but it gives you a place to start.

Accountant and Auditor Reports
These deficiencies generally relate to date and content issues. Here are a few common areas:

• Supplemental information – Failure to reference or report on supplemental information that accompanies the financial statements.
• Reporting elements – Omissions of required elements of the standard report language.
• Time periods – Failure to reference all time periods covered by the financial statements.
• Financial statement titles – Failure to use appropriate titles for cash-basis or income-basis financial statements.

Financial Statements and Disclosures
These deficiencies relate to 1) recognition and measurement of financial statement line items, 2) financial statement presentation and classification, and 3) disclosures. Common deficiencies include:

• Misclassification of amounts – Improper classifications between current and long-term debt, for example, not showing the current portion of long-term debt as a current liability.
• Recognition of amounts – Omission of an income tax provision for an interim-compiled financial statement of a taxable corporation.
• Disclosures – Common omitted disclosures include accounting policies, inventory, valuation allowances, long-term debt, related-party transactions, concentrations of credit risk, deferred income taxes, variable interest entities, and employee benefit plans.
• Disclosures for cash and income tax basis financial statements – Inadequate description of the basis of accounting and how it differs from generally accepted accounting principles (GAAP.) Another example is inadequate disclosure related to financial statement elements that are the same or similar to items in GAAP-based financial statements.

Procedures and Documentation
This category covers procedures required under either auditing standard or accounting and review services. If you perform audits, remember audit documentation is considered a required procedure. In other words, it’s not enough that you performed a procedure. Keep in mind that substantially all procedures should be documented.

• Omitted audit procedures – Common deficiencies in this area include lack of the use of a written audit program; insufficient procedures applied to key audit areas.
• Inadequate audit documentation – Use of outdated practice aids or those inappropriate for the type of industry.
• Omitted review procedures – Failure to obtain a client representation letter or to perform appropriate analytical and inquiry procedures.
• Inadequate review engagement documentation – Failure to document expectations related to analytical procedures.

Monitoring
This quality control area does not relate specifically to engagements, but is a common peer review deficiency. All firms, regardless of size, are required to perform and document their monitoring procedures. The specific procedures depend on the size and nature of the firm. The absence of documentation of monitoring is a common finding.

While this list does not cover all matters noted by peer reviewers, it provides an idea of the areas where many firms have experienced challenges. No one wants peer review findings, but they are the norm rather than the exception. Anticipate these areas while you perform your engagements. You might be able to buy a little more peace of mind once you hand those files over to your reviewer.

About the Author
Duane Reyhl is a senior manager with Andrews Hooper & Pavlik P.L.C., Saginaw, Mich., and author of two AICPA courses on peer review: Advanced Training Course for Reviewers: Current Issues in Practice-Monitoring and Peer Review: Are You Ready? He is also a member of the MACPA Peer Review Task Force and teaches CPE courses for the MACPA. You can reach Reyhl at duane.reyhl@ahpplc.com