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AICPA Issues Changes to Peer Review
Standards
New Peer Review standards released in October will reengineer the
reporting process to be more understandable and usable, as well as merge the
AICPA’s two separate peer review programs into one. Approved by the AICPA’s
Peer Review Board on October 3, 2007, the new standards take effect for peer
reviews commencing on or after January 1, 2009.
Terminology
The new standards include the following definitions:
Team Captain - peer reviewer for system reviews.
Review Captain - peer reviewer for engagement reviews.
Pass, Pass with Deficiencies, Fail – terms replace Unmodified, Modified,
Adverse.
Matter - A result of the peer reviewer’s evaluation of the design of the
reviewed firm’s system of quality control and/or tests of compliance with it
that the reviewer concludes warrants further consideration. A matter is
documented on a Matter for Further Consideration (MFC) form.
Finding - One or more related matters that result from a condition in the
reviewed firm’s system of quality control or compliance with it such that
there is more than a remote possibility that the reviewed firm would not
perform and/or report in conformity with applicable professional standards.
A finding not rising to the level of a Deficiency or Significant Deficiency
is documented on a Finding for Further Consideration (FFC) form.
Deficiency - One or more findings the peer reviewer has concluded, that due
to the nature, causes, pattern or pervasiveness, including the relative
importance of the finding to the reviewed firm’s system of quality control.
Taken as a whole, could create a situation in which the firm would not have
reasonable assurance of performing and/or reporting in conformity with
applicable professional standards in one or more important respects. Such
deficiencies are communicated in a report with a peer review rating of Pass
with Deficiencies.
Significant Deficiency - One or more deficiencies the peer reviewer has
concluded results from a condition in the reviewed firm’s system of quality
control or compliance with it such that the reviewed firm’s system of
quality control taken as a whole does not provide the reviewed firm with
reasonable assurance of performing and/or reporting in conformity with
applicable professional standards in all material respects. Such
deficiencies are communicated in a report with a peer review rating of Fail.
Substandard – This term eliminated due to an increased systems oriented
focus.
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Changes in the reporting process include terminology, types of reviews,
expanded use of practice aids, and a new peer review report.
Types of Reviews
The new standards allow for two types of reviews rather than three under the
previous standards. Report reviews will be folded into engagement reviews.
The process for system reviews is similar to the current standards. However,
the letter of comment has been discontinued. Deficiencies in the report
(pass with deficiencies or fail), as well as the firm’s response, will be
included in a new report, Finding for Further Consideration (FFC).
The letter of comment also has been discontinued for engagement reviews.
Engagement reviews will use the new FFC, which will include deficiencies and
the firms response for deficiencies. When no Matters for Considerations
exist, and there are no other issues associated with the review, the
engagement review may be accepted by a Technical Reviewer. In other words,
the review would not be forwarded to the Regional Acceptance Board.
Expanded Use of Practice Aids
The new form, Finding for Further Consideration (FFC), will be used to
communicate findings to the reviewed firm that don’t affect the opinion or
type of peer review report issued. By eliminating the separate letter of
comment and including the reviewed firm’s letter of response, the reporting
model is streamlined. The Administering Entity will retain the FFC, along
with the peer review reports.
A new form as part of the work papers, Disposition of Matter for Further
Consideration (DMFC), will cover each issue identified on the MFC and
indicates how each MFC was handled, whether it was resolved, or included in
the report or on the FFC.
New Peer Review Report
The new peer review report, a standalone one page document, is designed to
be shorter and more direct. Consisting of three paragraphs, the report will
include the following:
- What was reviewed, under what standards, reviewer and firm
responsibilities
- If applicable, reference to Generally Accepted Government Auditing
Standards (GAGAS), Employee Benefit Plans (EBP) and/or Federal Deposit
Insurance Corporation Insurance Act (FCICIA) practice
- Opinion and peer review grade.
The new report will require little tailoring. The type of review will be
easily identified at the top. The report will also include Internet links to
the standards for nature, objectives, scope, limitations and procedures
performed, in plain English.
Merging of Two Peer Review Programs
The new standards create one set of standards and interpretations. Taking
advantage of commonalities found in both programs, the merger combines the
AICPA Peer Review Program (PRP) and the Center for Public Company Audit
Firms Peer Review Program (CPCAF PRP) within the AICPA Peer Review Program
for all AICPA members subject to peer review.
Generally, the new standards are more principles based, rather than rules
based, which allows them to be applicable to a diverse population of users.
Detailed guidance is in the Interpretations. All guidance was reevaluated,
reengineered, updated and clarified. The changes also allow the Peer Review
Board to be more responsive to user feedback and environmental changes
through guidance.
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November/December 2007
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