A Governmental Audit Quality Center Web Event
October 7, 2010

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We encourage you to submit your technical questions – please limit your questions to the content of today’s program
To submit a question, type it into the “Send a
Question” box on left side of your screen; we will answer as many as possible
You can also submit questions to the GAQC member forum for consideration by other members
This event is being recorded and will be posted in an archive format to the GAQC Web site
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Must have registered for CPE credit prior to this event; a link to the CPE Credit Approval Form was emailed to you
Listen for announcement of 4 CPE codes (7 digit codes: ALL_ _ _ _ ) and 4 polling questions during the event
Record CPE Codes on CPE Credit Approval Form and return completed form (by fax or mail) to AICPA
Service Center for record of attendance; keep a copy for your records
If you are not receiving CPE for this call, ignore the
CPE codes that we announce, but please answer the polling questions
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Heinfeld, Meech & Co., PC
American Institute of CPAs
Reeder & Associates PA
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What we will cover?
Overview of Statement on Quality Control
Standards
Additional Quality Control Requirements of
Government Auditing Standards
(Yellow Book)
Additional GAQC Membership Requirements
Relating to your Firm’s System of Quality
Control
Overview of Peer Review Standards Effective 1-
1-2009
Recent Peer Review Changes Relating to A-133
Single Audit Engagements
What Does it Take to be a Peer Reviewer and
Team Captain?
How PR Can Add Value
How to Have a Successful Peer Review Practice
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Reasonable assurance that a firm complies with applicable standards and issues appropriate reports
Consists of policies and procedures, many of which are written
Elements of quality control are interrelated
Code of Professional Conduct is an integral part of any system of quality control
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Leadership responsibilities for quality within the firm (the “tone at the top”)
Relevant ethical requirements
Acceptance and continuance of client relationships and specific engagements
Human resources
Engagement performance
Monitoring
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Statement on Quality Control Standards
(SQCS) No. 7,
(AICPA, Professional Standards, vol. 2, QC sec. 10)
• Issued October 2007
• Supersedes all previous SQCSs
• Effective as of January 1, 2009
• Compliance with PCAOB QC standards does not automatically mean compliance with SQCS 7
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The firm must establish a system of quality control designed to provide it with reasonable assurance that:
• The firm and its personnel comply with professional standards and applicable regulatory and legal requirements, and
• Reports issued are appropriate in the circumstances
A system of quality control consists of:
• Policies designed to achieve these objectives and
• The procedures necessary to implement and monitor compliance with those policies.
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• Required to document QC policies and procedures.
• Extent based on firm characteristics
• Required to communicate QC policies and procedures to personnel.
- More effective if in writing, but not required to be.
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July 2007 Revisions to Yellow Book
• Enhanced and clarified the requirements for an audit organization’s system of quality control by specifying the elements of quality that an organization’s policies and procedures collectively address
• Added a requirement that external audit organizations make their most recent peer review report publicly available
Paragraph 3.50 – 3.54 discuss QC Requirements
• Requirements for system of quality control are consistent with the AICPA proposed statement on Quality Control Standards except that the GAGAS requirements state that reviews of the work and the report that are normally part of supervision are not monitoring controls when used alone
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Those audit organizations seeking to enter into a contract to perform a GAGAS audit or attestation engagement should provide the following to the party contracting for such services
• Most recent peer review report and any letter of comment
• Any subsequent peer review reports and letters of comment received during the period of the contract
Auditors who are using another audit organization’s work should request
• The audit organization’s latest peer review report
• Any letter of comment
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Must document & communicate
Policies must address:
• Leadership Responsibilities
• Independence, Legal & Ethical Requirements
• Initiation, Acceptance and Continuance of
Engagements
• Human Resources
• Engagement performance, documentation and reporting
• Monitoring
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• Engagement Supervision alone is not Monitoring
• Audit organizations to analyze and summarize the results of monitoring procedures at least annually
Include identification of any systemic issues needing improvement
Include recommendations for corrective action
• Should be performed by individuals that collectively have sufficient expertise and authority
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GAQC Membership Requirements
Policies & Procedures :
• GAQC Policies to be Addressed in QC Document
- Identify Designated Partner
- Client Acceptance and Retention
- Engagement Performance and Review
- Training and Supervision
- Internal Inspection
- Peer Review
• Methods of documenting:
Revise the firm’s QC document to address the governmental audit practice to comply with applicable professional standards and
Center membership requirements.
Prepare an addendum to the firm’s existing QC Document
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GAQC Membership Requirements
Policies & Procedures con’t :
• Communicate
- Circulate the revised firm QC document
Establish training to inform audit staff of the firm’s QC policies and procedures
Circulate communication to audit staff regarding the firm’s
QC policies and procedures
Link to QC document on the firm’s intranet
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GAQC Membership Requirements
Annual Internal Inspections:
• Required to establish annual internal inspection procedures that include a review of the firm's governmental audit practice (that is, all audits performed under Government Auditing Standards )
• Reviewer should have current experience & knowledge of governmental auditing and accounting practices
• Engagements inspected should be representative of the firm’s governmental audit practice (e.g., single audits, program-specific audits, HUD audits, etc.) and the firm locations those audits are performed in
• Inspection results should be made available to peer reviewer
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GAQC Membership Requirements
Annual Internal Inspections con’t :
• Firm’s monitoring process should Include a review of the firm’s compliance with GAQC membership requirements
• A peer review is not a substitute for monitoring procedures
• However, consistent with AICPA quality control standards, the peer review may substitute for some or all of its inspection procedures for the period covered by the peer review.
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GAQC Membership Requirements
Annual Internal Inspections con’t
:
• Developing an Governmental Audit Practice Self-Inspection
Strategy
- Begin with the inventory of your governmental audits audits
(that is, all performed under Government Auditing Standards )
- Consider:
- When is the best time of year to conduct this review?
- Who should perform the review?
- How long will it take?
- How are we going to communicate the results?
- What about multi-office issues?
- How it differs from concurring partner reviews?
- Obtain AICPA peer review checklist or develop firm checklist
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GAQC Membership Requirements
DAQP - Designating an audit partner to have firm-wide responsibility for the quality of the firm's governmental audit practice.
Having all audit partners of the firm residing in the United States and eligible for AICPA membership be members of the AICPA.
Ensuring that the DAQP meets the yellow book CPE requirements, even if that partner would not otherwise be subject to those CPE requirements.
DAQP must participate in an annual Center-sponsored Webcast on recent developments in governmental auditing.
Making publicly available information about the firm’s most recently accepted peer review as determined by the Executive Committee.
Having firm’s governmental audits selected as part of the firms peer review reviewed by a peer review team member who is employed by a
Center member firm.
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GAQC Membership Requirements
Use the Q&A document on GAQC membership requirements located at: http://www.aicpa.org/interestareas/government alauditquality/membership/pages/q%20and%20 a%20membership%20requirements.aspx
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Principles v. Rules Based Standards
Detailed guidance is in the Interpretations
All guidance was reevaluated, reengineered, updated and clarified
Allows Standards to be applicable to a diverse population of users
Allows PRB to be more responsive to user feedback and environmental changes via interpretive guidance
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About
• Reengineered to be more understandable and easier to use
• Provides transparency
• Promotes consistency
• Streamlines process
How?
• Defined terms and enhanced process guidance
• Proposed expanded use of practice aids to communicate findings to the firm
• New reporting format
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1 page standalone document
3 paragraphs
• What was reviewed, under what standards, reviewer and firm responsibilities
- Includes a URL to the Standards for nature, objectives, scope, limitations and procedures performed, in Plain English
• If applicable, reference to GAGAS, EBP &/or FDICIA practice
• Opinion and peer review grade
- Pass
- Pass with deficiency
- Fail
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Includes descriptions of deficiencies only for reports other than with a “Pass” grade
• Identifies the industry and level of service for any deficiencies or significant deficiencies that are determined to be industry specific included in the report
Requires little tailoring
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Other Changes
(from previous standards)
Team members not required to take the two day “How to” course
Independence impairment for internal inspectors, consulting reviewers and preissuance reviewers intending to perform peer reviews
Reporting on scope limitations under the revised standards
Performing a system review at a location other than the reviewed firm’s office when it is cost prohibitive and/or extremely difficult to arrange
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History of quality issues:
• Federal Single Audit Quality Study Results
• The Project issued a report titled, Report on National Single
Audit Sampling Project (the PCIE report), that was issued by the
President’s Council on Integrity and Efficiency (PCIE) and can be accessed in its entirety at : http://www.ignet.gov/pande/audit/natsamprojrptfinal2.pdf
Category
Acceptable
Limited Reliability
Unacceptable
# of Audits $$$ Audited
48.60% 92.9%
16.00%
35.50%
2.30%
4.80%
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Revision to Interpretation 63-1a (June 2009 Peer
Review Alert)
• “Must-selects” must include A-133 engagements
• No further modification to System Report “must-select” paragraph
• Effective for peer reviews commencing on or after September 1,
2009
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Peer Review Standards Interpretation 63-1a has been updated. The Peer Review Board (PRB) has revised this interpretation to require that additionally, if the engagement selected is of an entity subject to GAS but not subject to the Single
Audit Act/OMB Circular A-133 and the firm performs engagements of entities subject to OMB Circular A-
133, at least one such engagement should also be selected for review.
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PRP Manual Section 20,500 and 20,600
Enhanced Key A-133 Single Audit Data
Single Audit Major Program Determination worksheet or include current and two prior years’ SEFAs and Summary of Auditor’s
Results (from Schedule of Findings and
Questioned Costs)
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Part A Supplemental Checklist for Review of Single
Audit Act/A-133 Engagements PRP Manual Section
22100A
• Begin with Part A Checklist
- Addresses most problematic concerns
- Determination of major programs
- Audit of major programs
- Audit findings
- Schedule of Expenditures of Federal Awards
Mandatory use effective for peer reviews commencing November 1, 2009 and after
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Reviewer should complete Part A
If there are any “no” answers in Part A, the reviewer is not required to complete Part B but needs to consider expanding scope as necessary per the standards
If there are no “no” answers in Part A, the reviewer should complete Part B.
Part A and Part B – conclusion section at the end of
Part A checklist
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Generally result in an engagement not performed in accordance with standards.
Focus on areas which have been common deficiencies noted in the PCIE sampling project, Peer Review and Ethics
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Major Program Determination
• 2 year look back rule
• % of coverage
• Low risk determination
• Threshold calculation for major programs
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Applicable, direct and material compliance requirements
Internal control
• Understanding
• Testing
- Low level of control risk
Compliance testing
• RMNC determination
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Findings and questioned costs
• Appropriation evaluation
• Presentation
- Criteria, condition, cause, effect, recommendations, views of responsible officials
- Questioned costs
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SEFA presentation
• CFDA numbers
• ARRA presentation
• Pass-through information
• Notes re significant accounting policies
• Non cash assistance
• Reconciliation to financial statements
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Enhanced report acceptance process approved by the PRB at its January, 2010 meeting
For Reviews commencing on or after June 1,
2010, peer reviewer must submit the Part A
Checklist and Engagement Profile
Part A and engagement profile submitted to
Report Acceptance Body
• Recalculation of major program determination
• Greater scrutiny of peer reviewer’s handling of “no answers” on checklists
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Public practitioners who:
• Have a successful audit practice serving clients in the public sector, private companies, employee benefit plans or governmental entities
• Are committed to enhancing the audit quality of the profession
• See peer reviews as a venue to work with and serve other public practitioners
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What Does it Take to be a Peer Reviewer and Team Captain
The requirements to be a team member are the following:
• Be a member of the AICPA
• Possess current knowledge of applicable professional standards
• Five years of recent experience in the practice of public accounting in the accounting or auditing function.
• Currently active in public practice at a supervisory level in the accounting or auditing function of a firm enrolled in an approved practice-monitoring program
• Must complete a resume online
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What Does it Take to be a Peer Reviewer and Team Captain
In order to be a peer reviewer and perform engagement reviews on their own, the team members must take the first day of the two day introductory How-to course
Use the same set of practice management skills as you do on an audit – delegate appropriately to the team member and review his/her work
You are using the same set of knowledge as you use for an audit. For example, if it’s an GAO and/or OMB
A-133 review you are using the same set of knowledge as you use for your governmental audit.
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What Does it Take to be a Peer Reviewer and Team Captain
Specialized industry expertise (GAO, OMB
A-133, ERISA) will give you an advantage similar to the way it does in an audit practice
 Requests to be a team member
 Client referrals from the firms you peer review (may decide to give up their one or two specialized audits)
 Make sure you include your industry specializations in the
State Society directory and any of your other marketing materials
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What Does it Take to be a Peer Reviewer and Team Captain
Use Team Members
• Team members can be located easily via a search on the AICPA website: http://peerreview.aicpaservices.org/resume/default.asp
• Team members for a specialized industry are required for scheduling a review; based on the risk assessment, they may or may not be utilized (unless a “must select”).
• Team members must be approved by the Administering Entity
• Team members should receive their standard rate
• Team member fees should be passed straight through to the firm
• Team members can perform the review of the engagement offsite
• Present it to the firm as a non-issue and it will be perceived that way.
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How PR Can Add Value
Objective of the Peer Review Program
The AICPA Peer Review Program is dedicated to enhancing the quality of accounting, auditing and attestation services performed by AICPA members in public practice
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How PR Can Add Value
Provides a mechanism for firms to engage a peer firm to review its system of quality control relating to the application of:
• Accounting standards
• Auditing standards
• Attestation standards
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How PR Can Add Value
Strengthens firms’ quality control
Improves firms’ processes
Offers demonstrable evidence of a firm’s quality
Enables firms to correct deficiencies
Enhances the quality of the profession
Is paramount to the public’s interest
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How PR Can Add Value
Reviewed firms should perceive peer review as a service with added value – not as a necessary evil. Consider the following:
• Peer Reviewer can outsource staff with a specific industry expertise to the firm for training purposes if the firm had difficulty with a particular industry (Note: frequency and extent should not be an integral part of the firm’s consultation process)
• Can suggest sharing library resources with another firm
• Utilize engagement acceptance process
• Encourage firm to seek consultations as necessary and be a resource for such consultations
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How PR Can Add Value continued
• Can point out instances where the firm may have over audited
• Suggest analytics that can add value to the firm’s procedures and add to the clients’ understanding of their financials and their industry.
• Audit efficiencies to streamline the audit process
• Share opinion and experiences on software and other tools of the trade
• Share tricks of the trade – “This is what we do in our audit practice…”
• Share best practices noted from your peer review experiences
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How PR Can Add Value
A peer reviewer can add value especially if a pass with deficiency or fail report is issued
A firm that receives a pass with deficiency or fail report will usually appreciate it if you can explain to them the systemic issues within the firm
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How PR Can Add Value
A pass with deficiency or fail report provides great opportunity to add value – consider the following:
 Provide the option for the firm to accelerate their next peer review if they would like to fix the issue and seek a pass report.
 Firm can have annual inspection, engagement quality control reviews and/or pre and post issuance reviews performed.
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How to Have a Successful Peer Review
Practice
View a peer review as you would any other audit engagement –
• The required involvement of the team captain mirrors that of a partner on an audit engagement
• Utilize team members from your firm to perform reviews of the engagements
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How to Have a Successful Peer Review
Practice
Streamline the Peer Review Process
• Create a Peer Review template package – do not “recreate the wheel” for each review
Engagement letter
Create a client Assist List - Pre-peer review and on-site (based on the Team Captain Checklist)
Down load Team Captain Packages
Use engagement profiles (without the checklists) from AICPA
Peer Review Program website: http://www.aicpa.org/InterestAreas/PeerReview/Resources/Team andReviewCaptainChecklists/2010/Pages/EngagementProfilesa ndOtherMaterials.aspx
Utilize administrative assistant to assist in process
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How to Have a Successful Peer Review
Practice
Streamline the Peer Review Process
• Other PR Practice tips:
Complete the SRM on the same day as the review – leads to inefficiencies if completed at a later date
Report should be essentially completed the same day as the review – Letter of Comments may still need to be formulated
The quicker wrap-up is performed the more efficient the peer review
Flat rates may often be status quo in your area
If client is clean, the flat rate can be very profitable
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How to Have a Successful Peer Review
Practice
Use Engagement acceptance process wisely to determine the work involved; and the fee you will charge -- consider asking the following:
• How many levels of service?
• How many partners?
• Results of last peer review?
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How to Have a Successful
Peer Review Practice
 Perform Committee-Appointed Review Team
(CART) Engagement Reviews
 Contact other peer reviewers and express your interest in participating as a team member on a review
 Contact a committee member to network & learn how they developed PR practice
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How to Have a Successful
Peer Review Practice
 Educate internal staff about PR & target audience so they can assist with opportunities
 Market your availability as a peer reviewer
 State Directory
 Brochures
 Website
 Inform other CPAs you perform peer reviews
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How to Have a Successful
Peer Review Practice
Useful Tools:
• Peer Review Standards: http://www.aicpa.org/InterestAreas/PeerReview/Resources/Sta ndards/Pages/default.aspx
• Peer Review Checklists: http://www.aicpa.org/InterestAreas/GovernmentalAuditQuality/
Resources/AuditPracticeToolsAids/Pages/Peer%20Review%20
Checklists.aspx
• GAQC Web Site: http://www.aicpa.org/GAQC
• Quality Control Standards: http://www.aicpa.org/Research/Standards/AuditAttest/Pages/S
QCS.aspx
• Peer Review Public File: http://www.aicpa.org/InterestAreas/PeerReview/Community/Fir mSearch/Pages/ForThePublic.aspx
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