8/7/2011
Peer Review Update
Thomas E. Newell, Jr., CPA
SQCS 7
• Firm's System of Quality Control
• Effective January 1, 2009
• Establishes requirements for all CPA Firms
• Is applicable whether or not a firm participates
in the Peer Review Program
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Three Broad Areas
• Parameters of a system of quality control
• Specific elements of a quality control with the
objectives of those elements
• Guidelines for the administration
Parameters of System
of QC
• Requires a firm to establish a system of quality
control designed to provide reasonable
assurance that the firm and it's personnel
comply with professional standards and
applicable regulatory requirements and
• Reports issued by the firm are appropriate in
the circumstances
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Elements of Quality
Control System
• Leadership responsibilities for quality within the firm
• Relevant ethical requirements
• Acceptance and continuance of client relationships and specific
engagements
• Human resources
• Engagement performance
• Monitoring
Leadership Responsibilities for
Quality within the Firm
• Tone
T
att the
th top
t
• Avoiding commercial considerations override
of quality
• Process for performance evaluation,
compensation, and advancement
• Sufficient and appropriate resources
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Relevant Ethical
Requirements
• Requires establishment of policies and
procedures to maintain independence,
integrity and objectivity
Human Resources
• Personnel hiring
• Work assigned
• Advancement
• CPE
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Client Relationships and Specific
Engagements
• Minimize association with client whose management
l k iintegrity
lacks
t it
• Undertake only engagements the firm can reasonably
complete with competency and professional care
• Consider risks associated with providing professional
services in the particular circumstances
• Document circumstances where issues have arisen
and the firm has decided to accept or continue a client
or engagement
Engagement Performance
• Reasonable assurance that engagements are
performed in accordance with professional standards
and applicable legal and regulatory requirements
• The firm issues reports that are appropriate in the
circumstances
• Policies and procedures should include matters
relevant to promoting consistency in the quality of
engagement performance; supervision responsibilities;
review responsibilities
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• Consultation
• Engagement Quality Control Review
• Criteria for the Eligibility of Engagement
Quality Control Review
• Documentation
ocu e a o of
o Engagement
gage e Qua
Quality
y Co
Control
o
Review
• Differences of Opinion
• Engagement
g g
Documentation - completion
p
of
assembly of final engagement files;
confidentiality, safe custody, integrity,
accessibility and retrievability of engagement
documentation; retention of engagement
documentation
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Monitoring
• Monitoring the Firm's Quality Control Policies
and Procedures
• Evaluating, Communicating, and Remedying
Identified Deficiencies
• Complaints and Allegations
SQCS 8
• Issued November 2010
• Effective date January 1, 2012
• Early application permitted
• Supersedes SQCS 7
• Does not change or expand SQCS 7
• Drafted in accordance with ASB's clarity
drafting conventions
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Standards for Performing and
Reporting on Peer Reviews
• January 1, 2009 also brought change to the standards for
performing and reporting on peer reviews
• Resulted in elimination of the report review
• Changed the types of report issued
• Changed
g reporting
p
g terminology
gy
• Eliminated the letter of comments
• Added a new form "Finding for Further Consideration" (FFC)
Types of Reviews
• Systems Review
• Engagement Review
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Systems Reviews
• SASs
• Examinations under SSAEs
• Government Auditing Standards
• Audits of non-SEC issuers performed pursuant
to standards of the PCOAB
Engagement Reviews
• Only available to firm that do not perform
engagements under SASs, examinations
under SSAEs, Government Auditing
Standards, audits of non-SEC issuers
performed pursuant to the standards of
PCAOB
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Report Types
• Pass
• Pass with Deficiencies
• Fail
Pass Report
• Issued when team captain concludes the
quality control system for the accounting and
auditing practice has been suitably designed
and complied with to provide reasonable
assurance of performing and reporting in
conformity with professional standards in all
material respects.
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Pass with Deficiencies
• Issued when team captain concludes the firm's
system of quality control for the accounting
and auditing practice has been suitably
designed and complied with to provide
reasonable assurance of performing and
reporting in conformity with applicable
professional standards in all material respects
with the exception of a certain deficiency or
deficiencies that are described in the report.
Fail
• Issued when the team captain has identified
g
deficiencies and concludes that the
significant
firm's system of quality control is not suitably
designed to provide the firm with reasonable
assurance of performing and reporting in
conformity with applicable professional
standards in all material respects or the firm
has not complied with it's
it s system of quality
control to provide the firm with reasonable
assurance of performing and reporting in
conformity with applicable professional
standards in all material respects.
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Matters, Findings,
Deficiencies, Significant
Deficiencies
• Letters of Comment have been eliminated
• In it's place is the FFC form
• Items noted by reviewer are evaluated as a
matter, finding, deficiency or significant
deficiency
Matters
• Matters result from evaluation of the of the
design of the system of quality control and/or
test of compliance with it. Typically they are
one or more "No" answers to questions on
peer reviewers questionnaire(s). They are
documented on a Matter for Further
Consideration Form (MFC)
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Finding
• One or more related matters that result from a
condition in the reviewed firm's quality control
or compliance with it such that there is a more
than remote possibility that the firm would not
perform and/or report in conformity with
applicable professional standards. A finding
not elevated to the level of a deficiency or
significant deficiency is documented on a
Finding for Further Consideration ( FFC) form.
Deficiency
• One or more findings
g that the p
peer reviewer
has concluded, 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 the
applicable professional standards in one or
more important respects.
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Deficiency
• It is not considered a significant deficiency if
the peer reviewer has conclude that except for
the deficiency or deficiencies, the reviewed
firm has reasonable assurance of performing
and/or reporting in conformity with applicable
professional standards in all material respects
respects.
A deficiency is communicated in a report with
a rating of pass with deficiencies.
Significant Deficiency
• One or more deficiencies that the peer
reviewer has concluded results in 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 provided the reviewed firm
with reasonable assurance of performing
and/or reporting in conformity with applicable
professional standards in all material respects.
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Significant Deficiency
• Such deficiencies are communicated with a
peer review rating of fail.
Engagement Reviews - Matters,
Findings, Deficiencies, Significant
Deficiencies
• Engagement review definitions are slightly different as
the reviewer is only considering the results of the
system of quality control through the review of
engagements and not through a review of the system
of quality control.
• The review report does not give an opinion but limited
assurance based on the review of the engagements
and other documentation submitted by the reviewed
firm.
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Matter
• Result of evaluating whether an engagement
submitted for review was performed and/or
reported on in conformity with applicable
professional standards. Typically is one or
more "no" answers to questions in peer review
questionnaire(s) A matter is documented on
questionnaire(s).
a Matter for Further Consideration (MFC)
form.
Finding
• One or more matters that the review captain
has concluded result in financial statements or
information, the related accountant's reports
submitted for review, or the procedures
performed, including related documentation,
not being performed and/or reported on in
conformity with the requirements of applicable
professional standards. A finding not rising to
the level of deficiency or significant deficiency
is documented on a Finding for Further
Consideration (FFC) form.
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Deficiency
• One or more findings that the review captain
concludes are material to the understanding of
the financial statements or information and/or
related accountant's reports or that represent
omission of a critical procedure, including
documentation, required by applicable
professional standards.
Deficiency
• Deficiencies not evident on all engagements
submitted for review, or the exact same
deficiency occurs on each of the engagements
submitted and there are no other deficiencies,
such deficiencies are communicated in an
engagement review report of pass with
deficiencies.
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Significant Deficiency
• Review captain
p
concludes that deficiencies
are evident on all of the engagements
submitted for review (with the exception of
when more than one engagement has been
submitted for review, the exact same
deficiency occurs on each of those
engagements and there are no other
engagements,
deficiencies, which ordinarily would result in a
report with a peer review rating of pass with
deficiencies).
Significant Deficiency
• Review captain concludes that all
engagements submitted for review were not
performed and/or reported on in conformity
with applicable professional standards in all
material respects. Significant deficiencies are
communicated in a report with a peer review
rating of fail.
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