Tips On Having A Successful Peer Review

By Jerry Cross, CPA

Who is having the review? The reviewed firm. Who has final responsibility for the peer review? The reviewed firm.

Because the reviewed firm is responsible for the peer review, firms should take advantage of the lead-time and adequately plan for the review. Unless the reviewed firm is a new firm or a firm has been asked to accelerate their review, firms are given three years between reviews.

A. Here's what a firm can do to have a successful peer review:

Submit all required documents on time to the administering entity.

Select a reviewer who can complete the review in time to enable the firm to get all documents submitted to the administering entity by the due date.

Select a reviewer who has an appropriate amount of experience in the industries in which the firm's clients operate.

TSCPA's Guide to Engagement/Report Review Departures as Applicable(.PDF). Also see AICPA's Common Deficiencies Noted During Peer Reviews (.PDF) containing a more thorough list of common deficiencies noted in peer reviews.

Know the peer review standards. Firms can purchase the AICPA Peer Review Program Manual that has all the forms and checklists used by the reviewer. Having these documents in advance will also help firm personnel understand the peer review procedures and reporting guidance.

By knowing the standards, firms can anticipate the engagements that may be selected for review and inspect those files to make sure the files are complete before the review begins.

B. Costs of the review may be reduced by:

Firms that follow a properly designed quality control system should tend to have fewer deficiencies, which translates into less time to complete the review.

Firm-on-firm reviews give the firm the ability to negotiate a fee while fees for a CART review are fixed.

Solicit proposals from more than one firm to get the best fees.

Have all files ready when the reviewer arrives.

Choose a time that is convenient for the firm and for the reviewer.

Avoid interruptions. Deal with reviewer's questions when the reviewer is in the field.

C. Dealing with disagreements:

Professional standards require the use of professional judgment and, as a result, there may be differences of opinion between the reviewed firm and the reviewer. Most disagreements should be resolved before the exit conference on a system review and before the peer review report and letter of comments are issued on an engagement review. A firm should keep in mind the following when responding to findings that include technical issues:

A firm should not assume that the reviewer's interpretation of the standards is the correct answer. A firm should ask the reviewer to show support to his or her conclusion by providing the section of the professional standards that will explain the action on a particular situation.

A firm should respond to deficiencies with specific comments on the response section of the form entitled "Matter for Further Consideration." The reviewer will note any deficiencies on this form. A firm's response should present the reasons for disagreement or the circumstances that caused the deficiencies. Not only could this change the mind of the reviewer, but could cause the acceptance committee to question the significance of the deficiency.

On engagement peer reviews the deficiencies may be communicated to the firm by MFC form or by telephone. It is more beneficial for a firm having an engagement review to ask for written MFCs to clarify the nature of the deficiency and to give the firm the chance to research the situation and prepare a well thought-out response.

A firm may contact the state CPA society administering the peer review or a technical hotline.

The Texas Society of CPAs (800.428.0272) enrolls firms, answers general questions and questions concerning technical issues on peer reviews.

The AICPA Technical Hotline (888.777.7077) answers questions about accounting, auditing, attestation, compilation and review services.

The AICPA Ethics Hotline answers questions about independence and other behavioral issues related to the application of the AICPA Code of Professional Conduct.

On rare occasions when the matter cannot be resolved, the reviewed firm should respond to the letter of comments by addressing each deficiency and providing support for these responses from the professional standards. The state CPA society peer review committee will attempt to resolve the disagreement.

D. Immateriality as a Response

Firms often respond to questions or deficiencies raised on an MFC form as being immaterial and do not address the issue or give any explanation of why they did what they did. This creates a problem for the reviewer because he or she does not know if the firm actually considered the issue while performing the engagement or just missed it and fortunately, it was not material to the engagement. If the firm documented the facts and circumstances to support their action in the working papers, the reviewer can be satisfied that the issue was considered rather than conclude that the firm was lucky.

E. Inadequate Documentation

Firms sometimes respond to documentation findings by explaining the procedures performed, but there is little or no documentation of what was done in the working papers. To show the peer reviewer that the work was actually done, prepare a memo or other written account describing the procedures and put it in the working papers.

F. Isolated Deficiencies

System reviews address a firm's system of quality control and occasionally a significant finding is identified in one engagement. Is it an isolated occurrence or is it a system weakness? If the reviewed firm can explain why the deficiency occurred on one engagement and show the reviewer other engagements where the deficiency did not occur, it would be considered an isolated incident. Unfortunately, if there is only one engagement, in which the deficiency occurred, and there are no other engagements to which a comparison can be made, the reviewer may conclude it is not an isolated occurrence, but a system weakness.