July 22, 2020
Dear Managing Partner:
Per our records, your firm was granted a six month extension for the due date of the firm’s current peer review and due in the fall 2020 or early 2021. The purpose of this correspondence is to advise you of some recent measures taken by the AICPA Peer Review Board (PRB) in response to the coronavirus and how those measures will likely affect your firm’s peer review.
Relaxed Requirements for Off-Site System Reviews
The PRB has temporarily relaxed the requirements for system reviews performed at a location other than the reviewed firm’s office (Peer Review Standards Interpretation No. 8-1). Firms scheduled for peer review in 2020 and required to have a system review may choose to have their peer review performed entirely off-site without administering entity (AE) approval provided that (a) a review conducted at the reviewer’s office or another agreed upon location can still achieve the objectives of a system review and (b) the review commence prior to October 1, 2020.
Automatic Six-Month Extensions for Peer Review
All firms with original peer review due dates between January 1, 2020 and September 30, 2020 have received an automatic six-month extension in PRIMA calculated from the original due date.
Firms should carefully consider the following before taking advantage of the full six-month extension:
1. Availability of peer reviewers – Firms that choose to push their reviews too far into the future may find themselves competing for reviewers with firms that have original due dates in the fall of 2020 and early 2021, which could result in difficulty finding a reviewer and/or result in a more costly peer review.
2. Firm license renewals, professional liability insurance and governmental audit engagement letters/proposals – Peer review standards indicate that AEs such as the Texas Society of CPAs ordinarily have 120 days from the date peer review documents are submitted in PRIMA to the date they are presented to a peer review report acceptance committee. Given the inevitable crunch that is likely to occur because of automatic extensions and reliance on a volunteer report acceptance committee, the acceptance timeline will likely be extended beyond 120 days and may adversely affect a firm’s ability to renew its firm license(s), professional liability insurance policies, governmental audit engagement letters or bid proposals, etc.
The Texas State Board of Public Accountancy (Board) requires a copy of the extension letter and will accept extensions granted by the sponsoring organization to complete a review, provided the Board is notified by the firm within 15 days of the date that an extension is granted. Please send a copy of the extension letter to licensing@tsbpa.texas.gov and to the attention of Daniel Weaver, Director of Licensing/Peer Review/CPE.
Alternatively, the firm can opt in to Facilitated State Board Access (FSBA) in PRIMA and opt in to share additional peer review information with the Board either during or after completing your PRI form. The Board can immediately access the extension letter, so there will be no need for you to email or mail a copy.
Firms that perform audits under governmental auditing standards (Yellow Book) will not need to take any further action with the U.S. Government Accountability Office (GAO). The GAO indicated earlier this year that it will provide automatic concurrence for any AICPA extensions granted in 2020 because of the pandemic, extending beyond 90 days from the firm’s due date.
3. Peer review year-ends and scheduling – Even though peer review due dates have been extended for firms with original due dates between January 1, 2020 and September 30, 2020, peer review year-ends have not changed. Firms are still expected to maintain the same year-end on subsequent peer reviews, which is ordinarily three years from the year-end of its prior review. Firms are also still required to schedule their peer reviews on a timely basis in PRIMA even if it takes advantage of the extended due date.
4. Representative sample of completed engagements – If your firm is eligible for an engagement review in 2020 (i.e., your firm does not perform, or does not expect to perform, audits or other engagements requiring a system review during the peer review year), it should be easier to find a representative sample of engagements from which the peer reviewer can choose, particularly engagements performed and issued early in the peer review year. Such firms should proceed with their peer review closer to the originally anticipated commencement date and avoid the pitfalls in 1 and 2 above.
If your firm is scheduled to have a system review in 2020 and the peer reviewer is able to select a representative sample from engagements performed earlier in the peer review year, you too may be able to proceed with the review closer to the originally anticipated commencement date and avoid the pitfalls in 1 and 2 above.
5. Timing of off-site system review – As noted above, firms scheduled to have a system review in 2020 must commence their reviews prior to October 1, 2020 in order to take advantage of the relaxed requirements for system reviews performed at a location other than the reviewed firm’s office.
We strongly suggest that all firms scheduled for peer review in 2020 and early 2021 reach out to their peer reviewer as soon as possible to discuss the pros and cons of delaying their firm’s review. The staff at the Texas Society also stands ready to help answer questions regarding peer review extensions and off-site system reviews. If your firm’s peer reviewer has already submitted the firm’s peer review work papers to the Texas Society, please disregard this email message.
We can be reached at 972-687-8500, option 3 or peerreview@tx.cpa.
Sincerely,
Jerry Cross, CPA, CGMA
Director, Peer Review