What's New With Peer Review?

Source: Journal of Accountancy

The AICPA's revised peer-review standards, which took effect at the beginning of this year, have far-reaching implications for peer reviewers as well as firms being reviewed. Here are six key changes:

• Independence impairment. Reviewers may perform certain services for a reviewed firm without impairing their independence, so long as they are not performed during the review year or the immediately preceding year. Permitted services include monitoring (such as internal inspection), consulting review, quality-control document review, preliminary quality-control procedures, and pre-issuance review (provided it's considered “monitoring”).
• Reporting model. The revised standards update the reporting model and make reports more concise and understandable. They also change the grading scale from unmodified, modified, and adverse to pass, pass with deficiency, and fail. The new standards eliminate letters of comment (which were confusing when read with a clean report) and create a Finding for Further Consideration form, which allows the reviewer to communicate findings outside the reporting and acceptance process.
• Merger review programs. The AICPA and Center for Public Company Audit Firms (CPCAF) peer review programs are merged to create a single set of standards administered by a single acceptance body (the National Peer Review Committee).
• Noncooperation. A hearing panel may terminate a reviewed firm from the program if it fails to cooperate with the peer review process. Noncooperation includes, but is not limited to, (1) failure to respond to inquiries, (2) withholding of significant information, (3) limiting access to office, personnel, or others, and (4) failure to cooperate during oversight.
• Representation letters. Instead of prescribing representation letter content, the revised standards use a principles-based approach that encourages reviewers to tailor the letter to the firm being reviewed.
• Peer review course. Reviewers may complete interviews or review functional areas in addition to preparing and completing engagement checklists and forms, without completing a peer review training course.

For the complete article, click here and read “Introducing the New Principles-Based Peer Review Standards.”

From Journal of Accountancy, American Institute of Certified Public Accountants, http://www.journalofaccountancy.com/Issues/2009/May/.