Exit Conference—June 2010

Mandatory Peer Review

An article on mandatory peer review was published in the May 2010 issue of California CPA and is available on line at www.calcpa.org. The AICPA revised their web site after the article was published, so the references to the web site will be incorrect in the magazine version of the article, but have been corrected in the online version.

In a recent open session of the California Board of Accountancy (“CBA”), CBA members were asked the following question concerning mandatory peer review: If a firm issues a compilation, review, audit or attest report in 2010 and becomes inactive prior to the firm’s reporting date, would the firm still be subject to mandatory peer review? The CBA stated that the firm would still be subject to mandatory peer review.

Since this issue is of major concern to our membership, CalCPA has requested clarification in writing from the CBA. Specifically we asked the CBA to comment on the following question: If a firm issues a compilation, review, audit or attest report in 2010 will the firm be subject to mandatory peer review regardless of the firm’s reporting date to the CBA?

If the CBA does state in writing that the firm will need to have a peer review, the peer reviewer will need to consult the AICPA peer review standards. These require peer reviews to be completed timely, which is defined as ordinarily within three to five months of the current peer review year end. If a firm plans to stop issuing reports in 2010, they should have a peer review performed in late 2010 or early 2011 so they will be able to comply with the CBA reporting requirements for July 1, 2012 or July 1, 2013. If firms do not do this, the CalCPA peer review program will accept a peer review report with a report date in 2012 or 2013 that covers engagements performed for the 2010 year. For engagement reviews the year used in the peer review report must cover the periods or years of the financial statements that are reviewed. In system peer reviews there is more leeway.

Under the CBA law and regulations on mandatory peer review, a firm and the administering entity must mail in to the CBA any peer review report with a rating of fail. If a firm has never been peer reviewed the firm should consider its options. If time allows the firm may wish to have a consulting review on some of its engagements prior to its peer review year.

Procedural Change

On system peer reviews certain industry and practice codes that firms list in their Scheduling Form must match a peer reviewer’s resume. In the past if these codes didn’t match, we sent reviewer’s an email asking for an explanation. Starting July 1, 2010 a form letter in the new Prism computer system will be used to alert the firm and the team captain of matching problems.

MFC and FFC forms

The Peer Review Committee (“PRC”) has decided that we will no longer accept MFC and FFC forms designed by peer reviewers. The technical reviewers have to evaluate such forms to make certain they include all AICPA requirements before they can evaluate the content. If more space is needed on the MFC and/or FFC forms designed by the AICPA, please add attachments. The PRC decision is effective for peer reviews performed after the date of this newsletter.

Labels for Submitting Peer Review Documents

For system reviews commencing on or after June 1, 2010, the team captain must submit to the administering entity the engagement profile and Part A of the Supplemental Checklist for the review of engagements subject to OMB Circular A-133. Please make certain that you have completed the correct version of Part A. The latest version is 00-2 2010. We have added these two items to the label list:

System peer review

1 Current Report: peer review report (also include letter of response if applicable)

2 FFC: findings for further consideration forms presented in one document and organized in numerical order.

3 MFC: matters for further consideration, presented in the order listed on the disposition of matter for further consideration form (“DMFC”). Send all MFCs together in one document.

4 SRM: summary review memorandum, including attachments 1 (system review engagement statistics data sheet) and 2 (DMFC)

5a risk: if you prepare a supplemental risk assessment worksheet or memo and do not include it in the SRM

5b exit: supplemental exit conference notes may be treated in the same way as the supplemental risk assessment document described above

6 TC checklist: (system reviews) - team captain checklist, including appendix A (peer review completion form)

9 OMB Prof: Engagement Profile for OMB Circular A-133 engagements. The number 9 is correct because there are administrative checklists labeled as 7 and 8.

10 Part A: Part A of the Supplemental Checklist for the review of OMB Circular A-133 engagements.

Engagement peer review

1 Current Report: peer review report (also include letter of response if applicable)

2 FFC: findings for further consideration forms presented in one document and organized in numerical order.

3 MFC: matters for further consideration, presented in the order listed on the DMFC. Send all MFCs together in one document.

4 RC checklist: review captain checklist, including appendix A (engagement review completion form) and appendix B (DMFC)

5a Eng stat data sheet

5b Eng summary form

Extensions of Due Date

There continues to be confusion about the extension policy that was described in the September 2009 e-newsletter. Here is a summary of the policy. The AICPA Peer Review Board has decided that extensions of due date will only be considered if they are received two months before the due date. A firm is expected to maintain the same review date and peer reviews should be planned accordingly. Extension requests must be in writing and come from the firm. A one month extension will be allowed for engagement reviews and a maximum extension of two months will be allowed for system reviews. The AICPA Peer Review Board has agreed that, in general, an extension may be granted for the following reasons: merger or dissolution of firms; a major engagement nearing completion; significant loss of accounting and auditing personnel; destruction of office and/or records; scheduling conflict with the peer reviewer; and an incomplete initial engagement with no comparable engagement available for review (Interpretation 58-2). Tax season is not an acceptable reason and the peer review should be planned around tax season. Other reasons the AICPA Peer Review Board believe that extensions should be denied are as follows: the firm needs more time to prepare or implement new quality control standards; a new partner was added; or the nature of the accounting and auditing practice changes. An exception will be made to this policy for serious medical issues involving key personnel or their immediate family of the firm or peer reviewer.