Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Journey through a peer review

with 11 comments

In chronological order, here are the posts that describe the journey through my 2012 peer review along with an update for my 2015 peer review:

 

Image courtesy of DollarPhotoClub.com

Image courtesy of DollarPhotoClub.com

 

Journey through a peer review – initial notification

Posted 5-8-12

Since my last peer review in 2009, I started blogging and started performing peer reviews. I’ve also been blogging about peer reviews.

So when I received notification yesterday, May 7, that it is time to start the paperwork for my current peer review, I thought it might be helpful to share my experiences with this journey through the peer review process.

Why? Haven’t all firms gone through the peer review process before?

Actually no. In California there are a number of firms who still have to go through their first mandatory peer review since 2012 is the third year of the phase in of that requirement. Other firms will perform their first attestation work and have to step into the peer review process. New firms are still forming. In larger firms, partners who have not been involved in the peer review process can get that responsibility assigned to them.

So, there are a lot of CPAs who could be helped by reading about this journey.

Yesterday I received a letter from the CalCPA Peer Review Program telling me it’s time to get started.

Peer review year-end

For my firm, May 31 marks the year-end date for peer review purposes. That is cut off for determining what engagements are included in the peer review. For readers of this blog, that means your compilation, review, and audit engagements. This does not include tax, write-up, or consulting work. It would include work under the attestation standards, but that probably is not a factor for most readers here.

What dates fit within that date?

That’s not a silly question, but actually a point of confusion. It is the balance sheet date of my clients that I am reporting upon. It is not when I performed the work or the date of my report.

Deadline

Six months after the end of my peer review year is when I have to get all peer review documents to CalCPA. That means my target is November 30.

What has to be done by then? My peer reviewer has to send the final report and selected workpapers to the peer review program by that date. If I were to receive a pass with deficiency or fail report (which I consider to be unlikely), I would have to turn in my written response by then.

Beginning the process

There is a special form, called the Peer Review Scheduling Form, which is used to start the process. The letter from CalCPA gives a hot link to the form. It is fairly long but not as intimidating as it would seem since there’s a lot of explanation and whitespace on the form.

The Peer Review Scheduling Form needs to be completed and returned to CalCPA within 30 days. So that is due back to them by June 7 for my firm.

The first part of the form provides background information on the firm and contact information.

I will hire a reviewer on my own, which means I will have a “firm on firm” review. When I make those arrangements, I will fill out Exhibit 1 to identify the firm.

Time needed to complete the form

It took me 18 minutes to complete the form and send it to CalCPA. I’ve worked with the form a number of times in the last year as a part of performing peer reviews. You can adjust my time based on my experience so you can have an expectation of how quickly you can complete the form.

Finding a firm

If you need to find a reviewer, CalCPA publishes a directory of peer reviews who choose to be listed in the directory. The letter I received yesterday has a link to the peer review page of the state society. The link Directory of Reviewers on the right side of page under Valuable Resources leads to the directory.

Caution! Self promotion alert follows! My firm is listed in the directory since I am available to perform peer reviews.

Choose your peer reviewer intentionally. Many CPA firms want their reviewer to be from a firm of roughly comparable size. Sole practitioners may want to get another sole practitioner or someone from a firm with just a few partners. A firm with multiple offices may prefer a reviewer with experience in a multi-office environment.

Since there has to be a match between the industry concentration of your firm and your reviewer’s experience, your reviewer may be a player in your market niche. You may want to find someone from another area of the state. Or to hold down travel costs you may want someone who works near your office.

Find a reviewer you are comfortable with. Personalities matter. You will get more out of the process and it will go better if you click with your reviewer.

When you find a peer reviewer and make arrangements for him or her to perform the review, you need to fill out Exhibit 1 of the Peer Review Scheduling Form.

You send Exhibit 1 to CalCPA for their review. They will make sure that the peer reviewer is approved as a reviewer and make sure that there is a match between the reviewer’s experience and any industry concentrations in your practice.

You will know that CalCPA has approved your reviewer when they sent you and your reviewer a letter saying so. Do not start the actual review until CalCPA has sent you that letter.

More discussion will follow as I journey through the peer review this year.

Next post – the initial scheduling form is approved.

 

Journey through a peer review – initial scheduling form approved

Posted 5-16-12

Part 2 of my journey through the peer review process.

Today I received a note that I forgot to answer one question on the Peer Review Scheduling Form.  Oops.

Answered it and returned the form. Same day I received a letter that my initial form had been accepted.  A copy of the 4 pages needed to get a reviewer approved were attached to the letter. These are the last pages in the Scheduling Form, so you will already know what they look like.

Next step is to find and retain a peer reviewer to perform my review. When I do that, I need to fill out the several pages identifying the firm and answering questions explaining that there are no conflicts of interest involved.

Then I will send that back so CalCPA can make sure there is a match on experience areas. For example, if I performed pension audits or single audits (which I don’t do) then someone on the review team would need to be experienced in those areas.

The letter says I need to reply in 30 days. That might be a stretch.

Use the correct address.

The email you get will come from the address ca@prcpa.org. Do not use that address to contact the peer review program. That is only for outgoing email from all the administering entities.

The correct address to use in all submissions is peerreview@calcpa.org.  If you use the ca@prcpa address, your e-mail will disappear into an internet wormhole and the only way you will know is when you get a late notice from CalCPA.

Make sure you use the right address!

Journey through a peer review – reviewing firm approved

6-30-12

Part 3 of my journey through the peer review process.

Previously I mentioned there’s a 30 day deadline from when my scheduling form was approved until I needed to advise CalCPA which firm I would like to perform my review.

Well, I didn’t hit the 30 day deadline. So two days after the deadline I received a reminder saying I have an extra 15 days.

It’s almost like the administering entities have figured out that CPAs don’t do things until they have a deadline staring them in the face. Imagine that!

I’ve now made arrangements with the firm that will do my review. I filled out Exhibit 1, which only took a few minutes.

(Yes, yes, you many now laugh at me because I didn’t get a firm lined up until after the first deadline.)

Exhibit 1

This is the form used to notify the administering entity which firm you would like to perform the review.

You will need contact information for the firm along with the name of the team captain and team members, if there’s more than 1 person providing the review.

You will also need the AICPA firm number for the reviewing firm and the AICPA member number for the team captain and team members. Obviously you have to get that information directly from the firm.

You will need to answer five questions that explore whether there are any relationships with the reviewing firm that could create conflicts of interest. Independence is required to provide a peer review. If that is impaired you will need to find another firm.

You will also need to provide an estimate of when the review will begin and the expected exit conference date. Those should be before the deadline for your report and all paperwork to arrive at the administering entity.

The administering entity will make sure there is a match of your practice with the experience of the reviewer. They also evaluate any relationships you may have with your reviewer.

After you submit Exhibit 1

So, I sent the form off to CalCPA on Wednesday. On Thursday I received a letter back approving the firm.

At the bottom of the letter there was a comment that the reviewing firm was CC’ed on the letter. I know from providing reviews that the administering entity sends out a notice to the reviewing firm, but it has slightly different text.

It is not necessary to do so, but it might be worth making sure that your reviewer got the letter.

Perspective on timing in relation to peer review cutoff

My peer review year-end is May 31.

That is a good cutoff since the peak of my attestation work is with clients whose year-end is December 31. My practice has a second peak of June 30 year ends.

The May 31 year-end plus a 6 month deadline for the report means my peer review report is due to the administering entity by November 30. That in turn means field work in September or October.

That gives me plenty of time to get all my December 31 work completed.

 

Journey through a peer review – forms to prep for field work

Posted 10-22-12

Part 4 of my journey through the peer review process for this cycle.

Well, after signing an engagement letter with the reviewing firm I need to get the initial round of checklists completed.

List of engagements

My peer review year ends May 31. This weekend I accumulated a list of completed engagements for clients whose fiscal year ended within my peer review year. That means I listed my clients whose fiscal year ended between in June 2011 and May 2012. Not when I issued the reports, but the client’s year-end.

The form requires listing the name or some code to identify the client, their fiscal year-end, type of services, partner (obviously me) and approximate hours for that service. That doesn’t include any tax hours, consulting, or quarterly comps with annual work. The form also calls for identifying new engagements.

My reviewer will use that list to make selections for the peer review. When he has done so, he will send me the list of what he wants to look at. I will fill out a short checklist describing the engagement and send that checklist along with a copy of the financial statements to him before the field work.

Surprise engagement

He will withhold the name of one engagement until the day he arrives. This is called the surprise engagement.

The concept here is if a firm is foolish enough to “clean up the files” the surprise engagement would still identify the quality problems. In addition, there will probably be dramatic quality differences between a surprise engagement and all of the others. The reviewer and state Peer Review Committee won’t be able to do anything about that, but it will probably increase their skepticism.

Managing partner interview

This form addresses a lot of the general quality control issues. This is a relatively short form.

It essentially addresses the tone at the top. You can find that form here, if you want to look at it.

Quality-control questionnaire

This form looks like a bruiser – it has 21 pages of questions. However, there is lots of space to add comments. The purpose behind many of the questions is explained, which adds to the length.

This form covers the specific components of quality control. It provides a framework for a structured conversation and evaluation of how the firm is addressing each of those components.

The form for a sole practitioner with no staff is here.

The form for a firm with two or more personnel is here.

Time involved.

It took me a little over two hours to accumulate the list of engagements and complete the two forms.

I already have a good working knowledge of the forms so I was able to complete them faster than a CPA who hasn’t seen the form before, or at least hasn’t seen them since the prior review three years earlier.

You can adjust my time however you want in order to estimate how long it will take you.

Next step

I will wait for a list of the selected engagements. Then I’ll prep the checklist for each engagement and send it to the reviewer. Then I’ll wait for field work.

 

Journey through a peer review – initial engagement selection

Posted 11-1-12

Part five of my journey through the peer review process.

Since submitting the list of engagements, which I discussed last post, I got back a list of engagements my reviewer wants to look at. He will make an additional surprise selection when he arrives.

He will need a few more things before field work. I sent him a copy of the financial statements for each of the engagements he selected.

For the audits, I also filled out a profile sheet. You can see the nonprofit form here, assuming you are an AICPA member and can login to their site.

I filled out page 2, which is basic background information on the engagement and skipped pages 3 & 4 since those are for A-133 engagements. I don’t do any of those audits.

Then I gave some brief background on significant estimates, fraud risks and other significant risks on pages 5 & 6. For each of those areas I described what items were present on the engagement (i.e. most likely way for material fraud to occur), the audit response to that issue, and where the work papers document the response.

The remaining pages are used by the reviewer to document the review. Hopefully, your reviewer will extract the pages you need and just send you those. If not, don’t worry about the other 43 pages. That’s his or her problem.

The profile sheet is a fillable PDF form. If you haven’t worked with those before, they’re pretty handy. Takes a little while to get used to them, but they are very helpful.

So that you have some basic idea of what time is involved, it took me just over an hour to pull together the reports and fill out two profile sheets. Adjust my time as you wish to develop an expectation for how long it will take you.

So, I sent the profile sheets and copies of financials to my reviewer tonight. I think it at this point, all I need to do is wait for him to arrive.

 

Journey through a peer review – field work is today

Posted 11-8-12

Here’s part 6 of the tale of my journey through my peer review.

Today is field work. The reviewer will arrive at my office soon. Expect him to be here most of the day.

Spent a few minutes yesterday pulling together a few more documents I know he will want to see. Also set up an extra computer for his use while he reads a bunch of workpapers.

I won’t be talking about the results of the review for a long time.

Rules of the peer review program prohibit talking about the report until it has been accepted by the Peer Review Committee. That mean it could be several months, up to 4 actually, until I can say how the review went.

Not talking about the report actually makes a lot of sense.

Why? If there were some issues still open after the field work, the reviewer could change the tentative conclusion about the report after consulting with CalCPA staff.

Or the technical reviewer could ask questions of the reviewer that change the results.

Or the tech reviewer could disagree with the report.

Or the Peer Review Committee could not accept the report. That happened to me on a review I performed. A report I prepared went through technical review fine, but the committee made a specific policy decision that in a certain circumstance combined with a particular error in the financial statements, then a certain type of peer review report was required. (Hey, how’s that for really vague?) So, I changed the report.

I won’t be doing any of the ol’ wink-and-nod routine either. None of the “I just can’t wait to announce to everybody the results of my great peer review, (wink, wink)”.

So, in a few months I’ll announce the results of the review. In the meantime I’ll have a few more posts on the process.

 

Journey through a peer review – field work finished – next step is technical review

Posted 11-9-12

Seventh in a series. Field work wrapped up yesterday for my peer review. The reviewer gave me a draft report. I can’t discuss it until it is accepted by the Peer Review Committee.

The next step is for the reviewer to finish a bunch of checklists and send them to the technical reviewer. The workpapers will probably be on the way to CalCPA in a day or two. There may be communication between the technical reviewer and my reviewer, but I won’t know about that unless the report changes.

The next thing I hear will likely be a letter from the Peer Review Committee accepting the report. At that point I can describe the contents.

That remaining process could take up to four months, but I would expect this time of year it won’t take that long

So, probably won’t have anything more to say for several months.

Update 11-10-12– I received a note from my reviewer telling me that the workpapers have been sent to CalCPA. Just to be clear, that is not revealing the content of the report. My comment does not mean anything other than has wrapped up his work. Since he is a very experienced reviewer the only thing that implies is that he did not have to research what type report to issue, ponder how to categorize an issue, or consult with the administering entity regarding some issue in the review. Any type of report could have been issued in that amount of time. Now when it comes to me, being a rather new reviewer, I may have to do one or more of those things (research, ponder, consult) before wrapping up a review. He doesn’t.

 

Journey through a peer review – ‘pass’ report accepted by Peer Review Committee

Posted 1-18-13

Eighth and final report in a series.

I passed my fourth peer review.

Today I received notice that the Peer Review Committee accepted my report on January 10, 2013. That means I can talk about the report.

The levels of reports are now called pass, pass with deficiency, and fail. I am quite pleased to announce my report was a pass rating.

I think I’m allowed to say I did not receive any Memorandum for Further Consideration (medium-level seriousness issue that does not generate a pass with deficiency rating) or Finding for Further Consideration (used for very minor level issues).

So here’s the timing at the end – – field work on November 8, report submitted to technical review on November 10, and report approved on January 10. That’s two months for the report to make its way through technical review and the Report Acceptance Body.

The deadline for this report to be submitted to the Peer Review Committee was November 30, 2012. My next report is due in three years, by November 30, 2015.

My previous reviews were in 2003, 2006, and 2009.

 

Ulvog CPA firm receives “Pass” rating in Peer Review

Posted 1-18-13

 (Cross-post from my other blog, Nonprofit Update.)

I am pleased to report that my firm received a pass rating on the peer review which was performed in November 2012.

The peer review program is a process the CPA profession has developed to look at the quality of audit and other attestation work performed by CPAs. Firms are inspected by other firms to evaluate compliance with various professional standards.

I am also pleased to report this is the fourth review my firm has gone through, and all of the reports were at the highest rating possible.

It is now mandatory for CPAs in California who provide attestation work to go through the peer review process. I have voluntarily obtained peer reviews since starting my firm in 2002.

More discussion of the journey through the peer review process this cycle can be found on my Attestation Update blog.

 

Peer review reports are public for some firms – Here’s how to see my report

Posted 7-8-13

You can find the peer review report at the AICPA web site for those CPA firms who are members of one of the three special sections:

  • Employee Benefit Plan Audit Quality      Center (EBPAQC)
  • Governmental Audit Quality Center (GAQC)
  • Private Companies Practice Section      (PCPS)

Since I’m a member of PCPS, you can find my report there.

Go to the Peer review public file search page to look up a firm.

Enter my firm name there and you can get a screen that lists my firm and shows a link to two documents:

You can see for yourself that I received a “pass” rating.

If a firm is a member of EBPAQC, GAQC, or PCPS, you can find their peer review report at the above page.

 

Journey through peer review – 2016 update

Posted 2/4/16

I’ve previously discussed at length my journey through the peer review process in 2012. I did not update the narrative for my journey through the peer review process in 2015. Here are a few tidbits on the timing this time around:

  • 5/31/15 – Cut off date for my peer review.
  • 11/5/15 – Fieldwork performed in my office.
  • 11/7/15 – Report received from my peer reviewer. He would have submitted the workpapers to the Peer Review Committee that day or the next.
  • 11/30/15 – Deadline for report and accompanying workpapers to be submitted by the reviewer.
  • November or December – Technical review of the report and accompanying workpapers by an extremely experienced CPA would have been performed in this timeframe.
  • 1/27/16 –Peer Review Committee officially accepted the report.
  • 2/3/16 –Official notice received by electronic mail that the report had been accepted. I’ve known the results of the peer review since the day of fieldwork. Public discussion of the results is not allowed until the Peer Review Committee accepts the report.

So know you know why I haven’t mentioned anything about the review until now.

That timing is about seven weeks from the time the reviewer submitted the report to the committee until the committee accepted the report. For context, as a CPA who performs peer reviews on other firms, I am obligated to tell firms that it could take up to four months for the report to be accepted.

Written by Jim Ulvog

July 11, 2013, 9:09 am at 9:09 am

11 Responses

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  1. Very informative. I wish I read this a year ago before going though my first peer review, under the new system, and probably the last since I am 80 yrs old.

    Sabry M. Abdel Aziz

    August 26, 2014, 20:12 pm at 8:12 pm

    • I’m glad you enjoyed the discussion. Thanks for taking the time to comment.

      Jim Ulvog

      August 27, 2014, 7:40 am at 7:40 am

  2. Sir:
    I read your sample accountant’s review report for SSARS 21 with great interest. As yours is the practical one. I have not even found that example in other publisher like Thomson Reuters. Thank you from a little potato who was given an assignment to find out the SSARS 21 sample review report. It is with deep appreciation.

    I also read your “Journey through a peer review” and learned that you intentionally set up your practice as a sole proprietorship. In New York, the NY State law 7410 says mandatory peer review is not applicable for sole proprietor CPA. I guess California does not have that exemption so you need to go through that peer review journey. You are so experienced so you came out with flying color. Now you are a peer reviewer yourself.

    With my best regards,

    charlene wu 5/24/15

    charlene wu

    May 24, 2015, 14:32 pm at 2:32 pm

    • Hello Charlene:

      California requires all CPAs providing attestation services to go through a peer review. This applies whether a firm or sole proprietor is the provider. To make sure all sole proprietors are included the board of accountancy requires every CPA to state at the time of renewal whether they perform attestation services and if so, whether they are a member of a firm or not.

      Thanks for your comment.

      Jim

      Jim Ulvog

      May 27, 2015, 13:59 pm at 1:59 pm

      • thank you!!!
        A quick question:

        Have you done a “stub period” audit? Does the “stub” necessarily refer to a period shorter than a year or can refer to a specified period more than one year?

        Best,

        charlene 5/27/15

        charlene wu

        May 27, 2015, 14:07 pm at 2:07 pm

      • Hi Charlene:

        I am not aware of anything in the professional literature that says what a stub may be. The period covered in the financial statements would need to be clearly stated in the basic statements, notes, and accountant’s report.

        My approach is to have a long stub (18 months ended XX). That is the approach taken by the firms I’m familiar with. However, I have seen one firm that insists the stub is for the short period following by a 12-month period.

        I think that means the organization and auditor need to reach their own conclusion. Hope that helps!

        Jim

        Jim Ulvog

        May 28, 2015, 14:29 pm at 2:29 pm

  3. Sir:
    Thanks again for your kindness.
    I equate “short stub period” as “the first year audit for a new company” e.g. a company was formed on Sept 3, 2013. Then for the first year, it would have a balance sheet ended 12/31/2013 and income statement for 4 months period ended 12/31/2013. The auditor would issue a short stub period report.

    Then the 2nd year,the audited comparative financial statements would be:
    Balance sheets–as of 12/31/2014 and 2013
    Income statements—Year ended 12/31/2014 and Four months ended 12/31/2013.

    Should we adopt your long stub (18 months period ended 12/31/2014), then we will have
    Balance sheets–as of 12/31/2014
    Income statements—18 months ended 12/31/2014.
    And no comparative financials.

    Correct?

    Best,

    charlene 5/28/15

    charlene

    May 28, 2015, 20:24 pm at 8:24 pm

    • Hello Charlene:

      I was assuming an existing company changes their year end. For example, successive year ends are 12/31/13, 6/30/14, 6/30/15. In that case it would be an option to present either a six-month or eighteen-month transition.

      For the situation you described, a new entity, the client would again have an option, but it seems to me the most helpful would be a four month stub followed by a 12 month year. That would provide the earliest set of data that would be comparable to following years.

      In your illustration, my choice would be to go with a four month stub.

      Others may reach a different conclusion.

      Jim

      Jim Ulvog

      May 29, 2015, 11:58 am at 11:58 am

  4. Sir:

    Thanks a lot.
    You are a true professional.

    Be well,

    charlene 5/29/15

    charlene wu

    May 29, 2015, 12:28 pm at 12:28 pm

  5. very informative and helpful. I am lucky to see this article while I am going through CA peer review at first time.
    May I ask how CalCPA determines due date for peer review? I issued my first financial statement to a client on august 2015 for period 01-01-15 to 07-31-15. this client has year-end 12/31 to report tax return. what is my year-end date of initial engagement and what will be due date for peer review?

    thanks a lot.

    grace lei

    November 25, 2015, 11:35 am at 11:35 am

    • Hello Grace:

      Good question. A few general comments. The first peer review is due within 18 months after the first set of financials issued which require participation in the peer review program. For the first ever audit, review, or compilation of 7/31/15 financial statements, that means your first peer review report is due to the state peer review committee by 1/31/17.

      Within that time limit, you may choose the year end you wish. Keep in mind the date you select will be the year-end for future reviews.

      In the future, your peer review report will be due six months after your selected year-end.

      Pick something that give you an expected field work in a time of year that is convenient for you. For example, a firm with heavy volume of individual tax returns would probably not want field work in the February through April time frame.

      For more detailed discussion about the timing of your peer review year-end date, please visit with the firm you select to provide the review. The reviewer can guide you through the process.

      Jim

      Jim Ulvog

      November 28, 2015, 14:18 pm at 2:18 pm


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