peer review

California Board of Accountancy is serious about audit quality and enrollment in peer review.

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The Winter 2017 Update newsletter (#83) from the California Board of Accountancy shows that the board is continuing its active efforts on disciplinary actions.

There are obviously quite a few of our colleagues who are not performing up to standards.

I’ve heard stories from a distance that the Board has hired more enforcement staff. As I have read the last few issues of Update, it sure seems to me that the increased staffing is showing up in an increased pace of closed cases. Maybe my perception is off, but it seems there are more cases closed with more serious consequences in the last year or so.

I count 39 cases documented in this edition of Update. Only 2 of these have discipline level of suspension or less. All the others are surrenders, revocations, or stayed revocations. Just as a guess, I think that means the editor of Update is filtering out most of the suspensions.

I count 19 cases of those 39 with peer review problems or audit, review, or compilation failures or some combination thereof. I’ll break that down further:

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Common findings on audits during peer review

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Image is from AICPA. Used under Fair Use since, after all, I am promoting three of their products.
Image is from AICPA. Used under Fair Use since, after all, I am promoting their products.

The AICPA’s annual Audit Risk Alert General Accounting and Auditing Developments—2016/17 provides a useful summary of common peer review findings on audits.

What I like about this particular list is that it is short enough to actually provide focus. Frequently such lists have the filter set so broadly that the list covers practically all the findings that have surfaced during all peer reviews. Sometimes I’m left with the feeling that a list of findings reads like a list of every single step you need to perform during an audit.

Here is the short list provided in the risk alert, along with my explanation:

Incorrect dating of audit report – The auditor’s report needs to be dated no earlier than when sufficient appropriate audit evidence has been obtained to support the opinion. This means …

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More disciplinary action from California Board of Accountancy over peer review messes.

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Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The Fall 2016 Update newsletter from the California Board of Accountancy shows CBA continues to be deadly serious about CPAs avoiding the peer review program.

I previously went into detail on disciplinary actions in one newsletter:  If you have been blowing off Peer Review, you really ought to get with the program. This time I will just give an overview.

Revocations of license

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“Be Prepared – A Comprehensive Peer Review Update”

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Image courtesy of Adobe Stock.

The following article provides a superb update on recent developments in the peer review program. The article is graciously provided by the California Society of CPAs and the information described here applies in all jurisdictions across the U.S.

Because the entire article is quoted verbatim without any additional comments from me, none of the article will be placed in quotation marks.

Originally published by CalCPA (www.calcpa.org) in the October issue of California CPA magazine.

Used with written permission of the California Society of CPAs. 

 

Be Prepared – A Comprehensive Peer Review Update

By Linda McCrone

 

Peer review is a successful program that helps firms improve their quality control systems and elevate the quality of accounting and auditing engagements. The AICPA contributed the software program that tracks peer reviews and the staff that manages the program. AICPA member volunteers contribute their time to oversee the program, keep the peer review program forms current and make certain that the peer review standards remain relevant. But like any successful program, peer review must continue to evolve to keep up with events.

 

Background

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Great survey of Peer Review program

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The California Society of CPAs has a superb article on the Peer Review program in their October 2016 newsletter: Be Prepared – A Comprehensive Peer Review Update.

Here is the link again: http://californiacpa.calcpa.org/?issueID=65&pageID=15

I will check to see if I can get permission to reprint the article.

Update: CalCPA graciously gave me permission to reprint the article. You may find it here.

Two deadlines to keep in mind if your peer review didn’t go well

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Image courtesy of DollarPhotoClub.com

If your peer review resulted in anything other than a pass report there are a couple of deadlines you need to remember if you are in California.

Keep in mind you are responsible for your compliance with regulations. Here are a few tips to point you in the right direction. These comments discuss the regs in California. If you are in another state, you really ought to check out what your board of accountancy has to say. I’ll guess there is some comparable reporting requirement when a peer review does not turn out well.

Notification requirement for reports less than pass — 45 days

If you received either a pass with deficiency or a fail report, you need to be in touch with the California Board of Accountancy (CBA).

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If you have been blowing off Peer Review, you really ought to get with the program.

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Image courtesy of DollarPhotoClub.com

Seriously, if you are providing audit, review, or compilation services to your clients, you really need to be in the peer review program. And you really, really need to be doing fairly good work. I doubt any CPAs in California who desperately need to read this post will be doing so, but it is still worth mentioning.

The California Board of Accountancy is coming down hard on CPAs who have avoided the peer review program. Seriously missing the boat on audit quality is getting hammered as well.

Quarterly newsletter

The Spring/Summer 2016 edition of the quarterly Update newsletter from CBA, issue 81, has several reports of firms drawing serious sanctions. There are 21 pages of narrative describing the sanctions through April 24, 2016. Of 28 disciplinary issues, 7 deal with peer review, which are the ones I will highlight.

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Good stuff for auditors: single audits, PCC alternatives, intangibles

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Image courtesy of DollarPhotoClub.com

Here are a few recent articles of interest to auditors:

  • Charles Hall discusses common deficiencies in government audits. Issues also apply to single audits for NPOs and all pension audits.
  • FASB removes the effective dates from PCC alternatives, which means they can be applied at any time by a private company without going through the preferability analysis.
  • FASB starts to think about whether to record expenditures for intangible assets on the balance sheet.

Single Audits

2/15 – Charles Hall at CPA-Scribo – Findings from Peer Reviews of Governmental Engagements – Three items to mention from this article.

First, the AICPA pulled in a selection of peer reviews performed on “must-select” engagements. The oversight was performed by highly experienced peer reviewers, meaning it is our calling CPAs who looked at the audit workpapers and peer review workpapers.

The results? Not good. Consider: …

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Ulvog CPA passes Peer Review inspection

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I am pleased to report my firm passed peer review in 2015.

Peer review is a process CPAs go through to inspect their audit and review work. Experienced CPAs from another firm look at your quality control procedures and read through workpapers for a selection of engagements.

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

In the current system there are three grades from a peer review inspection:

  • Pass
  • Pass with deficiency
  • Fail

I am pleased to report my firm received a pass report, the highest level currently available. I have gone through peer reviews in 2015, 2012, 2009, 2006, and 2003. Each time I received the highest grade possible.

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Misbehavin’ CPAs #7. Sanctions by California Board of Accountancy, part 2

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That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com

Previously mentioned that I looked disciplinary actions reported in the last four newsletters from the California Board of Accountancy (CBA). Want to better understand what happened with firms that got in trouble for audit quality or for not getting a peer review when one was required.

Will continue that discussion by looking at sanctions imposed on smaller firms and then self-imposed trouble generated by some larger firms.

Sanctions

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Misbehavin’ CPAs #6. Sanctions by California Board of Accountancy, part 1.

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That may be how the vast majority of CPAs perform all the time, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com
That may be how the vast majority of CPAs perform every day, but some CPAs miss the target completely. Image courtesy of DollarPhotoClub.com

Three times a year the California Board of Accountancy issues a newsletter. It contains a variety of information useful for CPAs. If you are a CPA, you really ought to be reading the newsletter.

That newsletter is also where the board publicizes disciplinary actions against CPAs.

In the last few newsletters I’ve noticed a number of cases where firms are sanctioned for substandard audits. Have also noticed a number of firms sanctioned for not getting a peer review when it was required or fibbing to the board whether they had complied with the peer review standards.

I wanted to understand better what I’ve noticed in passing so decided to dive into the disciplinary reports to get a better picture of the extent of sanctions for audit quality and peer review issues. I looked at the Fall 2014, Winter 2015, Summer 2015, and Fall 2015 newsletters.

That covers 16 months of reporting for disciplinary actions by CBA.

I focused on sanctions for audit issues excluding anything that was a follow-up to PCOAB or SEC sanctions. That rules out quite a few cases.

Also ignored a long list of social misbehavior such as DUIs (several incidents), fabricating Form E (once – fabricating the experience report? – really??), embezzlements, disbarment (once), and other such human foibles. Also excluded a variety of contingency fee violations, breaches of client trust, and sundry tax fiascos.

For context, the Fall 2015 newsletter had 28 disciplinary actions of which 5 were of interest for this little bitty research project. Of those 5 cases, the public notices refer to 2 firms which had substandard audits, 1 had a substandard compilation, and 4 included failures to get a peer review when required of which 2 fibbed to CBA about compliance with the peer review requirement.

Scope and result of my analysis

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Proposed changes to Peer Review program

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AICPA released an exposure draft in early November which would revise some aspects of the peer review program.

The Journal of Accountancy has an article summarizing Changes proposed to peer review standards.

I have read through the exposure draft only once, which means I am just starting to understand the proposed changes. Three items jump out at me after my first read:

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Starting template to develop a Quality Control document for CPA firm. It’s even legit to copy & paste.

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Image courtesy of Adobe Stock.
Image courtesy of Adobe Stock.

The AICPA has provided a number of new documents to help firms improve the quality control systems and to start looking at the enhancing audit quality initiative. I’ll list a few of them. It’s easy to copy & paste and at a great price.

Tools to develop a quality-control document

Every CPA firm performing assurance services is required to have a quality-control document. That applies even if you only do comps and reviews. Even if you aren’t going through a system review.

The AICPA has free practice tools to explain the QC standards along with a sample document based on the size of the firm.

You can find the documents on this page.

You can also find a document that is geared to the size of a firm: …

Starting template to develop a Quality Control document for CPA firm. It’s even legit to copy & paste.Read More »