You might recall that the AICPA issued clarified peer review standards in February 2022. These standards, Standards for Performing and Reporting on Peer Reviews, were effective for peer reviews commencing on or after May 1, 2022. This newly clarified guidance replaced and restructured all previously existing peer review guidance. The standards were developed to make peer review guidance easier to understand and apply, but they don’t substantially change previous practice.
An important change of note is that the new standards removed the prior guidance on reviews of Quality Control Materials (QCM). (We’ll discuss this more later in this article.)
The clarified peer review standards apply to firms of all sizes that offer audit, attestation, compilation, or review services. This article provides an overview of how the new peer review standards affect your firm.
Why Were the Standards Issued?
As noted earlier, the guidance was designed to make it easier to read, understand, and apply. The clarified standards were the result of a years-long project to revise all prior peer review guidance using drafting conventions like those in the clarified auditing, attestation, preparation, compilation, and review standards, These PR-C standards don’t substantially change what’s required of firms, reviewers, or administering entities of the AICPA Peer Review Program.
Users of the AICPA Peer Review Program are required to comply with all sections of the PR-C standards that are applicable to them.
What Are Some of the Changes in the Standard?
The following items represent some of the significant changes in the clarified standard from prior standards:
- Restructures and organizes sections of the peer review guidance by user (peer reviewer, reviewed firm, or administering entity) and review type (system or engagement).
- Removes the requirement for performing most system review procedures at the reviewed firm’s office. The extent of procedures is determined by assessing peer review risk.
- Modifies the requirement for onsite office visits to remove the mandate that firms visit a “sufficient number of offices” in a review of a multi-office firm. Instead, peer reviewers now determine the number of offices to visit based on their assessment of peer review risk.
- Removes the requirement for a surprise engagement during a system review. However, reviewers may still select a surprise engagement based on their assessment of peer review risk.
- Eliminates the term significant deficiency in fail reports for engagement reviews. Prior guidance for fail referred to deficiencies being present on all reviewed engagements but didn’t address how severe the deficiencies were. Under the clarified standards, reports only refer to deficiencies, identify the deficiencies, and don’t judge their significance.
- Removes the guidance for performing and reporting on reviews of quality control materials. Providers of QCM may now elect to have a practitioner report on their QCM in an assertion-based examination engagement under the SSAEs, as explained below.
Recent Peer Review Standards Update
The AICPA Peer Review Board issued Peer Review Standards Update No. 1, Omnibus Enhancements and Technical Corrections, to correct various paragraph references and to make various other clarifications and corrections affecting most sections of the new clarified peer review standards. The changes were effective for peer reviews commencing on or after June 1, 2023.
Changes in the Review of QCM
Prior to the effective date of the clarified peer review standards, providers of QCM, such as Thomson Reuters, could choose to have those materials reviewed under the AICPA Peer Review standards.
| Practical Consideration: QCM are work programs, checklists, manuals, tools, etc., including industry and subject matter materials, that are integral to the operation of a firm’s system of quality control and promote consistency in performing engagements, such as PPC Guides and practice aids. |
Under previous peer review standards, when a provider of QCM received a peer review report with a pass rating, firms using those materials had reasonable assurance that the materials were reliable aids to assist firms in conforming with the professional standards they encompassed.
As noted previously, the clarified peer review standards no longer apply to reviews of QCM; providers of QCM may elect to have a practitioner report on the QCM in an assertion-based examination engagement under the Statements on Standards for Attestation Engagements (SSAEs). Thomson Reuters products previously subjected to peer review are currently being subjected to an examination engagement, with the first of such reports to be available in early 2024.
While the transition to a QCM examination primarily affects QCM providers, it also affects firms using QCM. Currently, Statement on Quality Control Standards No. 8 (SQCS 8) is the authoritative guidance for determining whether a resource is appropriate for a firm’s system of quality control and that guidance puts the responsibility on the firm to establish and maintain its system of quality control.
Under SQCS 8, firms are required to establish policies and procedures to provide reasonable assurance that they perform their engagements in accordance with professional requirements, including promoting consistency in the quality of engagement performance. The use of QCM is a common method to promote such consistency.
While the peer reviewer will continue to evaluate the firm’s design of and compliance with its system of quality control and the related QC elements, the peer reviewer will no longer be evaluating the appropriateness of the firm’s QCM. The peer reviewer might perform other optional procedures to determine whether the QCM is appropriate for the firm to use.
We believe under the clarified peer review standards both of the following apply:
- The firm has the responsibility to tailor and augment the QCM as necessary to ensure that the materials used assist the firm in conforming with the professional standards that apply to its accounting and auditing practice.
- The procedures that peer reviewers perform related to a firm’s use of QCM are designed to provide the reviewer with an understanding of how the firm uses the QCM to promote consistency in the quality of its engagement performance. The reviewer assesses the firm’s policies and procedures for the use of the QCM and evaluates whether those policies and procedures are appropriately designed and implemented.
| Practical Consideration: The clarified peer review standards, as well as the Peer Review Standards Update can be found on the AICPA’s website at https://us.aicpa.org/interestareas/peerreview/resources/peerreviewprogrammanual.html. |
