Peer Review

Getting Ready for Your Engagement Review

An engagement review is available to firms that perform compilation or review engagements, but perform no audits or examinations under attestation standards.

A firm can arrange for a(n)

• CART (Committee-Appointed Review Team) Review
• Firm-On-Firm Review
• Association Review

In each case, the PICPA will determine that the prospective reviewer is qualified and meets the requirements of the reviewed firm as to size, geographical location, and industry specialization.

Prior to the review, the firm is required to provide the reviewer with summarized information showing the following:

• The number of its review, compilation, or attest engagements.
  
• The levels of service provided, classified into major industry categories and broken down by each owner, partner, or shareholder who is responsible for the issuance of reports.

Based on this information, PICPA or the reviewer will indicate those major industry categories from which the reviewed firm should select reports. The financial statements may be in conformity with generally accepted accounting principles or with another comprehensive basis of accounting. In identifying the kinds of engagements to be submitted for peer review purposes, review engagements, compilation engagements with disclosures, compilation engagements without disclosures, and attestation engagements will be requested if those levels of service are provided. Furthermore, an attempt will be made to include clients in different industries.

The reviewed firm will submit to the reviewer the financial statements and accountant's report for each engagement selected, along with an engagement questionnaire for each engagement. The firm will also submit the documentation required by the Statements on Standards for Accounting and Review Services (SSARs) and the Statements on Standards for Attestation Engagements (SSAEs). The reviewed firm, if it wishes, can "white out" or otherwise mask client identity in the financial statements and accountant's reports.

An engagement review does not include

• Tests of the firm's administrative or personnel files
• Interviews of selected firm personnel
• Other procedures performed in a system review

Accordingly, an engagement review does not provide the reviewer with a basis for expressing any form of assurance on the reviewed firm's system of quality control for its accounting practice. Instead, the report on an engagement review only expresses limited assurance on the firm's conformity with SSARs and SSAEs.

The report issued on an engagement review may be unmodified or modified -- including an adverse report -- for significant departures from professional standards in the engagements reviewed. A letter of comments will accompany all modified reports. An unmodified report may also be accompanied by a letter of comments that discloses departures in the engagements reviewed, which are not considered to be significant departures from professional standards. The reviewed firm should prepare a letter of response to any deficiencies noted in the report and letter of comments, then submit it to PICPA as the administering entity. The letter of response should be addressed to the Peer Review Committee. Take a look at a sample letter of response.

The firm will be expected to take appropriate remedial actions with respect to its system of quality control and with respect to engagements with significant deficiencies. If the reviewer concludes that the firm being reviewed did not have reasonable assurance of conforming with professional standards in the conduct of its accounting practice -- an adverse report -- the firm will ordinarily be required to have another engagement peer review within 12 months of the acceptance of the report by the Peer Review Committee.