GAQC Peer Review Web Event - Oct. 7, 2010 - PowerPoint

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Transcript GAQC Peer Review Web Event - Oct. 7, 2010 - PowerPoint

Peer Review: What is Changing and
How Being a Peer Reviewer Can
Enhance Your Practice
A Governmental Audit Quality Center Web Event
October 7, 2010
Administrative Notes
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Governmental Audit Quality Center
Administrative Notes
We encourage you to submit your technical
questions – please limit your questions to the
content of today’s program
To submit a question, type it into the “Send a
Question” box on left side of your screen; we will
answer as many as possible
You can also submit questions to the GAQC member
forum for consideration by other members
This event is being recorded and will be posted in an
archive format to the GAQC Web site
Governmental Audit Quality Center
Continuing Professional Education
Must have registered for CPE credit prior to this
event; a link to the CPE Credit Approval Form was emailed to you
Listen for announcement of 4 CPE codes (7 digit
codes: ALL_ _ _ _ ) and 4 polling questions during
the event
Record CPE Codes on CPE Credit Approval Form
and return completed form (by fax or mail) to AICPA
Service Center for record of attendance; keep a copy
for your records
If you are not receiving CPE for this call, ignore the
CPE codes that we announce, but please answer the
polling questions
Governmental Audit Quality Center
Corey Arvizu
Heinfeld, Meech & Co., PC
Jim Brackens
American Institute of CPAs
Rick Reeder
Reeder & Associates PA
Governmental Audit Quality Center
What we will cover?
Overview of Statement on Quality Control
Additional Quality Control Requirements of
Government Auditing Standards (Yellow Book)
Additional GAQC Membership Requirements
Relating to your Firm’s System of Quality
Overview of Peer Review Standards Effective 11-2009
Recent Peer Review Changes Relating to A-133
Single Audit Engagements
What Does it Take to be a Peer Reviewer and
Team Captain?
How PR Can Add Value
How to Have a Successful Peer Review Practice
Governmental Audit Quality Center
Overview of
Statement on Quality
Control Standards
Governmental Audit Quality Center
System of Quality Control
Reasonable assurance that a firm complies
with applicable standards and issues
appropriate reports
Consists of policies and procedures, many
of which are written
Elements of quality control are interrelated
Code of Professional Conduct is an integral
part of any system of quality control
Governmental Audit Quality Center
Required Elements of QC System
Leadership responsibilities for quality within
the firm (the “tone at the top”)
Relevant ethical requirements
Acceptance and continuance of client
relationships and specific engagements
Human resources
Engagement performance
Governmental Audit Quality Center
SQCS No. 7
Statement on Quality Control Standards
(SQCS) No. 7, A Firm’s System of Quality
Control (AICPA, Professional Standards, vol. 2, QC sec. 10)
Issued October 2007
Supersedes all previous SQCSs
Effective as of January 1, 2009
Compliance with PCAOB QC standards does not automatically
mean compliance with SQCS 7
Governmental Audit Quality Center
SQCS No. 7
The firm must establish a system of quality
control designed to provide it with
reasonable assurance that:
• The firm and its personnel comply with professional standards
and applicable regulatory and legal requirements, and
• Reports issued are appropriate in the circumstances
A system of quality control consists of:
Policies designed to achieve these objectives and
The procedures necessary to implement and monitor
compliance with those policies.
Governmental Audit Quality Center
SQCS No. 7
Documentation and Communication
• Required to document QC policies and
• Extent based on firm characteristics
• Required to communicate QC policies and
procedures to personnel.
- More effective if in writing, but not required
to be.
Governmental Audit Quality Center
Additional Quality
Control Requirements of
Government Auditing
Standards (Yellow Book)
Governmental Audit Quality Center
Yellow Book QC Requirements
July 2007 Revisions to Yellow Book
• Enhanced and clarified the requirements for an audit
organization’s system of quality control by specifying the
elements of quality that an organization’s policies and
procedures collectively address
• Added a requirement that external audit organizations make
their most recent peer review report publicly available
Paragraph 3.50 – 3.54 discuss QC Requirements
Requirements for system of quality control are consistent with
the AICPA proposed statement on Quality Control Standards
except that the GAGAS requirements state that reviews of the
work and the report that are normally part of supervision are not
monitoring controls when used alone
Governmental Audit Quality Center
Yellow Book QC Requirements
Those audit organizations seeking to enter into a
contract to perform a GAGAS audit or attestation
engagement should provide the following to the
party contracting for such services
• Most recent peer review report and any letter of
• Any subsequent peer review reports and letters of
comment received during the period of the contract
Auditors who are using another audit organization’s
work should request
• The audit organization’s latest peer review report
• Any letter of comment
Governmental Audit Quality Center
Yellow Book QC Requirements
Must document & communicate
Policies must address:
• Leadership Responsibilities
• Independence, Legal & Ethical Requirements
• Initiation, Acceptance and Continuance of
• Human Resources
• Engagement performance, documentation and
• Monitoring
Governmental Audit Quality Center
Yellow Book QC Requirements
• Engagement Supervision alone is not Monitoring
• Audit organizations to analyze and summarize the
results of monitoring procedures at least annually
Include identification of any systemic issues needing
Include recommendations for corrective action
• Should be performed by individuals that collectively
have sufficient expertise and authority
Governmental Audit Quality Center
Additional GAQC
Membership Requirements
Relating to your Firm’s
System of Quality Control
Governmental Audit Quality Center
GAQC Membership Requirements
Policies & Procedures:
• GAQC Policies to be Addressed in QC Document
Identify Designated Partner
Client Acceptance and Retention
Engagement Performance and Review
Training and Supervision
Internal Inspection
Peer Review
• Methods of documenting:
- Revise the firm’s QC document to address the governmental audit
practice to comply with applicable professional standards and
Center membership requirements.
- Prepare an addendum to the firm’s existing QC Document
Governmental Audit Quality Center
GAQC Membership Requirements
Policies & Procedures con’t:
• Communicate
- Circulate the revised firm QC document
- Establish training to inform audit staff of the firm’s QC policies
and procedures
- Circulate communication to audit staff regarding the firm’s
QC policies and procedures
- Link to QC document on the firm’s intranet
Governmental Audit Quality Center
GAQC Membership Requirements
Annual Internal Inspections:
• Required to establish annual internal inspection procedures that
include a review of the firm's governmental audit practice (that is,
all audits performed under Government Auditing Standards)
• Reviewer should have current experience & knowledge of
governmental auditing and accounting practices
• Engagements inspected should be representative of the firm’s
governmental audit practice (e.g., single audits, program-specific
audits, HUD audits, etc.) and the firm locations those audits are
performed in
• Inspection results should be made available to peer reviewer
Governmental Audit Quality Center
GAQC Membership Requirements
Annual Internal Inspections con’t:
• Firm’s monitoring process should Include a review of
the firm’s compliance with GAQC membership
• A peer review is not a substitute for monitoring
• However, consistent with AICPA quality control
standards, the peer review may substitute for some or
all of its inspection procedures for the period covered
by the peer review.
Governmental Audit Quality Center
GAQC Membership Requirements
Annual Internal Inspections con’t:
• Developing an Governmental Audit Practice Self-Inspection
- Begin with the inventory of your governmental audits audits
(that is, all performed under Government Auditing Standards)
- Consider:
When is the best time of year to conduct this review?
Who should perform the review?
How long will it take?
How are we going to communicate the results?
What about multi-office issues?
How it differs from concurring partner reviews?
- Obtain AICPA peer review checklist or develop firm checklist
Governmental Audit Quality Center
GAQC Membership Requirements
DAQP - Designating an audit partner to have firm-wide responsibility
for the quality of the firm's governmental audit practice.
Having all audit partners of the firm residing in the United States and
eligible for AICPA membership be members of the AICPA.
Ensuring that the DAQP meets the yellow book CPE requirements,
even if that partner would not otherwise be subject to those CPE
DAQP must participate in an annual Center-sponsored Webcast on
recent developments in governmental auditing.
Making publicly available information about the firm’s most recently
accepted peer review as determined by the Executive Committee.
Having firm’s governmental audits selected as part of the firms peer
review reviewed by a peer review team member who is employed by a
Center member firm.
Governmental Audit Quality Center
GAQC Membership Requirements
Use the Q&A document on GAQC
membership requirements located at:
Governmental Audit Quality Center
Overview of
Peer Review Standards
Effective 1-1-2009
Governmental Audit Quality Center
Principles v. Rules Based Standards
Detailed guidance is in the Interpretations
All guidance was reevaluated, reengineered, updated
and clarified
Allows Standards to be applicable to a diverse
population of users
Allows PRB to be more responsive to user feedback
and environmental changes via interpretive
Governmental Audit Quality Center
Reporting Process
• Reengineered to be more understandable and easier
to use
• Provides transparency
• Promotes consistency
• Streamlines process
• Defined terms and enhanced process guidance
• Proposed expanded use of practice aids to
communicate findings to the firm
• New reporting format
Governmental Audit Quality Center
The Peer Review Report
1 page standalone document
3 paragraphs
• What was reviewed, under what standards, reviewer
and firm responsibilities
- Includes a URL to the Standards for nature, objectives,
scope, limitations and procedures performed, in Plain English
• If applicable, reference to GAGAS, EBP &/or FDICIA
• Opinion and peer review grade
- Pass
- Pass with deficiency
- Fail
Governmental Audit Quality Center
The Peer Review Report
Includes descriptions of deficiencies only for reports
other than with a “Pass” grade
• Identifies the industry and level of service for any deficiencies or
significant deficiencies that are determined to be industry
specific included in the report
Requires little tailoring
Governmental Audit Quality Center
Other Changes (from previous standards)
Team members not required to take the two
day “How to” course
Independence impairment for internal
inspectors, consulting reviewers and preissuance reviewers intending to perform peer
Reporting on scope limitations under the
revised standards
Performing a system review at a location
other than the reviewed firm’s office when it
is cost prohibitive and/or extremely difficult
to arrange
Governmental Audit Quality Center
Recent Peer Review
Changes Relating to A-133
Single Audit Engagements
Governmental Audit Quality Center
History of Single Audit Quality Issues
History of quality issues:
• Federal Single Audit Quality Study Results
• The Project issued a report titled, Report on National Single
Audit Sampling Project (the PCIE report), that was issued by the
President’s Council on Integrity and Efficiency (PCIE) and can
be accessed in its entirety at :
# of Audits
$$$ Audited
Limited Reliability
Governmental Audit Quality Center
PMTF Actions Taken
Revision to Interpretation 63-1a (June 2009 Peer
Review Alert)
• “Must-selects” must include A-133 engagements
• No further modification to System Report “must-select”
• Effective for peer reviews commencing on or after September 1,
Governmental Audit Quality Center
Revised Interpretation 63-1a
Peer Review Standards Interpretation 63-1a has
been updated. The Peer Review Board (PRB) has
revised this interpretation to require that
additionally, if the engagement selected is of an
entity subject to GAS but not subject to the Single
Audit Act/OMB Circular A-133 and the firm performs
engagements of entities subject to OMB Circular A133, at least one such engagement should also be
selected for review.
Governmental Audit Quality Center
Revised Governmental and Not-ForProfit Audit Engagement Checklist
(and Engagement Profiles)
PRP Manual Section 20,500 and 20,600
Enhanced Key A-133 Single Audit Data
Single Audit Major Program Determination
worksheet or include current and two prior
years’ SEFAs and Summary of Auditor’s
Results (from Schedule of Findings and
Questioned Costs)
Governmental Audit Quality Center
Part A & B Single Audit/A-133 Supplemental
Part A Supplemental Checklist for Review of Single
Audit Act/A-133 Engagements PRP Manual Section
• Begin with Part A Checklist
- Addresses most problematic concerns
- Determination of major programs
- Audit of major programs
- Audit findings
- Schedule of Expenditures of Federal Awards
Mandatory use effective for peer reviews
commencing November 1, 2009 and after
Governmental Audit Quality Center
Part A & B Single Audit/A-133 Supplemental
Reviewer should complete Part A
If there are any “no” answers in Part A, the reviewer is
not required to complete Part B but needs to consider
expanding scope as necessary per the standards
If there are no “no” answers in Part A, the reviewer
should complete Part B.
Part A and Part B – conclusion section at the end of
Part A checklist
Governmental Audit Quality Center
Part A “No” Answers
Generally result in an engagement not
performed in accordance with standards.
Focus on areas which have been common
deficiencies noted in the PCIE sampling
project, Peer Review and Ethics
Governmental Audit Quality Center
Part A Deficiencies
Major Program Determination
• 2 year look back rule
• % of coverage
• Low risk determination
• Threshold calculation for major
Governmental Audit Quality Center
Part A Deficiencies
Applicable, direct and material compliance
Internal control
• Understanding
• Testing
- Low level of control risk
Compliance testing
• RMNC determination
Governmental Audit Quality Center
Part A Deficiencies
Findings and questioned costs
• Appropriation evaluation
• Presentation
- Criteria, condition, cause, effect,
recommendations, views of responsible officials
- Questioned costs
Governmental Audit Quality Center
Part A Deficiencies
SEFA presentation
CFDA numbers
ARRA presentation
Pass-through information
Notes re significant accounting policies
Non cash assistance
Reconciliation to financial statements
Governmental Audit Quality Center
Enhanced Report Acceptance Process
Enhanced report acceptance process
approved by the PRB at its January, 2010
For Reviews commencing on or after June 1,
2010, peer reviewer must submit the Part A
Checklist and Engagement Profile
Part A and engagement profile submitted to
Report Acceptance Body
• Recalculation of major program determination
• Greater scrutiny of peer reviewer’s handling of “no
answers” on checklists
Governmental Audit Quality Center
What Does it Take to
be a Peer Reviewer
and Team Captain?
Governmental Audit Quality Center
Who are Peer Reviewers?
Public practitioners who:
• Have a successful audit practice serving clients in the public
sector, private companies, employee benefit plans or
governmental entities
• Are committed to enhancing the audit quality of the profession
• See peer reviews as a venue to work with and serve other public
Governmental Audit Quality Center
What Does it Take to be a Peer Reviewer
and Team Captain
The requirements to be a team member are the
• Be a member of the AICPA
• Possess current knowledge of applicable professional standards
• Five years of recent experience in the practice of public
accounting in the accounting or auditing function.
• Currently active in public practice at a supervisory level in the
accounting or auditing function of a firm enrolled in an approved
practice-monitoring program
• Must complete a resume online
Governmental Audit Quality Center
What Does it Take to be a Peer Reviewer
and Team Captain
In order to be a peer reviewer and perform
engagement reviews on their own, the team
members must take the first day of the two day
introductory How-to course
Use the same set of practice management skills as
you do on an audit – delegate appropriately to the
team member and review his/her work
You are using the same set of knowledge as you use
for an audit. For example, if it’s an GAO and/or OMB
A-133 review you are using the same set of
knowledge as you use for your governmental audit.
Governmental Audit Quality Center
What Does it Take to be a Peer Reviewer
and Team Captain
Specialized industry expertise (GAO, OMB
A-133, ERISA) will give you an advantage
similar to the way it does in an audit
 Requests to be a team member
 Client referrals from the firms you peer review (may decide
to give up their one or two specialized audits)
 Make sure you include your industry specializations in the
State Society directory and any of your other marketing
Governmental Audit Quality Center
What Does it Take to be a Peer Reviewer
and Team Captain
Use Team Members
• Team members can be located easily via a search on the AICPA
• Team members for a specialized industry are required for
scheduling a review; based on the risk assessment, they may or
may not be utilized (unless a “must select”).
• Team members must be approved by the Administering Entity
• Team members should receive their standard rate
• Team member fees should be passed straight through to the firm
• Team members can perform the review of the engagement offsite
• Present it to the firm as a non-issue and it will be perceived that
Governmental Audit Quality Center
How Peer Review Can
Add Value
Governmental Audit Quality Center
How PR Can Add Value
Objective of the Peer Review Program
The AICPA Peer Review Program is dedicated to
enhancing the quality of accounting, auditing and
attestation services performed by AICPA members
in public practice
Governmental Audit Quality Center
How PR Can Add Value
AICPA Peer Review Program
Provides a mechanism for firms to engage a peer
firm to review its system of quality control relating
to the application of:
• Accounting standards
• Auditing standards
• Attestation standards
Governmental Audit Quality Center
How PR Can Add Value
Why is Peer Review Important?
Strengthens firms’ quality control
Improves firms’ processes
Offers demonstrable evidence of a firm’s quality
Enables firms to correct deficiencies
Enhances the quality of the profession
Is paramount to the public’s interest
Governmental Audit Quality Center
How PR Can Add Value
Reviewed firms should perceive peer review
as a service with added value – not as a
necessary evil. Consider the following:
• Peer Reviewer can outsource staff with a specific
industry expertise to the firm for training purposes if
the firm had difficulty with a particular industry (Note:
frequency and extent should not be an integral part
of the firm’s consultation process)
• Can suggest sharing library resources with another
• Utilize engagement acceptance process
• Encourage firm to seek consultations as necessary
and be a resource for such consultations
Governmental Audit Quality Center
How PR Can Add Value
• Can point out instances where the firm may have
over audited
• Suggest analytics that can add value to the firm’s
procedures and add to the clients’ understanding of
their financials and their industry.
• Audit efficiencies to streamline the audit process
• Share opinion and experiences on software and
other tools of the trade
• Share tricks of the trade – “This is what we do in our
audit practice…”
• Share best practices noted from your peer review
Governmental Audit Quality Center
How PR Can Add Value
A peer reviewer can add value especially if
a pass with deficiency or fail report is
A firm that receives a pass with deficiency
or fail report will usually appreciate it if
you can explain to them the systemic
issues within the firm
Governmental Audit Quality Center
How PR Can Add Value
A pass with deficiency or fail report provides
great opportunity to add value – consider the
 Provide the option for the firm to accelerate their next
peer review if they would like to fix the issue and seek
a pass report.
 Firm can have annual inspection, engagement quality
control reviews and/or pre and post issuance reviews
Governmental Audit Quality Center
How to Have a Successful
Peer Review Practice
Governmental Audit Quality Center
How to Have a Successful Peer Review
View a peer review as you would any other audit
engagement –
• The required involvement of the team captain mirrors that
of a partner on an audit engagement
• Utilize team members from your firm to perform reviews of
the engagements
Governmental Audit Quality Center
How to Have a Successful Peer Review
Streamline the Peer Review Process
• Create a Peer Review template package – do not “recreate the
wheel” for each review
- Engagement letter
- Create a client Assist List - Pre-peer review and on-site (based
on the Team Captain Checklist)
- Down load Team Captain Packages
- Use engagement profiles (without the checklists) from AICPA
Peer Review Program website:
- Utilize administrative assistant to assist in process
Governmental Audit Quality Center
How to Have a Successful Peer Review
Streamline the Peer Review Process
• Other PR Practice tips:
- Complete the SRM on the same day as the review – leads
to inefficiencies if completed at a later date
- Report should be essentially completed the same day as the
review – Letter of Comments may still need to be formulated
- The quicker wrap-up is performed the more efficient the peer
- Flat rates may often be status quo in your area
- If client is clean, the flat rate can be very profitable
Governmental Audit Quality Center
How to Have a Successful Peer Review
Use Engagement acceptance process
wisely to determine the work involved; and
the fee you will charge -- consider asking
the following:
• How many levels of service?
• How many partners?
• Results of last peer review?
Governmental Audit Quality Center
How to Have a Successful
Peer Review Practice
“Top PR Marketing & Sales Ideas”
 Perform Committee-Appointed Review Team
(CART) Engagement Reviews
 Contact other peer reviewers and express
your interest in participating as a team
member on a review
 Contact a committee member to network &
learn how they developed PR practice
Governmental Audit Quality Center
How to Have a Successful
Peer Review Practice
“Top PR Marketing & Sales Ideas”
 Educate internal staff about PR & target
audience so they can assist with
 Market your availability as a peer reviewer
 State Directory
 Brochures
 Website
 Inform other CPAs you perform peer reviews
Governmental Audit Quality Center
How to Have a Successful
Peer Review Practice
Useful Tools:
• Peer Review Standards:
• Peer Review Checklists:
• GAQC Web Site:
• Quality Control Standards:
• Peer Review Public File:
Governmental Audit Quality Center
Questions ?????