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Peer Review – Yesterday, Today and Tomorrow

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1) M I S S I O N D R I V E N – M E M B E R F O C U S E D June  2015  Regional  Mee1ngs     Peer  Review  -­â€     Yesterday,  Today  and  Tomorrow   Daniel  J.  Dus1n,  NASBA  Vice  President  –  State  Rela1ons   Janice  L.  Gray,  Chair  –  Compliance  Assurance  CommiMee   W.  Michael  Fritz,  Chair  –  Regulatory  Response  CommiMee  

2) M I S S I O N D R I V E N – M E M B E R F O C U S E D Focus  on  Employee  Benefit  Plan  (EBP)    Auditors   •â€¯ In  2013,  DOL  asked  AICPA  to  confirm  that  4,918  audit  ï¬rms   par1cipated  in  peer  review.   •â€¯ AICPA  staff  was  becoming  increasingly  aware  that  ï¬rms   were  failing  to:   –  Enroll  in  peer  review;   –  Have  the  appropriate  type  of  peer  review          (system  v.  engagement);   –  Report  “must  select”  engagements  to  their  peer  reviewer.  

3) M I S S I O N D R I V E N – M E M B E R F O C U S E D AICPA  System  Review  Report  With  “Must   Selects”   Excerpt  from  a  Report  With  a  Peer  Review  Ra4ng  of  Pass  in  a  System  Review   [Firm  le)erhead  for  a  ï¬rm-­â€on-­â€ï¬rm  review;  team  captain’s  ï¬rm  le)erhead  for  an  associa:on  formed  review  team.]     System  Review  Report   October  31,  20XX   To  the  Partners  of  [or  other  appropriate  terminology]   XYZ  &  Co.   and  the  Peer  Review  CommiMee  of  the  [insert  the  name  of  the  applicable  administering  en1ty]     *          *          *   As  required  by  the  standards,  engagements  selected  for  review  included  (engagements  performed  under   Government  Audi:ng  Standards;  audits  of  employee  benefit  plans,  audits  performed  under  FDICIA,  audits  of   carrying  broker-­â€dealers,  and  examina1ons  of  service  organiza1ons  [Service  Organiza1ons  Control  (SOC)  1  and  2   engagements]).   *          *          *     AICPA  Standards  for  Performing  and  Repor1ng  Peer  Reviews,    Appendix  C,  PRP§1000.209  (Jan  2014)  

4) M I S S I O N D R I V E N – M E M B E R F O C U S E D DOL  Project   •â€¯ AICPA  staff  analysis  determined  that  EBP  audit  ï¬rms:   –  Failed  to  iden1fy  EBP  engagements  in  their  last  system  review;   –  Had  an  engagement  review  and  failed  to  have  a  “step-­â€up”  review   when  it  performed  an  audit  (EBP  engagement  was  the  ï¬rm’s  ï¬rst   audit);   –  Had  been  annually  ï¬ling  a  “no  A&A  leMer”  aMes1ng  that  the  ï¬rm   performed  no  A&A  engagements.    

5) M I S S I O N D R I V E N – M E M B E R F O C U S E D DOL  Peer  Review  Project   11%  enrolled  but   omiMed  EBP   21%  not  in   compliance   4,918   Firms   79%  in   compliance   10%  referred     to  Ethics   2%  peer  review   in  process   6%  recalled   9%  recalled,   accelerated  or   step  up  review   3%  accelerated  or  step   up  

6) M I S S I O N D R I V E N – M E M B E R F O C U S E D State  Board  Ac1ons   •â€¯ Dependent  on  state  statute:   –  Loca1on  of  sponsor     –  Jurisdic1on  where  audit  was  performed.   •â€¯ Verify  ï¬rm’s  registra1on:   –  Administra1ve  warning  –  register  and  bring  into  compliance  with  warning   –  Firm  discipline,  including  sanc1ons.   •â€¯ Verify  ï¬rm’s  compliance  with  jurisdic1on’s  peer  review  statute:   –  Administra1ve  warning   –  Ethics  viola1on   –  Sanc1ons.  

7) M I S S I O N D R I V E N – M E M B E R F O C U S E D Peer  Review  -­â€     Changes  

8) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Strengthen  Firm  Quality   •â€¯ Licensure  Verifica1on   –  Firm’s  license   –  Individual  licenses  

9) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Strengthen  Firm  Quality   •â€¯ Engagement  Lis1ng  Completeness     –  Enhanced  warning  to  ï¬rms   –  Revised  representa1on  leMer  to  peer  reviewer   –  When  future  misrepresenta1ons  occur  -­â€   •â€¯ Report  recalled  (with  State  Board  no1fica1on)   •â€¯ Hearing  panels  determines  termina1on  or  replacement  review   •â€¯ Re-­â€enrollment  subject  to  approval  of  second  hearing  panel   •â€¯ Annual  “no  A&A  leMer”  misrepresenta1ons   –  Use  of  publicly  available  databases  to  match  ï¬rms  

10) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Strengthen  Firm  Quality   •â€¯ SSARS  21  (effec1ve  May  5,  2015)   –  If  ï¬rm  only  performs  prepara1on  engagements,  not  required  to            enroll  in  peer  review.   –  If  enrolled,  engagements  are  in  scope.   –  Allows  enrollment  when  State  Board  regula1ons  require  peer                   reviews  of  ï¬rms  performing  prepara1on  engagements.  

11) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Strengthen  Firm  Quality   •â€¯ Consecu1ve  Pass  With  Deficiency  or  Fail  Reports  (effec1ve              Jan.  1,  2015)   –  Mandatory  assessment  of  referral  to  hearing  panel  for  two          consecu1ve  non-­â€pass  reports.   –  Presump1vely  mandatory  referral  to  hearing  panel  for  two          consecu1ve  fail  reports.   –  Mandatory  referral  to  hearing  panel  for  three  consecu1ve  non-­â€pass   reports.  

12) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Enhance  Reviewer  Quality   •â€¯ 2014/2015  Pilot   –  Subject  maMer  experts  engaged.     –  90  reviews  selected,  all  “surprise.”   –  Engagements  reviewed  at  subject  maMer  experts’  offices.   –  Experts  reviewed  engagements  prior  to  acceptance  by  the  Report   Acceptance  Body.   –  Results.   –  Poor  performing  reviewers  subject  to  correc1ve  ac1on  or  removal.    

13) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Enhance  Reviewer  Quality   •â€¯ 2015/2016  Expansion   –  Larger  sample.   –  Focus  expanded  to  root  cause  analysis  in  addi1on  to  reviewer   performance.   –  Some  oversights  will  be  performed  at  reviewed  ï¬rm’s  loca1on.  

14) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Enhance  Reviewer  Quality   •â€¯ Reviewer  Performance  (effec1ve  Dec.  31,  2015)   –  Prac1cing  the  last  ï¬ve  years  in  public  accoun1ng.   –  Have  experience  at  the  level  they  review.   –  Meet  addi1onal  qualifica1ons  for  must-­â€select  engagements.   –  Maintain  certain  levels  of  performance.  

15) M I S S I O N D R I V E N – M E M B E R F O C U S E D Ac1ons  to  Enhance  Reviewer  Quality   •â€¯ Reviewer  Qualifica1ons  (effec1ve  May  5,  2016)   –  Complete  on-­â€demand  training  with  competency  assessment   before  becoming  a  team  captain.   –  Complete  annual  on-­â€demand  training  with  competency   assessment.   –  Must-­â€select  reviewers  must  also  complete  on-­â€demand  training   with  competency  assessment  in  the  must-­â€select  areas  they   review.  

16) M I S S I O N D R I V E N – M E M B E R F O C U S E D Items  Under  Considera1on   •â€¯ Strengthening  peer  review  approach  to  evalua1ng  the   design  of  a  ï¬rm’s  system  of  quality  control.   •â€¯ Enhancing  requirements  for  correc1ve  ac1on  when  certain   non-­â€conforming  engagements  detected  during  peer  review   (regardless  of  report  grade).   •â€¯ Streamlining  removal  of  ï¬rms  that  fail  to  properly   complete  required  correc1ve  ac1ons.  

17) M I S S I O N D R I V E N – M E M B E R F O C U S E D Peer  Review  -­â€     Of  Tomorrow  

18) M I S S I O N D R I V E N – M E M B E R F O C U S E D Future  Peer  review   •â€¯ We  are  at  a  crossroads.   •â€¯ We  can  con1nue  down  the   road  doing  what  we  have   done  in  the  past.   •â€¯ Or  we  can  go  down  a  new   path  and  embrace  change.        

19) M I S S I O N D R I V E N – M E M B E R F O C U S E D Future  of  Peer  Review   •â€¯ Enhancing  Audit  Quality-­â€Plans  and  Perspec:ves  for  the  U.S.   CPA  Profession  “EAQ  discussion  paper”  released  for   comment  in  May  2014   –  How  the  AICPA  plans  to  Enhance  Audit  Quality  6  point  plan   issued  May  2015   •â€¯ Evolving  the  CPA  Profession’s  Peer  Review  Program  for  the   Future  concept  paper  “the  Concept  Paper”  released  for   comment  December  15,  2014    

20) M I S S I O N D R I V E N – M E M B E R F O C U S E D Key  Items  in  NASBA  Comment  LeMer  on  EAQ     •â€¯ Supported  AICPA  efforts  to  improve  audit  performance  and   quality   –  Reinforce  importance  of  due  care,  competence  and  diligence.   –  Enhanced  audit  quality  control  standards,  including   considera1on  of  EQCR  for  all  aMest  engagements  and  increased   focus  on  specific  industries  (EBP,  government,  banking,   insurance,  construc1on  and  real  estate).   –  Enhancing  curricula,  content  and  methods  of  instruc1on  to   support  the  major  topical  areas  the  profession  serves.     AICPA  Standards  for  Performing  and  Repor1ng  Peer  Reviews,    Appendix  C,  PRP§1000.209  (Jan  2014)  

21) M I S S I O N D R I V E N – M E M B E R F O C U S E D Key  Items  in  NASBA  Comment  LeMer  on  EAQ   (con1nued)   –  Enhancing  the  quality  of  peer  reviews,  including  minimum   competency  levels  for  must  select  engagement  reviewers  and   oversight  of  peer  reviewers.    

22) M I S S I O N D R I V E N – M E M B E R F O C U S E D Future  of  Prac1ce  Monitoring   AICPA  Concept  Paper   22  

23) M I S S I O N D R I V E N – M E M B E R F O C U S E D NASBA  Feedback  on  Concept  Paper   •â€¯ Feedback  leMer  issued  June  XX,  2015   –  Enhancing  the  quality  of  peer  review  is  a  cri1cal  element  to  any   changes  in  prac1ce  monitoring.   –  Support  the  use  of  engagement  quality  indicators  for  a  ï¬rm’s   internal  system  of  monitoring  quality  control.   –  Have  concerns  over  how  some  of  the  proposals  would  impact   non-­â€AICPA  member  ï¬rms  and  how  electronic  informa1on  could   be  “standardized.”  

24) M I S S I O N D R I V E N – M E M B E R F O C U S E D NASBA  Feedback  on  Concept  Paper  (con1nued)   –  Need  to  understand  how  the  system  is  monitored.  State  Boards   need  to  con1nue  to  receive  ï¬rm  results  as  part  of  their   regulatory  process.     –  Peer  reviews  can  only  be  effec1ve  and  succeed  if  their  work  is   supported  by  appropriate  consequences  and  an  effec1ve   enforcement  mechanism.