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 Beneï¬t Plan (EBP) Auditors •â€¯ In 2013, DOL asked AICPA to conï¬rm that 4,918 audit ï¬rms par1cipated in peer review. •â€¯ AICPA staï¬€ was becoming increasingly aware that ï¬rms were failing to: –â€¯ Enroll in peer review; –â€¯ Have the appropriate type of peer review (system v. engagement); –â€¯ 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 beneï¬t 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 staï¬€ analysis determined that EBP audit ï¬rms: –â€¯ Failed to iden1fy EBP engagements in their last system review; –â€¯ 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); –â€¯ 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: –â€¯ Loca1on of sponsor –â€¯ Jurisdic1on where audit was performed. •â€¯ Verify ï¬rm’s registra1on: –â€¯ Administra1ve warning – register and bring into compliance with warning –â€¯ Firm discipline, including sanc1ons. •â€¯ Verify ï¬rm’s compliance with jurisdic1on’s peer review statute: –â€¯ Administra1ve warning –â€¯ Ethics viola1on –â€¯ 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 Veriï¬ca1on –â€¯ Firm’s license –â€¯ 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 –â€¯ Enhanced warning to ï¬rms –â€¯ Revised representa1on leMer to peer reviewer –â€¯ When future misrepresenta1ons occur -­â€ •â€¯ Report recalled (with State Board no1ï¬ca1on) •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 –â€¯ 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 (eï¬€ec1ve May 5, 2015) –â€¯ If ï¬rm only performs prepara1on engagements, not required to enroll in peer review. –â€¯ If enrolled, engagements are in scope. –â€¯ 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 Deï¬ciency or Fail Reports (eï¬€ec1ve Jan. 1, 2015) –â€¯ Mandatory assessment of referral to hearing panel for two consecu1ve non-­â€pass reports. –â€¯ Presump1vely mandatory referral to hearing panel for two consecu1ve fail reports. –â€¯ 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 –â€¯ Subject maMer experts engaged. –â€¯ 90 reviews selected, all “surprise.” –â€¯ Engagements reviewed at subject maMer experts’ oï¬ƒces. –â€¯ Experts reviewed engagements prior to acceptance by the Report Acceptance Body. –â€¯ Results. –â€¯ 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 –â€¯ Larger sample. –â€¯ Focus expanded to root cause analysis in addi1on to reviewer performance. –â€¯ 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 (eï¬€ec1ve Dec. 31, 2015) –â€¯ Prac1cing the last ï¬ve years in public accoun1ng. –â€¯ Have experience at the level they review. –â€¯ Meet addi1onal qualiï¬ca1ons for must-­â€select engagements. –â€¯ 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 Qualiï¬ca1ons (eï¬€ec1ve May 5, 2016) –â€¯ Complete on-­â€demand training with competency assessment before becoming a team captain. –â€¯ Complete annual on-­â€demand training with competency assessment. –â€¯ 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 –â€¯ 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 eï¬€orts to improve audit performance and quality –â€¯ Reinforce importance of due care, competence and diligence. –â€¯ Enhanced audit quality control standards, including considera1on of EQCR for all aMest engagements and increased focus on speciï¬c industries (EBP, government, banking, insurance, construc1on and real estate). –â€¯ 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) –â€¯ 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 –â€¯ Enhancing the quality of peer review is a cri1cal element to any changes in prac1ce monitoring. –â€¯ Support the use of engagement quality indicators for a ï¬rm’s internal system of monitoring quality control. –â€¯ 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) –â€¯ Need to understand how the system is monitored. State Boards need to con1nue to receive ï¬rm results as part of their regulatory process. –â€¯ Peer reviews can only be eï¬€ec1ve and succeed if their work is supported by appropriate consequences and an eï¬€ec1ve enforcement mechanism.