The future of peer review: it is a misconception that the CBA requires peer review.
Further, if a firm performs services within the scope of the AICPA's practice monitoring standards--such as audits, reviews, compilations and most attest engagements--the firm must undergo a peer review every three years.
The AICPA Peer Review Program and the SEC Practice Section (SECPS) Peer Review Program were the two approved practice monitoring programs. Firms with clients filing periodic reports with the Securities and Exchange Commission, excluding certain brokers or dealers, enrolled in the SECPS Peer Review Program; other firms could choose between SECPS and the AICPA Peer Review Program.
CalCPA administers reviews for California firms enrolled in the AICPA Peer Review Program and will keep doing so. The SECPS administers peer reviews for firms belonging to its section at the national level, but its role has changed since the Public Company Accounting Oversight Board's arrival.
OTHER REGULATORS INFLUENCED
After seeing the benefits of peer review, the NYSE, NASDAQ and AMEX now require registrants listed on these exchanges to only use auditors with a current peer review report.
The Government Auditing Standards requires a peer review to be completed--meaning a peer review report has been issued--within three years from the date a firm begins its first audit under generally accepted government auditing standards. Audits of governmental units or nonprofit organizations expending $300,000 ($500,000 effective for fiscal years ending after Dec. 31, 2003) or more per year in federal awards typically fall under government auditing standards.
In addition, state and local regulations can require audits to be performed under Government Auditing Standards. For example, state law requires audits of California redevelopment agencies to be performed under these standards. An agreement or contract also can contain these requirements.
The stock exchanges and the GAO did not establish practice monitoring programs to perform and administer peer reviews; rather, they expect auditors to enroll in an established program, such as an AICPA program.
THE ROLE OF THE PCAOB
A provision of the Sarbanes-Oxley Act established the PCAOB, which will, among other duties, inspect all firms with clients filing periodic reports with the SEC, including broker/dealer clients.
For firms with more than 100 such clients, inspections will be annual; for all other firms, inspections will be every three years. The inspections only will encompass SEC clients, so firms still will need to be enrolled in a practice monitoring program. But what will that program look like?
One answer may be found in the AICPA Council's announcement of a new voluntary membership organization--the Center for Public Company Audit Firms--which restructures and replaces SECPS and will administer a peer review program for member firms focusing on audits of nonpublic entities. This will bridge the PCAOB's inspections and a firm's practice monitoring requirements.
The PCAOB has notified SECPS that its role is "business as usual" as the PCAOB will not conduct inspections until this year.
It is a misconception that the California Board of Accountancy requires peer review. In 2001, the CBA did add Sec. 5076 to the Business and Professions Code, requiring a triennial peer review for firms providing attest services, but that does not take effect until Jan. 1, 2006--and it excludes sole proprietors and small firms employing no more than four CPAs.
In 2002, the CBA established a Peer Review Task Force (PRTF) to study peer review and report to the CBA by July 2003. The September 2003 Sunset Review recommended postponing the PRTF report until Sept. 1, 2005 to enable the task force to evaluate the AICPA and PCAOB programs. If postponed, mandatory peer review in California would begin July 1, 2008.
OUTLOOK AND CONCLUSION
The most sweeping peer review change will be for firms with broker/dealer audit clients, which the SEC previously determined did not meet the definition of "SEC engagement" and the audit firm could enroll in the AICPA Peer Review Program.
However, with the advent of the PCAOB, the SEC reversed this decision and auditors of broker/dealers must register with the PCAOB by Jan. 1, 2005 and subject those engagements to PCAOB inspection. For most other firms, peer review will be unchanged for the near term.
While the AICPA has issued an exposure draft that would affect the peer review reports and letters of comment, as well as some other aspects of the peer review process, the basic rules are the same. And what about firms that aren't AICPA members? Stay tuned for more information from the CBA.
BY LINDA McCRONE, CPA AND MARCIA HEIN, CPA
Linda McCrone, CPA is CalCPA's director of technical services. You can reach her at firstname.lastname@example.org. Marcia Hein, CPA is a sole proprietor and is former chair of the California Peer Review Committee and former member of the SECPS Peer Review Committee. You can reach her at email@example.com.
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|Title Annotation:||PeerReview; California Board of Accountancy|
|Date:||Jan 1, 2004|
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