Peer System Reviews - General Information

What are the types of peer reviews

There are three types of peer reviews - system, engagement and report.

What is a system review?

This type of review is for firms that perform engagements under the Statement on Auditing Standards (SASs,) the Government Auditing Standards (Yellow Book) or examinations of prospective financial information under the Statement on Standards for Attestation Engagements (SSAEs). The objective of a system review is intended to provide the reviewer with a reasonable basis for expressing an opinion on whether, during the year under review as to whether the reviewed firm:

  • Has designed its system of quality control for its accounting and auditing practice in accordance with AICPA quality control standards.

  • Approximately 15,000 firms are likely to have a system review over the next three years. The scope of the peer review does not encompass other segments of a CPA practice, such as tax services or management advisory services, except to the extent they are associated with financial statements, such as reviews of tax provisions and accruals contained in financial statements.

In a system review, the reviewer will study and evaluate a CPA firm's quality control policies and procedures that were in effect during the peer review year. This includes interviewing firm personnel and examining administrative files. To evaluate the effectiveness of the system and the degree of compliance with the system, the reviewer will test a reasonable cross-section of the firm's engagements with a focus on high-risk engagements in addition to significant risk areas where the possibility exists of engagements being performed and/or reported on that are not in accordance with professional standards in all material respects.

Peer System Reviews - Types of Reports

What types of peer review reports are issued on system reviews

The reviewer may issue one of three opinions on the firm's system of quality control (system): unmodified report, modified report or adverse report.

Unmodified Report

An unmodified report is issued when the reviewer believes that reviewed firm's system of quality control for the accounting and auditing practice is appropriately designed to meet the quality control standards for and accounting and auditing practice established by the AICPA and being complied with during the year ended to provide reasonable assurance that the firm complies with professional standards.
An unmodified report may be issued with a letter of comment. A letter of comment is issued if there are matters that the review team believes resulted in conditions being created in which there was more that a remote possibility that the firm would not conform with professional standards on accounting and auditing engagements in all material respects, but were not of such significance to cause the report to be modified or adverse. The letter should also include comments on such matter even if they did not result in engagement deficiencies on the engagements reviewed, such as when an element of the firm's quality control could be more suitably designed for a particular firm.

Modified Report

A modified report is issued when the reviewer believes the reviewed firm's system of quality control for the accounting and auditing practice in effect for the year ended is appropriately designed to meet the quality control standards for and accounting and auditing practice established by the AICPA and being complied with to provide reasonable assurance that the firm complies with professional standards except for any deficiencies noted by the reviewer. A modified report indicates that there are some failures to adhere to professional standards. The reasons for the modified opinion and recommendations will be included in the report.
A modified report can also be issued when the scope of the review is limited and the reviewer is unable to perform all of the necessary review procedures.
A letter of comment may be issued if the reviewer notes other departures from professional standards that are not significant departures, and therefore not included in the report, but that should be considered by the reviewed firm in evaluating the quality controls policies and procedures over its accounting practice.,

Adverse Report

An adverse report is issued whenever the reviewer believes the firm's system is not appropriately designed to meet the quality control standards for and accounting and auditing practice established by the AICPA or being complied with during the year under review to provide the firm with reasonable assurance that the firm complies with professional standards. An adverse report indicates that there are several significant failures to adhere to professional standards, The reasons for the adverse opinion and recommendations will be included in the report.

The American Institute of Certified Public Accountants   “Questions and Answers about the AICPA Peer Review Program”  Update #7,  January 2007

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