Instructions to Firms Having an Engagement Review

PRP Section 6100 — from the AICPA Peer Review Program Manual

.01 The purpose of these instructions is to provide guidance to firms having engagement reviews under the AICPA Peer Review Program (Program). Firms should be aware of their peer review responsibilities and requirements as discussed in the Standards for Performing and Reporting on Peer reviews (Standards [PRP section 3100]), with an emphasis on paragraph 1 through 17 of the Standards (PRP section 3100.01-.17), as well as these instructions. In addition, all individuals in your firm involved in the peer review should read and become familiar with the Standards, guidance, and materials relative to their part of the review. These instructions should be used for reference on firm-on-firm, committee appointed reviews teams (CART) [Note: the VSCPA does not offer CART reviews] and association reviews.

.02 An engagement review is available to firms that do not perform engagements under Statements on Auditing Standards (SASs), Government Auditing Standards, or examinations of prospective financial statements under the Statements on Standards for Attestation Engagements (SSAEs), but that do provide other types of services listed in the definition of an accounting and auditing practice for peer review purposes as defined in paragraph 3 of the AICPA Standards for Performing and Reporting on Peer Reviews [(the Standards); (PRP section 3100.03)]. Engagement reviews are administered by state CPA societies that elect to participate in, and are approved by the AICPA Peer Review Board to administer, the Program. The administering entity will contact your firm at the appropriate time to make arrangements for the conduct of the review.

.03 Prior to the review, the administering entity or the assigned reviewer will ask you to provide summarized information showing the number of accounting and review engagements and attestation engagements , classified into major industry categories and broken down by each partner of the firm who is responsible for the issuance of reports on accounting and review services and attest services. The form that will be used for this purpose is reproduced in Appendix A to these instructions.

.04 The firm will provide the reviewer with written representations indicating that the firm a) is not aware of any situation where it or its personnel has not complied with state board(s) of accountancy or other regulatory bodies rules and regulations, (including applicable firm and individual licensing requirements in each state in which it practices for the year under review) or has notified the peer reviewer of any such situations, b) has made available to the reviewer communications as stipulated in paragraph 50 of the Standards (PRP section 3100.05), c) has provided the reviewer with a list of all client engagements with periods ending during the year under review and d) has provided the reviewer with any other information requested by the reviewer. For attestation engagements, including financial forecasts or projections, the list of engagements should include those with report dates during the year under review. See PRP section 3100.134, "Appendix B, Firm Representations."

.05 Discuss with the reviewer the twelve-month period to be covered by the review. Ordinarily, the review should be performed within three to five months following the end of the year to be reviewed.

.06 Based on that information, the administering entity or the assigned reviewer will advise you of the types of engagements to be selected for review. (For example, you may have reported that Partner A issues review reports on four construction contractors, two retailers, and ten manufacturers, while Partner B issues compilation reports on thirty doctors and review reports on five restaurants. You may be asked to submit one of partner A's review reports on a construction contractor and one of Partner B's compilation reports on a doctor. You will select the specific engagements following those instructions.)

.07 The number of engagements selected should ordinarily adhere to the following guidelines:

The above criteria are not mutually exclusive. For example, one of every type of engagement that a partner performs does not have to be reviewed as long as, for the firm taken as a whole, all types of engagements noted in a above performed by the firm are covered.

.08 Within thirty days of being notified by the reviewer or the administering entity of the type of engagements selected for review, the firm should submit the following information for each engagement selected:

• A copy of the financial statements or information and the accountant's report, and the firm's documentation required by SSARs and the SSAEs. The client's name may be deleted and, if that is done, the engagement should be assigned a code number by the firm. The firm should retain a record of those code numbers to facilitate responding to any questions by the reviewer in the course of the review.
• A completed "engagement questionnaire" (see Appendix B)
• Firm representation letter

.09 The engagements selected should have periods ending during the agreed-upon review year.

.10 A firm may be dropped from the Program if it has failed to have a review by the date assigned. Therefore, if a firm fails to provide the information described in paragraph .08 in sufficient time to enable the reviewer to perform the engagement review prior to the required date, the reviewer should promptly advise the entity administering the review of this fact. Appropriate due process procedures will be followed in these circumstances.

.11 During the course of the review, the reviewer may have questions about the selected engagements. The firm is expected to respond promptly to questions raised during the review, whether those questions are raised orally or in writing.

.12 Upon receipt of the report and letter of comments, if any, on the review, the firm should prepare a letter of response to any deficiencies noted in the report and in the letter of comments. The report, letter of comments, if any, and the letter of response should be submitted to the administering entity within thirty days of the date the report was received from the reviewer or by the firm's peer review due date, whichever date is earlier. The reviewed firm should submit a draft of its letter of response to the reviewer for review and comment prior to submitting the response to the administering entity.

.13 The administering entity will not make the report on the firm's engagement review available to the public. The report should not be distributed by the firm to its personnel, clients or others until the firm has received a formal notification that it has been accepted by the administering entity.

Timing of Peer Reviews

.14 The Standards (PRP section 3100) state that if a firm, subsequent to the year-end of its report or engagement review, performs an engagement that would have required the firm to have a system review (e.g. firm performs its first audit), then the reviewed firm should (a) immediately notify the administering entity and (b) undergo a system review. The system review will be due 18 months from the year-end of the engagement (for financial forecasts and projections 18 months from the date of report) requiring a system review or by the firm's next scheduled due date, whichever is earlier. The engagement must be included in the system review.

.15 The Board has determined that the date the report on the engagement is issued triggers whether a firm must undergo a system review. Firms that issue their first report on an engagement performed under the SASs, Government Auditing Standards, or examination of prospective financial statements under the SSAEs, in 2005 and had an engagement or report review on their previous peer review, would be required to undergo a system review. Firms should notify the administering entity when they are engaged to perform such engagements in 2004 and are expecting to issue the reports in 2005 in order to comply with the Standards (PRP section 3100).

.16 The Board also decided that when a firm is scheduled for an engagement or report review and subsequent to the peer review end but prior to the peer review due date the firm will be issuing a report on an engagement performed under the SASs, Government Auditing Standards, or examination of prospective financial statements under the SSAEs, the firm has the option of undergoing two peer reviews (engagement or report and then system review) or wait until the engagement causing the system review is issued and undergo one system review. However, firms must consider the impact of waiting because this may cause non-compliance with state board of accountancy or other regulatory peer review requirements.