Illustration of a Response by a Reviewed Firm to a Letter of Comments on a System Review

From the AICPA Standards for Performing and Reporting on Peer Reviews (Standards) The purpose of a letter of response is to describe the actions the firm has taken or will take including the timing of the planned actions, to prevent a recurrence of each matter discussed in the letter of comments. If the reviewed firm disagrees with one or more of the findings or recommendations in the letter of comments, the reviewed firm should contact the administering entity for assistance in the matter. If the firm still disagrees after contacting the administering entity, the firm's response should describe the reasons for such disagreement. For more information related to disagreements, please see paragraph 98 of the Standards. The letter of response should be carefully prepared because of the important bearing it may have on the decisions reached in connection with acceptance of the report on the review (see paragraphs 111 to 120 "Acceptance of System, Engagement and Report Reviews"). The letter of response should be submitted to the team captain for review and comment prior to submitting the response to the state CPA society administering the review. Sample Letter of Response to an Unmodified Report With a Letter of Comments Sample Letter of Response to a Modified Report Sample Letter of Response to a Modified Report for a Scope Limitation Sample Letter of Response to an Adverse Review   Sample Letter of Response to an Unmodified Report With a Letter of Comments | Top September 15, 20XX [Addressed to the peer review committee of the administering entity] Ladies and Gentlemen: This letter represents our response to the report and letter of comments issued in connection with the review of our accounting and auditing practice for the year ended June 30, 20XX. The matters discussed herein were brought to the attention of all professional personnel at a training session held on September 10, 20XX. In addition, the matters discussed in this letter will be given special emphasis in our monitoring procedures. Financial Reporting and Disclosure Checklists — All professional personnel were reminded of the importance of complying with the firm's policy requiring completion of its financial reporting and disclosure checklist at the training session held on September 10, 20XX. In addition, the firm's engagement review questionnaire is being revised to require the engagement partner to document his or her review of the completed checklist. (The engagement review questionnaire is a brief form completed by the engagement partner and the manager at the conclusion of an audit to document their completion of their assigned responsibilities.) Monitoring — A partner of the firm has been designated as responsible for summarizing the findings on the firm's annual inspection and monitoring the actions taken as a result of those findings to prevent their recurrence. We believe these actions are responsive to the findings of the review. Sincerely, [Name of firm]   Sample Letter of Response to a Modified Report | Top December 23, 20XX [Addressed to the peer review committee of the administering entity] This letter represents our response to the report and letter of comments issued in connection with our firm's review of its system of quality control for the year ended June 30, 20XX. The matters discussed in this letter will be monitored to ensure that they are effectively implemented as part of our system of quality control. Deficiency that resulted in a modified report The firm modified its quality control policies and procedures to require a greater emphasis of partner involvement in the planning stage of all audit engagements. In addition, we identified review engagements that are sufficiently large or complex to warrant partner involvement in the planning stage. The revised policies and procedures require the engagement owner to documents his or her timely involvement in the planning process in the planning section of the written work program. The importance of proper planning, including timely partner involvement, to quality work was emphasized in the training session referred to previously. Comments that did not result in a modified report The firm has issued a current and up to date client list for all staff to review. The client list will be distributed each time a client has been accepted by the firm. In addition, all staff will be reminded that any possible independence issues should be brought to the attention of the managing partner immediately. In response to the comment regarding non-disclosure compilations reports, we will immediately review the report language to conform to professional standards. The firm has implemented a quality control policy for a technical manager to review each accounting and auditing report to ensure the reports conform with professional standards. We believe these actions are responsive to the findings of the review. Sincerely, [Name of firm]   Sample Letter of Response to a Modified Report for a Scope Limitation | Top December 23, 20XX [Addressed to the peer review committee of the administering entity] This letter represents our response to the report and letter of comments issued in connection with our firm's review of its system of quality control for the year ended June 30, 20XX. The matters discussed below were brought to the attention of all professional personnel at a meeting held on December 20, 20XX. The matters discussed in this letter will also be monitored to ensure that they are effectively implemented as part of our system of quality control. We concur with the comments of the reviewer. We will require that a current financial disclosure checklist be completed and reviewed by the engagement partner for each engagement issued by the firm. We have also revised audit procedures to require that the management representation letter cover both years when comparative financial statements are issued and this will be included in the partner review. We believe these actions are responsive to the findings of the review. Sincerely, [Name of firm]   Sample Letter of Response to an Adverse Review | Top September 23, 20XX [Addressed to the peer review committee of the administering entity] This letter represents our response to the report issued in connection with the firm's review of its system of quality control for the year ended June 30, 20XX. All issues have been brought to the attention of professional staff at a meeting held of September 22, 20XX. In addition, steps have been added to our monitoring procedures to review the deficiencies noted in the report so that they will not happen again. Several of the deficiencies noted by the review team included missing or incomplete audit and review documentation. Specifically noted were audit programs not adequately completed or missing, evaluation of the results of sample selection and other documentation deficiencies. All audit partners will be immediately required to complete a documentation checklist that will be tailored to cover the requirements of specialized industries, if necessary. In addition we have implemented a concurring partner review on all audit and review engagements to determine if the audit documentation supports the audit opinion. The firm has contacted two other accounting firms with expertise in development stage companies and other industries that are similar to ours. We have implemented a plan with these other accounting firms to review our work to make sure we are in compliance with professional standards to consult when needed. We have revised our policies and procedures to require a senior manager to review all review engagements for the documentation required by professional standards. The senior manager will be using a reviewing checklist that contains questions regarding management representation letter for each year reported on, and documentation of accountant's inquiry and analytical procedures. At the staff meeting, the staff was reminded of the importance of completing a disclosure checklist. Within the next few weeks all professional staff will be attending a CPE course in disclosures. In addition, the managing partner will be holding a training class on the proper completion of a disclosure checklist and to ask if staff is unsure of any question. Our firm administrator has created a client acceptance file. The file will contain the new and continuing client acceptance forms that will cover the considerations and conclusion of each client accepted by the firm. In addition, the managing partner will periodically review the files to determine if appropriate conclusions were reached. Sincerely, [Name of firm]