Illustration of a Response by a Reviewed Firm on a System Review

From the AICPA Standards for Performing and Reporting on Peer Reviews (Effective for Peer Reviews Commencing on or After January 1, 2009)

If your firm's peer review commenced prior to January 1, 2009, click here for sample letters of response.

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 deficiency discussed in the report. If the reviewed firm disagrees with one or more of the deficiencies or recommendations in the report, the reviewed firm should contact the administering entity for assistance. 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, see paragraph 93 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 136–140, “Accepting System and Engagement Reviews”). The letter of response should be submitted to the team captain for review and comment prior to the firm submitting the response to the administering entity.

• Illustration of a Response by a Reviewed Firm to a Report With a Peer Review Rating of Pass With Deficiencies on a System Review
• Illustration of a Response by a Reviewed Firm to a Report With a Peer Review Rating of Pass With Deficiencies (With a Scope Limitation) on a System Review
• Illustration of a Response by a Reviewed Firm to a Report Witha Peer Review Rating of Fail on a System Review
• Illustration of a Response by a Reviewed Firm to a Report Witha Peer Review Rating of Fail (With a Scope Limitation) on a System Review

Illustration of a Response by a Reviewed Firm to a Report With a Peer Review Rating of Pass With Deficiencies on a System Review

[Reviewed firm’s letterhead]

September 21, 20XX

VSCPA Peer Review Committee
Virginia Society of CPAs
P.O. Box 4620
Glen Allen, VA 23058-4620

Ladies and Gentlemen:

This letter represents our response to the report issued in connection with the peer review of the firm’s system of quality control for the accounting and auditing practice in effect for the year ended June 30, 20XX. The corrective actions discussed in this letter will be monitored to ensure that they are effectively implemented as part of our system of quality control.

1. The firm modified its quality control policies and procedures to require the use of practice aids to document procedures performed on review and compilation engagements, especially for accounts and notes payable. Partners were instructed to ensure that these aids were being utilized appropriately when reviewing engagements.
   This policy was discussed in a recent training session held in connection with a recent firmwide
   staff meeting.
2. The firm also modified its quality control policies and procedures to place a greater emphasis on partner involvement in the planning stage of all audit engagements. The revised policies and procedures require the engagement owner to document 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 above.
3. In addition, at that training session, the importance of proper use of the firm’s reporting and disclosure checklists appropriate to the industry of the engagement being performed was discussed. We discussed the proper resolution of points or topics unfamiliar to the individual completing the checklist or those reviewing its completion. The firm’s CPE plan for partners and managers now includes annual updates on industry specific disclosure issues.

As mentioned above, these corrective actions will also be emphasized in our monitoring procedures and internal inspection. We believe these actions are responsive to the findings of the review.

Sincerely,

[Name of Firm]


Illustration of a Response by a Reviewed Firm to a Report With a Peer Review Rating of Pass With Deficiencies (With a Scope Limitation) on a System Review

[Reviewed firm’s letterhead]

November 30, 20XX 

VSCPA Peer Review Committee
Virginia Society of CPAs
P.O. Box 4620
Glen Allen, VA 23058-4620

Ladies and Gentlemen:

This letter represents our response to the report issued in connection with the peer review of the firm’s system of quality control for the accounting and auditing practice in effect for the year ended June 30, 20XX.

1. The firm also modified its quality control policies and procedures to place a greater emphasis on partner involvement in the planning stage of all audit engagements. The revised policies and procedures require the engagement owner to document 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 a recent training session held in conjunction with a recent firm-wide staff meeting.
2. Due to circumstances that we deemed appropriate, we notified the peer reviewer that he would be unable to select our only audit subject to Government Auditing Standards in the peer review. This is the only governmental audit the firm has performed, so there were no previous audits for the reviewer to select. We suggested selecting an audit engagement in a different industry. We have considered the consequences of noncompliance related to this matter.

Sincerely,

[Name of Firm]


Illustration of a Response by a Reviewed Firm to a Report Witha Peer Review Rating of Fail on a System Review

[Reviewed firm’s letterhead]

November 30, 20XX

VSCPA Peer Review Committee
Virginia Society of CPAs
P.O. Box 4620
Glen Allen, VA 23058-4620

Ladies and Gentlemen:

This letter represents our response to the report issued in connection with the peer review of the firm’s system of quality control for the accounting and auditing practice in effect for the year ended June 30, 20XX. All issues have been brought to the attention of personnel at a meeting held on November 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.

1. Several of the deficiencies noted by the review team included missing or incomplete audit and review documentation. All individuals with responsibility for managing audit and accounting engagements have been reminded of their responsibility to ensure the applicable professional standards for performing and documenting engagements are followed. In addition, we have implemented a concurring partner review on all audit and review engagements, and the quality of audit documentation will be a focus of the concurring partner’s review.
2. The firm has contacted two other accounting firms with expertise in Employee Retirement Income Security Act (ERISA) audits, development stage companies, and other industries that are similar to ours. We have implemented a plan for consultation with these firms for guidance in situations with which we are unfamiliar.
3. We have purchased practice aids that are specific to the industries of our clients and have instructed staff and partners on their use.
4. At the staff meeting mentioned above, the importance of proper use of the firm’s reporting and disclosure checklist was discussed, including the use of checklists for specialized industries. We discussed the proper resolution of points or topics unfamiliar to the individual completing the checklist or those reviewing its completion. The firm’s CPE plan for partners and managers now includes annual updates on disclosure issues. The firm is committed to strengthening its monitoring policies and procedures, especially as they relate to a timely postissuance review of engagements. We have acquired quality control materials to guide the firm, and supervision of the monitoring process has been assigned to a partner. Additionally, outside assistance (as mentioned above) has been sought, and this individual will be available for consultation and guidance.

Sincerely,

[Name of Firm]


Illustration of a Response by a Reviewed Firm to a Report Witha Peer Review Rating of Fail (With a Scope Limitation) on a System Review

[Reviewed firm’s letterhead]

November 30, 20XX

VSCPA Peer Review Committee
Virginia Society of CPAs
P.O. Box 4620
Glen Allen, VA 23058-4620

Ladies and Gentlemen:

This letter represents our response to the report issued in connection with the peer review of the firm’s system of quality control for the accounting and auditing practice in effect for the year ended June 30, 20XX. All issues have been brought to the attention of the personnel at a meeting held on November 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. We notified our peer reviewer that he would be unable to review the engagements performed by one of our firm’s four offices that divested from our firm during the peer review year. We have considered the consequences of this scope limitation on the results of our peer review.

1. Several of the deficiencies noted by the review team included missing or incomplete audit and review documentation. All individuals with responsibility for managing audit and accounting engagements have been reminded of their responsibility to ensure the applicable professional standards for performing and documenting engagements are followed. In addition, we have implemented a concurring partner review on all audit and review engagements, and the quality of audit documentation will be a focus of the concurring partner’s review.
2. The firm has contacted two other accounting firms with expertise in Employee Retirement Income Security Act (ERISA) audits, development stage companies, and other industries that are similar to ours. We have implemented a plan for consultation with these firms for guidance in situations with which we are unfamiliar.
3. We have purchased practice aids that are specific to the industries of our clients and have instructed staff and partners on their use.
4. At the staff meeting mentioned above, the importance of proper use of the firm’s reporting and disclosure checklist was discussed, including the use of checklists for specialized industries. We discussed the proper resolution of points or topics unfamiliar to the individual completing the checklist or those reviewing its completion. The firm’s CPE plan for partners and managers now includes annual updates on disclosure issues.

The firm is committed to strengthening its monitoring policies and procedures, especially as they relate to a timely postissuance review of engagements. We have acquired quality control materials to guide the firm, and supervision of the monitoring process has been assigned to a partner. Additionally, outside assistance (as mentioned above) has been sought, and this individual will be available for consultation and guidance.

Sincerely,

[Name of Firm]