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Society of Louisiana
Certified Public Accountants
2400 Veterans Blvd.,
Suite
500
Kenner,
LA 70062
(504) 464-1040
1-800-288-5272
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Reviewer
Information
Peer
Review
Alert
2007 Team Captain Packages
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Listed below are deficiencies commonly committed
by reviewers:
- Failure to properly address and recognize repeat findings
- Failure to reference modified/adverse in Letter of
Comments
- Failure to recognize significant deficiencies on engagement/report
reviews
- Failure to propery address system problems
- Failure to "close the loop"
on system reviews
- Untimely submission of workpapers. All materials,
including the firm's response must be submitted within
30 days of the exit conference or by the due date, whichever
is earlier.
- Improper completion of MFCs
- Failure to complete MFCs to document matters requiring
additional information or explanation
- Failure to include Professional Standards Reference
in the MFCs
- Failure to identify significant deficiencies in the
MFCs
- Failure to include checklist page and engagement number
on MFCs
- Failure to explain "No"
answers
- Failure to address the type of report to be issued
with the firm prior to the exit conference.
- Use of outdated program material and checklists
- Improper completion of SRM
- Failure to properly identify documentation deficiencies
- Failure to identify substandard engagements
- Failure to include list of exit conference items
- Improper completion of Section IV Overall Findings
and Conclusions.
- Failure to include "although not required by professional
standards"
when recommendations go beyond the requirements of professional
standards
Reviewers must think of engagement deficiencies as symptoms
of weaknesses in the firm's system of quality control. A
reliable method for identifying the systemic cause of engagement
deficiencies is to require complete answers on the MFC forms
instead of merely a check mark.
The use of forms and checklists are helpful
but will not cure all deficiencies. Separate engagement deficiencies
that are exactly the same may result from completely different
quality control weaknesses. Reviewers must understand the
underlying cause of the deficiency in order to make appropriate
recommendations. Guidance can be found Section 3400 of the
AICPA Peer Review Program Manual.
- Report, Letter of Comments and Letter of Response
- Peer Review Engagement Summary Form
- Engagement Questionnaire for Each Selected Engagement
- Reviewer's Checklist
- Peer Review Completion Form
- One Reviewer's Engagement Checklist for Each Engagement
Selected for Review
- Matter for Further Consideration Forms
- Engagement Statistics Data Sheet
System
The presence of a substandard engagement on a system review
does not automatically result in a modified report.
Engagement Review
If one engagement is substandard on an engagement review,
the report is automatically modified. If all engagements
are substandard, the report is automatically adverse.
If more than one but not all engagements are
substandard consider the nature of the deficiencies and whether
or not they are repeat to determine if modified or adverse
is appropriate.
If none of the engagements are substandard
but there are numerous insignificant deficiencies, a modified
opinion should be considered
Minor deficiencies include departures from professional standards
that are not normally material to a proper understanding
of the report or financial statements or to the performance
of an engagement. These departures alone would not usually
cause an engagement to be substandard. This list is not all-inclusive
but does contain the most common minor deficiencies noted
during peer reviews.
Reports:
- Failure to report on or indicate level of responsibility
taken for supplemental information issued along with
financial statements.
- Minor departures from standard report language, provided
the report is not otherwise misleading about the degree
of responsibility taken.
- Failure to reference all time periods encompassed
by the financial statements.
- Inclusion of a reference that the omission of the
statement of cash flows for financial statements prepared
on an OCBOA (a statement of cash flows is not required
for financial statements prepared under an OCBOA).
- Minor report dating departures
- Failure to disclose an OCBOA for financial statements
compiled without disclosure where the basis of accounting
is readily determinable from reading the report.
- Omission of reference to statement of changes in equity
(when otherwise included in the financial statements).
Financial Statement Measurement, Presentation
and Disclosure:
- Failure to reference the financial statements to the
report or accompanying footnotes.
- Use of financial statement titles are not appropriate
for the basis of accounting used when the accountant's
report, financial statements or footnotes otherwise indicate
the basis of accounting (for example, "balance sheet,"
that is associated with GAAP, may not be appropriate
for cash basis financial statements).
- Failure to include the title "Selected Information
- Substantially All Disclosures Required by GAAP Are
Omitted" as appropriate for the presentation of
certain selected disclosures.
- Failure to accrue income taxes where the accrual and
provision are expected to be immaterial to the financial
statements taken as a whole.
- Omitted or inadequate disclosures related to minor
account balances or transactions (for example: minor
disclosure deficiencies related to accounting policies,
inventory, valuation allowances, long term debt, related
party transactions, concentrations of credit risk, deferred
income taxes or employee benefit plans).
- The titles on the financial statements are not consistent
with the report issued.
SSARS Procedures and Documentation:
- Minor documentation deficiencies related to review
engagements.
- Minor omitted procedures related to review engagements.
Significant deficiencies include matters that are normally
material to understanding the report or financial statements
or represent a critical auditing or SSARS procedure. Materiality
is considered from the point of view of a reasonable reader
of the financial statements or report. An engagement with
a significant deficiency is normally considered substandard.
This list is not all-inclusive but does contain a list of
the most common significant deficiencies noted during peer
reviews.
Significant Deficiencies with Reports:
- Departures from standard wording where the report
does not contain critical elements of applicable standards.
- Failure to disclose lack of independence in a compilation
report.
- Failure to disclose the omission of substantially
all disclosures (in a compilation without disclosures).
- Failure to disclose OCBOA for financial statements
compiled without disclosure, where the basis of accounting
is not readily determinable from reading report.
- Issuance of a review report when the accountant is
not independent
- Failure to disclose the omission of the statement
of cash flows in financial statements prepared in accordance
with GAAP.
- Failure to disclose, in the accountant's report, a
material departure from professional standards (omission
of significant income tax provision of interim financial
statements; omission of significant disclosures related
to defined employee benefit plans; omission of required
supplemental information for a common interest realty
association).
- Failure to include a material amount of balance necessary
for the basis of accounting used (omission of material
accruals, failure to amortize a significant intangible
asset, the failure to provide for material losses or
doubtful accounts, or failure to provide for material
deferred income taxes)
- Failure to disclose significant related party transactions.
- A review report that omits substantially all of the
disclosures required by GAAP.
- Compiled financial statements that omit substantially
all disclosures and the report does not clearly indicate
the omission.
- Failure to include a statement of cash flows.
- Compiled financial statements prepared on OCBOA and
that basis is not disclosed in the report or the financial
statements.
- A review report that refers to conformity with GAAP
when the financial statements have been prepared on OCBOA.
- Use of an inappropriate method of revenue recognition.
- The report does not indicate the periods covered by
the financial statements.
Significant Deficiencies with Financial
Statement Measurement, Presentation and Disclosure:
- Misclassification of a material transaction or balance.
- Improper accounting of a material transaction (recording
a capital lease as operating lease).
- Omission of significant matters related to the understanding
of the financial statements (the cumulative material
effect of a number of disclosure deficiencies.)
- Inclusion of material balances that are not appropriate
for the basis of accounting used.
- Omission of significant required disclosures related
to material financial statement balance or transactions.
- Failure to observe inventory when the amount is material
to the balance sheet.
- Omission of disclosure related to significant accounting
policies applies (GAAP or OCBOA).
- Failure to include a summary of significant assumptions
in a financial forecast or projection.
- Use of statement of changes in financial position
instead of statement of cash flows.
- Failure to segregate statement of cash flows into
the components of operations, investing and financing.
Significant Deficiencies with SSARS Procedures
and Documentation:
- Failure to perform analytical and inquiry procedures
for review engagements.
- Failure to document analytical and inquiry procedures
in a review engagement.
- Failure to "read" compiled financial statements
for obvious or material errors.
- Failure to obtain a client management representation
letter for a review engagement.
- The personnel management element of a firm's system
of quality control -- competencies required by a practitioner-in-charge
of an attest engagement.
- Requires a firm's policies and procedures relating
to the personnel management element of quality control
to provide reasonable assurance that individuals responsible
for supervising accounting, auditing, and attestation
engagements and signing (or authorizing another to sign)
the report on the engagement possess the kinds of competencies
appropriate for the given client circumstances.
- Effective June 30, 2000
- Firm is required to determine the kinds of competencies
required for A&A engagements.
- Policies and procedures should require gaining of
competencies through actual A&A experience or other means
such as relevant industry, governmental, or academic
positions and to be supplemented by CPE and/or consultation,
if necessary.
The firm's policies and procedures should ordinarily
address the following competencies:
- Understanding the role of a system of quality control
and the Code of Professional Conduct, which are critical
to assuring the integrity of the accountant's report.
- Understanding the performance, supervision, and reporting
aspects of the service to be performed. This understanding
is normally gained through participation in the type
of engagement under appropriate supervision.
- Technical proficiency in the applicable accounting,
auditing, and attest standards, including (in an audit
or review) those specific to the client's industry and
transactions.
- Understanding the industry in which the client operates,
including (in a review or audit of financial statements)
the industry organization and operating characteristics
sufficient to identify high or unusual risk areas and
the reasonableness of industry specific estimates.
- Professional judgment, including the ability to exercise
professional skepticism and identify areas requiring
special consideration, such as evaluation of the reasonableness
of estimates and the kind of report necessary in the
circumstance.
- Understanding how the organization is dependent on
or made possible by information system technologies and
how the system are used to process financial information.
All reviewers have been asked to update their resumes and
include personal e-mail addresses. If you haven't updated
your reviewer resume in the last two years, your name will
be removed from the reviewer database. To update your resume,
go online to http://peerreview.aicpaservices.org.
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If
you have
any questions
regarding
peer
review,
please
contact
Stacey
Lockwood
at the
LCPA
office.
1-800-288-5272
(504)
904-1136
slockwood@lcpa.org
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