Presenting a live 110 ‐ minute teleconference with interactive Q&A AICPA Peer Review Program Compliance: l Responding to Latest Developments Best Practices for Optimal Reviews Given Broker ‐ Dealer Issues, B t P ti f O ti l R i Gi B k D l I Single ‐ Audit Checklist and Representation Letter Requirements, Etc. THURS DAY, JULY 14, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Gary Freundlich Technical Director Peer Review Program AICPA Durham N C Gary Freundlich, Technical Director, Peer Review Program, AICPA , Durham, N.C. David Moynihan, Partner-in-Charge, Audit Practice Group, Testone Marshall & Discenza , S yracuse, N.Y . Raymond Nowicki, Managing Partner, Nowicki and Company LLP , Buffalo, N.Y . For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at1-800-926-7926 ext. 10 .
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AICPA Peer Review Program C Compliance: Responding to Latest li R di t L t t Developments Seminar July 14, 2011 Gary Freundlich, AICP A David Moynihan, Testone Marshall & Discenza gfreundlich@aicpa.org dmoynihan@tmdcpas.com Raymond Nowicki, Nowicki and Company LLP ray@nowickico.com
Today’s Program Peer Review Board Update S lide 7 – S lide 8 [Gary Freundlich] Preparing For Peer Reviews/ Adding Value S lide 9 – S lide 11 [Gary Freundlich] Examples Of Non-Compliance With Professional S tandards S lide 12 – S lide 15 [Gary Freundlich] Continuing Issues With S QCS No. 7 Quality Control S tandards S lide 16 – S lide 21 [David Moynihan] Recent Peer Review Developments, Part I S lide 22 – S lide 26 [David Moynihan] Recent Peer Review Developments, Part II Recent Peer Review Developments, Part II S S lide 27 – S lid 27 S lide 36 lid 36 [Gary Freundlich] Applying Risk Assessment In Peer Reviews S lide 37 – S lide 40 [Raymond Nowicki] Correlating Peer Review Findings To Regulatory Actions Correlating Peer Review Findings To Regulatory Actions S lide 41 – S lide 48 [Raymond Nowicki]
Gary Freundlich, AICPA PEER REVIEW BOARD UPDATE PEER REVIEW BOARD UPDATE
AICPA Peer Review Board C ee e e oa d 20 volunteer members Overall responsibility for AICPA Peer Review Program Standards, education, oversight Approximately 30 000 enrolled firms Approximately 30,000 enrolled firms Administered by 41 state societies and AICPA http://www.aicpa.org/InterestAreas/PeerReview/Pages/PeerRevi ewHome.aspx Peer Review Program 8
Gary Freundlich, AICPA PREPARING FOR PEER PREPARING FOR PEER REVIEWS/ADDING VALUE
Preparing For Peer Reviews epa g o ee e e s You should perceive peer review as a service with added value You should perceive peer review as a service with added value – not as a necessary evil. Tips for selecting a peer reviewer p g p • Utilize engagement acceptance process to obtain valuable feedback • Peer reviewer may be a resource for consultations • Peer re ie er ma also Peer reviewer may also: - Point out instances where the firm may achieve audit efficiencies - Share opinion and experiences on software and other tools Share opinion and experiences on software and other tools of the trade Peer Review Program 10
Preparing For Peer Reviews (Cont.) epa g o ee e e s (Co t ) Tips for selecting a peer reviewer (Cont.) • Should be a “peer” • May use AICPA Web site search • Contact state society for listing of reviewers y g • Use fellow CPAs’ recommendations • Consider geographic location • • Members of quality centers (ERISA and governmental) Members of quality centers (ERISA and governmental) • Ask for references • Discuss what you hope to get out of a peer review http://www.aicpa.org/InterestAreas/PeerReview/Community/Pa ges/maphandbook.aspx Peer Review Program 11
Gary Freundlich, AICPA EXAMPLES OF NON ‐ COMPLIANCE WITH PROFESSIONAL STANDARDS PROFESSIONAL STANDARDS
Examples Of Non-Compliance With Professional Standards P f i l St d d Issues with ET 101-3 performance of non-attest services: Lack of documentation of understanding with the client regarding non- of documentation of understanding with the client regarding non attest services Inadequate documentation in working papers I d d i i ki • Performance and expectations of analytical procedures • Sampling • • Sign off of completion and/or review Sign-off of completion and/or review • Inquiries Peer Review Program 13
Examples Of Non-Compliance With Professional Standards (Cont.) P f i l St d d (C t ) Issues with report language • • No indication that financial statements omitted substantially all No indication that financial statements omitted substantially all disclosures • Report does not cover all periods presented in the accompanying financial statements • Report does not explain the degree of responsibility firm is taking with respect to supplementary information • Report did not state that it was a comprehensive basis other than GAAP than GAAP Various omitted disclosures • Concentration of credit risk • Notes payable do not disclose rates and maturity dates • Policy for accounting for notes receivables and capital leases Peer Review Program 14
Examples Of Non-Compliance With Professional Standards (Cont.) P f i l St d d (C t ) Management representation letter issues Management representation letter issues • Representations regarding fraud • Letter did not cover prior period on comparative statements • Letter was not appropriately modified when no attorney was Letter was not appropriately modified when no attorney was consulted Issues with SAS 99 Consideration of Fraud in a Financial Statement A dit Statement Audit • Discussion among engagement personnel • Inquiries of management • • Specific risks identified Specific risks identified • Consideration of non-standard journal entries Peer Review Program 15
David Moynihan, Testone Marshall & Discenza CONTINUING ISSUES WITH SQCS NO. 7 QUALITY CONTROL STANDARDS CONTROL STANDARDS
Statement On Quality Control Standards No. 7 (SCQS 7) d d ( ) • A firm’s system of quality control A firm s system of quality control • Imposes two categories of professional requirements • Unconditional = Must di i l • Presumptively mandatory = Should, might, may, could • These are not, in themselves, required; BUT, they are relevant to the proper application of the requirement. 17 17
Engagement Quality Control Review (EQCR) ( ) • Mandated by SCQS 7 All firms are required to establish criteria for engagement selection. If a firm does not have an EQCR policy, it is in violation of the f fi d h QC li i i i i l i f h standards. 18 18
EQCR (Cont.) EQCR (Cont.) The standards do not mandate criteria but they do suggest: • The nature of the engagement – does it involve public interest? • Unusual circumstances or risks in an engagement or class l i i k i l • Mandated by law 19 19
EQCR (Cont.) EQCR (Cont.) My suggested criteria (at a minimum) • New industries New industries • Specialized complex industries • First ‐ year audits • Going concern issues G i i • Agreed ‐ upon ‐ procedure engagements • Special purpose reports • Possible entity sale 20 20
Statement On Quality Control Standards No. 8 d d • Effective date is Jan 1 2012 Effective date is Jan. 1, 2012 • Essentially a redraft of SCQS No. 7 • Significant change • As a part of your quality control system, you must document how you will handle consultation. 21 21
David Moynihan, Testone Marshall & Discenza RECENT PEER REVIEW DEVELOPMENTS, PART I
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