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Peer Reviews Many accountants are asking whether preparation of financial statement engagements trigger a peer review requirement. Here are three questions and answers to help clarify whether your CPA firm is subject to peer review. Question 1 Are public accounting firms required to participate in a peer review program if they only issue financial statements using the preparation guidance in SSARS 21? Based on the AICPA’s rules, the answer is no. But check with your state board of accountancy. Some states require participation in a peer review program even if the AICPA does not. Question 2 If my firm participates in a peer review program, will the financial statement work performed under the preparation guidance be subject to potential review? Yes, the financial statements prepared using the preparation guidance will be included in the scope of the peer review. Question 3 Will compilations be included in peer reviews? Yes. When a peer review is performed, compilations will be included in the scope of the engagement. The issuance of a compilation report does trigger the requirement for a peer review. AICPA Guidance The February 2015 Peer Review Update, a monthly AICPA newsletter, included the following: “On November 18, 2014, the Peer Review Board (PRB) issued an exposure draft, which proposed that firms that only perform preparation engagements under AR-C Section 70 – Preparation of Financial Statements (issued as part of Statement on Standards for Accounting and Review Services (SSARS) No. 21, Statement on Standards for Accounting and Review Services: Clarification and Recodification) would not be required to enroll in the AICPA peer review program (Program). However, it also proposed that a firm’s preparation engagements would be included in the scope of a peer review when the firm either elects to enroll in the program (e.g., to comply with licensing or other requirements) or is already enrolled due to other engagements it performs. This proposal was issued in order to address the effect of these engagements on the scope of the Program. The PRB considered comments raised by the peer review community about the proposal and elected to adopt the proposed guidance changes. The changes are effective for peer reviews commencing on or after February 1, 2015.” Tracking Preparation of Financial Statement Engagements Since the preparation service will be included in the scope of peer reviews, consider that firms enrolled in a peer review program need to track the number of preparation services provided. Otherwise, the peer reviewer will not be able to determine the firm’s mix of work; the peer reviewer uses the total population of a firm’s work to select the sample of engagements to be reviewed. Create a method to track financial statement engagements performed under the preparation standard as early as possible. Peer reviews commencing on or after February 1, 2015, are to include preparation engagements. Given the nature of the preparation service—one that gets turned around quickly—it would be easy for a firm to lose track of how many financial statements were issued using this option. Peer Reviews - A Simple Summary •According to AICPA rules, firms that only perform preparation of financial statement services are not required to enroll in the AICPA peer review program (check with your state board of accountancy to see if their rules are different) •For accounting firms subject to peer review, preparation engagements will be included in the scope of peer reviews •Set up a method to track your preparation engagements; peer reviewers need to know how many preparation engagements your firm issues
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