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Peer Review Update and Regulatory Updates

Peer Review Update and Regulatory Updates

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Peer Review Update and Regulatory Updates

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  1. Peer Review UpdateandRegulatory Updates

  2. Presenter Janice L. Gray, CPA, CVA, CFF Oklahoma Accountancy Board Board Vice Chair

  3. Disclaimer Any views expressed in this presentation are those of the presenter and do not necessarily represent the views of the Oklahoma Accountancy Board.

  4. PEER REVIEW UPDATE

  5. Common Non-Compliance with Professional Standards

  6. Peer Review Data Gathering Project • Peer Review Staff have compiled and analyzed 443 MFCs related to engagements with years ending during 2010 and 2011 • Common areas of non-compliance include the following: • ASC 740-10-50-15 • Example: Disclosures required by professional standards for information related to uncertain tax positions such as accounting policy and the tax years subject to examination were not included in the footnotes • AU 530 • Example: Audit report is dated prior to completion of all required procedures

  7. Peer Review Data Gathering Project • Common areas of non-compliance include the following: • AU 339 • Example: Procedures were noted as “done” in the audit program with no documentation supporting the specific procedures performed • AU 380 • Example: No documentation of the communication with those charged with governance • AU 312 and 314 • Example: No documentation of the auditors understanding of information technology and the associated risks

  8. Other Common Areas of Non-Compliance • Issues with ET 101-3 Performance of Nonattest Services • Lack of documentation of understanding with the client regarding nonattest services • Issues with report language • 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

  9. Other Common Areas of Non-Compliance • Issues with SAS 99 Consideration of Fraud in a Financial Statement Audit including: • Discussion among engagement personnel • Inquiries of management • Specific risks identified • Consideration of nonstandard journal entries • Various Omitted Disclosures including: • Concentration of credit risk • Notes payable does not disclose rates and maturity dates • Policy for accounting for notes receivables and capital leases

  10. Other Common Areas of Non-Compliance • Management Representation Letter issues including: • Representations regarding fraud • Letter did not cover prior period on comparative statements • Letter was not appropriately modified when no attorney was consulted

  11. Pre-engagement and Planning Activities • Most common audit planning deficiencies include a failure to: • Use the firm’s designated accounting and auditing materials developed by a third party • Use a written audit program • Include references to client responsibilities regarding fraud in engagement letter • Assess and document levels of materiality and tolerable misstatement used and the basis for those levels • Documentation of communication between predecessor and successor auditors

  12. Risk Assessment and Developingthe Detailed Audit Plan • Most common performance deficiencies include a failure to: • Document the use of analytical procedures to determine the nature, timing and extent of audit procedures • Consult industry audit and accounting guides • Perform or document the engagement team discussion regarding the susceptibility of the entity’s financial statements to misstatement due to error or fraud • Document consideration of internal control • Assess or document the risk of fraud

  13. Risk Assessment and Developingthe Detailed Audit Plan - Continued • Most common performance deficiencies include a failure to: • Document the assessment of risks, significant risks identified and the related controls and the overall responses to address the assessed risks of misstatement • Tailor audit programs for specialized industries or for a specific type of engagement – such as significant areas of inventory and receivable balances

  14. Performing Further Audit Procedures • Most common related to performing further audit procedures include a failure to: • Observe inventory when amount is material • Confirm significant receivables or document appropriateness and utilization of other audit techniques • Test for unrecorded liabilities • Review loan covenants relating to current and long-term liabilities • Perform cut-off procedures • Perform ade3quate tests and sufficient documentation in key audit areas. • Adequately document the performance of substantive analytical procedures and related expectations

  15. General and Completion Procedures • Engagement performance deficiencies regarding general and completion include a failure to: • Document the review of board of director minutes • Document consideration of nonstandard journal entries • Perform a review of subsequent events • Request a legal representation letter or include in management rep letter • Obtain a client management representation letter and/or include key components in the letter • Ensure that the dating of the rep letter and the date of the auditor’s report is the same

  16. General and Completion Procedures – Contd. • Engagement performance deficiencies regarding general and completion include a failure to: • Document nontrivial uncorrected misstatements and a conclusion about whether the uncorrected statements individually or in the aggregate cause the statements to be misstated and the basis for that conclusion. • Document significant deficiencies in internal control • Ensure that all steps in audit programs are signed off • Perform and document and adequate review of the engagement workpapers and/or the auditor's report and accompanying financial statements by the engagement partner prior to the issuance of the auditor’s report.

  17. Peer Review Exposure Draft • Exposure draft issued June 1, 2012 – Comments due August 31, 2012 • Would require that all examinations performed under the Statements on Attestation Engagements (SSAEs) be required to have a system review. • Would add SOC 1 and 2 engagements to the list of engagements that must be selected during a system review.

  18. AICPA Peer Review Web Resources • Peer Review Standards • Peer Review Standards Interpretations • Report Acceptance Body Handbook • Peer Review Alerts • System and Engagement Review checklists

  19. ENGAGEMENT QUALITY CONTROL REVIEW

  20. Engagement Quality Control Review • Establish firm criteria for determining whether an engagement quality control review should be performed, • Evaluate all engagements against the criteria • Perform an engagement quality control review for all engagements that meet the firm’s criteria, and complete the review before the report is released. • Establish procedures addressing the nature, timing, extent and documentation of the engagement quality control review.

  21. EQCR - Procedures Perform - objective evaluation of the significant judgments made by the engagement team, and the conclusions reached in formulating the report. • Read financial statements and report, considering whether report is appropriate • Review selected engagement documentation, evaluating significant judgments and conclusions of engagement team • Discuss significant findings and issues with engagement partner Note - extent of EQCR procedures depends on the complexity of engagement and risk that report might not be appropriate in the circumstances.

  22. Peer Review Statistics • System Reviews (2007-2009) • 91% Pass • 7% Pass with deficiencies • 2% Fail • Engagement Reviews (2007-2009) • 91% Pass • 8% Pass with deficiencies • 1% Fail

  23. Reasons for Report Modifications • Reasons for Report Modifications (2009) • Leadership (“tone at the top”) – 3% • Ethical Requirements – 2% • Client Acceptance/Continuance – 3% • Human Resources – 13% • Engagement Performance – 55% • Monitoring – 23%

  24. Recent Changes in Public Interest

  25. Single Audit Quality Concerns (PCIE Report) • Scope: June 2007 PCIE Report covered 208 out of 38,000 single audits performed in 2002/2003 • Report Results/Concerns: • Acceptable 49% • Unacceptable/Limited reliability 51% • Findings:PCIE Reports Areas of Improvements Needed • Internal control, compliance, documentation, sampling, due professional care

  26. Single Audit Quality Concerns (PCIE Report) Frequent Single Audit Violations • Major program determination (missed major program—look back rule) • Percent of coverage • Incorrect threshold for major program determination • Improper identification of clusters (missing programs) • Failure to test all major programs within clusters • Not including all grants within a CFDA # • Internal control documentation and compliance testing

  27. Practice Monitoring Task Force (PMTF) • Initial Areas of Focus: • Establish consistent measures of A-133 deficiencies • Develop guidance and training materials for peer reviewers • Task Force’s Initial Activities: • Meeting with OIGs to discuss Peer Review process and comparing to QCR process • Brainstorming session to consider comments and recommendations received from IGs

  28. PMTF Actions Taken • Interpretation 63-1a revised to ensure selection of an A‑133 engagement • Revised engagement profile to require firm to provide additional information • Bifurcated engagement checklists to focus reviewer’s attention on frequent violations • Enhanced peer review acceptance process

  29. Enhanced A-133 Acceptance Process Findings (So Far) • Missed major programs • Failed to combine federal expenditures for the same CFDA number • Failed to combine federal programs that are required to be clustered • Failed to identify as a major program that was not audited in one of the last two years • Failing to audit a program that should have been clustered with a program that was audited as major • Improperly identifying auditee as low risk

  30. Employee Benefit Plans • DOL continues to see problems in Employee Benefit Plan audits • AICPA collaborating with regulators to improve peer review • Expanded peer review checklist • Separately identify 403(b) engagements • Creating 403(b) webinar

  31. Broker-dealers • PCAOB may now inspect broker-dealers • Carrying broker-dealers are now a “must select” • Checklist for broker-dealer audit engagements developed by AICPA Peer Review Team

  32. Peer Review at the OAB • Peer Review • Peer Review Oversight Committee (PROC) • Compilations

  33. The Law –15.1A. Definitions 5. “Attest” means providing the following financial statement services: a. any audit or other engagement to be performed in accordance with the Statements on Auditing Standards (SAS), b. any review of a financial statement to be performed in accordance with the Statements on Standards for Account and Review Services (SSARS), c. any report performed in accordance with the Statements on Standards for Attestation Engagements (SSAE), and d. any engagement to be performed in accordance with the Auditing Standards of the Public Company Oversight Board (PCAOB).

  34. The Law – 10:15-30-A OLD LAW As a condition for issuance or renewal of permits, the Board may require applicants who perform review or audit services to undergo peer reviews conducted not less than once every three (3) years. NEW LAW EFFECTIVE – August 26, 2011 As a condition for issuance or renewal of permits, the Board may require applicants who perform attest services, except compilations and those services described in subparagraph d of paragraph 5 of Section 15.1A of this title to undergo peer reviews conducted not less than once every three (3) years.

  35. PROC Operating Statement “To evaluate and monitor the Peer Review Program established by the Oklahoma Accountancy Board to provide reasonable assurance that the American Institute of Certified Public Accountant’s Peer Review Program Standards are being properly administered in the State of Oklahoma making referrals to the Oklahoma Accountancy Board as needed for further action as needed.”

  36. Purpose To evaluate and monitor the peer review program established by the Board to provide reasonable assurance that the AICPA Peer Review Program standards are being properly administered in the state of Oklahoma making referrals to the Board for further action as needed. (10:15-33-7)

  37. Objectives and Procedures Ensure that peer reviews are conducted in accordance with AICPA Standards for Performing and Reporting on Peer Reviews. (10:15-33-7e3)

  38. Objectives and Procedures • Regularly communicate results of PROC operations. (10:15-33-7a3) • PROC will meet and report activities to the Board at least quarterly • Annually report conclusions and recommendations regarding evaluation and monitoring of peer review program to Board • Communicate problems encountered to sponsoring organizations as needed

  39. THE BOARD - Our Mission The mission of the Board is to safeguard the public welfare by prescribing and assessing the qualifications of and regulating the professional conduct of individual registrants and registered firms authorized to engage in the practice of public accounting in the State of Oklahoma.

  40. Oklahoma Accountancy Board • Vicky Petete, CPA, Chair Ada • Janice L. Gray, CPA, Vice Chair Norman • Jay Englebach, CPA, Secretary Oklahoma City • Mike Sanner, CPA, Jones • Barbara A. Ley, CPA Oklahoma City • Jody M. Manning Bristow • Karen Cunningham, Public Member Oklahoma City

  41. National Association of State Boards of Accountancy (NASBA) Oklahoma Representation • Janice L. Gray, CPA • Member of the NASBA Board – SW Regional Director • Chair of the NASBA Compliance Assurance Committee • Member of the NASBA Relations with Member Board • Committee Carlos Johnson, CPA Member of the NASBA Board, at large member Chairman of the NASBA Uniform Accountancy Act Committee Member of the NASBA State Board Relevance and Effectiveness Committee NASBA Chair Elect Nominee Barbara Ley, CPA Member of the AICPA State Board Examination Liaison Committee • Vicky Petete, CPA • Member of the NASBA Accounting & Finance Committee

  42. Birth Month Registration • 15.14D of the Oklahoma Accountancy Act is as follows: • “…all valid Certificates or Licenses shall be renewed based on staggered expiration dates on the last day of the individuals’ birth months. Renewal will be effective for a twelve-month period.” • Everyone must complete the Annual Registrant Reporting form • You can renew your registration on the OAB website! Birth Month registration began in January, 2012.

  43. Firm Registration New registration system is open and has been for a few weeks. You have until June 30 to register. There have been issues with the process Board Staff is working hard to get this corrected. If you have issues call the Board staff and they will help walk you through the process

  44. Continuing Professional Education (CPE) • Requirements • 120 CPE hours within a rolling three calendar year period, with a minimum of 20 hours in a calendar year • 4 hours of Ethics every 3 years • 4 hours of CPE in Compilation if prepare Compilations with or without disclosure and do not have a Peer Review • Report prior year CPE on an annual basis when birth-month certificate renewal takes place

  45. Continuing Professional Education (CPE) • Every certificate holder, regardless of permit status, must report CPE to maintain their certificate • Exemptions to CPE • Disability • Military Service • Retired • Inactive

  46. Example Of Rolling Three Years 2008 45 Hours 2009 35 Hours 201060 Hours Total Hours 140 Hours 2009 35 Hours 201060 Hours 2011 25 Hours Total Hours 120 Required Hours

  47. Example Of Rolling Three Years 2010 60 Hours 2011 25 Hours 201260 Hours Total Hours 145 Required Hours 2011 25 Hours 201260 Hours 2013 35 Hours Total Hours 120 Required Hours

  48. PLAY IT SAFE IF YOU CAN’T KEEP UP WITH THE ROLLING THREE YEARS – JUST TAKE 40 HOURS PER YEAR LIKE THE OLD RULE

  49. ENFORCEMENT ACTIVITIES

  50. Don’t Get Caught!Things that can get you into trouble • New CPAs holding out • Not registering firms • Practicing with an unregistered firm (PLLC) • Failure to register a firm can incur $1000 fine from the Board • Not notifying the Board of change of address, job etc. WITHIN 30 DAYS • Not notifying the Board of legal issues, i.e.. DUI or other charges that would fall under the Moral question. WITHIN 30 DAYS