Accountants, Board of Certified Public

Accountants, Board of Certified Public

Chapter 9: Quality Review

Effective Date: 08/01/1994 to 06/16/1997

Rule Type: Superceded Rules & Regulations

Reference Number: 061.0001.9.08011994

Date Filed 08/01/94

Expr Date

Supr Date

Repeal Date

Document Type RULES

CHAPTER 9

QUALITY REVIEW

Section 1. Requirements for Review. Upon notification every practice unit, after having met the technical review requirements as outlined in Section 2 of this Chapter and as a condition of renewal, must file a complete copy of a final quality review report. Qualified or adverse reports must include all findings and recommendations and the practice unit's response to such findings and recommendations outlining the actions the reviewed firm plans to take with respect to the recommendations made by the reviewer, if applicable. The quality review is limited to the financial reporting areas of practice, including audit, review, and compilation reports.

Section 2. Technical Review. All reports submitted in compliance with the requirements outlined in this chapter shall be subject to a technical review such as reviews under an approved practice monitoring program. The Board reserves the right to request documentation of the quality review to include working papers associated with the review. Requirements will be considered to be met if:

(a) a copy of the acceptance letter from the review committee from an approved program is provided with the report. Qualified or adverse opinions must include the letter of comment, firm's response, and correspondence regarding sanctions imposed by an approved practice monitoring program; or

(b) the preliminary report, preliminary letter of comment, response to the letter of comment, summary review memorandum and all associated workpapers specified in the checklists issued by an approved practice monitoring program, and summary of quality review engagement hours shall be provided to an independent consultant contracted by the board and a committee designated by the Board to provide the technical review requirements.

(i) the technical review shall consist of a review of the summary review memorandum, report, letter of comment, letter of response, and working papers on a test basis. These documents shall be reviewed to determine if the reviewer used the appropriate forms and checklists, whether they appear to have been completed in a professional manner, and if significant findings were properly carried forward from the working papers.

Section 3. Exemptions from Review. A practice unit is exempt from quality review if it annually represents to the board that it does not engage in the financial reporting area of practice, that it does not intend to engage in such practice during the following year, and it will immediately notify the board in writing if it engages in such practice.

(a) The representation shall be made annually in writing, under oath, and upon forms provided by the Board.

(b) If a practice unit under exemption notifies the Board that it has engaged in the financial reporting area of practice, it must undergo a quality review as stipulated in Section 4.

(c) The Board reserves the right to extend, for good cause, the timing of compliance with Chapter IX to practice-units who would otherwise be required to comply.

Section 4. New Practice Units. A new practice unit, if it has an audit practice, must undergo quality review in the first calendar year succeeding the month end audit date of its first audit engagement. This provision will also apply to practice units who have just entered the audit practice. If practice is limited to compilation and review, the practice unit must undergo quality review the first calendar year after which it engages in financial reporting practice.

Section 5. Selection and Notification. The Board shall select a portion of practice units to be initially reviewed. A portion of the remaining practice units will be selected for review the following year and the remaining practice units will be subject to review the third year. The review submitted must be a review which was conducted within two years of the selection year. Each practice unit shall be reviewed every three years thereafter. The initial review under this program will be phased in over a three year period based on the size of the practice unit and the nature of its practice.

(a) The board will notify each practice unit of its review date with the annual permit-to-practice renewal application.

(b) Practice units with formal quality review program scheduled reviews shall provide the board with specific dates of scheduled reviews within 30 days of receipt of notification from a sponsoring entity such as the AICPA. Failure to do so will result in a board scheduled review.

Section 6. Equivalent Reviews. The Board may accept equivalent reviews if the Board determines that the equivalent review meets the requirements under this chapter.

Section 7. Selection of Reviewer. Practice units shall engage a reviewer to conduct the quality review subject to approval by the Board. Practice units subject to review must submit the name of the reviewer selected to conduct the review and evidence establishing that the selected reviewer meets the qualifications as outlined in Section 8 of this Chapter. This evidence shall be in the form of a written statement from the firm under review outlining that the reviewer meets the requirements as specified in Section 10 of this Chapter. This required documentation must be submitted to the board office in writing no later than thirty (30) days prior to the scheduled or actual commencement date of the review, whichever is earlier.

Section 8. Qualifications of Reviewers. The reviewer selected to perform the review must have the following minimum qualifications:

(a) Must be licensed or permitted to practice as a certified public accountant by the licensing board of any state;

(b) Must be currently active in the practice of public accounting at a supervisory level in the accounting and auditing function and achieved the level of either proprietor, partner, shareholder, manager, or person with equivalent supervisory responsibility;

(c) Must have at least five years experience in the accounting and auditing function;

(d) Must be independent of the practice unit under review; and

(e) The team captain and/or a member of the review team must be familiar with all specialized services in the area of auditing and accounting provided by the practice unit subject to review.

(f) The team captain must have completed a quality review training course that has been approved by the Board;

(g) Must have received an unqualified report under an approved practice monitoring program within the previous three years;

(h) With respect to on-site reviews, reviewers may be engaged to perform a review of the same practice unit for no more than two successive reviews, three successive reviews if reviews are performed under the SECPS program.

Section 9. Conduct of Review. Reviews will be limited to review of audit, compilation, and review reports.

(a) Practice units that limit their practice to performing review and compilation engagements will be subject to a minimum of an off-site review.

(i) The reviewed practice unit shall provide, to the reviewer, summarized information showing the number of its review or compilation clients and the highest level of service provided to those clients, classified into major industry categories. That information shall be provided for each proprietor, partner, or shareholder of the firm who is responsible for the issuance of review or compilation reports. On the basis of that information the reviewer shall select the types of engagements to be submitted for review, in accordance with the following guidelines:

(A) Select one review or compilation engagement involving a report on a complete set of financial statements as opposed to compilation reports on financial statements that omit substantially all of the disclosures required by generally accepted accounting principles or another comprehensive basis of accounting, for each proprietor, partner, or shareholder responsible for the issuance of such reports. However, at least two engagements must be selected for the unit.

(B) In selecting engagements for review, include both review and compilation engagements, if both levels of service are provided. Also, attempt to include clients operating in different industries and engagements involving prospective financial statements as well as those involving historical financial statements.

(C) In addition to those selections made in (A), select, where applicable, one set of financial statements that omit substantially all of the disclosures required by generally accepted accounting principles or another comprehensive basis of accounting and the related accountant's compilation report. If the reviewed unit's practice consists only of compilation reports on financial statements that omit substantially all required disclosures, the practice unit must submit the financial statements and related accountant's report for at least two such engagements.

(D) Review shall be limited to reports that are issued with year ends ending during the year under review.

(ii) The off-site review shall: (A) include tests of compliance with generally accepted accounting principles; (B) consider whether the accountant's reports appear to conform with professional standards; (C) include authoritative references for review comments included in the report. (D) identify actions the reviewed firm should consider taking to provide the firm with reasonable assurance that any noted significant deficiencies will not recur.

(b) Practice units whose accounting and auditing practice includes one or more engagements with reports that are issued under the Statements on Auditing Standards will be subject to on-site review. Reports shall be selected by the reviewer. The on-site review shall:

(i) include a review of reports that are issued with year ends ending during the year under review; (ii) include a study and evaluation of the design of the reviewed unit's quality control system; (iii) include tests of compliance with the reviewed unit's quality control policies and procedures;

(A) for firms with up to ten (10) professionals, include compliance tests of broad functions related to the quality control elements of Independence, Consultation, Supervision, and Professional Development;

(B) for firms with over ten (10) professionals, include compliance tests to include the elements in (A) and Hiring, Assigning Personnel, Advancement, Inspection, and Acceptance and Continuation of Clients.

(iv) be tailored to the size and nature of the reviewed practice unit's practice; (v) include a review of the financial statements, accountants' reports, and working papers constituting a reasonable cross section of the reviewed practice unit's accounting and auditing practice; (vi) identify actions the reviewed firm should consider taking to provide the firm with reasonable assurance that any noted significant deficiencies will not recur.

(c) sole practitioners whose accounting and auditing practice includes one or more engagements with reports that are issued under the Statements on Auditing Standards may qualify for a review at a location other than the practitioner's office if:

(i) the sole practitioner and the reviewer mutually agree on the appropriateness of this approach; (ii) the sole practitioner has four or fewer professional staff; (iii) the sole practitioner holds one or more meetings, by telephone or in person, with the reviewer to discuss the quality control policies and procedures; and (iv) the sole practitioner sends the following materials to the reviewer prior to the review:

(A) all documentation related to the resolution on independence questions identified during the year under review with respect to any audit or accounting client or related to any of the audit or accounting clients selected for review, no matter when the questions was identified if the matter still exists during the review period.

(B) the most recent independence confirmations received from other firms of CPAs engaged to perform segments of engagements on which the sole practitioner acted as principal auditor or accountant.

(C) Documentation, if any, of consultations with outside parties during the year under review in connection with audit or accounting services provided to any client.

(D) a list of relevant technical publications used as research materials;

(E) a list of audit and accounting materials used for planning accounting and auditing engagements.

(F) CPE records sufficient to demonstrate compliance with state and AICPA continuing professional education requirements.

(G) the relevant working paper files and reports on the engagements selected for review.

(H) any other evidential matter requested by the reviewer.

Section 10. Evaluation and Communication of Findings, Documentation.

(a) In each engagement reviewed, the reviewer shall evaluate anything that came to its attention which causes it to believe that:

(i) the financial statements were not presented in all material respects in accordance with generally accepted accounting principles;

(ii) the reviewed unit did not have a reasonable basis under the applicable professional standards for the report issued;

(iii) the documentation of the engagement did not support the report issued;

(iv) the firm did not comply with its quality control policies and procedures.

(b) The reviewer shall conduct an exit conference at which time it communicates its findings - exit conference for the on-site review, written correspondence for the off-site review. At a minimum, the exit conference should be attended by appropriate representatives of the reviewer and the reviewed practice unit.

(c) The reviewer shall issue a written report and, if applicable, a letter of comment within thirty (30) days of the exit conference or off-site review date. The practice unit under review must respond to the findings within thirty (30) days of the issuance of the report.

(d) The documentation of the quality review shall be adequate to indicate the work performed by the reviewer and the results thereof and to provide a record of the basis for the opinion rendered.

Section 11. Extensions. A practice unit may request an extension if it finds it cannot have its quality review performed by the date assigned, has been unable to engage a reviewer to complete the review, or is unable to provide the documentation required in Section 1 of this Chapter. Requests must be submitted in writing at least thirty days prior to the due date and should cite the reasons for the extension request along with an alternative date for the review, if applicable. The Board will consider each extension request on a case by case basis and may: (a)

deny the request entirely;

(b) grant a full extension; (c) grant a partial

extension.

Section 12. Problem Resolution. In the event the reviewer and the reviewed practice unit disagree over a significant matter or for any other significant circumstance that may result in the need for outside consultation, the reviewed practice unit and reviewer may separately:

(a) advise the Board office immediately in writing, outlining specific areas where assistance may be needed;

(b) the Board will consider problem resolution on a case by case basis and advise the reviewer and practice units accordingly.

Section 13. Findings.

(a) If the review report is designated 'unqualified' the Board shall take no further action provided the review was conducted in accordance with this Chapter.

(b) If the report is designated 'qualified' or 'adverse' the Board may:

(i) require that the deficiencies be corrected within a specified time period;

(ii) require that the practice unit undergo a quality review prior to the next scheduled review;

(iii) require permit holders employed by or associated with the practice unit to complete continuing professional education in areas of deficiency;

(iv) require the practice unit maintain a minimum library of source material;

(v) require the practice unit provide copies of interim inspection reports;

(vi) require any other action that will effectuate the purpose of this Chapter.

(c) If the Board and the practice unit are unable to reach an agreement as specified in subsection (b) of this section, or if the practice unit can not demonstrate to the Board that it will comply with the requirements outlined in this Chapter, the Board may then refuse to renew the permit-to-practice of all permit holders associated with the practice unit or proceed with suspension or revocation action in accordance with the provisions of Chapter VII of the Rules and Regulations under W.S. 33-3-121 through W.S. 33-3123.