Common Deficiencies in Writing Letters of Comments

Peer Review Guide

Peer Review Guide > Common Deficiencies in Writing Letters of Comments

Introduction
Threshold for findings
Tailoring LOC findings
Recommendations
Repeat findings
Common system LOC deficiencies
Common engagement review LOC deficiencies

Introduction

The following comments are designed to help you in previewing your letter of comments in order to avoid common deficiencies that have been observed over the course of the peer review program.

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Threshold for Findings

The criteria below should be used for determining whether to include a matter in a letter of comments:

System reviews: Matters that 1) resulted in a modification to the reviewer's standard report or 2) create a condition where the firm has more than a remote possibility of not conforming to professional standards or the firm's standards of quality.
Engagement reviews: Matters that 1) resulted in modification(s) to the reviewer's standard report or 2) departures from professional standards that are not deemed to be significant departures, but should be considered by the reviewed firm in evaluating the quality control policies and procedures over its accounting practice.

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Tailoring LOC Findings

Use of standardized findings and recommendations can be an efficient way to begin preparation of an LOC, but you should tailor each finding to fit the particular circumstances of the review and the unique characteristics of the firm.

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LOC Recommendations

Recommendations should:

Focus on prevention.
Consider the size and nature of the firm's practice and operating structure and
Take into account appropriate cost-benefit considerations.

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Repeat Findings

If a finding in a current review is similar to one noted in the firm's previous review, the reviewer should note that fact in the LOC finding. This consideration is different for system and Engagement reviews.

System reviews. For a system review, a repeat finding relates to the under-lying systemic deficiency. For example, if the failure of a firm to comply with its policy to use financial statement disclosure checklists causes the occurrence of financial statement disclosure deficiencies in both years reviewed, then the finding would be a repeat finding. However, if the disclosure deficiencies in the previous review were caused by a failure to acquire sufficient professional education, then the finding would not be a repeat matter.
Engagement reviews. For an Engagement review a repeat finding is characterized by the underlying engagement deficiencies. For example, if a reviewer noted reporting deficiencies in the firm's previous review and reporting deficiencies in the current review, the LOC matter would be a repeat finding even if the specific reporting deficiencies are different. The repeat nature of the finding stems from the fact that the findings in both reviews related to reporting matters.

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Common System LOC Deficiencies

New LOC wording has not been used.
Systemic deficiency not stated.
Systemic deficiencies are stated in terms too broad to accurately describe the true nature of the deficiency.
Symptoms of system deficiencies are described as a long list of individual mistakes rather than similar types of deficiencies condensed into a more general form.
Symptoms of system deficiencies are not included when they are present.
Conclusions not added to the end of findings that describe engagement deficiencies.
Recommendations exceed professional standards or what is necessary given the size and nature of the firm.
Repeat findings are not indicated.
The LOC does not refer to a modified or adverse report when such a report was issued.

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Common Engagement Review LOC Deficiencies

New LOC wording has not been used.
Findings are not specific enough to describe the particular engagement deficiency.
Findings do not identify the level of service to which the finding applies.
Findings include a conclusion about an engagement, when it should not.
Findings describe a systemic deficiency, which is not appropriate for engagement reviews.
Repeat findings are not indicated.
Findings that should be included under "matters that resulted in a modified report" are not included under that caption.
The LOC does not refer to a modified or adverse report when such a report was issued.
The modifying section of the LOC contains findings that do not meet the threshold of a modifying finding.
Omission of the sentence, "As a result of our review, we have the following comments" at the end of the second paragraph of the LOC.

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Peer Review Guide > Common Deficiencies in Writing Letters of Comments