Interpretation No. 14 – Ethics Interpretation No. 101-3 and its Effects on Peer Review

Question: Where should reviewers and other interested parties obtain guidance on Ethics Interpretation No. 101-3 as it relates to system, engagement and report reviews?

 Interpretation: Reviewers should be aware of guidance that the Board issues, not only via Interpretations, but also in the Reviewers Alert as well as other guidance that may be issued via email to reviewers and /or placed on the AICPA Peer Review Program Website.

 Question: Since reviewers are required to test the documentation requirements in Ethics Interpretation No. 101-3, which are contained in the AICPA Code of Professional Conduct (which is included in Professional Standards) but are not contained in the Statements on Standards for Accounting and Review Services (SSARS) or the Statements on Standards for Attestation Engagements (SSAEs), why do the Standards for Performing and Reporting on Peer Reviews (Standards) related to engagement reviews only refer to the documentation requirements of SSARS and the SSAEs?

 Interpretation: The PRB developed engagement reviews effective in 2001 such that the engagement review report referred to the firm meeting the reporting requirements of “professional standards” and the documentation required by SSARS and the SSAEs. The Board chose not to refer to the documentation requirements of “professional standards” simply because all of the documentation requirements were contained in SSARS and the SSAEs. The only exception to this is that the Statement on Quality Control Standards (SQCS) No. 3 requires all firms with an accounting an auditing practice to document its compliance with the monitoring element of quality control (testing of which is not included within the scope of an engagement review). To avoid confusion, and rather than engagement reviews referring to “documentation required by professional standards except for those in the SQCSs,” the easiest language chosen to be used in engagement reviews was simply refer to “SSARS and the “SSAEs.”

 Ethics Interpretation No. 101-3 was issued with a documentation requirement. The Board has therefore made a conforming change to the Standards by expanding the documentation included within the scope of an engagement review from just SSARS and the SSAEs to other AICPA professional standards. This is within the spirit and intent of what the Board was attempting to accomplish (reviewing the firms documentation) when engagement reviews were created.

 The Board recognizes that by making this conforming change, the Standards, including the engagement review report itself and various guidance, should be changed to refer to the documentation requirements of “professional standards” rather than the “SSAEs and SSARS.” In lieu of reissuing all of the Standards and Guidance for this matter at this time, the Board is issuing this Interpretation which serves to instruct reviewers (and inform other interested parties) that effective with the issuance of this Interpretation, the language in the second and third paragraphs of unmodified and modified engagement review reports; “Statements on Standards for Accounting and Review Services (SSARS) and the SSAEs”/“SSARS and SSAEs,” respectively, should be replaced in both places with “professional standards.” In an adverse engagement review report, the same applicable language change would be made in the second paragraph.

 Reviewers should be aware that wherever the Standards or Guidance refers to the documentation required by the SSARS and SSAEs (such as but not limited to the Standards regarding performing engagement reviews paragraphs 71-78, reporting on engagement reviews paragraphs 99-106, and Appendices P-W (paragraphs 148-155), the intent is to include the documentation requirement of professional standards including Ethics Interpretation No. 101-3.

 Question: Can reviewers choose to refer to the documentation requirements of SSARS, SSAEs, and the AICPA Code of Professional Conduct in the second and third paragraphs of the engagement review report rather than just referring to “professional standards” as discussed in this Interpretation?

 Interpretation: No. Reviewers should follow the specific reporting language discussed in this Interpretation.

 Question: Are there any other documentation requirements outside of SSARS and the SSAEs that may be in other AICPA professional standards that reviewers should be testing and reporting on in an engagement review?

 Interpretation: The Board will monitor this and issue additional guidance if any other such documentation requirements are issued.