|
Peer
Review Guide >
Report and
LOC Guide > Sample System Review Reports
System Reviews: Report
Examples
Reports: Unmodified | Modified |
Modified for Scope Limitation
| Adverse
Report wording modification
is firm has no auditing practice
Letter of comments: Unmodified |
Modified | Modified for Scope Limitation
Letter of response:
Unmodified
| Modified
| Modified for Scope Limitation
| Adverse
Unmodified Report on a System Review
August 31, 20XX
To the Partners [or other appropriate terminology] Able, Baker & Co. Or To
John B. Able, CPA
We have reviewed the system of quality control for the accounting and
auditing practice of [Name of firm] (the firm) in effect for the year ended June
30, 20XX. A system of quality control encompasses the firm’s organizational
structure, the policies adopted and procedures established to provide it with
reasonable assurance of conforming with professional standards. The elements of
quality control are described in the Statements on Quality Control Standards
issued by the American Institute of CPAs (AICPA). The firm is responsible for
designing a system of quality control and complying with it to provide the firm
reasonable assurance of conforming with professional standards in all material
respects. Our responsibility is to express an opinion on the design of the
system of quality control and the firm’s compliance with its system of quality
control based on our review.
Our review was conducted in accordance with standards established by the Peer
Review Board of the AICPA. During our review, we read required representations
from the firm, interviewed firm personnel and obtained an understanding of the
nature of the firm’s accounting and auditing practice, and the design of the
firm’s system of quality control sufficient to assess the risks implicit in its
practice. Based on our assessments, we selected engagements and administrative
files to test for conformity with professional standards and compliance with the
firm’s system of quality control. The engagements selected represented a
reasonable cross-section of the firm’s accounting and auditing practice with
emphasis on higher-risk engagements. (The engagements selected included among
others, audits of Employee Benefit Plans, engagements performed under Government
Auditing Standards, and audits of Depository Institutions with assets of $500
million or greater.) Prior to concluding the review, we reassessed the adequacy
of the scope of the peer review procedures and met with firm management to
discuss the results of our review. We believe that the procedures we performed
provide a reasonable basis for our opinion.
In performing our review, we obtained an understanding of the system of
quality control for the firm’s accounting and auditing practice. In addition, we
tested compliance with the firm’s quality control policies and procedures to the
extent we considered appropriate. These tests covered the application of the
firm’s policies and procedures on selected engagements. Our review was based on
selected tests therefore it would not necessarily detect all weaknesses in the
system of quality control or all instances of noncompliance with it. There are
inherent limitations in the effectiveness of any system of quality control and
therefore noncompliance with the system of quality control may occur and not be
detected. Projection of any evaluation of a system of quality control to future
periods is subject to the risk that the system of quality control may become
inadequate because of changes in conditions, or because the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the system of quality control for the accounting and auditing
practice of [Name of firm] in effect for the year ended June 30, 20XX, has been
designed to meet the requirements of the quality control standards for an
accounting and auditing practice established by the AICPA and was complied with
during the year then ended to provide the firm with reasonable assurance of
conforming with professional standards.
(As is customary in a system review, we have issued a letter under this date
that sets forth comments that were not considered to be of sufficient
significance to affect the opinion expressed in this report.)
John Brown, Team Captain [or Name of reviewing firm]
Top of page
Modified Report on a System Review
December 3, 20XX
To the Partners [or other appropriate terminology] PG & Associates or To John
B. Able, CPA
We have reviewed the system of quality control for the accounting and
auditing practice of [Name of firm] (the firm) in effect for the year ended June
30, 20XX. A system of quality control encompasses the firm’s organizational
structure, the policies adopted and procedures established to provide it with
reasonable assurance of conforming with professional standards. The elements of
quality control are described in the Statements on Quality Control Standards
issued by the American Institute of CPAs (AICPA). The firm is responsible for
designing a system of quality control and complying with it to provide the firm
reasonable assurance of conforming with professional standards in all material
respects. Our responsibility is to express an opinion on the design of the
system of quality control and the firm’s compliance with its system of quality
control based on our review.
Our review was conducted in accordance with standards established by the Peer
Review Board of the AICPA. During our review, we read required representations
from the firm, interviewed firm personnel and obtained an understanding of the
nature of the firm’s accounting and auditing practice, and the design of the
firm’s system of quality control sufficient to assess the risks implicit in its
practice. Based on our assessments, we selected engagements and administrative
files to test for conformity with professional standards and compliance with the
firm’s system of quality control. The engagements selected represented a
reasonable cross-section of the firm’s accounting and auditing practice with
emphasis on higher-risk engagements. (The engagements selected included among
others, audits of Employee Benefit Plans, engagements performed under Government
Auditing Standards, and audits of Depository Institutions with assets of $500
million or greater.) Prior to concluding the review, we reassessed the adequacy
of the scope of the peer review procedures and met with firm management to
discuss the results of our review. We believe that the procedures we performed
provide a reasonable basis for our opinion.
In performing our review, we obtained an understanding of the system of
quality control for the firm’s accounting and auditing practice. In addition, we
tested compliance with the firm’s quality control policies and procedures to the
extent we considered appropriate. These tests covered the application of the
firm’s policies and procedures on selected engagements. Our review was based on
selected tests therefore it would not necessarily detect all weaknesses in the
system of quality control or all instances of noncompliance with it. There are
inherent limitations in the effectiveness of any system of quality control and
therefore noncompliance with the system of quality control may occur and not be
detected. Projection of any evaluation of a system of quality control to future
periods is subject to the risk that the system of quality control may become
inadequate because of changes in conditions, or because the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, except for the effects of the deficiency(ies) described
below, the system of quality control for the accounting and auditing practice of
[Name of Firm] in effect for the year ended June 30, 20XX, has been designed to
meet the requirements of the quality control standards for an accounting and
auditing practice established by the AICPA and was complied with during the year
then ended to provide the firm with reasonable assurance of conforming with
professional standards.
Reasons for Modified Opinion and Recommendation
Deficiency – The firm’s quality control policies and procedures do not
require partner involvement in the planning stage of audit engagements.
Generally accepted auditing standards permit the auditor with final
responsibility for the engagement to delegate some of this work to assistants,
but emphasize the importance of proper planning to the conduct of the
engagement. We found engagements performed under Government Auditing Standards
in which, as a result of a lack of involvement, including timely supervision by
the engagement partner in planning the audit, the work performed on receivables
and notes payable did not appear to support the firm’s opinion on the financial
statements. These engagements were deemed substandard. The firm has subsequently
performed the necessary additional procedures to provide a satisfactory basis
for its opinion.
Recommendation – The firm’s quality control policies and procedures should be
revised to provide, at a minimum, for timely audit partner review of the
preliminary audit plan and the audit program. The firm should ensure that this
is addressed as part of its ongoing monitoring procedures.
(As is customary in a system review, we have issued a letter under this date
that sets forth comments that were not considered to be of sufficient
significance to affect the opinion expressed in this report.)
John Brown, Team Captain [or name of reviewing firm]
Top of page
Modified Report for a Scope
Limitation on a System Review
December 3, 20XX
To the Partners [or other appropriate terminology] PG & Associates or To John
B. Able, CPA
We have reviewed the system of quality control for the accounting and
auditing practice of [Name of firm] (the firm) in effect for the year ended June
30, 20XX. A system of quality control encompasses the firm’s organizational
structure, the policies adopted and procedures established to provide it with
reasonable assurance of conforming with professional standards. The elements of
quality control are described in the Statements on Quality Control Standards
issued by the American Institute of CPAs (AICPA). The firm is responsible for
designing a system of quality control and complying with it to provide the firm
reasonable assurance of conforming with professional standards in all material
respects. Our responsibility is to express an opinion on the design of the
system of quality control and the firm’s compliance with its system of quality
control based on our review.
Our review was conducted in accordance with standards established by the Peer
Review Board of the AICPA. During our review, we read required representations
from the firm, interviewed firm personnel and obtained an understanding of the
nature of the firm’s accounting and auditing practice, and the design of the
firm’s system of quality control sufficient to assess the risks implicit in its
practice. Based on our assessments, we selected engagements and administrative
files to test for conformity with professional standards and compliance with the
firm’s system of quality control. The engagements selected represented a
reasonable cross-section of the firm’s accounting and auditing practice with
emphasis on higher-risk engagements. (The engagements selected included among
others, audits of Employee Benefit Plans, engagements performed under Government
Auditing Standards, and audits of Depository Institutions with assets of $500
million or greater.)19 Prior to concluding the review, we reassessed the
adequacy of the scope of the peer review procedures and met with firm management
to discuss the results of our review. We believe that the procedures we
performed provide a reasonable basis for our opinion.
In performing our review, we obtained an understanding of the system of
quality control for the firm’s accounting and auditing practice. In addition, we
tested compliance with the firm’s quality control policies and procedures to the
extent we considered appropriate. These tests covered the application of the
firm’s policies and procedures on selected engagements. Our review was based on
selected tests therefore it would not necessarily detect all weaknesses in the
system of quality control or all instances of noncompliance with it. There are
inherent limitations in the effectiveness of any system of quality control and
therefore noncompliance with the system of quality control may occur and not be
detected. Projection of any evaluation of a system of quality control to future
periods is subject to the risk that the system of quality control may become
inadequate because of changes in conditions, or because the degree of compliance
with the policies or procedures may deteriorate.
In performing our review, the firm notified us that we would be unable to
select its only audit subject to Government Auditing Standards. As a result we
were unable to include within the scope of this review all of the engagements
required to be selected by the Standards established by the Peer Review Board of
the AICPA.
In our opinion, except for the effects of any deficiencies or comments that
might have come to our attention had we not been limited in scope as noted
above, the system of quality control for the accounting and auditing practice of
[Name of Firm] in effect for the year ended June 30, 20XX, has been designed to
meet the requirements of the quality control standards for an accounting and
auditing practice established by the AICPA and was complied with during the year
then ended to provide the firm with reasonable assurance of conforming with
professional standards.
(As is customary in a system review, we have issued a letter under this date
that sets forth comments that were not considered to be of sufficient
significance to affect the opinion expressed in this report.)
John Brown, Team Captain [or name of reviewing firm]
Top of page
Adverse Report on a System Review
August 31, 20XX
To the Partners [or other appropriate terminology] NH & Associates or To John
B. Able, CPA
We have reviewed the system of quality control for the accounting and
auditing practice of [Name of firm] (the firm) in effect for the year ended June
30, 20XX. A system of quality control encompasses the firm’s organizational
structure, the policies adopted and procedures established to provide it with
reasonable assurance of conforming with professional standards. The elements of
quality control are described in the Statements on Quality Control Standards
issued by the American Institute of CPAs (AICPA). The firm is responsible for
designing a system of quality control and complying with it to provide the firm
reasonable assurance of conforming with professional standards in all material
respects. Our responsibility is to express an opinion on the design of the
system of quality control and the firm’s compliance with its system of quality
control based on our review.
Our review was conducted in accordance with standards established by the Peer
Review Board of the AICPA. During our review, we read required representations
from the firm, interviewed firm personnel and obtained an understanding of the
nature of the firm’s accounting and auditing practice, and the design of the
firm’s system of quality control sufficient to assess the risks implicit in its
practice. Based on our assessments, we selected engagements and administrative
files to test for conformity with professional standards and compliance with the
firm’s system of quality control. The engagements selected represented a
reasonable cross-section of the firm’s accounting and auditing practice with
emphasis on higher-risk engagements. (The engagements selected included among
others, audits of Employee Benefit Plans, engagements performed under Government
Auditing Standards, and audits of Depository Institutions with assets of $500
million or greater.)22 Prior to concluding the review, we reassessed the
adequacy of the scope of the peer review procedures and met with firm management
to discuss the results of our review. We believe that the procedures we
performed provide a reasonable basis for our opinion.
In performing our review, we obtained an understanding of the system of
quality control for the firm’s accounting and auditing practice. In addition, we
tested compliance with the firm’s quality control policies and procedures to the
extent we considered appropriate. These tests covered the application of the
firm’s policies and procedures on selected engagements. Our review was based on
selected tests therefore it would not necessarily detect all weaknesses in the
system of quality control or all instances of noncompliance with it. There are
inherent limitations in the effectiveness of any system of quality control and
therefore noncompliance with the system of quality control may occur and not be
detected. Projection of any evaluation of a system of quality control to future
periods is subject to the risk that the system of quality control may become
inadequate because of changes in conditions, or because the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, because of the deficiencies described below, the system of
quality control for the accounting and auditing practice of [Name of Firm] in
effect for the year ended June 30, 20XX, has not been designed to meet the
requirements of the quality control standards for an accounting and auditing
practice established by the AICPA and was not complied with during the year then
ended to provide the firm with reasonable assurance of conforming with
professional standards.
Reasons for Adverse Opinion and Recommendations
Deficiencies – Our review disclosed that the firm does not use formal audit
programs as required by professional standards. As a result, we noted several
instances where audit procedures were not adequately performed and documented.
The audit work performed for several ERISA audits did not support the opinion
issued and did not conform with professional standards. These engagements were
deemed substandard. The firm has subsequently performed the omitted procedures
to support the audit opinions.
Recommendation – The firm’s policies and procedures should require the use of
audit programs on all audits, which should be tailored to cover the requirements
of specialized industries, when necessary. All audit programs should be retained
with the engagement work papers.
Deficiencies - The firm’s quality control policies and procedures require
consultation based upon the following factors: materiality, experience in a
particular industry or functional area, and familiarity with the accounting
principles or auditing requirements in a specialized area. We noted that the
firm did not perform any consultations during the year. As a result, financial
statements on an audit for a development stage company were substandard. The
firm was not aware of the disclosure presentations required until it was brought
to its attention during the peer review. The firm intends to recall and reissue
the financial statements and report.
Recommendation - The firm should emphasize its consultation policies and
procedures on those engagements that are new to the experience level of the
firm’s accounting and auditing personnel.
Deficiencies – The firm’s policies and procedures do not provide its
professional staff with a means of ensuring that all necessary procedures are
performed on review engagements. During our review, we noted that the firm
failed to obtain management representation letters on all review engagements.
These engagements were deemed substandard. Furthermore, the engagement working
papers did not include documentation of certain matters covered in the
accountant’s inquiry and analytical procedures as required by professional
standards. The firm will obtain the representation letters and has documented
the procedures.
Recommendation – The firm should review and implement the requirements of
professional standards for obtaining representation letters, and the content of
the accountant’s working papers on review engagements. Implementation might be
achieved by utilization of a work program for performing review engagements.
Deficiencies – The firm’s policies and procedures require that financial
statement and disclosure checklists be completed for all engagements. Our review
noted that these checklists were not being used on all engagements. As a result,
several review engagements in the construction industry were missing several
disclosures as required by generally accepted accounting principles. As stated
in the previous deficiency, these engagements were substandard. The subject
reports have been recalled and the financial statements are being revised.
Recommendation – The firm should conduct a training session for all
professional staff to review the firm’s policies and procedures for utilizing
financial statement and disclosure checklists. The engagement partner should
carefully review these checklists at the completion of an engagement to ensure
their proper completion as required by firm policy. This can be accomplished by
adding a procedure to the firm’s engagement review checklist requiring the
engagement partner to document his or her review of these checklists
Deficiencies – The firm’s policies and procedures specify the working papers
that should be reviewed by engagement partners, and require documentation of
those reviews. While reviewing engagements, we were unable to determine the
extent of the engagement partner’s review. As a result, we noted several
documentation deficiencies on audit and review engagements, which might have
been rectified if the working papers were adequately reviewed prior to the
release of the audit and accountant’s reports on those engagements. This
deficiency was noted on the firm’s previous peer review.
Recommendation – The partner-in-charge of each engagement should carefully
review engagement working papers prior to signing and releasing audit and
accountant’s reports in order to ensure that the engagements adhere to
professional standards. In order to ensure compliance with firm policy,
consideration should be given to initialing each working paper after it is
reviewed.
Deficiencies – The firm’s policies and procedures do not require
documentation of sample selections and evaluation of the results of sampling
applications. During our review of engagements, we noted several instances where
the firm performed nonstatistical sampling, but did not document its
considerations. Through discussions with firm personnel, we were able to satisfy
ourselves that adequate procedures had been performed.
Recommendation – The firm should revise its policies and procedures to
require documentation of sample selections and evaluation of sampling results
for statistical and nonstatistical sampling. This may be accomplished by
obtaining or developing a standardized form that conforms to the guidance
included in professional standards.
Deficiencies – The firm’s quality control policies and procedures regarding
new client acceptance require the preparation and approval of a new client
acceptance form to document the considerations and conclusions. During our
review, we noted that the form was not prepared for all new clients. However, we
were informed by the firm’s partners that appropriate consideration had been
made in each case.
Recommendation – To ensure that all appropriate facts are considered when
accepting a new client, the firm should document its considerations and
conclusions by completing the new client acceptance form for each new client,
and the firm administrator should create and maintain a new client file.
John Brown, Team Captain [or name of reviewing firm]
Top of page
System Review -- Report wording modification is firm has no auditing
practice
Firm may elect to undergo a system review even if they do not have an
auditing practice. In such cases, insert the following sentence after the
first sentence of the first paragraph:
"[1] has represented to us that the firm performed no services under
the Statements on Auditing Standards or examinations of prospective
financial statements under the Statements on Standards for Attestation
Engagements during the year under review."
Also, delete the reference to "auditing" in the first and last
paragraphs.
Top of page
Letter of Comments - Unmodified Report on a System
Review
August 31, 20XX
To the Partners [or other appropriate terminology] Able, Baker & Co. or To
John B. Able, CPA
We have reviewed the accounting and auditing practice of [Name of firm] (the
firm) for the year ended June 30, 20XX, and have issued our report thereon dated
August 31, 20XX. That report should be read in conjunction with the comments in
this letter, which were considered in determining our opinion. The matters
described below were not considered to be of sufficient significance to affect
the opinion expressed in that report.
Comment — The firm’s quality control policies and procedures require the
completion of a financial reporting and disclosure checklist on each financial
statement engagement. Our review disclosed the firm had not complied with this
policy on all of the engagements reviewed. In each case in which a checklist was
not completed, we also found that certain financial statement disclosures were
missing or incomplete. None of the missing or incomplete disclosures represented
significant departures from professional standards.
Recommendation - firm should hold training courses on proper completion of
its financial reporting and disclosure checklist and reemphasize its policy
requiring completion of that checklist.
Comment - The firm’s policies and procedures require that findings on
engagements reviewed during the firm’s annual inspection be summarized so that
management can consider what kinds of actions, if any, are necessary. Although,
the firm did not summarize inspection findings from engagements reviewed on the
most recent inspection, each engagement partner considered and responded to
findings on their individual engagements.
Recommendation - The firm should comply with its policy of summarizing
inspection findings, considering the overall system’s implication of these
findings, and documenting management’s monitoring of the actions taken. A
partner in the firm should be designated to monitor the firm’s compliance with
this policy.
[Same signature as on the report on the system review]
Top of page
Letter of Comments - Modified Report on a System
Review
December 3, 20XX
To the Partners [or other appropriate terminology]
PG & Associates
or
To John B. Able, CPA
We have reviewed the accounting and auditing practice of [Name of firm] (the
firm) for the year ended June 30, 20XX, and have issued our report thereon dated
December 3, 20XX that was modified as described therein. That report should be
read in conjunction with the comments in this letter, which were considered in
determining our opinion. The matters described below were not considered to be
of sufficient significance to affect the opinion expressed in that report.
Comment - The firm’s policies and procedures for independence have been
appropriately communicated to the firm’s personnel through its quality control
document and through training programs. However, the firm’s polices and
procedures do not require that professional staff be informed of all new
accounting and auditing clients or engagements on a timely basis. Our review did
not note any impairment of independence on any accounting or auditing
engagement. This comment was noted on the firm’s previous reviews.
Recommendation - The firm should revise its policies and procedures to
periodically communicate in writing to all personnel new accounting and auditing
clients or engagements accepted by the firm. This communication should also
request that any personnel with possible independence issues with respect to new
engagements or clients contact the managing partner immediately.
Comment — The firm’s policies and procedures are not designed to ensure that its
compilation reports on interim and annual financial statements that omit
disclosures and include supplementary information are properly worded to
describe what responsibility, if any, the firm is taking for the supplementary
information. This matter was not so significant as to cause the reports to be
misleading.
Recommendation - The firm’s policies and procedures should be revised to include
a technical review of compilation reports and financial statements to ensure
that those reports conform with professional standards. Although not required by
professional standards, the firm should also consider implementation and use of
a reporting checklist on these engagements.
[Same signature as on the report on the system review]
Top of page
Letter of Comments - Modified Report for a Scope
Limitation on a System Review
December 3, 20XX To the Partners [or other appropriate terminology] PG &
Associates or To John B. Able, CPA
We have reviewed the accounting and auditing practice of [Name of firm] (the
firm) for the year ended June 30, 20XX, and have issued our report thereon dated
December 3, 20XX that was modified as described therein. That report should be
read in conjunction with the comments in this letter, which were considered in
determining our opinion. These matters described below were not considered to be
of sufficient significance to affect the opinion expressed in that report.
Comment - The firm’s policies and procedures do not provide a means to ensure
that all disclosures required by generally accepted accounting principles for
its full-disclosure engagements have been considered. During, our review, we
noted instances of missing or incomplete disclosures. The missing or incomplete
disclosures were not of such significance as to make the financial statements
misleading.
Recommendation - The firm should revise its quality control policies and
procedures to provide a means to ensure that all disclosures required by
generally accepted accounting principles are identified and considered. Such
means might include the use of disclosures checklists or a review by an
individual not associated with the engagement.
Comment - The firm’s quality control policies and procedures require a preissuance review by a partner and the completion of a final review checklist.
The checklist does not include procedures for the review of the management
representation letter. As a result on the audit engagements reviewed, the
management representation letter did not cover the prior year when comparative
financial statements were issued. The firm has subsequently obtained the
management representation letter.
Recommendation - The firm should revise its policies and procedures for preissuance review by a partner and the completion of a final review checklist
to include a review of the management representation letter.
[Same signature as on the report on the system review]
Top of page
Peer
Review Guide >
Report and
LOC Guide > Sample System Review Reports
|