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Peer review


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Advanced Auditing

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Peer review

  2. 2. PEER REVIEW: GENERAL MEANING <ul><li>The term “Peer” means a person of similar standing . The term “review” means a general survey or assessment of a subject or thing. The term “Peer Review” would mean “ review of work done by a professional, by another professional of similar standing ” . </li></ul>
  3. 3. Definition of Peer Review (Para 3.4) <ul><li>Peer Review deals with examination and review of systems and procedures to determine whether the systems and procedures are in: </li></ul><ul><ul><li>Existence </li></ul></ul><ul><ul><li>Effective </li></ul></ul><ul><ul><li>Operating continuously during the period under review </li></ul></ul><ul><ul><li>Put in place by the practice Unit ( PU ). </li></ul></ul>
  4. 4. NEED FOR PEER REVIEW <ul><li>Expectation of service Receiver to receive quality service </li></ul><ul><li>Gap between minimum quality of service and actual service rendered. </li></ul><ul><li>Reassuring the stake holders and the society at large that the profession is conscious of its responsibilities and strives its best to ensure that the highest standards are observed by all practising members rendering audit and attestation services to the society . The Peer Review process is an endevour to enhance the quality of services rendered by members of ICAI in public practice. </li></ul>
  5. 5. Global Scenario in Peer Review <ul><li>Independent Regulator in certain countries </li></ul><ul><li>In some countries disciplinary action if deficiency in services of Auditor is found. </li></ul><ul><li>In the US, public accountancy firms are required to enrol in an approved Practice Monitoring Programme in order to be admitted to or retain membership in the AICPA (the professional body in the US). Furthermore, under Sec 104 of the Sarbanes-Oxley Act, 2002 they are additionally liable to be inspected by the PCAOB (Public Companies Accounting Oversight Board), to assess the degree to which each firm and its associated persons comply with the Act, the PCAOB and SEC rules, the professional and reporting standards, etc. </li></ul><ul><li>Existence in Most of the developed Countries-50 </li></ul><ul><li>Started 1930 in France. </li></ul>
  6. 6. U.K. Position <ul><li>The Audit Inspection Unit (AIU), part of the Professional Oversight Board, is responsible for the monitoring of the audits of all listed and other major public interest entities. The AIU was set up following the Government’s post-Enron review of the regulation of the UK accountancy profession which reported in January 2003. The review team’s report recommended enhancing the monitoring of the audits of listed and other major public interest entities through a new independent inspection unit (the AIU) reporting to a professional oversight board (the POB) within an integrated independent regulator (the FRC). The professional accountancy bodies continue to register firms to conduct audit work with their regulatory activities being overseen by the POB. The audit registration committees of the accountancy bodies receive formal reports from the AIU on our monitoring work, with the POB overseeing the action taken by them in response to our recommendations. The Companies (Audit, Investigations and Community Enterprises) Act 2004 implemented the statutory changes necessary to give effect to these arrangements. </li></ul>
  7. 7. Present Peer Review System In India <ul><li>Supervisor Within Institute of Chartered Accountants of India </li></ul><ul><li>Chinese Wall between Peer Review process and Disciplinary Mechanism ( No disciplinary action even if there is deficiency in service of Auditor) </li></ul><ul><li>Audit of accounts after 1st April’ 2002 only covered </li></ul><ul><li>Peer Reviewers are Individual Members of the Institute (possessing 15 years’ or more experience of audit) </li></ul>
  8. 8. Present Peer Review System In India <ul><li>Three Stages of Peer Review In India </li></ul><ul><li>Stage I-Mandatory Peer Review once in three years </li></ul><ul><li>Stage II-No Time limit, Proposed Once in 5 years </li></ul><ul><li>Stage III- No Time Limit, Proposed Once in 7 years </li></ul><ul><li>(Only Attestation services Covered) </li></ul>
  9. 9. The Regulatory Framework to bring the light of the day <ul><li>The Chartered Accountants (Amendment) Act, 2005 </li></ul><ul><li>Bill Introduces new Chapter VIIA in Chartered Accountants Act 1949. </li></ul><ul><li>Chapter VII A consists of Sections 28A to 28D. </li></ul><ul><li>Central Government will constitute Quality review board (QRB) consisting of 11 persons. </li></ul>
  10. 10. The Regulatory Framework to bring the light of the day contd…. <ul><li>Council of ICAI will nominate 5 members on QRB </li></ul><ul><li>Chairman and other 5 members will be appointed by Central Government </li></ul><ul><li>All services provided by members (Both attestation and non attestation will be subject to Quality Review) </li></ul><ul><li>Disciplinary action if there is a deficiency in service. </li></ul>
  11. 11. Composition of Peer Review Board at Institute of Chartered Accountants of India <ul><li>The Board consists of 10 members appointed by the Council </li></ul><ul><li>Of whom atleast six are from amongst the members of the Council. </li></ul><ul><li>Representatives from the Department of Company Affairs, Comptroller and Auditor General of India and Industry (FICCI/ CII) as members </li></ul><ul><li>In addition, persons of eminence from legal, banking and education sectors (a retired High Court Judge, CMD, Bank of Maharashtra, CE, Indian Banks’ Association, Chairman, UGC) and a former President of the Institute assist the Board in its deliberations as Special Invitees. </li></ul>
  12. 12. Salient Features of the Statement on Peer Review
  13. 13. Some features of the Statement. <ul><li>Statement on peer review was passed by Council in March 2002 </li></ul><ul><li>First meeting of Peer Review board took place in July 2002 </li></ul><ul><li>Statement on Peer Review serves as a mechanism as is intended to further enhance the quality of professional work of practising chartered accountants over a period of time. Thereby ensuring that the profession of chartered accountants continue to serve the society in the manner envisaged. </li></ul><ul><li>Statement issued under Section 15 of the Institute of Chartered Accountants Act 1949 which provides that the duties of carrying out the provisions of the Act shall be vested in the Council. The section enumerates various duties of the Council. With a view to regulate the profession and in terms of powers vested, this statement has been issued. </li></ul>
  14. 14. Statement on Peer review <ul><li>Introduction </li></ul><ul><li>Objectives </li></ul><ul><li>Definition of Terms </li></ul><ul><li>(Attestation Services Member, PU, Peer Review, Peer Review Board, Review of Technical Standards) </li></ul><ul><li>Authority of the statement on Peer review </li></ul><ul><li>Powers of the Council </li></ul><ul><li>Peer review Board </li></ul><ul><li>7. Scope of peer review </li></ul><ul><li>8. Powers of Board </li></ul><ul><li>9. Compliance with this statement of Peer review </li></ul><ul><li>10. Qualifications of the reviewer </li></ul><ul><li>11. Members/ Firms subject to review </li></ul>
  15. 15. Statement on Peer review contd…. <ul><li>12. Obligation of the practice Unit </li></ul><ul><li>13. Periodicity of Peer Review </li></ul><ul><li>14. Cost of Peer Review </li></ul><ul><li>15. Training and Development </li></ul><ul><li>16. Review Framework </li></ul><ul><li>17. Referral of Disputes and Appeals </li></ul><ul><li>(Reference to Peer Review Board over the powers of the Reviewer or to conclusions reached by Reviewer or any other matter related to Review) </li></ul><ul><li>18. Immunity </li></ul><ul><li>(No liability of PU under Code of Ethics) </li></ul><ul><li>19. Confidentiality </li></ul><ul><li>20. Procedural departures </li></ul><ul><li>21. Budget and Finance </li></ul><ul><li>22. Secretariat. </li></ul>
  16. 16. Objective of Peer Review (Para 2.1 ) <ul><li>Assessing the maintenance of Quality of Attestation Service Engagements performed by Practice Units through: </li></ul><ul><li>- Compliance with Technical Standards ; and </li></ul><ul><li>- Existence of proper system (including documentation systems) </li></ul><ul><li>Not to find out deficiencies but to improve the quality of services rendered by the members </li></ul><ul><li>Not to identify isolated cases of engagement failure, but to identify weaknesses that are pervasive and chronic in nature </li></ul>
  17. 17. Scope of Peer Review (Para 7.0) <ul><li>Attestation Services </li></ul><ul><ul><li>Attestation Engagement Records for immediately preceding three completed financial years (Records prior to accounting year beginning 1.04.2002 shall not be subjected to review) </li></ul></ul><ul><li>Focus </li></ul><ul><ul><li>Technical Standards compliance </li></ul></ul><ul><ul><li>Quality of Reporting </li></ul></ul><ul><ul><li>Office Systems and Procedures ( attestation services only) </li></ul></ul><ul><ul><li>Staff training Programmes ( attestation services only) </li></ul></ul>
  18. 18. Attestation Services (Para 3.1) <ul><li>Include : </li></ul><ul><ul><li>A uditing or verification of financial transactions/ books/ accounts/ records </li></ul></ul><ul><ul><li>Verification/ certification of financial accounting & related statements defined under Section 2(2)(ii) of the Chartered Accountants Act, 1949 </li></ul></ul><ul><ul><li>Internal Audit/Concurrent Audit </li></ul></ul><ul><li>Does not include : </li></ul><ul><ul><li>Management Consulting Engagements </li></ul></ul><ul><ul><li>Representing a client before the Authorities </li></ul></ul><ul><ul><li>Continued … </li></ul></ul>
  19. 19. Attestation Services (Para 3.1) <ul><ul><li>Continued… </li></ul></ul><ul><ul><li>Engagements to prepare tax returns or advising clients in taxation matters </li></ul></ul><ul><ul><li>Engagements for the compilation of FSs </li></ul></ul><ul><ul><li>Engagements solely to assist the client in preparing, compiling or collating information other than FSs </li></ul></ul><ul><ul><li>Testifying as expert witness </li></ul></ul><ul><ul><li>Providing expert opinion on points of principle (ASs or the applicability of certain laws) on the basis of facts provided by the client </li></ul></ul>
  20. 20. Technical Standards (Para 3.7) <ul><li>Accounting Standards “AS” </li></ul><ul><li>Auditing and Assurance Standards “AAS” </li></ul><ul><li>Framework for the Accounting, Auditing & Related Services </li></ul><ul><li>Statements </li></ul><ul><li>Guidance Notes </li></ul><ul><li>Notifications/Directions/Announcements including those of self-regulatory nature </li></ul><ul><li>Relevant Statutes/ Regulations </li></ul>
  21. 21. Reviewer: Para 10 <ul><li>An individual who is </li></ul><ul><li>a member </li></ul><ul><li>possess at least 15 years cumulative experience of audit </li></ul><ul><ul><li>Need not be continuous </li></ul></ul><ul><ul><li>Audit experience of less than 2 years not counted </li></ul></ul><ul><li>currently active in practice of accounting and auditing </li></ul><ul><li>Reviewer can also take assistance of a CA working with him atleast for one year. </li></ul>
  22. 22. Allotment of Review Work <ul><li>Receipt of Empanelment Form </li></ul><ul><li>Issue of Empanelment Letter </li></ul><ul><li>Filing of Declaration which is to the following effect: </li></ul><ul><li>(i.) that no disciplinary action was pending </li></ul><ul><li>(ii) have not been convicted by a competent court whether within or without India, of an offence involving moral turpitude and punishable with transportation or imprisonment or of an offence, not of a technical nature, committed by you in your professional capacity unless in respect of the offence committed you have either been granted a pardon or, on an application made by you in this behalf, the central government has, by an order in writing , removed the disability (the conviction here means conviction at the first court) </li></ul><ul><li>Undergoing training </li></ul><ul><li>Intimation of 3 names of reviewers to the PU </li></ul><ul><li>Selection of a reviewer by the PU </li></ul>
  23. 23. Firms covered under Peer Review : Para 11 <ul><li>Stage I </li></ul><ul><li>PUs conducting: </li></ul><ul><ul><li>Central Statutory Audit of Public Sector Banks/ Private Sector Banks/ Foreign Banks/ Public Financial Institutions </li></ul></ul><ul><ul><li>Central Statutory Audit of Central & State Public Sector Undertakings and Central Cooperative Societies having paid up capital of over Rs. 5 crores and an annual turnover of more than Rs. 50 crores </li></ul></ul><ul><ul><li>Continued… </li></ul></ul>
  24. 24. Firms covered under Peer Review contd…… <ul><ul><li>Central Statutory Audit of Insurance Companies </li></ul></ul><ul><ul><li>Audit of Companies having paid up capital of over Rs. 5 crores and an annual turnover of more than Rs. 50 crores </li></ul></ul><ul><ul><li>Audits or rendering attestation functions for asset management companies and mutual funds schemes </li></ul></ul><ul><ul><li>(Implementation commenced from 1st April 2003) </li></ul></ul>
  25. 25. Firms covered under Peer Review contd…… <ul><li>Stage II </li></ul><ul><li>PUs conducting statutory audit: </li></ul><ul><ul><li>Branches of Public Sector Banks </li></ul></ul><ul><ul><li>Branches of Private Sector and Foreign Banks </li></ul></ul><ul><ul><li>Regional Rural Banks/Co-operative Banks </li></ul></ul><ul><ul><li>Non-Banking Financial Companies (NBFCs) listed on the Stock Exchanges and not covered under Stage I </li></ul></ul>
  26. 26. Firms covered under Peer Review contd…… <ul><ul><li>Companies having paid-up capital of Rs. </li></ul></ul><ul><ul><li>2 to 5 crores and turnover above Rs. 20 </li></ul></ul><ul><ul><li>crores </li></ul></ul><ul><ul><li>(I mplementation commenced from 1st April 2004) </li></ul></ul><ul><li>Stage III </li></ul><ul><li>PUs not covered under Stage I or Stage II </li></ul><ul><li>(Implementation to commence from 1st April 2005) </li></ul>
  27. 27. Selection of PU <ul><li>Random sample basis </li></ul><ul><ul><li>Stage I PUs, mandatory review once in a block of three years or at shorter intervals on request of the PU or decision of the Board </li></ul></ul><ul><ul><li>Stages II/ III PUs - may not be subjected to review every three years </li></ul></ul>
  28. 28. Selection of PU contd…. <ul><li>during Board decides the proportion of PUs to be reviewed each phase </li></ul><ul><li>A PU may also, suo motu , apply to the Board for the getting reviewed </li></ul><ul><li>An auditee concern may request the Board for the conduct of peer review of its auditor (PU) </li></ul>
  29. 29. Confidentiality: Para 19 <ul><li>Reviewer’s access only to working papers of the PU </li></ul><ul><li>Reviewer cannot carry extracts of client’s working papers & records acquired by him while conducting peer review, as part of his working papers </li></ul><ul><li>Reviewer bound by a Code of Ethics </li></ul><ul><li>Reviewer bound by “secrecy provision” enshrined in the Statement on Peer Review </li></ul>
  30. 30. <ul><ul><li>Format </li></ul></ul><ul><ul><li>of </li></ul></ul><ul><ul><li>Statement of Confidentiality </li></ul></ul><ul><ul><li>To, </li></ul></ul><ul><ul><li>The Chairman, </li></ul></ul><ul><ul><li>Peer Review Board, </li></ul></ul><ul><ul><li>The Institute of Chartered Accountants of India. </li></ul></ul><ul><ul><li>New Delhi </li></ul></ul><ul><ul><li>  </li></ul></ul><ul><ul><li>Sir,  </li></ul></ul><ul><ul><li>I hereby declare that my attention has been drawn to the need for confidentiality in the conduct of peer reviews. I therefore undertake and assure that in so far as any or all of the following relate to me or are brought to my knowledge/attention, in any manner whatsoever, when so ever, I will ensure that on my part </li></ul></ul><ul><ul><li>Working papers shall always be kept securely so that unauthorized access is not gained by anyone. </li></ul></ul><ul><ul><li>The practice unit's attestation services procedures shall not be disclosed to third parties. </li></ul></ul><ul><ul><li>Any information with regard to any matter coming to my knowledge in the performance or in assisting in the performance of any function during the conduct of peer reviews shall not be disclosed to any person. </li></ul></ul><ul><ul><li>  </li></ul></ul><ul><ul><li>Access to any record, document or any other material, in any form which is in my possession, or under my control, by virtue of my being or having been so appointed or my having performed or having assisted any other person in the performance of such a function, shall not at any time be permitted to any other person. </li></ul></ul><ul><ul><li>I understand that any breach of the provisions regarding confidential information contained in the Statement on Peer Review will be considered as gross negligence and, subject to investigation, will result in appropriate action. </li></ul></ul><ul><ul><li>  </li></ul></ul><ul><ul><li>Signature : </li></ul></ul><ul><ul><li>Name : </li></ul></ul><ul><ul><li>Designation : </li></ul></ul><ul><ul><li>Date : </li></ul></ul><ul><ul><li>Place : </li></ul></ul><ul><ul><li>  </li></ul></ul><ul><ul><li>Taken on record on (date) </li></ul></ul><ul><ul><li>By </li></ul></ul><ul><ul><li>Signature : </li></ul></ul><ul><ul><li>Name : </li></ul></ul><ul><ul><li>Designation : </li></ul></ul>
  31. 31. FAQs <ul><li>What is the time period for which records of attestation services are subjected to peer review? </li></ul><ul><li>Answer : While attestation engagements for the Three immediately completed financial years are subjected to Peer Review, the records of audit Reports/ attestation services relating to years prior to the accounting year beginning 1 st April’2002 shall not be subjected to review. </li></ul>
  32. 32. FAQs <ul><li>How will a PU be selected for review? </li></ul><ul><li>Answer : At each stage of Peer review , certain PUs , satisfying the criteria laid down in the statement would be selected for peer review on a random sample basis. The board is empowered to decide the proportion of Pus to be included in the selection during each phase of Implementation. </li></ul><ul><li>A PU can also suo –motu apply. </li></ul>
  33. 33. FAQs <ul><li>Can a reviewer visit clients of the PU? </li></ul><ul><li>Answer: No , he cannot , under any circumstances , communicate with or visit the clients’ of the PU </li></ul><ul><li>Can a reviewer visit branches of a PU? </li></ul><ul><li>Answer: Yes , he may visit a branch if the turnover of attestation functions of that branch is more than one million Rupees. </li></ul>
  34. 34. Preliminary Report <ul><li>After on-site review, reviewer may communicate with PU and seek clarifications and consider sending a preliminary report if replies not found satisfactory </li></ul><ul><li>After on-site review, in case of deficiencies in systems and procedures or non-compliances the reviewer to issue preliminary report to PU immediately </li></ul><ul><li>Reviewer to take care not to mention any names </li></ul><ul><li>Scope of review performed and scope limitations, if any, to be mentioned </li></ul><ul><li>Continued… </li></ul>
  35. 35. <ul><li>Prepare report on letterhead of reviewer (individual) </li></ul><ul><li>Dated/ signed (Membership no. and Reviewer code no.) </li></ul><ul><li>PU to reply in writing within 21 days of receipt of preliminary report on areas mentioned in it </li></ul><ul><li>Continued… </li></ul>Contd….
  36. 36. Interim Report <ul><li>Reviewer to issue interim report if not satisfied with reply of the PU and deficiencies are of such serious nature that they do not ensure quality of attestation services performed by the PU -weakness in compliance with technical standards and/ or in internal quality control systems </li></ul><ul><li>Report to clearly indicate &quot;Interim Report&quot; </li></ul><ul><li>On receipt of interim report by the Board or receipt of response from the PU, the Board may instruct the reviewer to carry out a follow up review after a period ranging from 6 months to 12 months at the discretion of the Board </li></ul>
  37. 37. Final Report <ul><li>Reviewer to submit Final Report to the Board with a copy to the PU </li></ul><ul><li>Final Report should incorporate the findings as discussed with the PU </li></ul><ul><li>Final report to be submitted to the Board should also contain an annexure forming part of it w.e.f 1st July, 2005, notified on the Institute’s website (See Page 43-45 of this presentation) </li></ul><ul><li>Continued… </li></ul>
  38. 38. <ul><li>Reviewer may issue </li></ul><ul><ul><li>a clean report, if of the opinion that PU is conducting its affairs in a manner that ensures quality of services rendered by it </li></ul></ul><ul><ul><li>a qualified report </li></ul></ul><ul><li>A qualified report may be issued: </li></ul><ul><ul><li>Non-compliance with technical standards </li></ul></ul><ul><ul><li>QC system design deficiency </li></ul></ul><ul><ul><li>Non-compliance with QC policies and procedures </li></ul></ul><ul><ul><li>Continued… </li></ul></ul>Contd….
  39. 39. <ul><ul><li>Non-existence of adequate staff training programmes </li></ul></ul><ul><ul><li>The deficiencies are not of such serious nature to vitiate the efficacy of the key control objectives </li></ul></ul><ul><li>The Board shall consider the report and if satisfied, will issue Peer Review Certificate </li></ul><ul><li>If not satisfied, the Board may issue recommendations to the PU and direct the reviewer for further review </li></ul><ul><li>Continued… </li></ul>Contd….
  40. 40. Annexure to the Final Report of M/s___________________   General instructions: Tick ‘Yes’ / ‘No’, wherever applicable. Sl. No. Particulars Observations 1 Date on which questionnaire is received   2 Number of initial samples selected for review   3 (a) Was there any change made in initial sample selected by the Reviewer?   (b) If ‘Yes’, specify the number selected, after change   4 Name of the person (if any) who helped in the conduct of review   5 (a) Whether general controls are in existence and operating effectively during the period under review? Yes No (b) If ‘No’, please specify areas:     (i) Independence     (ii) Professional Skills and Standards     (iii) Outside Consultation     (iv) Staff Supervision and Development     (v)               Office Administration          
  41. 41. 6 Whether audit records administration is satisfactory?   7 Whether working papers are properly maintained? Yes No 8 Whether review of internal control systems was carried out properly in performing attestation engagement? Yes No 9 (a) Whether proper systems and procedures exist within the PU to ensure compliance with technical standards? Yes No (b) If ‘No’, specify areas:     (i) Accounting Standards including Interpretations thereof     (ii) Auditing and Assurance Standards including General Clarifications thereof     (iii) Statements     (iv) Guidance Notes     (v) Institute’s Notifications/ Directions     (vi) Self Regulatory Measures   10 Whether overall presentation of financial statements conforms to statutory requirements of presentation under various Statutes? Yes No 11 Whether audit conclusions drawn are duly supported by audit queries/observations? Yes No 12 Whether the quality of audit reports in respect of format and content found proper? Yes No 13 (a) Whether the Reviewer has issued preliminary report? Yes     No (b) Whether the preliminary report issued by the Reviewer contained any deficiencies? Yes No
  42. 42.   (c) If ‘Yes’, please specify the areas of deficiencies …………………………………………………… .     14 (a) Whether PU has responded to the preliminary report? Yes No (b) Whether the Reviewer is satisfied with the response received from the PU? Yes No 15 (a) If the Reviewer is not satisfied with the response of the PU, whether interim report or qualified report has been issued? Yes No (b) Is the Final Report qualified? Yes No (c) If ‘Yes’, specify the reasons   …………………………………………………………………………………………………… .     16 Whether the Reviewer received full co-operation from the PU? during review Yes No 17 Is there any point which the Reviewer wants to bring to the notice of the Board? If yes,Please elaborate separately.   ………………………………………………………………………………………………………………………………
  43. 43. Basic Elements of Reviewer's Report <ul><li>Title </li></ul><ul><li>Scope Paragraph </li></ul><ul><li>Opinion Paragraph </li></ul><ul><li>Limitations </li></ul><ul><li>Suggestions </li></ul><ul><li>Reference to preliminary report </li></ul><ul><li>Date of the report </li></ul>
  44. 44. Guidelines for Qualifying Review Report <ul><li>Compliance with technical standards </li></ul><ul><li>Compliance with quality control policies </li></ul><ul><li>Compliance with documentation </li></ul><ul><li>Compliance with relevant regulations </li></ul>
  45. 45. THANK YOU!