PEER REVIEW- AN OVERVIEW

1
PEER REVIEW- AN OVERVIEW
2
PEER REVIEW GENERAL MEANING

• 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.

3
Definition of Peer Review(Para 3.4)

• Peer Review deals with examination and review of
  systems and procedures to determine whether the
  systems and procedures are in
• Existence
• Effective
• Operating continuously during the period under
  review
• Put in place by the practice Unit.

4
NEED FOR PEER REVIEW

• Expectation of service Receiver to receive
  quality service
• Gap between minimum quality of service and actual
  service rendered.
• 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 attestion
  services to the society. The Peer Review process
  is an endavour to enhance the quality of services
  rendered by members of ICAI in public practice.

5
Global Scenario in Peer Review

• Independent Regulator in certain countries
• In some countries disciplinary action if
  deficiency in services of Auditor is found.
• 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.
• Existence in Most of the developed Countries-50
• Started 1930 in France.

6

• U.K. Position
• 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 Governments post-Enron
  review of the regulation of the UK accountancy
  profession which reported in January 2003. The
  review teams 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.

7
Present Peer Review System In India

• Supervisor Within Institute of Chartered
  Accountants of India
• Chinese Wall between Peer Review process and
  Disciplinary Mechanism ( No disciplinary action
  even if there is deficiency in service of
  Auditor)
• Audit of accounts after 1st April 2002 only
  covered
• Peer Reviewers are Individual Members of the
  Institute.

8
Present Peer Review System In India

• Three Stages of Peer Review In India
• Stage I-Mandatory Peer Review once in three years
• Stage II-No Time limit, Proposed Once in 5 years
• Stage III- No Time Limit, Proposed Once in 7
  years
• (Only Attestation services Covered)

9
The Regulatory Framework to bring the light of
the day

• The Chartered Accountants (Amendment) Act, 2005
• Bill Introduces new Chapter VIIA in Chartered
  Accountants Act 1949.
• Chapter VII A consists of Sections 28A to 28D.
• Central Government will constitute Quality review
  board consisting of 11 persons.

10
The Regulatory Framework to bring the light of
the day contd.

• Council of ICAI will nominate 5 members on QRB
• Chairman and other 5 members will be appointed by
  Central Government
• All services provided by members( Both
  attestation and non attestation will be subject
  to Quality Review)
• Disciplinary action if there is a deficiency in
  service.

11
Composition of Peer Review Board at Institute of
Chartered Accountants of India

• The Board consists of 10 members appointed by the
  Council
• Of whom atleast six are from amongst the members
  of the Council.
• Representatives from the Department of Company
  Affairs, Comptroller and Auditor General of India
  and Industry (FICCI/ CII) as members
• 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.

12
Salient Features of the Statement on Peer
Review
13
Some features of the Statement.

• Statement on peer review was passed by Council in
  March 2002
• First meeting of Peer Review board took place in
  July 2002
• 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.
• 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.

14
Paras in Statement on Peer review

• Introduction
• Objectives
• Definition of Terms
• (Attestation Services Member, PU, Peer Review,
  Peer Review Board, Review of Technical Standards)
  
• Authority of the statement on Peer review
• Powers of the Council
• Peer review Board

• 7. Scope of peer review
• 8. Powers of Board
• 9. Compliance with this statement of Peer review
• 10. Qualifications of the reviewer
• 11. Members/ Firms subject to review

15
Paras in Statement on Peer review contd.

• 17. Referral of Disputes and Appeals
• (Reference to Peer Review Board over the powers
  of the Reviewer or to conclusions reached by
  Reviewer or any other matter related to Review)
• 18. Immunity
• (No liability of PU under Code of Ethics)
• 19. Confidentiality
• 20. Procedural departures
• 21. Budget and Finance
• 22. Secretariat.

• 12. Obligation of the practice Unit
• 13. Periodicity of Peer Review
• 14. Cost of Peer Review
• 15. Training and Development
• 16. Review Framework

16
NOTIFICATIONS AND CIRCULARS ISSUED BY THE PEER
REVIEW BOARD

• 1. Notification No PRB/Notfn./001/02-03.
  issued on January102003 (Cost of Peer Review)
• Total Revenue from Attestation Service clients
  of practice units (Honorarium and TA/DA to
  Reviewer)
• 2. Notification No PRB/Notfn./002/02-03.
  issued on January102003 (Criteria for Stage I,
  selection for Peer Review)
• 3. Notification No PRB/Notfn./003/04-05.
  dated 23rd July2004 (Cost for Stage II Review)
• 4. Notification No PRB/Notfn./004/04-05.
  dated 23rd July2004 (TA/DA for Branch Office of
  a PU)

17
NOTIFICATIONS AND CIRCULARS ISSUED BY THE PEER
REVIEW BOARD contd

• 5. Notification No PRB/Notfn./005/04-05. dated
  23rd July2004 (Coverage Stage II limits)
• 6. Notification No PRB/Notfn./006/04-05. dated
  23rd July2004 (Manner of Referral of disputes-to
  be filed within 60 days of the receipt of
  decision of the Board)
• 7. Notification No. PRB/Notfn./007/05-06. Dated
  March 27th 2006 (Stage III Cost of Review as per
  Stage II)
• 8. Circular No PRB/Cir./001/02-03. issued on
  January10 2003 (Declaration to be filed by a
  Reviewer every year)

18
(No Transcript)
19
Objective of Peer Review(Para 2.1 )

• Assessing the maintenance of Quality of
  Attestation Service Engagements performed by
  Practice Units through
• - Compliance with Technical Standards and
• - Existence of proper system (including
  documentation systems)
• Not to find out deficiencies but to improve the
  quality of services rendered by the members
• Not to identify isolated cases of engagement
  failure, but to identify weaknesses that are
  pervasive and chronic in nature

20
Scope of Peer Review(Para 7.0)

• Attestation Services
• 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)
• Focus
• Technical Standards compliance
• Quality of Reporting
• Office Systems and Procedures (attestation
  services only)
• Staff training Programmes (attestation services
  only)

21
Attestation Services (Para 3.1)

• Include
• Auditing or verification of financial
  transactions/ books/ accounts/ records
• Verification/ certification of financial
  accounting related statements defined under
  Section 2(2)(ii) of the Chartered Accountants
  Act, 1949
• Internal Audit/Concurrent Audit
• Does not include
• Management Consulting Engagements
• Representing a client before the Authorities
• Continued

22
Attestation Services (Para 3.1)

• Continued
• Engagements to prepare tax returns or advising
  clients in taxation matters
• Engagements for the compilation of FSs
• Engagements solely to assist the client in
  preparing, compiling or collating information
  other than FSs
• Testifying as expert witness
• Providing expert opinion on points of principle
  (ASs or the applicability of certain laws) on the
  basis of facts provided by the client

23
Technical Standards(Para 3.7)

• Accounting Standards
• Auditing and Assurance Standards
• Framework for the Accounting, Auditing Related
  Services
• Statements
• Guidance Notes
• Notifications/Directions/Announcements including
  those of self-regulatory nature
• Relevant Statutes/ Regulations

24
Reviewer Para 10

• An individual who is
• a member
• possess at least 10 years cumulative experience
  of audit
• Need not be continuous
• Audit experience of less than 2 years not counted
• currently active in practice of accounting and
  auditing
• Reviewer can also take assistance of a CA working
  with him atleast for one year.

25
Allotment of Review Work

• Receipt of Empanelment Form
• Issue of Empanelment Letter
• Filing of Declaration which is to the following
  effect
• (i.) that no disciplinary action was pending
• (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)
• Undergoing training
• Intimation of 3 names of reviewers to the PU
• Selection of a reviewer by the PU

26
Firms covered under Peer Review Para 11

• Stage I
• PUs conducting
• Central Statutory Audit of Public Sector Banks/
  Private Sector Banks/ Foreign Banks/ Public
  Financial Institutions
• 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
• Continued

27
Firms covered under Peer Review contd

• Central Statutory Audit of Insurance Companies
• Audit of Companies having paid up capital of over
  Rs. 5 crores and an annual turnover of more than
  Rs. 50 crores
• Audits or rendering attestation functions for
  asset management companies and mutual funds
  schemes
• (Implementation commenced from 1st April 2003)

28
Firms covered under Peer Review contd

• Stage II
• PUs conducting statutory audit
• Branches of Public Sector Banks
• Branches of Private Sector and Foreign Banks
• Regional Rural Banks/Co-operative Banks
• Non-Banking Financial Companies (NBFCs) listed on
  the Stock Exchanges and not covered under Stage I

29
Firms covered under Peer Review contd

• Companies having paid-up capital of Rs.
• 2 to 5 crores and turnover above Rs. 20
• crores
• (Implementation commenced from 1st April 2004)
• Stage III
• PUs not covered under Stage I or Stage II
• (Implementation to commence from 1st April
  2005)

30
Selection of PU

• Random sample basis
• 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
• Stages II/ III PUs - may not be subjected to
  review every three years

31
Selection of PU contd.

• Board decides the proportion of PUs to be
  reviewed during each phase
• A PU may also, suo motu, apply to the Board for
  the getting reviewed
• An auditee concern may request the Board for the
  conduct of peer review of its auditor (PU)

32
Confidentiality Para 19

• Reviewers access only to working papers of the
  PU
• Reviewer cannot carry extracts of clients
  working papers records acquired by him while
  conducting peer review, as part of his working
  papers
• Reviewer bound by a Code of Ethics
• Reviewer bound by secrecy provision enshrined
  in the Statement on Peer Review

33

• Format
• of
• Statement of Confidentiality
• To,
• The Chairman,
• Peer Review Board,
• The Institute of Chartered Accountants of India.
• New Delhi
•  
• Sir, 
• 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
• Working papers shall always be kept securely so
  that unauthorized access is not gained by anyone.
• The practice unit's attestation services
  procedures shall not be disclosed to third
  parties.
• 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.
•  
• 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.
• 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.
•  

 
34
FAQs

• What is the time period for which records of
  attestation services are subjected to peer
  review?
• Ans 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 1st
  April2002 shall not be subjected to review.

35
FAQs

• How will a PU be selected for review?
• Ans 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.
• A PU can also suo moto apply.

36
FAQs

• Can a reviewer visit clients of the PU
• Ans No, he cannot , under any circumstances ,
  communicate with or visit the clients of the PU
• Can a reviewer visit branches of a PU?
• Ans Yes, he may visit a branch if the turnover
  of attestation functions of that branch is more
  than one million Rupees.

37
Preliminary Report

• After on-site review, reviewer may communicate
  with PU and seek clarifications and consider
  sending a preliminary report if replies not found
  satisfactory
• After on-site review, in case of deficiencies in
  systems and procedures or non-compliances the
  reviewer to issue preliminary report to PU
  immediately
• Reviewer to take care not to mention any names
• Scope of review performed and scope limitations,
  if any, to be mentioned
• Continued

38
Contd.

• Prepare report on letterhead of reviewer
  (individual)
• Dated/ signed (Membership no. and Reviewer code
  no.)
• PU to reply in writing within 21 days of receipt
  of preliminary report on areas mentioned in it
• Continued

39
Interim Report

• 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
• Report to clearly indicate "Interim Report"
• 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

40
Final Report

• Reviewer to submit Final Report to the Board with
  a copy to the PU
• Final Report should incorporate the findings as
  discussed with the PU
• 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 Institutes
  website (See Page 43-45 of this presentation)
• Continued

41
Contd.

• Reviewer may issue
• a clean report, if of the opinion that PU is
  conducting its affairs in a manner that ensures
  quality of services rendered by it
• a qualified report
• A qualified report may be issued
• Non-compliance with technical standards
• QC system design deficiency
• Non-compliance with QC policies and procedures
• Continued

42
Contd.

• Non-existence of adequate staff training
  programmes
• The deficiencies are not of such serious nature
  to vitiate the efficacy of the key control
  objectives
• The Board shall consider the report and if
  satisfied, will issue Peer Review Certificate
• If not satisfied, the Board may issue
  recommendations to the PU and direct the reviewer
  for further review
• Continued

43
Annexure to the Final Report of
M/s___________________   General instructions
Tick Yes / No, wherever applicable.
44
(No Transcript)
45
 
46
Basic Elements of Reviewer's Report

• Title
• Scope Paragraph
• Opinion Paragraph
• Limitations
• Suggestions
• Reference to preliminary report
• Date of the report

47
Guidelines for Qualifying Review Report

• Compliance with technical standards
• Compliance with quality control policies
• Compliance with documentation
• Compliance with relevant regulations

48
Illustrative Reports

• See ICAI's Peer Review Manual
• Appendixes V to VII

49
QUESTIONS!QUERIES!SUGGESTIONS!
50
THANK YOU!