Minnesota Society of CPAs Peer Review

2015Annual Report on Oversight

  1. Administering Entity Oversight Process and Procedures

1. Oversight of Peer Reviews and Reviewers

Oversight Selection

The Minnesota Society of CPAs (MNCPA) Peer Review Committee has an executive committee made up of the committee’s chair, vice-chair, past chair, chairs of the two Report Acceptance Bodies (RABs), and two technical reviewers. As part of its yearly agenda, the executive committee recommends reviewers and/or reviewed firms for oversight.

The committee first verifies how many reviews will be oversighted for the year, taking into consideration meeting AICPA requirements (at least 2% of all reviews performed during a twelve month period and at least two system reviews and three engagement reviews) and also providing for oversight of non-AICPA firms. This generally results in three engagement review oversights and two system review oversights of AICPA firms and one oversight of a non-AICPA firm. The non-AICPA oversight is of an engagement review for three years out of every four, and a system review one year out of four, based on the approximate proportion of engagement reviews to system reviews for non-AICPA firms.

The committee has adopted Policy and Procedure related to oversight (see Attachment A), which contains criteria to be considered in selecting reviewers or reviewed firms for oversight. This policy is reviewed annually. Administering entity (AE) staff supplies the committee with general information about upcoming reviews and statistics needed to apply the criteria in the policy. The committee makes recommendations for oversight.

The peer review coordinator for the MNCPA monitors the schedules of the selected reviewers for appropriate peer review engagements to oversight. The peer review engagement selection process considersthe previous oversight history for the reviewed firm and coverage of AICPA requirements for inclusion of audits of at least two of the following: employee benefit plans under ERISA, engagements performed under the Government Auditing Standards, audits of insured depository institutions under FDICIA engagements, audits of carrying broker dealers, or examinations of service organizations(“must select” engagements). Also, the two system reviews selected are not to be of the same types of audits.

AE staff monitor upcoming review engagements to schedule oversights. If AE staff identify a scheduled review with a reviewer or firm that appears to be a better candidate for oversight than those already identified by the committee, the committee chair and/or a technical reviewermay be consulted for the change of plan. In addition, if by early fall no appropriate engagements are scheduled for atargeted reviewer, the peer review coordinator prepares a list of alternate reviewers for potential oversight. She consults with the committee chair and/or a technical reviewer to finalize alternate selections.

Oversight Process

Engagement review oversights are performed off-site by the two technical reviewers. System review oversights are usually performed by members of the committee or in some cases by a technical reviewer. If the oversight reviewer does not possess qualifications in a “must select” industry that will be oversighted, another individual may perform oversight of the “must select” engagement. System review oversights are generally performed on-site, although on occasion an engagement oversight that is part of a system review oversight may be performed off-site due to logistical constraints.

All oversight reviewers are compensated at the technical reviewer rate of pay. Reviewers are compensated for hours worked on the oversight, plus mileage reimbursed at IRS rates as well as for incidental expenses.

The AICPA Peer Review Program Oversight Checklist is utilized on all oversight engagements. Oversight reports are kept on file at the Society office for AICPA oversight visits. Reports are not sent to the AICPA unless remedial action must be ratified by the AICPA.The final report is prepared on the oversight reviewer’s letterhead and submitted to the MNCPA Peer Review Executive Committee. Any reviewer dispute with the oversight findings or remedial actions would be handled in accordance with procedures outlined in the AICPA’s RAB Handbook. When the review for which the oversight was performed is considered for acceptance by a RAB, the oversight report is included in the RAB materials.

2. Administrative Oversight

In those years when there is no on-site AICPA Oversight Task Force (OTF) oversight, an administrative oversight is performed, generally by the vice-chair of the committee. Procedures performed cover the administrative requirements of administering the AICPA Peer Review Program. The administrative oversight report isreviewed and approved by the MNCPA Peer Review Executive Committee, is submitted to AICPA Peer Review Program staff as part of the MNCPA’s annual Plan of Administration, and is provided to the AICPA biennial oversight review team. The most recent administrative oversight was performed in November 2016, with a report issued Nov. 22., 2016.

3. Annual Verification of Reviewers’ Resumes

To qualify as a reviewer, an individual must be an AICPA member and have been active for at least the five prior years in the practice of public accounting in the accounting or auditing functions. The firm that the member is associated with should have received a pass report on either its system or engagement review. The reviewer should obtain at least 48 hours of continuing professional education in subjects related to accounting and auditing every three years, with a minimum of 8 in any one year. A reviewer of an engagement in a high-risk industry should possess not only current knowledge of professional standards but also current knowledge of the accounting practices specific to that industry. In addition, the reviewer of an engagement in a high-risk industry should have current practice experience in that industry. If a reviewer does not have such experience, the reviewer may be called upon to justify why he or she should be permitted to review engagements in that industry. The MNCPA has the authority to decide whether a reviewer’s or review team’s experience is sufficient to perform a review.

Ensuring that reviewers’ resumes are updated annually and are accurate is a critical element in determining if the reviewer or review team has the appropriate knowledge and experience to perform a specific peer review.

In accordance with Oversight Enhancement No. 4, the MNCPA must verify information within a sample of reviewers’ resumes on an annual basis. All reviewer resumes are verified over a three-year period.The resume of a new reviewer is generally verified in his or her first year.

Verification procedures:

  • The reviewer provides specific information such as the number of engagements the revieweris specifically involved with and in what capacity. MNCPA staff then compares the information provided by the reviewers to the reviewer resume on file in the AICPA reviewer resume system and to the reviewer firm’s most recent background information to determine if the reviewer’s firm actually performed those engagements during its last peer review.
  • Determine the reviewers’ qualifications and experience related to engagements performed under GAGAS, audits of employee benefit plans under ERISA, audits of broker dealers, audits of insured depository institutions subject to FDICIA, and examinations of service organizations, if applicable.
  • Evaluate a list of the reviewer’s continuing professional education (CPE) courses taken over a three-year period, to document the required 48 CPE credits related to accounting and auditing to be obtained every three years with at least 8 hours in one year, including CPE from a qualified reviewer training course; and CPE certificates to document qualifications to perform Yellow Book audits, if applicable.
  • Determine whether the reviewer is a partner or manager in a firm enrolled in a practice monitoring program.
  • Verify that the reviewer’s firm received a pass report on its most recently completed peer review.

Discrepancies or questions are investigated until satisfactorily resolved.

The MNCPA Peer Review Committee has delegated to the MNCPA Director of Finance and other peer review staff the primary responsibility for resume verification. When MNCPA staff hascompleted their review, the MNCPA Peer Review Committee Chair or Vice-Chair (or other qualified person designated by the Committee)reviews the procedures performed and examines supporting documents for a selection of the resumes verified.

4. Review of Technical Reviewers

The Chair, Vice-chair or other designee of the Peer Review Committee performs an annual oversight of the two technical reviewers who provide services to theAE.

5. General Results of 2015 Oversight Program

In 2015, the MNCPA performed oversights on two system reviews and threeengagement reviews of firms enrolled in the AICPA’s peer review program, and one engagement review oversight of a non-AICPA firm.The reviews oversighted represented 3% of 2015 reviews. Six different reviewers were oversighted; reviewer feedback was issued to one of the reviewers oversighted.

  1. Summary of Peer Review Programs

1. Number and Names of Peer Review Programs Administered

The MNCPA serves as the AE for the AICPA Peer Review Program and also administers the MNCPA Peer Review Program (which operates exactly the same as the AICPA Peer Review Program) for firms not enrolled in the AICPA Peer Review Program.

The Minnesota Board of Accountancy requires all firms in the state which provide attestation or compilation services as part of their public accounting practice to be enrolled in a practice monitoring program. The BOA has designated the MNCPA Peer Review Program as an authorized report acceptance body to approve peer review reports issued for firms enrolled in peer review programs administered by the MNCPA.

2. Number of Enrolled Firms by Number of Professionals* as of 11/18/16.

AICPA Peer Review Program^ / MN Peer Review Program
Sole Practitioners / 81 / 56
2-5 Professionals / 152 / 66
6-10 Professionals / 69 / 16
11-19 Professionals / 38 / 2
20-49 Professionals / 22 / 0
50+ Professionals / 5 / 0
No A/A / 33 / 64
Totals / 400 / 204

*Professionals are considered all personnel who perform professional services, for which the firm is responsible, whether or not they are CPAs.
^At least one partner of the firm must be a member of the AICPA to enroll in the AICPA Peer Review Program.

3. Results of Peer Reviews Performed during the year 2015

a) Results by Type of Peer Review and Report Issued

AICPA Peer Review Program / MN Peer Review Program
System Reviews:
Pass / 59 / 6
Pass with deficiencies / 9 / 2
Fail / 3 / 2
Subtotal-System / 71 / 10
Engagement Reviews:
Pass / 51 / 33
Pass with deficiencies / 8 / 2
Fail / 2 / 2
Subtotal -Engagement / 61 / 37
Totals / 132 / 47

Note: The above data reflects peer review results as of November 9, 2016. No 2015 reviews were in process at that date.

b) Reasons for Pass with Deficiencies and Fail Report Grade – System reviews only

Reasons for Report Modifications / AICPA Peer Review Program / Minnesota Peer Review Program
Leadership Responsibilities for Quality / 1
Engagement Performance / 12 / 3
Human Resources / 1
Acceptance & Continuance of Client Relations / 1 / 1
Monitoring / 3 / 2
Totals

Note 1: The above data reflects peer review results as of November 9, 2016. No 2015 reviews were in process at that date. Note 2: there may be more than one reason for a pass with deficiencies or fail report grade.

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c) Number of Engagements Not Performed or Reported on in Accordance with Professional Standards in All Material Respects

Engagement Type / AICPA Peer Review Program / Minnesota Peer Review Program
Number of Engagements / Number of Engagements
Reviewed / Not Performed in Accordance with Professional Standards / Reviewed / Not Performed in Accordance with Professional Standards
Single Audit Act
(A-133) Engagements / 24 / 2
All others subject to GAS / 31 / 3 / 2 / 2
Other SAS Audits / 123 / 8 / 13 / 4
Reviews / 110 / 4 / 13 / 1
Compilations with Disclosures / 76 / 0 / 14 / 1
Compilations omit Disclosures / 242 / 7 / 57 / 4
Other SSAE / 1 / 0
Examinations of Written Assertions / 4 / 0 / 1 / 1
Agreed Upon Procedures / 26 / 0 / 1 / 0
Other / 1 / 0
Defined Contribution Plans-Ltd and Full Scope (excluding 403(b) plans) / 25 / 6
Defined Benefit Plans Ltd and Full Scope / 4 / 0
ERISA Health and Welfare / 1 / 0
ESOP Plans / 3 / 1
Other Employee Benefit Plans / 4 / 0
Defined Contribution Plans Ltd and Full Scope (403(b) plans) / 4 / 1
Compiled Financial Forecast and Projection / 4 / 0
Preparation Engagements with Disclosures / 1 / 0
Preparation Engagements omit Disclosures / 2 / 0 / 4 / 0
Total / 685 / 32 / 106 / 13

Note: The above data reflects peer review results as of November 18, 2016. No 2015 reviews were in process at that date.

d) Summary of Required Follow-up Actions

Type of Follow-Up Action / AICPA Peer Review Program / Minnesota Peer Review Program
9-Agree to take certain CPE / 18 / 6
19-Submit to team captain revisit-general / 1
20-Submit to TC review of subsequent engagements w/ w/p / 6 / 2
37-Submit a CPE plan to the Committee / 1
41-Submit to t/c review of subsequent engagement without w/p / 3 / 1
44-Outside party review subst. correction / 1
45-Does not perform any auditing engagement / 1
70-Clarification of one or more issues / 2
80-Resolution of open questions / 2
901-Agree to take certain CPE / 2 / 1
Total / 35 / 12

Note: The above data reflects peer review results as of November 18, 2016. No 2015 reviews were in process at that date.

III. Oversight Process

Oversight Results

a)Peer reviews

AICPA Member Firms

Type of Peer Review / Oversight Included Must Select Engagement
System / ERISA
System / Governmental
Engagement / N/A
Engagement / N/A
Engagement / N/A

AICPA Non-Member Firms

Type of Peer Review / Oversight Included Must Select Engagement
Engagement / N/A

b) Verification of Reviewer’s Resumes

Total Number of Peer Reviewers / Total No. of Resumes Verified / % Total Verified
56 / 29 / 52%

c) Administrative oversights

Date of Last Administrative Oversight Performed by the Administering Entity / 11/11/16 for 2016
Date of Last On-Site Oversight Performed by the AICPA Oversight Task Force (covers only the AICPA Peer Review Program) / 12/9 & 12/10/2015

Minnesota Society of Certified Public Accountants (MNCPA)

Peer Review Committee

OVERSIGHT CRITERIA

Peer Review Policy – Oversight Criteria

The MN Society of CPAs (MNCPA) is the administering entity of the AICPA Peer Review Program. As such the Administrator and the members of the Executive Committee of the Peer Review Committee annually select firms for oversight consistent with the Report Acceptance Body Handbook in the AICPA Peer Review Manual. It is the policy of the MNCPA Peer Review Committee to use the criteria delineated in the Oversight Criteria Procedure.

The criteria included are not considered to be such that a peer review or team captain meeting a defined number of criteria will be required to have oversight, or that a peer review or team captain not meeting a minimum number of criteria will be excluded from oversight selection. Rather, the use of these criteria is intended to be used as a tool in the professional judgment exercised in the oversight selection process.

Peer Review Procedure – Oversight Criteria

In order to comply with our peer review policy, the Administrator creates a list of firms for potential oversight using criteria related to peer reviewed firms and criteria related to the team captain. The “must choose” for inclusion in the annual list of firms for potential oversight is based on criteria that includes, but is not limited to, the following:

Criteria related to Peer Reviewed Firms:

  1. Firm has been flagged for oversight due to issues previously identified by the AICPA or MNCPA
  2. Firm is listed in the AICPA referral database that tracks firms under ethics investigations (mostly due to referrals from the U.S. Department of Labor (DOL)
  3. Firm received a “fail” report on their last peer review
  4. Firm received a “pass with deficiency” report on their last peer review
  5. Firm is having their first System Review and
  6. their just prior engagement or report review did not receive a peer review rating of pass
  7. they conduct engagements in a number of high-risk industries
  8. Firm has a history of litigation, licensing issues, etc.
  9. Firm structure changes of sufficient significance that there are concerns about proper coverage on the last peer review
  10. Firm conducts audits in high risk areas, including ERISA, Yellow Book, Single Audits, and Broker-Dealers
  11. Firm’s initial peer review conducted under the auspices of the MN Society of CPAs, including a firm that requested and has been approved for an administrative change of venue into the MNCPA as the administering entity
  12. Firm performs a significant number of peer reviews.
  13. Firm completed a peer review and
  14. the report acceptance body (RAB) questioned the appropriateness of the report and could not resolve the questions without an independent look at the reviewed firm
  15. there was a difference of opinion between the reviewed firm and the reviewer that could not be resolved without an independent look at the engagement(s) in question
  16. RAB questions whether the reviewed firm is committed to corrective actions, because recurring deficiencies have resulted in a similar corrective action

Criteria related to the Team Captain:

  1. Team captain has been flagged for oversight due to issues previously identified by the AICPA or MNCPA
  2. Team captain is listed in the AICPA referral database that tracks CPAs under ethics investigations (mostly due to referrals from the U.S. Department of Labor (DOL)
  3. Team captain conducting first peer review(s) or first peer review(s) for MNCPA as the administering entity
  4. Team captain conducting three or less peer reviews during the oversight period
  5. Team captain has not been oversighted during the last three years
  6. Team captain conducts a significant number of peer reviews
  7. Team captain routinely submits peer reviews with a “pass” opinion without documentation of MFCs
  8. Team captain rarely submits “fail” or “pass with deficiency” reports
  9. Team captain conducts peer reviews using alternative materials and checklists not issued by the AICPA Peer Review Board
  10. Team captain’s resume indicates specific industry codes that are not consistent with the background information form
  11. History of technical reviewers needing to seek significant clarification from the team captain, including, but not limited to, requesting significant updates to the peer review documentation
  12. History of technical reviewers requiring the team captain to reissue corrected peer review documents
  13. History of the team captain not attending to issues that eventually proved to be significant based on the technical reviewer or peer review committee evaluations
  14. History of scope issues, that is, failed to select an appropriate number of, or all of, the appropriate types of engagements to review
  15. History of team captain issuing MFCs and FFCs using “boiler plate” text
  16. History of the RAB requesting reissuance of corrected peer review documents
  17. The team captain conducts a significant number peer reviews of firms that conduct audits in high risk areas, including ERISA, Yellow Book, Single Audits, and Broker-Dealers
  18. The team captain received feedback or a performance deficiency letter(s) for significant issues
  19. The team captain has a history of problems with peer reviews conducted under the auspices of the MNCPA Peer Review Committee

After the administrator creates the list of firms for potential oversight, the members of the MNCPA Peer Review Executive Committee work with the administrator to select firms and team captains for oversight based on professional judgment and logistic parameters.