Winter is here and firms are beginning to ramp up their planning on year-end engagements.  For many firms this is also a peer review year, which means added scrutiny over workpapers and ensuring that they comply with professional standards.  Recently, this scrutiny has been intensified by the AICPA Peer Review Board (PRB).  As a result of the high percentage of audits with deficiencies over the risk assessment standards, peer reviewers are now being required to consider compliant audit engagements with risk assessment problems to be deemed nonconforming engagements.  As you are aware, the more nonconforming engagements that are found as part of the peer review, the more likely that a firm will receive a report that is either a pass with deficiencies or a fail. 

Risk assessment has always been an area of focus.  However, as a result of recent announcements by the PRB, Firm’s should take a fresh look at how they are performing their risk assessment procedures to ensure that the engagements are in compliance with Standards.  For Firms that utilize PPC products, PPC recently issued a special newsletter that focused on risk assessment, entitled Accounting and Auditing Update – Special Report.  Additionally, in October of 2018, the AICPA Issued a Reviewer Alert to further emphasize the risk assessment standards and the potential impact of noncompliance with the risk assessment standards. 

As part of this current planning process, we recommend that firms:

  1. Review the auditing standards, specifically AU-C 315 & 330 – Take a fresh read through the standards;
  2. Review your practice aids in detail – Ensure that you follow the instructions and direction within the practice aid.  These forms are meant to assist you in complying with the standards, however they are not the standards themselves.
  3. Review the reviewer alerts – Familiarize yourself with outside alerts that may provide you with additional insight into the ramifications of having deficient risk assessment engagements, as well as the potential impact on your report. 

Although risk assessment is difficult, it should not be the reason that you receive a negative peer review report.

Aaron Kofira is a partner based out of our Rochester, NY office.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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