A peer review is a periodic external review of a certified public accounting (CPA) firm’s quality control system. A peer review is an “audit of the auditors.”
A CPA firm that performs attest engagements in Louisiana is required by both the American Institute of Certified Public Accountants and the State Board of Certified Public Accountants of Louisiana to undergo a peer review every three years. In addition, the Government Accountability Office imposes the same three-year peer review requirement on CPA firms that perform audit, review, or other attest engagements under generally accepted government auditing standards.
The American Institute of Certified Public Accountants (AICPA) oversees peer review programs throughout the United States. Individual CPA firms may enroll in the AICPA's peer review program, or in the peer review program of the state in which their firm is domiciled. The peer review program in Louisiana is administered by the Society of Louisiana Certified Public Accountants (LCPA).
The Louisiana Legislative Auditor (LLA) requires each CPA firm to provide a copy of its most recent peer review when the firm is approved. If the firm has not undergone its first peer review, LLA requires the CPA firm to provide documentation that it has enrolled in either the AICPA’s peer review program or the peer review program of the state in which the firm is domiciled.
LLA also requires each CPA firm on its approved list to provide LLA with a copy of its most recent peer review on an ongoing basis. LLA sends an email notification to each CPA firm close to the date of its peer review as a reminder that the peer review must be submitted to LLA after it is completed and accepted by the firm’s peer review administering entity. Peer reviews are uploaded by the CPA to the LLA website. After review and processing, LLA posts the CPA firm’s peer review to its website.
Timeliness of peer reviews
The AICPA’s Standards for Performing and Reporting on Peer Reviews (Clarified) (PRC) establishes the due dates of peer reviews nationwide:
- Peer reviews are to be submitted to the firm’s peer review administering entity no more than 42 months after the firm's previous peer review year end (in most cases, six months after the firm's current peer review year end)
- Acceptance of the peer review by the peer review administering entity should ordinarily occur within 120 days of the receipt of the peer review report
There are two important deadlines for CPA firms to observe for submitting their peer reviews to LLA, based on the AICPA’s due dates:
- Each firm is required to provide LLA with confirmation of receipt of the firm’s peer review by the firm’s peer review administering entity no later than the six months after its peer review year end
- Each firm is required to provide a copy of the completed peer review and acceptance letter from the firm's peer review administering entity to LLA no later than ten months after its peer review year end
LLA considers a firm to be delinquent in its peer review requirement on these dates:
- Six months after the firm’s peer review year end, if LLA has not received the firm’s peer review OR notification from the appropriate peer review administering entity that it has received the firm’s peer review OR notification from the appropriate peer review administering entity that the due date of the firm’s peer review has been extended (see Extensions for Peer Reviews below).
- Ten months after the firm’s peer review year end, if LLA has not received the firm’s peer review and acceptance letter.
Firms whose peer reviews are delinquent are expected to fully disclose the reason(s) for the delay to LLA. LLA may independently corroborate the information with the firm’s peer review administering entity (see Peer Review Authorization Form below).
LLA will require the CPA firm to provide documentation from the State Board of Certified Public Accountants of Louisiana that a provisional firm permit has been issued allowing the firm to perform attest work while their peer review is delayed; or that the delay in the peer review will not affect their current firm permit. See Extensions for Peer Reviews.
LLA may impose restrictions or additional requirements upon a CPA firm whose peer review is delinquent. The types of restrictions and requirements imposed are at LLA’s discretion, and are based on the reason(s) that the peer review is late.
If LLA determines that the reason for the late peer review is not under the firm’s control or does not pertain to the quality of the firm’s work (e.g., the firm was randomly chosen for enhanced oversight by its peer review administering entity), LLA may determine that it is not necessary to impose further restrictions or requirements upon the firm.
If LLA determines that the reason for late peer review is under the control of the CPA firm or pertains to the quality of the CPA firm’s work, LLA may ask the firm to provide pre-issuance reviews on, at a minimum, four audit engagements. The engagements will be chosen by LLA; and LLA will notify the CPA firm which engagements will be required to have pre-issuance reviews. The number of engagements subject to pre-issuance reviews may be increased at the discretion of LLA. If the firm performs no audit engagements, a minimum of four of the firm’s review/attestation or compilation engagements (to be chosen by LLA) will receive pre-issuance reviews.
LLA reserves its authority to impose other conditions and restrictions upon a firm with a delinquent peer review, such as declining to approve its new engagements, cancellation of its approved engagements, rejection of its reports, and removal from LLA’s list of approved CPAs.
LLA will notify the CPA firm by letter of any restrictions or additional requirements placed upon the firm due to the delinquent or delayed peer review; and will continue to monitor the firm until its peer review is submitted.
Extensions for Peer Reviews: Extensions for peer reviews for CPA firms enrolled in the AICPA's Peer Review Program administered by the LCPA are approved by the State Board of Certified Public Accountants of Louisiana (State Board). CPA firms must possess a firm permit issued by the State Board to perform attest work in Louisiana. The State Board cancels a firm’s firm permit when it learns that the firm does not have a current peer review. The firm may ask the State Board to issue a provisional firm permit, after providing documentation that the peer review is in progress. A provisional firm permit is usually for ninety days, and may extend the due date of a peer review to the firm’s peer review administering entity (if it is the LCPA), or allow the firm to perform attest work if acceptance of their peer review is delayed.
CPA firms that are enrolled in the AICPA's Peer Review Program administered by another approved administering entity must obtain an extension from the State Board and must also contact their peer review administering entity for information on how to obtain an extension on its peer review. They must also contact the State Board to determine how the delayed peer review will affect their ability to perform attest work in Louisiana, and provide this information to LLA.
Peer Review Authorization Form: The AICPA's Standards for Performing and Reporting On Peer Reviews (Clarified) (PRC), Section 300.A15 limits the type of information that may be shared regarding an in-process peer review by the peer review administering entity with a third party (including LLA) to the following:
- The firm's name and address
- Whether the firm is enrolled in the program
- The date of acceptance and period covered by the firm's most recently accepted peer review
- The most recent date that the firm's enrollment in the program has been dropped or terminated, if applicable
PRC 300.A18 allows the peer review administering entity to share certain other objective information with a third party with the authorization of the firm. LLA requires each approved CPA firm to provide LLA with an authorization form that allows LLA to obtain this information (that is named in the form) directly from the firm's peer review administering entity.
Failed Peer Reviews
Peer reviews may receive one of three grades: pass, pass with deficiencies, or fail. The majority of firms on LLA’s approved list receive a grade of pass on their peer reviews. LLA requires certain remedial actions of those firms whose peer reviews receive a grade of fail.
A CPA firm that receives a peer review with a grade of fail will be sent a letter notifying them that they will be subject to the following:
- For each of their approved engagements, and before approval of any new engagements, the CPA firm will provide LLA with documentation, signed by the local auditee, that the firm has notified the local auditee of the firm’s failed peer review and its implications; and that the local auditee will not be charged for any work performed on the engagement if the firm is unable to complete it because of the failed peer review or related monitoring actions
- The CPA firm will provide for pre-issuance reviews on, at a minimum, four audit engagements. The engagements will be chosen by LLA; and LLA will notify the CPA firm which engagements will receive pre-issuance reviews. The number of engagements subject to pre-issuance reviews may be modified at the discretion of LLA. If the firm performs no audit engagements, a minimum of four of the firm’s review/attestation and/or compilation engagements (to be chosen by LLA) will receive pre-issuance reviews.
- The CPA firm is required to sign the last page of the letter and return it to LLA, indicating the firm’s agreement with the conditions in the letter; and acknowledging that they are aware that the firm’s peer review will be posted on the LLA website.
Continuation of these requirements for firms with failed peer reviews –
- After the required pre-issuance reviews have been submitted to and have been evaluated by LLA staff, LLA will determine whether the pre-issuance review requirement should continue. LLA may perform a quality control review (QCR) of the CPA firm’s work to assist in making the determination. LLA will advise the CPA firm by letter as to LLA’s decision regarding releasing the firm from the pre-issuance review requirement.
- The firm will continue to provide confirmation to LLA that they have notified each of their local auditee clients of the failed peer review, and the implication on the engagement, before approval of any engagement, until it receives a peer review with a grade of pass.
- I received an email from the LCPA confirming receipt of my firm’s peer review. If I forward the email to LLA, will that be sufficient documentation that the peer review has been received by my peer review administering entity?
- I would like for my firm’s name to be included on LLA’s approved list of CPA firms, but I don’t currently perform any engagements that would require my firm to have a peer review. Can my firm stay on the LLA approved list without a current peer review?
- What is the consequence to my firm if our peer review receives a grade of pass with deficiencies?
- What is the consequence to my firm if we receive two failed peer reviews in a row?