Paper 3: Advanced Auditing and Professional Ethics Chapter 21

CA. Ridhima Dubey

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Understanding the concept 1

Peer review process 2

Peer Review Board (PRB) established by ICAI • PRB established in 2002 which regulates the process • Statement on Peer Review issued • Why is it important? • Equity Listing Agreement requires listed companies to be

audited only by firms (Practice Units or PU) holding valid peer review certificate effective April 5, 2010

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Peer: Person of similar standing

Review: Re-examination or retrospective evaluation

Peer Review: An examination and review of the systems and procedures to ensure audit quality

Practice Unit: Members in practice (sole proprietor/firm)

Assurance Service: As specified in Framework of Assurance Engagement

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What are attestation services (Audit Service/Attestation function/Audit function) ? • Auditing/ verification of financial transactions/ books/ accounts/

records • Verification/ certification of financial accounting and related

statements

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Do not include: • Management Consulting Engagements • Representing clients before Authorities • Engagements for preparation of tax returns or advising clients in tax matters • Engagements for FS compilation • Engagements for preparing, compiling or collating information other than FS • Testifying as expert witness • Providing expert opinions on points of principle on the basis of facts provided

by the client

To ensure that in carrying out the attest function, members: • Comply with the Technical Standards • Have proper systems for maintaining the quality of the attestation services

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Not to: Find out deficiencies or identify isolated cases of engagement failure

To: Identify weaknesses pervasive and chronic in nature

It is essentially an examination and review of systems and procedures to determine whether they are: • in existence • effective • operative during the period of review

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Apply to all assurance assignment

Coverage of review: • Compliance with Technical, professional and ethical standards • Quality of reporting • Systems and procedures for carrying assurance engagement • Training programmes for staff • Compliance with Council guidelines/directions

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Confine to the period of preceding 3 years

What are Technical Standards? • Accounting Standards • Standards on Auditing • Framework • Statements • Guidance Notes • General Clarifications under the SAs • Notifications/ Directions including those self-regulatory in nature • Relevant Statutes/ Regulations

Quality of Reporting • The form and content of the report • Policies and procedures to provide reasonable assurance

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Office Systems and Procedures • Staffing and Supervision • Time Budget • Continuous professional development

Staff Training Programs • Theoretical knowledge • Skills • Professional orientation • Ethical Values

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Level 1

• Statutory Audit of PSU, Banks, Insurance, MF, AMC, listed company

(equity/debt), • Entities having • public fund (>50 cr) • Donation/contribution (>50 cr) • Netwoth (>500 cr) • Fund from Central/state govt (>50 cr)

Level 2

• Statutory/Internal/Concurrent/System/Tax Audit/Departmental review of branch/offices of:

• Public/private/foreign banks • Insurance/Co-operative banks • Statutory Audit of • RRB/NBFCs • Entities having networth > 50 cr /annual turnover >50 cr

Level 3 • Other than Level I and Level II

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Once in 3 years Level I

Once in 4 years Level II

Once in 5 years Level III

Be a member of at least 10 years of experience

Is in practice

Undergone requisite training

Furnish declaration to Board

Signed Declaration of Confidentiality

Have conducted audit of Level I entities for at least 7 years

Shall not have: • Disciplinary action/proceeding • Found guilty • Convicted by a Competent Court • Obligation/Conflict of Interest in the Practice Unit/its Partners/Personnel

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PRB/ PU initiates peer review

PRB sends the Questionnaire and a Panel of three reviewers to the PU

PU selects a reviewer

PRB notifies reviewer

PU to complete questionnaire and send to reviewer

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Continued

Reviewer to evaluate questionnaire and call for further information, if required

PU to produce additional information asked by reviewer

Reviewer to decide initial sample from PU’s client list

Reviewer to notify the PU about the sample selected

Reviewer to carry out review by visiting PU’s office after fixing date per mutual consent

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Continued

Continued

Reviewer to send preliminary report to PU for comments

PU to submit representation to reviewer

Reviewer to submit final/ interim report to PRB

PRB to give recommendations to PU and/or instructions for further followup/ review

On satisfactory conclusion by PRB, issue of Peer Review Certificate to the PU

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Continued

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Illustrative timelines

PRB notifies the selection of PU for

Review . The Questionnaire and a

Panel of three reviewers to be sent

to PU

DAY 1

Reviewer to submit Final/Interim report as the case may be to the

PRB DAY 90

The objective of peer review is to find out deficiencies or identify isolated cases of engagement failure

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TRUE

FALSE

FALSE, The Objective is to identify weaknesses pervasive and chronic in nature

Peer Review coverage extends to all type of engagements?

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TRUE

FALSE

FALSE, It covers only attestation services

Which of the below engagements can be classified as assurance engagement?

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Statutory Audit

Tax Audit

Management Consulting Engagements

Accounting Opinion

Issue of Certificate to Company for submission to Custom Authorities

A, B and E

Scope of Peer Review do not extend to the firm’s internal training programmes

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TRUE

FALSE

FALSE

Peer Reviewer can accept professional assignment from the Practice Unit

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YES, Peer reviewer can accept professional assignment without any restriction

NO, Peer reviewer can never accept professional assignment

YES, Peer Reviewer can accept professional assignment only after period of 2 years from the date of appointment as peer reviewer of the practice unit

C is correct

Peer Review extends to how many preceding years?

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1

3

5

7

Peer review extends to 3 years

Peer Review focus on which of the following

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Compliance with Technical Standards

Quality of Reporting

Office Systems and Procedures

Staff Training Programs

ALL of the above

A and B

A, B and C

Only A

All of the above

A Practice Unit who is undertaking audit of a listed entity can do so only if holds a valid peer review certificate.

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TRUE

FALSE

TRUE

A peer review process do not cover quality of reporting

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TRUE

FALSE

FALSE, it cover quality of reporting

PRB will always issue a peer review certificate

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TRUE

FALSE

FALSE

What is required to clear the peer review successfully?

Ensuring compliance with Technical Standards in all engagements

Ensuring quality in reporting

Ensuring adherence to internal systems and procedures

Ensuring that ALL staff attend appropriate training programs

Resources:

Statement on Peer Review

Peer Review Manual

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The Peer Review Process Selection of PU and appointment of reviewer Planning Execution Reporting

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