Kentucky Society of CPAs (KyCPA) Peer Review Annual Report on Oversight Date Issued November 18, 2016

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1 Kentucky Society of CPAs (KyCPA) Annual Report on Oversight Date Issued November 18, 2016 Administering Entity Oversight Process and Procedures Oversight of s and ers Oversight Selection At the beginning of each peer review season (May 1), the Kentucky Society of CPAs (KyCPA) selects various peer reviews and reviewers for oversight. The selections may be random or targeted and are based on the criterion for selection as outlined in the AICPA Oversight Handbook, Chapter 2, Section IV, Item C. A minimum of 2% of reviews being performed that year will be selected for oversight. In addition, a minimum of two system reviews will be performed onsite and at least two engagements from the ERISA, government, and/or banking industry will receive direct oversight. Firms The selection of firms to be reviewed is based on a number of factors, including but not limited to the types of peer review reports the firm has previously received, whether it is the firm s first system review (after previously having an engagement review), and whether the firm conducts engagements in high risk industries. ers All peer reviewers are subject to oversight and they may be selected based on a number of factors, including random selection, an extraordinarily frequent submission of pass reports, conducting a significant number of reviews for firms with audits in high risk industries, limited peer review experience, or performing high volumes of reviews. Oversight of a reviewer can also occur due to performance deficiencies or a history of performance deficiencies, such as issuance of an inappropriate peer review report, not considering matters that turn out to be significant, or failure to select an appropriate number of engagements. Oversight Process The program s technical reviewer, a member of the Committee or another qualified individual performs the oversight of reviews. A Committee member, or another qualified individual, performs all system review oversights and must-select engagement oversights. This committee member or other qualified individual must have team captain requirements and experience. Oversight reviewers are compensated at a committee-approved rate of $175 per hour plus reimbursement for mileage at the IRS rate and for other incidental expenses. The AICPA Oversight Checklists are utilized on all oversight engagements. The final report is issued on the oversight reviewer s letterhead and submitted to the KyCPA Committee. Oversight reports are kept on file at the KyCPA office for AICPA oversight visits. Reports of system reviews that are oversighted are also sent to the AICPA as part of the Plan of Administration, as well as to the team captain s home administering entity. The peer reviewer may respond within 14 days of the date of the final report.

2 KyCPA Annual Report on Oversight Page 2 Administrative Oversight In those years when there is no on-site Oversight Task Force (OTF) oversight, a member of the KyCPA Committee or another individual appointed by the committee chair performs an administrative oversight. Procedures performed cover the administrative requirements of administering the AICPA PRP. The administrative oversight reports are submitted to the AICPA as part of the Plan of Administration and are reviewed by the KyCPA Committee and, during an AICPA OTF on-site oversight, by an OTF member for any issues of potential concern. Annual Verification of ers Resumes To qualify as a reviewer, an individual must be an AICPA member and must have spent the last five years in the A&A function of public accounting. 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 KyCPA Committee has the authority to decide whether a reviewer s or review team s experience is sufficient to perform a particular 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, KyCPA must verify information within a sample of reviewers resumes on an annual basis. All active reviewers resumes are verified over a three-year period. Verification procedures include: The reviewer providing specific information such as the number of engagements they are specifically involved with and in what capacity. KyCPA staff then compares the information provided by the reviewers to the reviewer resume on file in the AICPA system and to the reviewer firm s most recent background information to determine if those engagements were included in the firm s last peer review. Determining the reviewers qualifications and experience related to engagements performed under GAGAS, audits of employee benefit plans under ERISA, and audits of insured depository institutions subject to FDICIA. If the reviewer has a license to practice as a certified public accountant in the state of Kentucky. (This may include requesting copies of their license) A list of 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 qualifications to perform Yellow Book audits, if applicable. ers may also be requested to provide CPE certificates.

3 KyCPA Annual Report on Oversight Page 3 Determining whether the reviewer is a partner or manager in a firm enrolled in a practice monitoring program. Verifying that the reviewer s firm received a pass report on its most recently completed peer review. Summary of s Overview of KyCPA The KyCPA Committee was formed in 1989 to administer the AICPA for AICPA firms located in Kentucky. In 2010, KyCPA began administering the program for non-aicpa member firms located in Kentucky. The Kentucky State Board of Accountancy (KSBA) requires all firms in Kentucky, who provide attestation or compilation services as part of their public accounting process, to be enrolled in an approved practice monitoring program. The KSBA has approved the AICPA and KyCPA s as acceptable practice monitoring programs. Number of Enrolled Firms by Number of Professionals* Per State as of November 11, 2016 ^AICPA KyCPA Sole Practitioners Professionals Professionals Professionals Professionals Professionals 3 0 No A&A Totals * 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. Results of s Performed During the Year 2015 Results by Type of and Report Issued System s: ^AICPA KyCPA Pass 55 1 Pass with Deficiencies 6 2 Fail 6 0

4 KyCPA Annual Report on Oversight Page 4 Subtotal System 67 3 Engagement s: Pass Pass with Deficiencies 6 2 Fail 2 3 Subtotal Engagement Note: The above data reflects peer review results as of December 31, Approximately 0% of 2015 reviews are in process and their results are not included in the totals above. ^At least one partner of the firm must be a member of the AICPA to enroll in the AICPA. Reasons for Pass with Deficiencies and Fail Report Grade The following lists the reasons, summarized by elements of quality control as defined by Statement on Quality Control Standards No. 8, for report modifications (when a pass with deficiencies or fail report is issued) from system reviews performed during It is important to note that one review can have more than one reason for a report modification. Reasons for Report Modifications ^AICPA KyCPA Leadership Responsibilities for Quality 4 0 Relevant Ethical Requirements 2 0 Human Resources 2 0 Acceptance & Continuance of Clients & Engagements 2 0 Engagement Performance 9 2 Monitoring 5 0 Totals 24 2 Note: The above data reflects peer review results as of December 31, Approximately 0% of 2015 reviews are in process and their results are not included in the totals above. ^At least one partner of the firm must be a member of the AICPA to enroll in the AICPA. Engagements not Performed in Accordance with Professional Standards in all Material Respects The following shows the total number of engagements reviewed and the number identified as not performed or reported on in accordance with professional standards in all material respects from peer reviews performed during The Standards state that an engagement is ordinarily considered not performed and/or reported in accordance with applicable professional standards when matters / findings / deficiencies, individually or in aggregate, exist that are material to understanding the report or the financial statements accompanying the report, or represents omission of a critical accounting, auditing, or attestation procedure required by professional standards.

5 KyCPA Annual Report on Oversight Page 5 Audits: Engagement Type ^AICPA Number of Engagements Not Performed in Accordance ed with Professional Standards KyCPA Number of Engagements Not Performed in Accordance ed with Professional Standards Single Audit Act (A-133) Governmental All Others ERISA FDICIA Carrying Broker-Dealers Non-carrying Broker-Dealers Other s Compilations with Disclosures Compilations without Disclosures Preparation Engagements omit Disclosures Financial Forecast & Projections Examinations of Written Assertions SOC 1 Reports Other SSAEs Agreed-Upon Procedures Totals % of Total 8.7% 21.2% Note: The above data reflects peer review results as of December 31, Approximately 0% of 2015 reviews are in process and their results are not included in the totals above. ^ At least one partner of the firm must be a member of the AICPA to enroll in the AICPA. Summary of Required Corrective Actions The KyCPA Committee is authorized by the Standards to decide on the need for and nature of any corrective actions required as a condition of acceptance of the firm s peer review. During the report acceptance process, the peer review committee evaluates the need for corrective actions based on the results of the review. The peer review committee also considers the comments

6 KyCPA Annual Report on Oversight Page 6 noted by the reviewer and the firm s response thereto. If the firm s response contains remedial actions which are comprehensive, genuine, and feasible, then the committee may decide not to recommend further corrective actions. Corrective actions are remedial and educational in nature and are imposed in an attempt to strengthen the performance of the firm. A review can have multiple corrective actions. For 2015, the following represents the type of corrective actions required. Type of Corrective Action ^AICPA KyCPA Agree to take certain Continuing Prof. Education (CPE) 7 2 Agree to hire for comprehensive inspection 3 0 Agree to hire consultant for preissuance reviews 8 2 Submit proof of CPE taken 0 3 Submit inspection completion letter 1 0 Submit to Team Captain (TC) revisit -- general 0 0 Submit to TC review of engagements w/ workpapers 3 0 Submit Inspection Report to Team Captain 0 0 Oversight of Inspection 0 0 TC to review Quality Control Document 0 0 Submit to TC review of engagements w/o workpapers 1 0 Submit monitoring report to committee 2 0 Outside party review inspection 0 0 Submit addt t info regarding repeat findings 0 0 Receipt of additional information 1 0 Submit CPE Plan 0 0 Outside party review substan. correction 0 0 Does not perform any auditing engagement 0 0 Resolution of matter under dispute 5 1 TC revision of working papers 0 0 Join EBPAQC 2 0 Join GAQC 2 0 Other 1 2 Totals Note: The above data reflects peer review results as of December 31, Approximately 0% of 2015 reviews are in process and their results are not included in the totals above. ^ At least one partner of the firm must be a member of the AICPA to enroll in the AICPA. Oversight Results s ^AICPA Member Firms Type of Oversights Type of Engagement Oversights Total Oversights System Engagement Total ERISA GAGAS FDICIA Total Performed at the Firm

7 KyCPA Annual Report on Oversight Page ^ At least one partner of the firm must be a member of the AICPA to enroll in the AICPA Non-AICPA Member Firms Type of Oversights Type of Engagement Oversights Total Oversights System Engagement Total ERISA GAGAS FDICIA Total Performed at the Firm Verification of ers Resumes Total Number of ers Total Number of Resumes Verified for Year % of Total Verified % Administrative Oversight Date of Last Administrative Oversight Performed by the Administering Entity Date of Last On-site Oversight Performed by the AICPA Oversight Task Force (covers only the AICPA ) November 18, 2016 November 16, 2015