Rationale & Significance of Peer Review

Transcription

1 Rationale & Significance of Peer Review

2 PEER REVIEW: GENERAL MEANING The term Peer means a person of similar standing. The term review means a general survey or assessment of a subject or thing. The term Peer Review would mean review of work done by a professional, by another professional of similar standing. 2

3 Definition of Peer Review Peer Review - means an examination and Review of the systems and procedures to determine whether the same have been put in place by the Practice Unit for ensuring the quality of assurance services as envisaged by the Technical, Professional and Ethical Standards and whether the same were consistently applied in the period under review. 3

4 What is Peer Review? peer -person of similar standing review - re-examination or retrospective evaluation of subject matter peer review - review of work done by a professional, by another professional of similar standing. 4

5 Objective of Peer Review Assessing the maintenance of Quality of assurance Service Engagements performed by Practical Units through: Compliance with Technical Standards; and Existence of proper system (including documentation systems) 5

6 Rationale of Peer Review At Profession s Level: To strengthen public confidence in financial reporting and effectiveness of audit process. To increase the basis of reliance placed by users of financial statements for economic decision making. To ensure better quality and consistency in auditing services across cross-section of auditing firms. 6

7 Rationale of Peer Review At Firm s Level To maintain and enhance quality of assurance services To provide guidance to members to improve their performance To ensure adherence to various statutory and other regulatory requirements 7

8 Inherent Limitations of Peer Review Review would not necessarily disclose all weaknesses in compliance of technical standards. Any system of quality control has certain inherent limitations Departures from the system may not be detected. 8

9 The Peer Review is intended to be An application of reasoned knowledge based on information, evidence, observation, experience A test of adherence to standards issued and in force An opportunity for Quality Enhancement A process to achieve global standards of excellence 9

10 The Peer Review is not intended to be A source of setting up new auditing standards An opportunity to second guess an auditor s judgments A source of competitive information An opportunity to put down a fellow professional or indulge in a witchhunt 10

11 NEED FOR PEER REVIEW ØExpectation of service Receiver to receive quality service ØGap between minimum quality of service and actual service rendered. ØFailure of Few service providers. ØRestoration of public confidence 11

12 Global Scenario in Peer Review Independent Regulator Disciplinary action if deficiency in services of Auditor is found. Separate standard on Peer Review Existence in Most of the developed Countries-50 Started 1930 in France. 12

13 Present Peer Review System In India Supervisor Within Institute of Chartered Accountants of India Chinese Wall between Peer Review process and Disciplinary Mechanism has been removed as per the revised statement on Peer Review(Disciplinary action if deficiency in services of Auditor is found.) Audit of accounts after 1st April 2002 only covered Peer Reviewers are Individual Members of the Institute. 13

14 Salient Features of the Statement on Peer Review 14

15 Some features of the Statement. Statement on Peer Review was passed by Council in March 2002 and revised in 2007 and First meeting of Peer Review Board took place in July

16 Paras in Statement on Peer Review 1. Introduction 2. Objectives 3. Definitions 4. Authority of the statement on Peer review 5. Powers of the Council 6. Peer review Board 7. Scope of peer review 8. Functions of the Board 9. Compliance with the Statement on Peer Review 10. Eligibility to be a Reviewer 11. Practice Units subject to review 16

17 Paras in Statement on Peer Review contd. 12. Obligation of the practice Unit/ Peer Reviewer 13. Periodicity of Peer Review 14. Cost of Peer Review 15. Review Framework 16. Referral of Disputes and Appeals 17. Immunity 18. Confidentiality 19. Procedural departures 20. Budget and Finance 21. Secretariat. 17

18 NOTIFICATIONS AND CIRCULARS ISSUED BY THE PEER REVIEW BOARD 1. Notification No: PRB/Notfn./001/ issued on January Total Revenue from assurance Service clients of practice units 2. Notification No: PRB/Notfn./002/ issued on January Notification No: PRB/Notfn./003/ dated: 23 rd July Notification No: PRB/Notfn./004/ dated: 23 rd July

19 NOTIFICATIONS AND CIRCULARS ISSUED BY THE PEER REVIEW BOARD contd 5. Notification No: PRB/Notfn./005/ dated: 23 rd July Notification No: PRB/Notfn./006/ dated: 23 rd July Notification No. PRB/Notfn./007/ Dated March 27 th Circular No: PRB/Cir./001/ issued on January Notification No: PRB/Notfn./008/11-12, issued on: August

20 Recent Decisions at Peer Review Board (Cost of Peer Review) In exercise of power vested in the Peer Review Board by the Statement on Peer Review, the Board hereby notifies that the cost of Peer Review for Stages- I,II,III, including honorarium and TA/DA for reviewer and his qualified assistant, shall be as under: Total Revenue from assurance service clients of practice unit (Per Annum) Cost Less than Rs 10 lacs p.a. Rs 15,000/- From Rs 10 lacs to 50 Lacs p.a. Rs 25,000/- From Rs 50 lacs to 1 crore p.a. Rs 40,000/- From Rs 1 crore to 3 crore p.a. Rs 60,000/- From Rs 3 crore to 5 crore p.a. Rs 75,000/- Above Rs 5 crore p.a. Rs 1,00,000/- 20

21 Objective of Peer Review (Para 2.1 ) The purpose of the Peer Review statement is to provide a framework for, planning, performing, reporting and administration of the Peer Review process. Peer Review process is intended to Review the quality control framework of the Practice Unit as well as proper and consistent application of such control frameworks across engagement samples selected for Review. The statement provides the terms of reference of such Reviews and the roles and responsibilities of the parties concerned. The implementation of the scope and authority of this Statement is to be ensured both in letter and spirit in the peer Review process 21

22 Assurance Services means assurance engagements services as specified in the FRAMEWORK FOR ASSURANCE ENGAGEMENTS issued by the Institute of Chartered Accountants of India and as may be amended from time to time but does not include: (i) (ii) Management Consultancy Engagements; Representation before various Authorities; (iii) Engagements to prepare tax returns or advising clients in taxation matters; (iv) Engagements for the compilation of financial statements; (v) Engagements solely to assist the client in preparing, compiling or collating information other than financial statements; (vi) Testifying as an expert witness; (vii) Providing expert opinion on points of principle, such as Accounting Standards or the applicability of certain laws, on the basis of facts provided by the client; and (viii) Engagement for Due diligence The phrase 'Assurance Services' is used in this Statement interchangeably with Audit Services, assurance Functions, and Audit Functions. 22

23 Scope of Peer Review The Review shall cover: (i) Compliance with Technical, Professional and Ethical Standards: (ii) Quality of reporting. (iii) Systems and procedures for carrying out assurance services. (iv) Training programmes for staff (including articled and audit assistants) concerned with assurance functions, including availability of appropriate infrastructure. (v) Compliance with directions and / or guidelines issued by the Council to the Members, including Fees to be charged, Number of audits undertaken, register for Assurance Engagements conducted during the year and such other related records. (vi) Compliance with directions and / or guidelines issued by the Council in relating to article assistants and / or audit assistants, including attendance register, work diaries, stipend payments, and such other related records. 23

24 Technical, Professional and Ethical Standards (i) Accounting Standards issued by ICAI and /or prescribed and notified by the Central Government of India; (ii) Standards issued by the Institute of Chartered Accountants of India including (a) (b) (c) (d) (e) Engagement standards Statements Guidance notes Standards on Internal Audit Statements on Quality Control (f) Notifications / Directions / Announcements / Guidelines / Pronouncements / Professional standards issued from time to time by the Council or any of its committees. cont.. 24

25 (iii) Framework for the Preparation and presentation of financial statements, framework of statements and Standard on Auditing, Standard on Assurance Engagements, Standards on Quality Control and Guidance Notes on related services issued, from time to time, by the Institute of Chartered Accountants of India and framework for assurance engagements; (iv) Provisions of the various relevant statutes and / or regulations which are applicable in the context of the specific engagements being Reviewed including instructions, guidelines, notifications, directions issued by regulatory bodies as covered in the scope of assurance engagements; 25

26 Reviewer An individual who Is a member Possesses at least 10 years cumulative experience of audit Should have undergone the requisite training as prescribed by the Board Is currently active in practice of accounting and auditing Should furnish a declaration as prescribed by the Board, at the time of acceptance of Peer Review appointment Reviewer can also take assistance of a Chartered Accountant working with him atleast for one year who shall also be subject to confidentiality requirements as that of Reviewer. If assistance is taken, the name of that person shall be indicated in S.no.4 of the Annexure to be attached to the Report. 26

27 Allotment of Review Work Receipt of Empanelment Form Issue of Empanelment Letter Filing of Declaration which is to the following effect: (i) that no disciplinary action was pending (ii) have not been convicted by a competent court whether within or without India, of an offence involving moral turpitude and punishable with transportation or imprisonment or of an offence, not of a technical nature, committed by you in your professional capacity unless in respect of the offence committed you have either been granted a pardon or, on an application made by you in this behalf, the central government has, by an order in writing, removed the disability( the conviction here means conviction at the first court) Undergoing training Intimation of 3 names of reviewers to the PU Selection of a reviewer by the PU 27

28 Firms covered under Peer Review Level I PUs conducting: (i) Central Statutory Audit of Public Sector Banks, Private Sector Banks, Foreign Banks, Cooperative Banks and Public Financial Institutions; (ii) Central Statutory Audit of Central or State Public Sector Undertakings and Central Cooperative Societies based on criteria such as turnover or paid up capital etc. as may be decided by the Board; (iii)central Statutory Audit of Insurance Companies; (iv)statutory Audit of asset management companies or mutual funds; (v)statutory Audit of enterprises whose equity or debt securities are listed in India or abroad Continued 28

29 Firms covered under Peer Review contd (vi)statutory Audit of Entities which have raised funds from public or banks or financial institutions of over Rs. Fifty Crores during the period under Review. (vii)statutory Audit of Entities which have raised donations and / or contributions over Rs. Fifty Crores during the period under Review. (viii)statutory Audit of entities having Net Worth of more than Rs.Five Hundred Crores at any time during the period under Review.; (ix)statutory Audit of entities which have been funded by Central and / or State Government(s) schemes of over Rs. Fifty Cores during the period under Review. 29

30 Level II Firms covered under Peer Review contd A Practice Unit which has undertaken any of the under-mentioned assurance services in the period under review: (i) Statutory / Internal / Concurrent / Systems / Tax audit and / or Departmental Review of Branches / Offices of (a) Public Sector or Private Sector and / or Foreign Banks; (b) Insurance Companies; (c) Co-operative Banks (d) Statutory Audit of Regional Rural Banks, (e)statutory Audit of Non Banking Financial Companies(NBFCs) (ii)statutory Audit of entities having Net Worth of over Rs. Five Crores or an annual turnover of more than Rs. Fifty Crores during the period under Review.; 30

31 Firms covered under Peer Review contd Level III Any other Practice Unit providing assurance services not covered in Level I and Level II. 31

32 Selection of PU Random sample basis Level I PUs, mandatory review once in a block of three years Level II once in a block of four years Level III once in a block of five years or at shorter intervals on request of the PU or decision of the Board 32

33 Selection of PU contd. Board decides the proportion of PUs to be reviewed during each phase A PU may also, suo motto, apply to the Board for the getting reviewed An auditee concern may request the Board for the conduct of peer review of its auditor (PU) 33

34 Confidentiality Reviewer s access only to working papers of the PU Reviewer cannot carry extracts of client s working papers & records acquired by him while conducting peer review, as part of his working papers Reviewer bound by a Code of Ethics Reviewer bound by secrecy provision enshrined in the revised Statement on Peer Review 34

35 Format of Declaration of Confidentiality To The Chairman, Peer Review Board, The Institute of Chartered Accountants of India New Delhi Sir, I, hereby declare that I am aware of the need for confidentiality in the conduct of Peer Reviews. I undertake and promise that in so far as any or all of the following relate to me or are brought to my knowledge/attention, in any manner whatsoever and when so ever, I shall ensure that: Full Confidentiality of the Working papers shall always be maintained at all times so that unauthorized access is not gained by anyone. The Practice Unit's assurance services procedures shall not be disclosed to any third party except as provided under this Statement. Any information with regard to any matter coming to my knowledge in the performance or in assisting in the performance of any function during the conduct of Peer Reviews shall not be disclosed to any person except as provided under this Statement. Access shall not be given to any person other than as required under the Peer Review Statement, to any record, document or any other material, in any form which is in my possession, or under my control, by virtue of my being or having been so appointed or my having performed or having assisted any other person in the performance of such a function. I have no direct or indirect conflict, of interest with the Practice Unit. I understand that any breach of the provisions regarding confidentiality as contained in the Statement on Peer Review will be considered as gross negligence and make me liable to appropriate disciplinary action. Signature: Name: Designation: Membership No. Name of Practice Unit Reviewed : Date: Place: 35

36 FAQs What is the time period for which records of assurance services are subjected to peer review? Ans : While assurance engagements for the Three immediately completed financial years are subjected to Peer Review, the records of audit Reports/ assurance services relating to years prior to the accounting year beginning 1 st April 2002 shall not be subjected to review. 36

37 FAQs How will a PU be selected for review? Ans: At each stage of Peer review, certain PUs, satisfying the criteria laid down in the statement would be selected for peer review on a random sample basis. The board is empowered to decide the proportion of Pus to be included in the selection during each phase of Implementation. A PU can also suo moto apply. 37

38 FAQs Can a reviewer visit clients of the PU Ans: No, he cannot, under any circumstances, communicate with or visit the clients of the PU Can a reviewer visit branches of a PU? Ans: Yes, he may visit a branch if the turnover of assurance functions of that branch is more than 25 lakhs Rupees. 38

39 Illustrative Time Schedule of Peer Review Process Review Process Time Schedule Cumulative Days Peer Review Board notifies the selection of PU for review. The Questionnaire and the panel of three reviewers to be sent to PU. Day-1 Day 1 PU to give the choice of the reviewer Within 10 days Day 11 Board to notify the reviewer as per the choice given by PU Reviewer should receive communication within 2 weeks Day 25 39

40 Illustrative Time Schedule Review Process PU to complete the Questionnaire and send to reviewer. Time Schedule Within 25 days Cumulative Days Reviewer to call for any other information if required after evaluation of the Questionnaire sent by the PU. PU to provide the additional information asked by the reviewer Reviewer to decide on the initial sample from the client list of the PU Within 5 days Day 30 Within 5 days Day 35 Within 7 days Day 42 PU to be notified about the sample selected by the reviewer 5 days advance notice before visit of reviewer to PU's Day 47 40

41 Illustrative Time Schedule Review Process Reviewer to carry out the review by visiting the office of PU after fixing the date as per the mutual consent Reviewer to send the preliminary report to PU for comments. Time Schedule Within 70 days from date of notification to PU Within 5 days after completion Cumulative Days Day 70 Day 75 PU to submit representation to reviewer Within 10 days Day 80 Reviewer to submit Final report as the case may be to the Peer Review Board Within 10 days Day 90 Board to considerand give recommendation to PU and give instructions for followon/further review as the case may be. In the next meeting to held in every quarter 41

42 Preliminary Report After on-site review, reviewer may communicate with PU and seek clarifications and consider sending a preliminary report if replies not found satisfactory After on-site review, in case of deficiencies in systems and procedures or non-compliances the reviewer to issue preliminary report to PU immediately Reviewer to take care not to mention any names Scope of review performed and scope limitations, if any, to be mentioned Continued 42

43 Contd. Prepare report on letterhead of reviewer (individual) Dated/ signed (Membership no. and Reviewer code no.) PU to reply in writing within 10 days of receipt of preliminary report on areas mentioned in it Continued 43

44 Final Report Reviewer to submit Final Report to the Board with a copy to the PU Final Report should incorporate the findings as discussed with the PU Final report to be submitted to the Board should also contain an annexure forming part of it w.e.f 1st July, 2005, notified on the Institute s website Continued 44

45 Contd. Reviewer may issue a clean report, if of the opinion that PU is conducting its affairs in a manner that ensures quality of services rendered by it or the deficiencies are not of such serious nature to vitiate the efficacy of the key control objectives. A qualified report may be issued: Non-compliance with technical standards, QC system design deficiency Non-compliance with QC policies and procedures Continued 45

46 Contd. Non-existence of adequate staff training programmes - The Board shall consider the report and if satisfied, will issue Peer Review Certificate - If not satisfied, the Board may issue recommendations to the PU and direct the reviewer for further review Continued 46

47 Annexure to the Final Report of M/s General instructions: Tick Yes / No, wherever applicable. Sl. No. Particulars Observations 1 Date on which questionnaire is received 2 Number of initial samples selected for review 3 (a) Was there any change made in initial sample selected by the Reviewer? (b) If Yes, specify the number selected, after change 4 Name of the person (if any) who helped in the conduct of review 5 (a) Whether general controls are in existence and operating effectively during the period under review? (b) If No, please specify areas: Yes No (i) Independence (ii) Professional Skills and Standards (iii) Outside Consultation (iv) Staff Supervision and Development (v) Office Administration 47

48 6 Whether audit records administration is satisfactory? 7 Whether working papers are properly maintained? Yes No 8 Whether review of internal control systems was carried out properly in performing attestation engagement? 9 (a) Whether proper systems and procedures exist within the PU to ensure compliance with technical standards? (b) If No, specify areas: Yes Yes No No (i) Accounting Standards including Interpretations thereof (ii) Auditing and Assurance Standards including General Clarifications thereof (iii) Statements (iv) Guidance Notes (v) Institute s Notifications/ Directions (vi) Self Regulatory Measures 10 Whether overall presentation of financial statements conforms to statutory requirements of presentation under various Statutes? Yes No 11 Whether audit conclusions drawn are duly supported by audit queries/observations? Yes No 12 Whether the quality of audit reports in respect of format and content found proper? Yes No 48

49 13 (a) Whether the Reviewer has issued preliminary report? Yes No (b) Whether the preliminary report issued by the Reviewer contained any deficiencies? Yes No NA (c) If Yes, please specify the areas of deficiencies 14 (a). Whether PU has responded to the preliminary report? Yes No NA (b). Whether the Reviewer is satisfied with the response received from the PU? Yes No NA 15 If the Reviewer is not satisfied with the response of the PU, whether interim report Yes No NA or qualified report has been issued? 16 (a) Is the Final Report qualified? Yes No NA (b) If Yes, specify the reasons.. 17 Whether the Reviewer received full co-operation from the PU during review? Yes No 18 Is there any point which the Reviewer wants to bring to the notice of the Board? If Yes, please elaborate separately. Yes No 19(a) Whether the PU obtained / Procured any Profession work including attest functions through process of tendering Yes No 19(b) If Yes, then please attach sheet provided by PU in required format Yes No 49

50 Basic Elements of Reviewer's Report Title Scope Paragraph Opinion Paragraph Limitations Suggestions Reference to preliminary report Date of the report 50

51 Guidelines for Qualifying Review Report Compliance with technical standards Compliance with quality control policies Compliance with documentation Compliance with relevant regulations 51

52 Illustrative Reports See ICAI's Peer Review Manual Appendices V to VII 52

53 QUESTIONS! QUERIES! SUGGESTIONS! 53

54 54

55 Thank You Follow ICAI on Social Media -