Peer review ensures that chartered accountants comply with the requirements of the profession and that quality is maintained.
The Institute of Chartered Accountants of India (ICAI) has taken it upon itself to ensure the quality of the working of its members through peer review. Peer review is review of the professional competence of one chartered accountant by another. Such an exercise ensures that the members of the institute comply with the requirements of the profession and that the quality of services rendered doesn't fall below the expected quality. The ICAI selects from senior members with a standing of more than 10 years to function as peer reviewers. The peer reviewers (PR) scrutinise the records of the practising unit (PU) and send the report to the Institute.
Peer review can be voluntary by the firms, or initiated by the ICAI. PU is given a choice to select the reviewer from among three names recommended by the ICAI. It is the ICAI which appoints the PR, as preferred by the PU. The ICAI sends in letters of appointment to both the PR and the PU. Either of them can contact the other person to commence the PR. The ICAI sends a questionnaire to the PU regarding various aspects to be covered by the PR. The completed questionnaire is forwarded to the PR, which sets the procedure in motion.
Every PU maintains records of their own firm, such as attendance registers, training modules, standardised formats of communications, templates for audit programmes, etc., apart from the permanent file and current file of the clients. PR reviews the files of the firm as well as of the clients.
Depending upon the size of the firm, the PR selects a few clients and carries out his review procedures on them. He also reviews the files of the PU on their own functioning and administration. Based on his findings, the PR releases a preliminary report, indicating the shortfalls as noted by him, and suggesting improvements on the administration of the firm, as well as the quality of the work carried out by the firm.
The PU is given guidelines to set right the shortcomings and to improve upon the documentation and procedures to be adopted. Once the PU informs that the shortcomings are taken care of, the PR carries out a second review and releases his final report to the ICAI. The committee of the ICAI reviews all the procedures adopted by the PR and the PU, and, if satisfied, issues a certificate to the PU on completion of the peer review.
WORKING OF THE PU
Before the commencement of the audit: Whether the PU considered the element of independence of the auditor before accepting an assignment, self-regulatory measures, correspondence with the outgoing auditor, issue of letter of acceptance and the letter of engagement, if the assignment is within the limits specified for the number of audits, disqualifications under the provisions of law, etc.
At the planning stage: Evaluation of internal controls, basis of determining the audit risk, basis for the extent of check to be carried out, whether to carry out the audit on a continuous basis or year-end basis, ascertaining any changes in accounting policies, changes in law, changes in the organisational structure, etc.
During the course of the audit: Selection of audit staff, planning for the work, critical areas, planning for transactions of a non-routine nature, such as issue of shares, redemption of debentures, preference shares, opening of new branches or new lines of activity. Monitoring the progress of work, basis for accepting or rejecting the audit evidence, basis on which any matter is to be referred to an expert, selection of the expert, audit communications, minutes of meetings with the management of the Company, compliance procedures, such as compliance with the Accounting standards, requirements of law such as TDS, service tax, central excise, VAT, etc.
Upon completion of the audit: Whether or not the working papers were independently reviewed by the partner signing the audit report, clarifications sought, basis of forming the opinion, coverage of the aspects referred to in the terms of reference, etc.
(The author is a Hyderabad-based chartered accountant.)