Introducing the New Principles-Based Peer Review Standards

Enhancing the clarity and integrity of peer review reports

Editor's note: G. William Graham is the AICPA Peer Review Board chair.


The effects of the newly revised AICPA Standards on Performing and Reporting on Peer Reviews (Standards) will be far-reaching. They directly impact more than 30,000 firms enrolled in the AICPA’s practice-monitoring program. In addition, the revised standards affect other stakeholders including those responsible for firms’ quality-control functions, administering entities, peer reviewers, and regulators. The revisions went into effect for peer reviews beginning on or after Jan. 1, 2009.


The Peer Review Board expects the revised standards will improve peer review execution, clarity, transparency and precision. In fact, the board designed the revisions to meet stakeholders’ needs (see sidebar, “Answering the Call for Change,” at the bottom of the page). For instance, the revisions recognize the importance of peer review in the state board of accountancy licensure process. Forty-four state boards require peer review (see sidebar below, “Background on Peer Review”). Other agencies, such as the Government Accountability Office, also rely on peer review.


The board is excited about the revised standard’s new reporting model. The board expects it will enhance the clarity, comparability and understandability of peer review reports—a welcome change for all stakeholders. And as stakeholders implement the revised standards, they will begin to appreciate how the principles-based standards result in a more efficient and effective peer review process.


Background on Peer Review
To be admitted to or retain their membership in the AICPA, CPAs engaged in the practice of public accounting in the United States or its territories as an owner or as an employee must either be practicing in a firm enrolled in an approved practice-monitoring program if the services performed by such a firm are within the scope of the AICPA’s practice-monitoring standards and the firm issues reports purporting to be in accordance with AICPA professional standards, or if authorized by the AICPA Governing Council, are themselves enrolled in such a program.


Firms have peer reviews because of the public interest in the quality of accounting, auditing and attestation services. Also, 44 state boards (46 by 2012) require their licensees to undergo peer review, or what some call “compliance assurance,” to practice in their state. Other regulators, such as the Government Accountability Office, require peer review to perform engagements and to issue reports under their standards.


Firms and individuals enrolled in the AICPA Peer Review Program are required to have a peer review, applicable to non-SEC issuers, once every three years covering a one-year period. The goal of the practice monitoring, and the program itself, is to promote quality in the accounting and auditing services provided by AICPA members and their CPA firms. This goal serves the public interest and enhances the significance of AICPA membership.


Firms have the option to make public their own peer review reports once those reports are accepted by the applicable body. In certain cases, firms are required by regulators or under certain AICPA section or audit quality center membership rules to make their reports public.



Practice Tip

It is crucial for peer reviewers and firms to focus on these changes now because the impact is immediate. If peer reviewers have already performed such services for a firm in 2008, they will be precluded from performing that firm’s peer review in 2009.


The following discussion is not exhaustive, but it describes those changes the board considers the most significant.

Under the revised standards, a team captain, review captain or team member (reviewer) may perform certain procedures for a reviewed firm before the peer review without impairing independence. These include monitoring (such as internal inspection), consulting review, quality-control document review or preliminary quality-control procedures, as long as the peer reviewer does not perform those services for the year immediately preceding or during the peer review year. A peer reviewer may perform a pre-issuance review without impairing independence as long as:

  • The frequency and extent of the preissuance review(s) is such that the peer reviewer’s firm is not an integral part of the reviewed firm’s accounting or auditing practice (and thus the services would be considered monitoring).
  • The peer reviewer did not perform the pre-issuance review within the year immediately preceding or during the peer review year.

Peer reviewers need to focus on these changes now, as they took effect upon the issuance of the standards. As a result, peer reviewers who performed these services in 2008 would not be independent and would be precluded from performing the firm’s peer review in 2009.


Based on significant input, the board knew updating the reporting model was clearly one of the most needed changes. A simple and easy-to-understand set of terms forms the reporting model’s foundation. Those terms—matter, finding, deficiency and significant deficiency—and their related definitions describe conditions that could be noted during a system review or an engagement review. The revised standards establish a flow that shows how a matter may elevate to a finding, a deficiency or a significant deficiency. The standards provide guidance on how to:

  • Combine and evaluate these conditions;
  • Document them; and
  • Determine how they might affect the type of report issued.


At first, the terms, their definitions and their flow through the process may seem complex. In response, several visual tools were designed to assist users. Exhibit 1 illustrates possible flows a peer review could follow, how the conditions are documented, and the possible consequences to peer review conclusions and reporting. The board also believes the engagement review and system flowcharts are integral to understanding the peer review process and reporting model. (See Exhibit 3 and Exhibit 4.)


Under the former standards, findings were reflected in letters of comments (LOC). These were confusing when read with a clean or unmodified report. Since the findings were not significant enough to affect the opinion or type of report issued, the LOC has been eliminated. However, to carry on the program’s objective of promoting quality, the board wanted peer reviewers to continue educating and informing firms about their findings. Therefore, peer reviewer documentation has been expanded (outside of the reporting and acceptance process) to communicate findings to the reviewed firm that do not affect the type of peer review report issued.


The new process introduces the Finding for Further Consideration (FFC) form, which allows peer reviewers to offer substantive comments and recommendations on the firm’s practices related to findings. It also facilitates the firm’s responses to the findings. Determining the need for an FFC form in the revised system review reporting model is similar to determining the need for an LOC in the previous model.


In the same spirit as the changes above, peer review reports have been revised to be more concise and understandable. Contrary to the previous grades of unmodified, modified and adverse, the new grades are pass, pass with deficiency and fail.


Determining the most appropriate report type can be challenging. Under the revised standards, the peer reviewers must make hard decisions and consider multiple threshold questions. As a result, the board expects to see more pass with deficiency reports than the previous modified reports. Exhibit 2 best illustrates the changes by comparing the old and new reporting models.





Since 2003, the board and the former CPCAF Peer Review Committee (PRC) discussed various harmonization and merger issues. Similarities existed between the programs; both focused on the non-SEC issuer practice and had the same objectives; and their enrolled firms provided the same services using the same professional standards. Therefore, the board and the PRC concluded that one program, one set of standards, and a national administration and acceptance body (the PRC is now the National Peer Review Committee) was appropriate. This merger enhances the entire peer review process because it simplifies the AICPA’s Peer Review Program, allows communication with stakeholders via one voice, and will improve peer review performance, reporting and administration.


A cornerstone of the program is the responsibility of all parties to cooperate. The revised standards expand this concept. Enhanced guidance on noncooperation includes, but is not limited to, situations in which a reviewed firm:


  • Does not respond to inquiries;
  • Withholds information significant to the peer review;
  • Limits access to offices, personnel or others; or
  • Fails to cooperate during oversight.


In these situations, the board may appoint a hearing panel to consider termination from the program or another action.


The team captain (system review) or review captain (engagement review) obtains representation letters from the reviewed firm’s management that describe matters significant to the peer review. Former guidance prescribed representation letter content. The revised standards use a principles-based approach encouraging peer reviewers to tailor the letter by adding representations, over and above the required core matters, important to that peer review. The revised standards provide sample letters.


Under the revised standards, team members may complete interviews or review functional areas in addition to preparing and completing the engagement checklists and forms, without completing a peer review training course or courses. The board felt it was important to permit such procedures without taking more formalized training and believes performing such peer review tasks provides new peer reviewers valuable experience.


These are just some of the important changes in the new standards. The revisions underscore the public interest in the quality of the accounting, auditing and attestation services provided by members’ firms. The board expects the revised standards to result in a more efficient and effective peer review process. In addition, the board believes that the revisions will improve peer review execution and rigor, while helping to assure its integrity and usefulness.


Answering the Call for Change

Many factors influenced the call to re-evaluate the standards, interpretations and guidance, but results from a 2004 online poll jump-started the momentum for change. The poll gave the AICPA, its board of directors (BOD) and others significant feedback about stakeholders’ needs and concerns. The BOD, through its Peer Review Task Force, was one of several groups that considered the feedback.


The Peer Review Board (the “Board”) and its Standards Task Force devoted considerable time and resources to re-evaluating the standards, interpretations and guidance. After several years considering inputs, evaluating potential responses and formulating an approach to revising the standards, the Board began the revision process.


The most fundamental of many changes included threshold decisions to:

  1. Merge the AICPA’s two peer review programs—the Center for Public Company Audit Firms (CPCAF) Peer Review Program and the AICPA Peer Review Program;
  2. Use a principles-based foundation; and
  3. Re-engineer the reporting process.

The Board used these overarching concepts to write the revised standards. The resulting principles-based standards also laid the foundation upon which the Board updated interpretations and created practical implementation guidance. The relationship between principles-based standards, interpretations and guidance is noteworthy. While the revised standards communicate the principles, the interpretations and guidance explain how to implement them. The principles-based standards are less likely to require frequent changes than prior interpretations and guidance. In addition, under the revised standards, changing interpretations and guidance is easier and involves fewer steps.



  The AICPA revised its standards for performing and reporting on peer review. The revised standards, which went into effect for reviews beginning on or after Jan. 1, 2009, will enhance the quality of peer reviews and increase the clarity of peer review reports to the public, regulators and reviewed firms.


  The revised standards affect all of the more than 30,000 firms enrolled in the AICPA Peer Review Program as well as peer reviewers and peer review users, including regulators.


  Firms will notice significant changes in their peer review reports. Through changes that make the reports simpler and more readable, users of peer review reports can better understand the peer review process.


  The revised standards require a simple pass, pass with deficiency or fail grade.


G. William Graham , CPA, MBA, is the partner-in-charge of practice quality at Grant Thornton LLP and is chair of the AICPA Peer Review Board. His e-mail address is



Web site

AICPA Standards for Performing and Reporting on Peer Reviews ,



“Revised Peer Review Standards” infocast audio file,



- AICPA Peer Review Program Manual (#QR-XX)

- Navigating Through the Revised AICPA Standards for Performing and Reporting on Peer Reviews and Related Interpretations,


For more information or to place an order, go to or call the Institute at 888-777-7077.


CPE Peer Review Training Courses

AICPA Advanced Course: Overview of the AICPA Peer Review Program Standards,


On-Site Training

How to Conduct a Review Under the AICPA Practice-Monitoring Program (Acronym #HCRPM)


To access On-Site Training courses, go to, click on “On-Site Training” and search by “Acronym Index.” If you need assistance, please contact a training representative at 800-634-6780 (option 1).



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