A&A Focus recap: Improving the peer review experience

The AICPA A&A Focus Series webcast on Nov. 13, brought together leading voices in accounting, auditing, and assurance to discuss current developments and industry challenges. Hosted by Bob Durak, CPA, CMGA, director of A&A Technical Services at the AICPA, and Andrew Merryman, CPA, senior manager–A&A Technical Services, the session featured discussions with experts Greg Jenkins, Angela Newell, and Halie Creps, who offered insights into peer review best practices, revenue recognition complexities, and updates from the Auditing Standards Board (ASB).

Ways to improve your peer review

Greg Jenkins, CPA, professor at Auburn University, member of the ASB and author of the recent Journal of Accountancy article, “6 Ways to Improve the Peer Review Experience,” shared insights from recent research aimed at enhancing peer reviews. His findings, based on surveys of peer reviewers, revealed actionable steps for both firms and reviewers to make the process more efficient and impactful.

For firms: Jenkins emphasized that preparation and organization are crucial. Firms should ensure all requested documentation, such as engagement files, is ready before fieldwork begins. Firms should also confirm key personnel are available to address reviewer questions and resolve logistical challenges, like system access.

Communication is another critical element. Jenkins encouraged firms to be open and transparent about potential issues during the review, fostering collaboration and clarity. Firms should see peer reviews as opportunities to gain valuable feedback rather than a compliance obligation. Sharing findings internally can help cultivate a culture of learning and continuous quality improvement.

For reviewers: Jenkins outlined three key responsibilities for peer reviewers: clear communication, offering solutions, and adding value. Reviewers should set expectations early, ensuring the firm understands the process and its benefits. Additionally, they should go beyond identifying issues by providing practical advice, such as templates or examples of high-quality work.

Jenkins stressed that peer reviewers should look for opportunities to enhance efficiency in firm practices such as streamlining testing in low-risk areas or adopting technology. Peer reviewers should also act as a resource for the firms in, for example, discussing the forthcoming quality management requirements, positioning themselves as long-term partners for improvement.

Overall, Jenkins highlighted the transformative potential of peer reviews when both firms and reviewers embrace collaboration and learning. By focusing on preparation, communication, and actionable insights, the peer review process can be a driver of engagement quality and professional growth.

Revenue recognition: Identifying the performance obligation

In the broadcast’s second segment, Angela Newell, CPA, deputy managing director at BDO, provided a detailed discussion on identifying performance obligations in contracts under FASB ASC 606, Revenue from Contracts with Customers. Newell emphasized that this step is fundamental to revenue recognition, as it determines how promises in a contract are accounted for and affects financial disclosures.

Newell explained that identifying promises in a contract involves assessing both explicit and implied obligations. For instance, loyalty programs, like a restaurant’s loyalty point system, represent implied promises that must be factored into revenue recognition. Conversely, some charges, like activation or setup fees, may not constitute distinct promises if they don’t deliver a separate benefit to the customer.

The process of determining distinct performance obligations follows a two-step test. First, a good or service must be capable of being distinct, meaning it can be used on its own or with readily available resources. Second, it must be distinct within the context of the contract, meaning the customer perceives it as a separate deliverable.

To illustrate these concepts, Newell provided the example of a high-end home speaker, where the hardware and accompanying app are treated as a single performance obligation because they are integrated to deliver the promised benefit. In contrast, in another example, Newell noted that razors and the separate razor blades are considered distinct because they can function independently.

Newell emphasized that accurate identification of performance obligations affects not just the timing of revenue recognition but also the quality and clarity of financial disclosures. She also noted that the judgment required in applying FASB ASC 606 can vary greatly depending on the contract’s complexity.

Ultimately, Newell highlighted the importance of thorough evaluations to ensure compliance with the standard. By identifying promises accurately and applying FASB ASC 606’s criteria judiciously, organizations can better align their revenue recognition practices with their contractual obligations.

Update from the ASB

In the last segment of the broadcast, Halie Creps, CPA, a partner with KPMG and a member of the ASB, provided an update on the ASB’s recent activities, focusing on critical developments in going concern standards and attestation engagements.

Creps discussed ongoing research led by the ASB to evaluate how proposed changes to the going concern standard might influence stakeholders. Specifically, the ASB is examining how users of financial reports — such as investors, commercial loan officers, and analysts — interpret proposed auditor reporting language that highlights going concern assessments even when no material uncertainties are identified. Preliminary findings suggest that including such language might have unintended consequences, reinforcing the need for careful consideration in the standard-setting process.

The ASB is also advancing efforts to modernize attestation standards, particularly in response to growing demand for assurance on nonfinancial information like environmental, social, and governance (ESG) data. Creps highlighted the establishment of two task forces: one to update baseline attestation standards and another to develop ESG-specific attestation standards.

Key issues under discussion include risk assessment procedures, reporting requirements, and the role of specialists in attestation engagements. Creps emphasized the importance of tailoring standards to emerging areas like sustainability, AI, and digital assets, ensuring the framework remains relevant and robust for the evolving scope of assurance services.

Creps concluded by noting the ASB’s commitment to balancing stakeholder expectations with practicality for auditors, ensuring the profession remains equipped to meet the challenges of a rapidly changing landscape. Exposure drafts for updated fraud and attestation standards are anticipated by mid-2025.

In other matters

In addition to the featured topical segments, the A&A Focus Series webcast provided updates across several timely emerging issues: 

• FASB published a proposed Accounting Standards Update that is intended to improve the requirements for identifying the accounting acquirer in FASB ASC Topic 805, Business Combinations. The ASU is based on a recommendation of FASB’s Emerging Issues Task Force. The proposed ASU is intended to establish more consistent requirements for determining the accounting acquirer when a business is acquired in a transaction achieved by exchanging equity interests.
• The AICPA Peer Review Board (PRB) voted to approve a standards update designed to better align peer review standards with new quality management (QM) standards and to clarify and improve existing technical guidance. Peer Review Standards Update (PRSU) No. 2, Reviewing a Firm’s System of Quality Management and Omnibus Technical Enhancements, is expected to be published later this month. The omnibus technical enhancements in PRSU No. 2 are effective for peer reviews commencing on or after Dec. 1. QM-related revisions are effective for peer reviews with years ending on or after Dec. 31, 2025. The final standard is expected to be posted to the AICPA Peer Review site when available.
• GASB issued guidance that establishes requirements for certain types of capital assets to be disclosed separately for purposes of note disclosures. Statement No. 104, Disclosure of Certain Capital Assets, also establishes requirements for capital assets held for sale and requires additional disclosures for those capital assets.
• The newly released Center for Audit Quality’s (CAQ’s) Audit Partner Survey gauged partners’ views on the current business environment in the U.S. Now in its third year, the CAQ’s Audit Partner Survey asked 1,128 audit partners at the country’s leading public company audit firms about their views. Topics covered include U.S. economic health, challenges and risks facing businesses, and how they see business leaders adjusting their strategies in the current environment. The CAQ is affiliated with the AICPA.
• The inaugural 2024 BDO Audit Innovation Survey, released Oct. 8, finds that companies increasingly expect their audit firms to leverage advanced technologies like AI to enhance the audit process, believing that this will lead to a higher-quality audit. However, survey results also indicate that companies believe working with experienced, effective audit professionals is just as important as ever, even with the advent of new technologies.
• The AICPA Accounting and Review Services Committee (ARSC) voted to expose for public comment a proposed revision that would “make explicit” that a CPA preparing financial statements as a byproduct of a consulting services engagement performed in accordance with CS Section 100 is not required to apply AR-C Section 70, Preparation of Financial Statements. Comments on the exposure draft are requested by Dec. 20, 2024. ARSC requests that respondents submit their comments electronically. However, respondents may also address comments to commentletters@aicpa-cima.com.  

The webcast concluded with a preview of the next A&A Focus, scheduled for Dec. 11. AICPA members are encouraged to attend these monthly events and review the accompanying newsletters for more in-depth coverage of these critical topics. Members can access archives of past sessions at the A&A Focus Series webpage.

— Dave Arman, CPA, MBA, is senior manager–Audit Quality at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.