Arkansas Administrative Code
Agency 019 - State Board of Accountancy
Rule 019.00.20-007 - Rule 14 "Quality Review"
Universal Citation: AR Admin Rules 019.00.20-007
Current through Register Vol. 49, No. 2, February 2024
Rule 14 QUALITY REVIEW PROGRAM
14.1 PURPOSE
There is hereby established a Quality Review Program (the "Program"). The purpose of the Program is to improve the quality of financial reporting; specifically, financial statements for which compilation reports are issued. The Program emphasizes education and rehabilitation rather than disciplinary action. Appropriate educational programs or procedures will ordinarily be recommended or required where reporting does not comply with appropriate professional standards. However, when a licensee is unwilling or unable to comply with such standards, or a licensee's professional work is so egregious as to warrant disciplinary action, such action may be taken as the appropriate means of protecting the public interest.
14.2 REPEALED
14.3 QR SURVEY
Quality Review (QR) is to be conducted annually on one third of the licensees on a rotating basis. QR may be required more frequently as provided herein.
(a) The Board will
mail a QR survey to one-third of its licensees annually. The recipient shall
return the completed survey form within the time specified and submit reports,
for QR purposes, when compilation reports have been issued during the QR period
as stated in the instructions in said survey form.
(b) Failure to respond to the QR survey
mailed by the Board or to submit reports for QR purposes, when reports were
issued during the subject period, shall be a basis for the non-renewal of the
license, after notice and hearing, as provided by Ark. Code Ann. §
17-12-507.
(c) In response to the
QR survey, the licensee shall submit the most recently issued compilation
report with disclosures and compilation report without disclosuressince initial
licensure by the Board or since June 30th of the year the latest QR survey was
completed by the licensee.
(d)
Submission to the Board of an acceptable peer review report, performed by a
CPA, PA or firm, licensed in this or another state, which is conducted
consistent with a peer review program authorized by a professional accounting
organization and approved by the Board, dated within the QR period or the
thirty months immediately preceding the QR period, will exempt the licensee
from QR. For purposes of this paragraph, acceptable peer review reports shall
be those classifications designated by the peer review program that are
generally comparable to pass and pass with deficiencies QR reports as defined
in Rule 14.8, and which the Board identifies in its approval of the individual
peer review program as comparable to pass and pass with deficiencies QR
reports.
(e) A firm or licensee
registered in a jurisdiction other than Arkansas that is not required to
register in this state pursuant to A.C.A. § 17-12-311 or A.C.A. §
17-12-401 and that performs engagements for clients in this state that are
performed in accordance with Statements on Standards for Accounting and Review
Services (SSARS), such as compilations and reviews, must receive an acceptable
peer review performed by a CPA, PA or firm in lieu of the Quality Review
required under Rule 14.3 or must receive an acceptable quality review performed
under the rules of the state of licensure.
14.4 QR REVIEWERS
The QR reviewers shall have the following qualifications:
(a) Licensed by and in good standing with the
Board,
(b) The licensee or firm in
which he is associated has completed an acceptable peer review pursuant to Rule
14.3(d), or has completed the Board's Quality Review with no fail reports
within three years immediately preceding the appointment,
(c) The licensee or his firm has no pending
investigation or disciplinary matters by the Board, and
(d) Shall have a minimum of 5 years of
experience in accounting and auditing, including experience in
compilations.
14.5 TEAM
CAPTAINS
Team captains shall have the following qualifications:
(a) Licensed by and in good standing with the
Board,
(b) The licensee or firm in
which he is associated has completed an acceptable peer review pursuant to Rule
14.3(d), or has completed the Board's Quality Review with no fail reports
within three years immediately preceding the appointment,
(c) The licensee or his firm has no pending
investigation or disciplinary matters by the Board, and
(d) Shall have a minimum of 5 years of
experience in accounting and auditing, including experience in
compilations.
(e) Shall have served
as a quality reviewer for a minimum of one year, and
(f) Shall be approved by the QR
Consultant.
14.6 QR
CONSULTANT
The QR consultant shall have the following qualifications:
(a) Licensed by and in good standing with the
Board,
(b) The licensee or firm in
which he is associated has completed an acceptable peer review pursuant to Rule
14.3(d), or has completed the Board's Quality Review with no fail reports
within three years immediately preceding the appointment,
(c) The licensee or his firm has no pending
investigation or disciplinary matters by the Board, and
(d) Shall have a minimum of 5 years of
experience in accounting and auditing, including experience in compilations,
and
(e) Shall be approved by the
Board.
14.7 QR PROCEDURE
The QR process shall include:
(a) Review and classification of the report
and a statement of reasons for the classification by an assigned
reviewer.
(b) Review of that
classification and reasons therefore by the QR team captain who may make
appropriate changes after consulting with the assigned reviewer.
(c) Review of that classification and reasons
therefore by the Board's QR Consultant who may make appropriate changes after
consulting with both the assigned reviewer and team captain.
14.8 QR CLASSIFICATIONS
The QR will result in a determination whether each report rating is fail, pass with deficiencies, or fail.
(a) "Pass" means that the report contains no
deficiencies or only minor deficiencies.
(b) "Pass with Deficiencies" means that the
report contains more serious deficiencies, such as departures from the
technical reporting or accounting standards set forth in Board Rule 8, but of
the type that will not render the statement materially inaccurate or
misleading.
(c) "Fail" means that
the report is materially inaccurate or misleading; such a report violates one
or more significant reporting standards, seriously departs from Generally
Accepted Accounting Principles, or does not include material disclosures
necessary for a fair presentation.
(d) "Deficiency" means a failure to comply
with any provision in the Professional Standards identified in Board Rule
8.
14.9 NOTIFICATION AND
RESPONSE
(a) The licensee will be notified in
writing of the QR classification of each report. Notice of pass with
deficiencies and fail reports shall be by certified mail, return receipt
requested. No response is necessary for a "pass" or "pass with deficiencies"
classification, and QR will be closed. If the licensee who has received a pass
with deficiencies classification disagrees, he should notify the Board in
writing within 30 days. The notification will instruct the licensee who has
received a fail classification to reply to the Board in writing within 30
days.
(b) Pass with Deficiencies
classification. If the licensee agrees with the pass with deficiencies
classification, no reply is necessary and the QR is complete. However, if the
licensee disagrees with the classification, he may, but is not required to file
a notice including an explanation of his objection, citations to applicable
professional standards, and any relevant documentation supporting his objection
to the classification for consideration by QR Consultant. This notice must be
written and filed with the Board within 30 days. After reconsideration of the
Summary of Deficiencies and Comments, original documents from the licensee, and
any supplemental information from the licensee that may have been requested by
the QR Team, the QR Consultant will affirm the classification of or reclassify
the licensee's report. The licensee will be notified of this result in writing
for informational purposes. The QR will be closed and the licensee will remain
in the same QR cycle.
(c) Fail
Classification.
(1) First fail
classification.
(A) Within 30 days the
licensee shall respond in writing to the Board's notification of a first fail
classification stating whether he agrees or disagrees with that
classification.
(B) If the licensee
agrees with the fail classification, the Board shall request that the licensee
obtain 16 hours of CPE in specific subjects. Said CPE is intended to be
educational, for the purpose of improving the quality of the licensee's
reports, rather than disciplinary in nature, shall not be self-study, and shall
be approved in advance by the Board's Executive Director. The licensee shall
complete said CPE hours and deliver acceptable documentation thereof to the
Board on or before June 30 of the following year.
(C) If the licensee disagrees with the fail
classification, he may deliver written notice to the Board within 30 days
explaining the objection to the classification, citation to applicable
professional standards and any relevant documentation supporting the licensee's
objection to the classification. The QR Consultant shall review the Summary of
Deficiencies and Comments, original documents from the licensee, and any
supplemental information from the licensee that may have been requested by the
QR Team, and will affirm the classification of, or reclassify the licensee's
report. The licensee will be provided written notice of the QR Consultant's
review of the report by certified mail, return receipt requested.
(D) The licensee can appeal the QR
Consultant's decision on the classification, and obtain a hearing by the Board
by filing a written notice of appeal with the Board within 30 days. The Board
shall notify the licensee of the time and place of the hearing and shall
consider the classification of the report based solely upon the record
considered by the QR Consultant, as per paragraph (b). When the evidence of
record that the report is a fail report is considered, the Board will consider
all relevant facts. Should the facts show convincingly that the report should
be classified as "fail", the Board will consider the report as fail. If the
evidence of record is equally balanced, or the Board cannot find that the facts
are convincing, the Board shall determine that the report should not be
classified as fail. Should the Board find that the report should be classified
as fail, it may require appropriate action by the licensee that is designed to
assure that the licensee's professional services are performed consistent with
applicable professional standards as provided under these procedures.
(E) Following any first fail classification
of the report that becomes final prior to appeal to the Board, the licensee
will be requested to obtain the 16 hours of CPE as stated in paragraph
14.9(c)(1)(B) above. Upon request of the licensee, or should the licensee not
agree to obtain CPE described above, fail to complete said CPE, or fail to
timely deliver satisfactory documentation thereof to the Board, the Board shall
conduct a hearing to determine whether the licensee has failed to comply with
the Code of Professional Conduct and the Public Accountancy Act of 1975, Ark.
Code Ann. § 17-12-101 et seq. and, if so, the necessary corrective action
to be taken to improve the quality of the licensee's reports or to otherwise
protect the public interest.
(2) Second consecutive fail report.
(A) Within 30 days the licensee shall respond
in writing to the Board's notification of a second fail classification stating
whether he agrees or disagrees with that classification.
(B) If he agrees with the classification, the
licensee will be requested to submit reports for pre-issuance review pursuant
to the Board's current Pre-Issuance Review Procedures that shall be provided to
the licensee.
(C) If the licensee
disagrees with the fail classification, he will be instructed to file notice
including an explanation of his objection to the classification, citation to
applicable professional standards, and any relevant documentation supporting
his position for reconsideration by QR Consultant. The provisions set forth in
subparagraph 14.9(c)(1)(D-E) for reconsideration by the QR Consultant and
appeal to the Board are also applicable to second consecutive fail
reports.
(D) Upon appeal, should
the Board find that the report should be classified as fail, it may require
that the licensee take action deemed appropriate by the Board to assure the
licensee's professional services are performed consistent with applicable
professional standards or to otherwise protect the public interest.
(E) If at any stage of the QR procedure in
this subparagraph 14.9(c)(2) pertaining to second consecutive fail reports, the
licensee fails to respond to the notice of the classification of the report as
fail in the original review or upon reconsideration by the QR Consultant or
review by the QR Committee, the Board will determine whether to schedule a
hearing to find whether the licensee's report should be classified as fail and
whether the Board shall require the licensee to obtain pre-issuance review and
subsequent QR pursuant to the Board's current Pre-Issuance Review Procedures or
take other action appropriate to protect the public interest.
(3) Third consecutive fail report.
(A) Within 30 days the licensee shall respond
in writing to the Board's notification of third fail classification stating
whether he agrees or disagrees with that classification.
(B) If the licensee agrees with the
classification, the Board will determine whether to conduct a hearing to
consider whether the licensee's report violates the Board's Code of
Professional Conduct and the Public Accountancy Act of 1975, Ark. Code Ann.
§ 17-12-101 et seq.
(C) If the
licensee disagrees with the fail classification, he will be instructed to file
notice including an explanation of the objection to the classification,
citation to applicable professional standards and any relevant documentation
supporting his position for consideration by QR Consultant.
(D) The procedure set forth in sub paragraph
14.9(c)(1)(D-E) for reconsideration by the QR Consultant and appeal to the
Board are also applicable to third consecutive fail reports.
(E) Upon appeal, should the Board find that
the report is in violation of the Code of Professional Conduct or the Public
Accountancy Act of 1975, Ark. Code Ann. § 17-12-101 et seq., it may take
appropriate action to protect the public interest.
(F) If at any stage of the QR procedure in
this paragraph 14.9(c)(3), the licensee fails to respond to the notice of the
classification of the report as fail in the original review or upon review by
the QR Consultant or review by the QR Committee, the Board will determine
whether to schedule a hearing to determine whether the licensee has violated
the Board's Code of Professional Conduct or the Public Accountancy Act of 1975,
Ark. Code Ann. § 17-12-101 et seq., and the appropriate action to be taken
as a result of the violations found.
(G) Consent orders. At any stage in the QR
process, when a licensee will agree not to perform any further reports that
have been classified as fail or to other appropriate action to protect the
public interest, the Board may resolve the controversy by an appropriate
Consent Order.
14.10 PRE-ISSUANCE REVIEW PROCEDURES
(a) Pre-Issuance Reviewer (Reviewer) shall be
a CPA or PA currently holding an Arkansas license to practice public
accountancy, who has undergone quality or peer review within the past 3 years
with reports thereon determined to be acceptable pursuant to Rule 14.3(d), and
approved by the Board prior to performing preissuance reviews for the subject
Accountant (Respondent). Prior to performing any pre-issuance review services,
the Reviewer shall deliver a written confirmation to the Board to provide
pre-issuance review of each compilation report prepared by the subject
respondent for the period of the engagement. The Respondent whose Reports are
being reviewed shall be solely responsible for any expense for the pre-issuance
review.
(b) Reviewer shall review,
prior to release to Respondent's client, each Report as identified above to
determine compliance with professional standards identified in Board Rule 8 or
otherwise applicable to the particular type of Report and shall authorize the
release of a Report only after making a written determination that the Report
complies with said standards. In the event a submitted Report does not comply
with said standards, the reviewer shall provide written comments or
instructions for the Respondent to revise the Report in compliance with
applicable professional standards.
(c) Reviewer shall maintain a pre-issuance
review file on each Report review performed. The file shall contain each
original Report submitted to reviewer, the reviewer's written comments or
instructions in any form regarding necessary revisions for the Report to comply
with professional standards, any revised Report(s) and the Report(s) approved
for release to the client. Reports reviewed and found acceptable with no change
shall be clearly noted on the file Report, "Accepted-No Change
Required".
(d) Reviewer shall
maintain the pre-issuance review files for a minimum of five years after each
pre-issuance review engagement is completed and shall make said records
available to the Board upon request.
(e) Reviewer shall submit a written report to
the Arkansas Board of Public Accountancy every ninety (90) days following the
date of the Reviewer's confirmation to the Board. The report shall contain a
summary of the number of Reports reviewed, number of Reports with no change
required, and number of Reports requiring amendment. For Reports requiring
change, a copy of each original Report submitted by Licensee, Reviewer
notations, and/or comment sheet(s) and the revised and approved Report(s) must
accompany the report.
(f) Reviewer
may recommend in writing with accompanying supporting documentation that the
Respondent be released from continuing pre-issuance review. Should the Board
determine that the Respondent appears to have demonstrated an ability to issue
Reports in compliance with applicable professional standards without the
necessity of continuing pre-issuance review, it shall terminate the
pre-issuance review, but may require the Respondent to participate in annual
quality review for a specific or indefinite term.
14.11 REPEALED
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