California Code of Regulations
Title 16 - Professional and Vocational Regulations
Division 1 - State Board of Accountancy
Article 6 - Peer Review
Section 48 - Minimum Requirements for a Peer Review Program
Universal Citation: 16 CA Code of Regs 48
Current through Register 2024 Notice Reg. No. 38, September 20, 2024
For a peer review program provider to receive Board recognition and be authorized to administer peer reviews in California, the peer review program provider shall submit evidence to the satisfaction of the Board that the peer review program is comprised of a set of standards for performing, reporting on, and administering peer reviews. A peer review program shall include the following components:
(a) Peer Review Types
A peer review program shall have a minimum of two types of peer reviews that include the following:
(1) For
firms performing engagements under the Statements on Auditing Standards (SASs),
Government Auditing Standards, examinations of prospective financial statements
under the Statements on Standards on Attestation Engagements (SSAEs), or audits of
non-Security Exchange Commission (SEC) issuers performed pursuant to the standards
of the Public Company Accounting Oversight Board (PCAOB), the firm shall undergo a
peer review designed to test the firm's system of quality control. The scope of the
peer review shall be such that it provides a peer reviewer with a reasonable
assurance that a firm's system of quality control was designed in accordance with
professional standards and was complied with by a firm's personnel.
(2) For firms only performing engagements under
the Statements on Standards for Accounting and Review Services (SSARS) or under
Statements on Standards on Attestation Engagements (SSAEs) not encompassed in review
performed under subsection (a)(1), the firm shall undergo a peer review designed to
test a cross-section of a firm's engagements to assess whether the engagements were
performed in conformity with the applicable professional
standards.
(b) Peer Review Report Issuance
(1) For firms undergoing peer
reviews pursuant to subsection (a)(1), one of the following three types of peer
review reports shall be issued:
(A) A peer review
report indicating that a peer reviewer or peer review team concluded that a firm's
system of quality control was suitably designed and complied with by the firm's
personnel, which provides the firm with reasonable assurance of performing and
reporting on engagements in conformity with applicable professional
standards.
(B) A peer review report
indicating that a peer reviewer or peer review team concluded that a firm's system
of quality control was suitably designed and complied with by the firm's personnel
with the exception of a certain deficiency or deficiencies that are described in the
report. The deficiencies are such that the firm's design of or compliance with its
system could create a situation in which the firm would have less than reasonable
assurance of performing and/or reporting on engagements in conformity with
applicable professional standards.
(C) A
peer review report indicating that a peer reviewer or peer review team concluded
that a firm's system of quality control is not suitably designed or complied with by
the firm's personnel, and thus, does not provide the firm with reasonable assurance
of performing and reporting on engagements in conformity with applicable
professional standards.
(2)
For firms undergoing peer reviews pursuant to subsection (a)(2), one of the
following three types of peer review reports shall be issued:
(A) A peer review report indicating that a peer
reviewer or peer review team concluded that there was no evidence which would cause
the peer reviewer to believe that the engagements performed by the firm were not
performed in conformity with applicable professional standards.
(B) A peer review report indicating that a peer
reviewer or peer review team concluded that, with the exception of a certain
deficiency or deficiencies, nothing would cause the peer reviewer to believe that
the engagements performed by the firm and submitted for review were not performed in
conformity with applicable professional standards. The deficiencies identified were
such that the peer reviewer concluded they were material to the understanding of the
report or financial statements or represented omission of critical procedures
required by applicable professional standards.
(C) A peer review report indicating that a peer
reviewer or peer review team concluded that the engagements reviewed were not
performed and/or reported on in conformity with applicable professional standards.
In issuing such report, the peer reviewer shall assess both the significance of the
deficiencies identified and the pervasiveness of the
deficiencies.
(c) Peer Reviewer Qualifications
A peer review program shall include minimum qualifications for an individual to qualify as a peer reviewer. The qualifications shall, at a minimum, include the following:
(1) Have a valid and
active license in good standing to practice public accounting issued by this state
or other state.
(2) Be actively involved
and practicing at a supervisory level in a firm's accounting and auditing
practice.
(3) Maintain a currency of
knowledge of the professional standards related to accounting and auditing,
including those expressly related to the type or kind of practice to be
reviewed.
(4) Provide the
Board-recognized peer review program provider with his/her qualifications to be a
reviewer, including recent industry experience.
(5) Be associated with a firm that has received a
peer review report issued in accordance with subsection (b)(1)(A) or (b)(2)(A) of
this section or has received a peer review rating of pass or unmodified as part of
the American Institute of Certified Public Accountants Peer Review Program as part
of the firm's last peer review.
(d) Planning and Performing Peer Reviews
A peer review program shall include minimum guidelines and/or standards for planning and performing peer reviews commensurate with the type of peer review being performed to include, but not limited to, the following:
(1) For peer reviews performed in accordance with
subsection (a)(1) of this section, a peer review program's guidelines and/or
standards shall include the following:
(A)
Ensuring that prior to performing a peer review, a peer reviewer or a peer review
team takes adequate steps in planning a peer review to include the following:
(i) obtain the results of a firm's prior peer
review (if applicable),
(ii) obtain
sufficient understanding of the nature and extent of a firm's accounting and
auditing practice,
(iii) obtain a
sufficient understanding of a firm's system of quality control and the manner in
which the system is monitored by a firm, and
(iv) select a representative cross-section of a
firm's engagements.
(B) In
performing a peer review, the peer reviewer or peer review team shall test the
reviewed engagements while assessing the adequacy of and compliance with a firm's
system of quality control. The peer review is intended to provide the peer reviewer
or peer review team with reasonable basis for expressing an opinion as to whether a
firm's system of quality control is suitably designed and complied with by a firm's
personnel such that the firm has reasonable assurance of performing and reporting on
engagements in conformity with applicable professional
standards.
(2) For peer
reviews performed in accordance with subsection (a)(2) of this section, a peer
review program's guidelines and/or standards shall include the following:
(A) Ensuring that prior to performing a peer
review, a peer reviewer or peer review team select a representative cross-section of
a firm's accounting and auditing engagements to include at a minimum one engagement
for each partner, shareholder, owner, principal, or licensee authorized to issue
reports.
(B) In performing a peer
review, the peer reviewer or peer review team shall review the selected engagements
to determine if the engagements were performed in conformity with the applicable
professional standards.
(3)
Nothing in a peer review program provider's guidelines and/or standards shall
prohibit a peer reviewer or peer review team from disclosing pertinent peer
review-related information regarding a firm to a subsequent peer
reviewer.
(e) Peer Review Program Plan of Administration and Accepting Peer Review Reports
(1) The administration plan shall clearly outline
the manner in which the peer review program provider intends on administering peer
reviews and shall, at a minimum, include the following:
(A) Identify a peer review committee, and if
necessary subcommittees, and employ knowledgeable staff for the operation of the
review program as needed.
(B) Establish
and perform procedures for ensuring that reviews are performed and reported on in
accordance with the program's established standards for performing and reporting on
peer reviews.
(C) Establish a program to
communicate to firms participating in the peer review program the latest
developments in peer review standards and the most common findings in peer reviews
conducted by the Board-recognized peer review program provider.
(D) Establish and document procedures for an
adjudication process designed to resolve any disagreement(s) which may arise out of
the performance of a peer review, and resolve matters which may lead to the
dismissal of a firm from the provider's peer review program.
(E) Establish guidelines for prescribing remedial
or corrective actions designed to assure correction of the deficiencies identified
in a firm's peer review report.
(F)
Establish guidelines for monitoring the prescribed remedial and corrective actions
to determine compliance by the reviewed firm.
(G) Establish and document procedures for ensuring
adequate peer reviewers to perform peer reviews. This shall include ensuring a
breadth of knowledge related to industry experience.
(H) Establish and document procedures to ensure
the qualifications of peer reviewers and to evaluate a peer reviewer's performance
on peer reviews.
(I) Establish a
training program or training programs designed to maintain or increase a peer
reviewer's currency of knowledge related to performing and reporting on peer
reviews.
(J) Establish and document
procedures to ensure that a firm requiring a peer review selects a peer reviewer
with similar practice experience and industry knowledge, and peer reviewer is
performing a peer review for a firm with which the reviewer has similar practice
experience and industry knowledge.
(K)
Require the maintenance of records of peer reviews conducted under the program. Such
records shall include, at a minimum, written records of all firms enrolled in the
peer review program and documents required for submission under Section
46, with these documents to be retained
until the completion of a firm's subsequent peer review.
(L) Provide to the Board's Peer Review Oversight
Committee access to all materials and documents required for the administration of
peer reviews.
(2) As required
by subsection (e)(1)(A) of this section, the peer review program provider shall
establish a peer review committee to assist in the review and acceptance of peer
review reports. The peer review program provider's committee shall:
(A) Meet regularly to consider and accept peer
review reports.
(B) Assist the peer
review program provider in resolving instances in which there is a lack of
cooperation and agreement between a peer reviewer and/or reviewed firm in accordance
with the peer review program's adjudication process.
(C) Make a final determination on a peer review
report pursuant to subdivision (b).
(f) The peer review committee established by the peer review program provider shall comply with the following in relation to the composition of the committee:
(1) All committee
members shall meet the peer reviewer qualification requirements established in
Section 48(c).
(2) In determining the size of the committee,
consideration shall be given to the requirement for broad industry experience, and
the likelihood that some members will need to recuse themselves from some reviews as
a result of the member's close association to the firm or having performed the
review.
(3) No committee member may
concurrently serve as a member of the Board.
(4) A committee member may not participate in any
discussion or have any vote with respect to a reviewed firm when the member lacks
independence as defined by California Code of Regulations Section
65 or has a conflict of interest.
Examples of conflicts of interest include, but are not limited to:
(A) the member's firm has performed the most
recent peer review of the reviewed firm's accounting and auditing
practice.
(B) the member served on the
review team which performed the current or the immediately preceding review of the
firm.
(C) the member believes he/she
cannot be impartial or objective.
(5) Each member of the committee shall comply with
all confidentiality requirements. The peer review program provider shall annually
require its committee members to sign a statement acknowledging their appointments
and the responsibilities and obligations of their appointments.
1. New section
filed 12-10-2009 as an emergency; operative 1-1-2010 (Register 2009, No. 50). A
Certificate of Compliance must be transmitted to OAL by 6-30-2010 or emergency
language will be repealed by operation of law on the following day.
2.
New section refiled 6-18-2010 as an emergency; operative 6-30-2010 (Register 2010,
No. 25). A Certificate of Compliance must be transmitted to OAL by 9-29-2010 or
emergency language will be repealed by operation of law on the following
day.
3. New section refiled 9-22-2010 as an emergency; operative
9-29-2010 (Register 2010, No. 39). A Certificate of Compliance must be transmitted
to OAL by 12-28-2010 or emergency language will be repealed by operation of law on
the following day.
4. Certificate of Compliance as to 9-22-2010 order,
including amendment of section, transmitted to OAL 11-5-2010 and filed 12-20-2010
(Register 2010, No. 52).
Note: Authority cited: Sections 5010 and 5076, Business and Professions Code. Reference: Section 5076, Business and Professions Code.
Disclaimer: These regulations may not be the most recent version. California may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.
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