INTRODUCTION AND DEFINITIONS

The Council of the Institute of Chartered Accountants of India to further enhance the quality of professional work of practicing Chartered Accountants and thereby serving the society in the manner envisaged issued a Statement on Peer Review.

Peer Review means an examination and review of the systems and procedures to determine whether they have been put in place by the Practice Unit for ensuring the quality of assurance services as envisaged by the Technical, Professional and Ethical Standards and whether the same were consistently applied in the period under review.

Practice Unit means members in practice, whether practising individually or a firm of Chartered Accountants.

Assurance Services means assurance engagement services as specified in the “Framework for Assurance Engagements” issued by the Institute of Chartered Accountants of India. There are certain specific exclusions like Management Consultancy Engagements, Representing a client before the Authorities, etc.

Technical, Professional and Ethical Standards mean and include:

• Accounting, Standards issued by the ICAI and/or prescribed and notified by the Central Government of India;
• Standards issued by the ICAI;
  Engagement Standards;
  Statements;
  Guidance Notes;
  Standards on Internal Audit;
  Statements on Quality Control;
• Notifications/Directions/Announcements/Guidelines/Pronouncements/Professional Standards issued from time to time by the Council or any of its committees
• Framework for the preparation and presentation of financial statements, framework of statements and Standard on Auditing, Standard on Assurance Engagements, Standards on Quality Control and Guidance Notes on related services issued, from time to time, by the ICAI and framework for assurance engagements. and
• Various relevant Statutes and/or Regulations which are applicable.

SCOPE OF PEER REVIEW

The peer review process shall apply to all the assurance services of a practice unit. On selection of a practice unit for peer review, its assurance engagement records pertaining to the Peer Review period shall be subjected to review.

The focus during the review exercise will be on :

• Compliance with Technical, Professional and Ethical Standards;
• Quality of Reporting;
• Systems and procedures for carrying out assurance services;
• Training Programmes for staff concerned (including articled and audit assistants) with assurance functions, including appropriate infrastructure;
• Compliance with directions/guidelines issued by the ICAI including fees to be charged, number of audits undertaken and maintenance of assurance related records; and
• Compliance with directions/guidelines issued by the ICAI relating to article/audit assistants, including attendance register, work diaries, stipend payments and such other related records.

MEMBERS/FIRMs (PRACTICE UNIT) SUBJECT TO REVIEW

Every Practice Unit based on the category in which they fall are to be subjected to Peer Review. The Practice Units are categorised into Level I, II and III.

Any Practice Unit not selected for Peer Review may suo motu apply to the Board for the conduct of its Peer Review.

OBLIGATIONS OF THE PRACTICE UNIT

Any Practice Unit, in addition to the prescribed information to be furnished including the questionnaire, statements and such other particulars as the Board may deem fit shall provide access to any record or document required by the reviewer, which the reviewer reasonably believes to be of relevance to the peer review conducted.

PERIODICITY OF PEER REVIEW

The periodicity of Peer Review will be:

• Once in 3 Years for Level I Practice Units;
• Once in 4 Years for Level II Practice Units; and
• Once in 5 Years for Level III Practice Units.

PROCESS OF PEER REVIEW

• Selection of practice unit

Peer Review is being introduced in three stages with different types of practice units being included at each stage. At each stage, certain practice units, satisfying the criteria laid down in the statement, are selected for Peer Review on a random basis. The Board is empowered to decide the proportion of practice units to be included in this selection during each phase of implementation. Practice units falling under stage I would be subjected to peer review at least once in three years. However, if the Board so decide or otherwise at the request of practice unit, peer review of the practice units can be conducted at shorter intervals in respect of practice units falling under stage I. Practice units falling under stage II & III may be subjected to review every four and five years respectively. Therefore, the statement provides that a provision has been included in the statement to ensure that all practice units may like to undergo periodic review in view of the benefit accruing out of such a process. Similarly, an auditee may also request the Board for the conduct of peer review of its auditor; i.e., practice unit. The random sample selection of practice units is done by office through computer-generated system, based on software specially developed for the purpose.

• Intimation to the practice Unit

Once a practice unit has been selected for peer review, an intimation in writing is sent by the Board to the practice unit informing of its selection for peer review. Along with the intimation, the following documents are sent to the practice unit:

1. A panel of three reviewers
2. A copy of the questionnaire
3. Circular for notification costs

• Selection of Sample Assurance Services Engagements and Communication to Practice Units

The reviewer, on the basis of the information given in the questionnaire or after seeking such other information as he thinks necessary, selects a sample of assurance services engagements on random basis for review. The selection of a sample for review, out of the complete list of assurance service clients, is at the discretion of the reviewer.

However, the reviewer is required to select a sample that is representative of the practice unit’s client portfolio.

After the selection of sample of assurance service engagements for review, the reviewer sends a written intimation to the practice unit about the sample selected by the reviewer, two weeks in advance, from the date the reviewer intends to begin the review. The intimation also contains a request for ready availability of the relevant records relating to the assurance service engagements selected for the review.

• Method of Review

Reviewer may adopt either compliance approach or substantive approach or a combination of both. The peer review board has recommended completing the peer review process within 90 days from the date of notifying the practice unit about its selection for Review.

• Cost of Peer review

Cost of Peer Review, laid down by the Board is borne by Practice Unit. At present, notified cost of peer review for Stages-I, II, III, including honorarium and TA/DA for reviewer and his qualified assistant, is as under:

• Confidentiality
  

  Reviewer is not supposed to keep any paper(s) – original or photocopy, of practice unit. He can retain only his working papers. The reviewer, his qualified assistant/s, if any, has to sign statement of confidentiality, before commencing the review. All the Board Members, Officers and staff assisting the Board are also subject to similar statement of confidentiality signed by them.
   

• Certificate of Peer Review
   
  On the basis of the report submitted by the Reviewer, the Board shall decide and issue a certificate to the Practice Unit.

REPORT OF THE REVIEWER

• Preliminary Report
  
  The reviewer before making his report to the Peer Review Board, communicate a preliminary report to the practice unit. The reviewer shall report the areas where systems and procedures were deficient or where non-compliance with reference to any other matter has been noticed by him. The practice unit shall make its submissions or written representations, in writing to the reviewer within 15 days of its receiving the preliminary report .
   
• Interim Report
  
  The reviewer on receiving satisfactory reply from the practice unit shall submit an appropriate Report to the Board. In case the reviewer is not satisfied with the reply of the practice unit, the reviewer shall accordingly submit a Modified Report to the Board, incorporating his reasons for the same.
  
  On receiving a report from a reviewer, the Board, having regard to the Report and any submissions or representations attached to it, may make recommendations to the practice unit concerned regarding the application of Technical, Professional and Ethical Standards, regarding further improvements that could be made to internal quality systems.
  
  A further “follow on” review after a period of 1 year from the date of issue of a Modified Report shall be ordered by the Board. The areas for improvement recommended with specific instructions will be carried out and implementation of the recommendations will be examined during the follow on review.
   
• Final Report

The reviewer will prepare a final Report to the Board (The Reviewer’s Report), incorporating the findings as discussed with the practice unit.

The Board shall consider the report within a period of three months and if satisfied, will issue Peer Review Certificate. If not satisfied, it may issue recommendations to practice unit and direct the practice unit for follow on review after the period of 12 months to be conducted by a fresh reviewer appointed by the Board.

For Peer Reviews initiated on or ordered after April 1, 2014, if the Board is of the opinion that there are material deficiencies reported, then the Board shall refer the matter to the council for considering whether the same may be referred to the Disciplinary Directorate for initiating disciplinary action (Clause 8.5 of Peer Review Manual)