Understanding the Peer Review Process: A Pillar of Quality and Accountability in Public Accounting

[Sung Bum Cho, CPA]

As licensed CPAs, we are entrusted with the responsibility of upholding the highest standards of professionalism, integrity, and technical competence. One of the cornerstones of quality assurance in our profession is the peer review process. Administered through state societies under the oversight of the AICPA and relevant state boards of accountancy, peer review plays a critical role in ensuring that firms engaged in performing any accounting and auditing services maintain compliance with professional standards.

Purpose of Peer Review

The primary purpose of a peer review is to enhance the quality of a CPA firm's accounting and auditing practice. It provides an independent evaluation of whether a firm's system of quality control is suitably designed and operating effectively. More than a compliance requirement, peer review is an opportunity for firms to gain valuable insights, promote accountability, and improve service delivery to clients and the public.

Who Is Subject to Peer Review?

CPA firms that perform any accounting and auditing engagements under the Statements on Auditing Standards (SASs), Statements on Standards for Accounting and Review Services (SSARSs), or Statements on Standards for Attestation Engagements (SSAEs), Government Auditing Standards, Audits of non-Securities and Exchange Commission (SEC) issuers performed pursuant to the standards of the Public Company Accounting Oversight Board (PCAOB) are required to undergo a peer review.

Key examples of engagements subject to peer review include:

• Financial statement audits

• Reviews and compilations

• Agreed-upon procedures

• Examinations of internal controls

Firms that do not perform any of these services are typically exempt but may voluntarily participate.

The Peer Review Process

There are two types of peer reviews:

1. System Review – For firms performing audits or other attest engagements that require an understanding and evaluation of the firm's system of quality control.

2. Engagement Review – For firms that only perform SSARS or SSAE engagements without audits.

Procedures typically include:

• Evaluation of firm policies and procedures

• Review of selected engagements for conformity with professional standards

• Assessment of independence and ethical considerations

• Interviews with partners and staff

• Recommendations for improvement, if applicable

The review is conducted by a qualified peer reviewer or review team, typically from a firm with similar industry experience.

Final Outcome and Reporting

The result of a peer review is communicated through a Peer Review Report, which includes one of the following ratings:

• Pass – No findings or deficiencies

• Pass with Deficiencies – Some issues identified, but overall system is functional

• Fail – Significant deficiencies in compliance or quality control

Important Peer Review Findings: MFCS and FFCS

During the peer review, the following flags may be used:

• MFCS (Matter for Further Consideration by the System/Engagement Reviewer): A reviewer identifies a potential issue that needs additional evaluation. It may lead to a formal finding or be resolved without action.

• FFCS (Finding for Further Consideration by the Report Acceptance Body – RAB): A formal deficiency or significant deficiency identified by the peer reviewer is submitted to the administering entity's RAB. The RAB may request a corrective action plan, monitoring, or even a follow-up review.

These designations promote due diligence and transparency in the review process and ensure consistency in how findings are resolved and reported.

Peer review results are submitted to the AICPA and, where applicable, state boards of accountancy. Many states require public disclosure of peer review reports, particularly for firms issuing audit reports.

Other Key Considerations

• Frequency: Peer reviews are required every three years.

• Preparation: Firms are encouraged to maintain updated quality control documentation, monitor independence rules, and conduct internal inspections between peer reviews.

• Ethical Duty: The peer review process underscores the CPA's duty to the public interest, reinforcing a culture of quality and ethics.

Best Practices for a Successful Peer Review

1. Maintain a Written Quality Control Document – Even small firms benefit from a formalized system.

2. Stay Updated on Standards – Frequent changes in GAAS, SSARS, and SSAE standards require ongoing education.

3. Conduct Internal Inspections – Periodic self-reviews help identify weaknesses early.

4. Engage Reviewers with Experience in Small Firm Practice – This ensures both compliance and practical relevance.

At SBC Accountancy Corporation, we've also had the opportunity to serve as peer reviewers for firms providing compilations without disclosures. Participating in the process from both sides—reviewer and reviewee—has further highlighted for us the value of continuous improvement and professional accountability.

Initiating a Peer Review Through AICPA PRIMA

For CPA firms subject to peer review requirements, the AICPA's PRIMA (Peer Review Integrated Management Application) system is the central platform used to manage the peer review process. Below is a step-by-step outline of how to begin and navigate the peer review process through PRIMA:

Step 1: Determine Peer Review Requirement

You need a peer review if you perform any accounting and auditing services using the following professional standards:

• Statements on Auditing Standards (SASs)

• Statements on Standards for Accounting and Review Services (SSARS)

• Statements on Standards on Attestation Engagements (SSAEs)

• Government Auditing Standards

• Audits of non-Securities and Exchange Commission (SEC) issuers performed pursuant to the standards of the Public Company Accounting Oversight Board (PCAOB)

If required, firms must enroll in the AICPA Peer Review Program within one year of their first engagement, and the peer review must be accepted within 18 months after the first engagement or three years since your last peer review.

Step 2: Access PRIMA

• Visit the AICPA Peer Review homepage: www.aicpa.org/peerreview (search for PRIMA to access the Peer Review Program)

• Log in to the PRIMA system using the AICPA credentials of a designated Firm Administrator

Step 3: Enroll Your Firm

• Select "Enroll My Firm" in PRIMA.

• Complete the Peer Review Enrollment Form, including: type of services offered, highest level of service, date of first attest engagement, and contact and firm information.

Step 4: Await Review Due Date

• After enrollment, PRIMA will assign a peer review due date, typically 1 year from the date of the first attest engagement.

Step 5: Select a Reviewer

• Use PRIMA to request and select an approved peer reviewer or team from the AICPA reviewer database.

• Firms can select a peer reviewer from any state: https://peerreview.aicpa.org/reviewer_search.html

Step 6: Complete the Review

• The reviewer will provide a copy of the Engagement Letter. The firm must sign the engagement letter and provide the executed letter back to the reviewer.

• Provide the reviewer with copies of both the Firm and Individual CPA license.

• Complete Appendix A 'Engagement Summary Form' with the number of engagements performed and level of service provided. Once completed, provide it to the reviewer to make selections on which engagements to perform the peer review on.

• Provide the reviewer with access to engagement documentation, quality control policies, and requested materials (e.g., Engagement Profile Form, Financial Statements, Reports, and Client Engagement Letters).

• The reviewer conducts the peer review, typically including interviews with key personnel, evaluation of selected engagements, and assessment of quality control systems (System Review) or engagement compliance (Engagement Review).

Step 7: Report Acceptance and Follow-Up

• Based on the peer review conducted, the reviewer will assess and provide a rating as follows: pass, pass with deficiencies, or fail.

• The reviewer will provide a Representation Letter that must be signed and returned back to the reviewer.

• The reviewer will provide a Peer Review Report outlining the results of the peer review.

• The administering entity's Report Acceptance Body (RAB) evaluates and issues a final determination.

• If deficiencies are noted, the firm may need to submit a Corrective Action Plan, undergo monitoring or a follow-up review, or complete additional continuing education.

Step 8: Maintain Compliance

• Firms must complete peer reviews every three years.

• Any change in services (e.g., beginning to offer reviews or audits) must be updated in PRIMA.

• Firms must retain documentation and maintain their system of quality control.

Conclusion

Participating in peer review is not merely a regulatory obligation — it is an affirmation of a firm's commitment to professional excellence. In a landscape of increasing complexity and scrutiny, embracing the peer review process helps CPA firms remain resilient, reputable, and responsive to the needs of clients and stakeholders alike.

Taking these steps will help ensure your firm is well-positioned for a successful peer review.

Peer review 와 관련된 문의 사항은 SBC Accountancy Corporation 의 파트너 Sung Bum Cho, CPA & Andrew Choi, CPA 에 문의하시기 바랍니다.

Andrew Choi, CPA — jinyounc057@gmail.com

Sung Bum Cho, CPA — sungbumchocpa@gmail.com

T. 213-382-6789 / C. 714-944-6657