Preproposal statement of inquiry was filed as WSR 12-04-048.
Title of Rule and Other Identifying Information: WAC 4-30-130 What are the requirements for participating in quality assurance review (QAR)?, to monitor CPA and CPA firm compliance with audit, compilation, review, and other attestation standards.
Hearing Location(s): The Doubletree Hotel Seattle Airport, Cascade 13 Room, 18740 International Boulevard, SeaTac, WA, on July 26, 2012, at 9:00 a.m.
Date of Intended Adoption: July 26, 2012.
Submit Written Comments to: Cheryl M. Sexton, Rules Coordinator, P.O. Box 9131, Olympia, WA 98507-9131, e-mail firstname.lastname@example.org, fax (360) 664-9190, by July 19, 2012.
Assistance for Persons with Disabilities: Contact Cheryl Sexton by July 19, 2012, TTY (800) 833-6388 or (800) 833-6385.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: Purpose: To require all CPA firms that issue any attestation or compilation reports on financial statements to participate in a board approved peer review program.
Effects: Peer reviews are designed to improve the quality of accounting and auditing services provided by CPAs as well as provide public protection. CPA firms participating in board approved peer review programs will benefit by achieving a nationally recognized "seal of approval."
Changes in Existing Rule: Currently, CPA firms that issue review and compilation reports are not required to undergo a peer review. These firms must participate in the board's QAR program. The board, through volunteers, evaluates financial statements and the reports of CPA firms via a desk review of financial statements chosen by the CPA firm to assess their compliance with applicable professional standards. Under this proposal, all CPA firms issuing reports purporting to be in accordance with professional standards must engage a qualified peer to complete a more thorough review of the firm's accounting and auditing practice.
Reasons Supporting Proposal: The quality of attest and compilation services is primarily demonstrated in the CPA firm's workpapers. The current QAR program, due to constrained resources and volunteer reviewers, does not review workpapers. The peer review process does review the CPA firm's workpapers. This enhances the board's demonstration of promoting the dependability of information which is used for guidance in financial transactions or for accounting for or assessing the status or performance of commercial and noncommercial enterprises. Currently, approximately forty-five licensing jurisdictions have peer review requirements in effect.
Statutory Authority for Adoption: RCW 18.04.055(9).
Statute Being Implemented: RCW 18.04.055(9).
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: The Washington state board of accountancy, governmental.
Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Richard C. Sweeney, CPA, 711 Capitol Way South, Suite 400, Olympia, WA, (360) 586-0163.
No small business economic impact statement has been prepared under chapter 19.85 RCW. A preliminary analysis of the financial effect on the small CPA firms (sole owners up to ten professionals, including the owner) currently enrolled in the board's QAR program indicates a maximum effect on these firms every three-year review cycle of +- $500 overall but with a +- $50 benefit to firms that need improvement. This financial impact ignores the financial benefit to the board from reduced demand on staff time. The change in program administration has no expected effect on the revenue or administrative time of these firms.
Given these factors, the executive director has concluded there is less than a minor financial impact on this component of the small business environment in this state and the effect as noted above is not disproportionate to the effect peer review has had on the larger CPA firms since the inception of the national peer review process. Accordingly, no small business economic impact study is included.
A cost-benefit analysis is not required under RCW 34.05.328. The board of accountancy is not one of the agencies required to submit to the requirements of RCW 34.05.328 (5)(a).
June 20, 2012
Richard C. Sweeney
(2) Peer review. Generally, all licensed firms offering and/or performing attest services as defined by WAC 4-30-010(5), compilation services, as defined by WAC 4-30-010(12), or other professional services for which a report expressing assurance is prescribed by professional standards in Washington state, are required to participate in a board-approved peer review program as a condition of renewing each CPA firm license under RCW 18.04.215 and WAC 4-30-114. However, certain exemptions are listed in subsection (10) of this section. Board-approved peer review programs include:
(a) The inspection processes of the Public Company Accounting Oversight Board (PCAOB);
(b) Peer review programs administered by the American Institute of CPAs (AICPA);
(c) Peer review programs administered by the Washington Society of CPAs (WSCPA); and
(d) Other programs recognized and approved by the board.
(3) Enrollment in peer review: A licensed firm must enroll in a board-approved peer review program before issuing a report for each of the following types of service or any other service the board determines:
(a) Compilation on historical financial statements;
(b) Review on historical financial statements;
(c) Audit report on financial statements, performance audit reports, or examination reports on internal controls for nonpublic enterprises;
(d) Agreed-upon procedures;
(e) Forecasts; and
The schedule for the firm's peer review shall be established according to the peer review program's standards. The board does not require any licensee to become a member of any organization administering a peer review program.
(4) Participation in peer review. Every firm that is required to participate in a peer review program shall have a peer review in accordance with the peer review program standards.
(a) It is the responsibility of the firm to anticipate its needs for review services in sufficient time to enable the reviewer to complete the review by the assigned review date.
(b) Any firm that receives a peer review grade of "fail" or "pass with comments," or is rejected or terminated by a peer review program for any reason shall have twenty-one days to provide written notice to the board of such termination or rejection, and to request authorization from the board to enroll in another board-approved peer review program.
(c) In the event a firm is merged, otherwise combined, dissolved or separated, the peer review program shall determine which firm is considered the succeeding firm. The succeeding firm shall retain its peer review status and the review due date.
(d) A firm choosing to change to another peer review program may do so only if there is not an open active peer review and if the peer review is performed in accordance with the minimum standards for performing and reporting on peer reviews.
(5) Reporting requirements. Every firm must provide the following information, along with the appropriate fees, with every application for renewal of a firm license by April 30th of the year of expiration that may consist of but is not limited to:
(a) Certify whether the firm does or does not perform attest services or compilation services as defined by WAC 4-30-010 (5), (12), or other professional services for which a report expressing assurance is prescribed by professional standards in Washington state;
(b) If the firm is subject to the peer review requirements, provide the name of the approved peer review program in which the firm is enrolled, and the period covered by the firm's most recent peer review;
(c) Certify the result of the firm's most recent peer review.
Failure to timely submit complete information and the related fee by the April 30th due date can result in the assessment of late fees. The board may waive late fees based on individual hardship including, but not limited to, financial hardship, critical illness, or active military deployment.
(6) Documents required. A firm that has opted out of participating in the AICPA Facilitated State Board Access (FSBA) program shall provide to the board copies of the following documents related to the peer review report:
(a) Peer review report issued;
(b) Firm's letter of response, if any;
(c) Letter of acceptance from peer review program;
(d) Recommended action letter from the peer review program, if any;
(e) A letter from the firm to the board describing corrective actions taken by the firm that relate to recommendations of the peer review program;
(f) Other information the firm deems important for the board's understanding of the information submitted; and
(g) Other information the board deems important for the understanding of the information submitted.
(7) Document retention. Firms shall retain all documents relating to peer review reports, including working papers of the underlying engagement subject to peer review that was reviewed, until the acceptance of a subsequent peer review by the peer review program or for five years from the date of acceptance of the peer review by the peer review program, whichever is sooner.
(8) Extensions. The board may grant an extension of time for submission of the peer review report to the board. Extensions will be determined by the board on a case-by-case basis.
(9) Verification. The board may verify the certifications of peer review reports that firms provide.
(10) Exemption from peer review.
(a) Out-of-state firms that do not have a physical location in this state, but perform attest or compilation services in this state, and are otherwise qualified for practice privileges under RCW 18.04.195 (1)(b) are not required to participate in the board's program if the out-of-state firm participates in a board-approved peer review program or similar program approved or sponsored by another state's board of accountancy.
(3) Structure and implementation. The board will
annually appoint a quality assurance review committee
co-chaired by a current or former board member and an
individual selected by the board from the other committee
members. The committee shall direct the following functions:
(a) Evaluation of financial statements and the reports of licensees thereon to assess their compliance with applicable professional standards;
(b) Evaluation of licensees' reports and on other information covered by those reports for conformity with applicable professional standards;
(c) Improvement of reporting practices of licensees through education and rehabilitative measures;
(d) Evaluation of licensees' peer review reports; and
(e) Such other functions as the board may assign to the committee.
(a) Once every three years the board requires a licensed firm with an office in this state to participate in the board's quality assurance review program. Participating firms will be required to submit quality assurance review status information, along with the appropriate fee, by the following April 30th.
Failure to timely submit complete quality assurance review status information and the related fee postmarked by the April 30th due date, can result in the assessment of late fees. The board may waive late fees based on individual hardship including, but not limited to, financial hardship, critical illness, or active military deployment.
(b) Participating firms may request exemption from the requirements of (e) of this subsection if within the three years immediately preceding the date of board request:
(i) The firm has not issued any attestation or compilation reports; or
(ii) The firm has participated in a board-approved peer review program. The board has approved:
(A) The inspection processes of the Public Company Accounting Oversight Board (PCAOB);
(B) Peer review programs administered by the American Institute of CPAs (AICPA); and
(C) Peer review programs administered by the Washington Society of CPAs (WSCPA).
(c) Participating firms requesting exemption based on peer review must submit a copy of the peer review report, response to the peer review report, if applicable, and letter of acceptance from the reviewing organization. Firms that fail a peer review may request exemption, but must submit a copy of the peer review report and related correspondence, at the discretion of the board, for consideration on an individual basis.
(d) Each participating firm shall submit, for each of its offices, one licensee report and the information covered by that report, for each of the following types of service or any other service the board determines:
(i) Compilation report on historical financial statements;
(ii) Review report on historical financial statements;
(iii) Agreed-upon procedures;
(iv) Forecasts; and
(e) Firms issuing audit reports on financial statements, performance audit reports, or examination reports on internal controls for nonpublic enterprises must participate in a board-approved peer review program administered by the American Institute of CPAs (AICPA) or the Washington Society of CPAs (WSCPA).
(f) A participating firm shall select these reports from all reports prepared during the twelve months preceding the date of board request or, if no reports have been issued within the last twelve months, from all reports during the preceding three years.
(g) If reports issued by all offices of a firm are reviewed and issued in a controlled, centralized process, only one each of the type of licensee reports, including the information covered by the reports, specified above need be submitted by the firm as a whole.
(h) Any documents submitted in accordance with (d) of this subsection may have the name of the client, the client's address, and other identifying factors omitted, provided that the omission does not render the type or nature of the entity undeterminable. Dates may not be omitted.
(i) Reports submitted to the committee pursuant to (d) of this subsection and comments of reviewers, the committee and the board on such reports or workpapers relating thereto, shall also be preserved in confidence except to the extent that they are communicated by the board to the licensees who issued the reports or disclosure is required under administrative procedure rules or by direction of a court of law.
(j) The committee's evaluation of the licensee reports and other information covered by those reports shall be directed toward the following:
(i) Presentation of the financial statements covered by the licensee reports and/or other information covered by those reports in conformity with applicable professional standards for presentation and disclosure;
(ii) Compliance by licensees with applicable reporting standards; and
(iii) Compliance by licensees with the rules of the board and other regulations relating to the practice of public accounting.
(5) Remedies. If the board determines that a report and/or other information covered by the report referred to the board by the committee is substandard or seriously questionable with respect to applicable professional standards, the board may take one or more of the following actions:
(a) Send the licensee a letter of comment detailing the perceived deficiencies and require the licensee to develop quality control procedures to ensure that similar occurrences will not occur in the future;
(b) Require any licensee who had responsibility for issuance of a report, or who substantially participated in preparation of the report and/or related workpapers, to successfully complete specific courses or types of continuing education as specified by the board;
(c) Require that the licensee responsible for a substandard report submit all or specified categories of its reports to a preissuance review in a manner and for a duration prescribed by the board. The cost of the preissuance review will be at the firm's expense;
(d) Require the licensee responsible for a substandard report to submit to a peer review conducted in accordance with standards acceptable to the board. The cost of the peer review will be at the licensee's expense;
(e) Require the licensee responsible for substandard work to submit to on-site field review or other investigative procedures of work product and practices by board representatives in order to assess the degree or pervasiveness of substandard work. The board may assess the costs of such field review or procedures to the licensee if the results of such investigative efforts substantiate the existence of substandard work product;
(f) Initiate an investigation pursuant to RCW 18.04.295, 18.04.305, and/or 18.04.320.
(6))) (b) Firms that do not perform attest services as defined by WAC 4-30-010(5), compilation services, as defined by WAC 4-30-010(12), or other professional services for which a report expressing assurance is prescribed by professional standards in Washington state are not required to participate in a peer review program, and shall request exemption on each firm license renewal application.
(c) Firms that prepare financial statements which do not require reports under Statements on Standards for Accounting and Review Services (SSARS) 8 as codified in SSARS 19 (management use only compilation reports) and that perform no other attest or compilation services, are not required to participate in a peer review program; however, such engagements conducted by a firm that is otherwise required to participate in a peer review program shall be included in the selection of engagements subject to peer review.
(11) Quality assurance oversight.
(a) The board will:
(i) Annually appoint a compliance assurance oversight committee, and such other committees as the board, in its discretion deems necessary, to provide oversight of the administration of approved peer review programs in order to provide reasonable assurance that peer reviews are being conducted and reported on in accordance with the minimum standards for performing and reporting on peer reviews;
(ii) Consider reports from the compliance assurance oversight committee;
(iii) Direct the evaluation of peer review reports and related documents submitted by firms;
(iv) Determine the appropriate action for firms that have unresolved matters relating to the peer review process or that have not complied with, or acted in disregard of the peer review requirements;
(v) Determine appropriate action for firms when issues with a peer review report may warrant further action; and
(vi) Take appropriate actions the board, in its discretion, deems appropriate to carry out the functions of the quality assurance review program and achieve the purpose of the peer review requirement.
(b) The compliance assurance oversight committee shall conduct oversight of approved peer review programs at least semiannually to provide reasonable assurance that such programs are in compliance with the minimum standards for performing and reporting on peer reviews.
(i) The compliance assurance oversight committee's oversight procedures may consist of but are not limited to:
(A) Attending the peer review program's report acceptance body (RAB) meetings during consideration of peer review documents;
(B) Observing the peer review program administrator's internal review of program and quality control compliance.
(C) Observing the peer review program's review of the administrator's process.
(ii) The compliance oversight assurance committee shall report to the board any modifications to approved peer review programs and shall make recommendations regarding the continued approval of peer review programs.
(12) Remedies. The board's quality assurance review program is intended to monitor the quality of a firm's attest and compilation practices and compliance with professional standards (RCW 18.04.065(9)). If the board determines that a firm's attest or compilation engagement performance and/or reporting practices are not in accordance with applicable professional standards and, therefore, the board determines that one or more of the engagements are, or could be, substandard or seriously questionable, the board will take appropriate action to protect the public interest including, but not limited to:
(a) Require the firm to develop quality control procedures to provide reasonable assurance that similar occurrences will not occur in the future;
(b) Require any individual licensee who had responsibility for, or who substantially participated in the substandard or seriously questionable compilation or attest engagement(s), to successfully complete specific courses or types of continuing education as specified by the board;
(c) Require that the reviewed firm responsible for one or more substandard or seriously questionable compilation or attest engagement(s) submit all or specified categories of its compilation or attest working papers and reports to a preissuance evaluation performed by a board-approved licensee in a manner and for a duration prescribed by the board. Prior to the firm issuing the reports on the engagements reviewed, the board-approved licensee shall submit to the board for board acceptance a report of the findings, including the nature and frequency of recommended actions to the firm. The cost of the board-approved preissuance evaluation will be at the firm's expense;
(d) Require the reviewed firm to engage a board-approved licensee to conduct a board-prescribed on-site field review of the firm's work product and practices or perform other investigative procedures to assess the degree or pervasiveness of substandard or seriously questionable work product. The board-approved licensee engaged by the firm shall submit a report of the findings to the board within thirty days of the completion of the services. The cost of the board-prescribed on-site review or other board-prescribed procedures will be at the firm's expense; or
(e) Initiate an investigation pursuant to RCW 18.04.295, 18.04.305, and/or 18.04.320; and
(f) The specific rating of a peer review report, individually, is not a sufficient basis to warrant disciplinary action.
(13) The board may solicit and review licensee reports and/or other information covered by the reports from clients, public agencies, banks, and other users of such information.
[Statutory Authority: RCW 18.04.055(9). 10-24-009, amended and recodified as § 4-30-130, filed 11/18/10, effective 12/19/10; 08-18-016, § 4-25-820, filed 8/25/08, effective 9/25/08; 07-14-036, § 4-25-820, filed 6/26/07, effective 7/27/07; 05-01-135, § 4-25-820, filed 12/16/04, effective 1/31/05; 02-04-064, § 4-25-820, filed 1/31/02, effective 3/15/02. Statutory Authority: RCW 18.04.055. 94-02-071, § 4-25-820, filed 1/4/94, effective 2/4/94.]