VIP Road Chartered Accountants Association

History of the Accountancy Profession in India , 1972

Peer Review :

The concept of Peer Review has been introduction in inquistiveness India for the first time. There are lots of inquistiveness about this concept everywhere and a frequently asked question we are often facing is that whether Peer Review would tantamount to re-audit of the audit done by an auditor. It is made very clear that it is not a re-audit of the financial statements vis-a -vis the book and records of transactions ; but it is a check on the audit procedure, programme and maintenance of the audit evidences and working papers.

Definitions : Let us consider some important definitions given in the statement of Peer Review issued by the Institute.

Peer Review : Peer Review means a review of the systems and procedures to determine whether practice unit has put in implementation of the Technical Standards as envisaged and implied/ mandated , effectively to ensure the quality of attestation services.

Practice Unit : Practice Unit means a member in practice practicing individually or a firm of Chartered Accountants.

• Statements on standard auditing practices (Auditing and Assurance Standards)

• Framework on preparation and presentation of Financial Statements

• Notifications /Direction issued by the Institute.

It also includes relevant status and regulations applicable with reference to specific assignment.

Attestation Services : Attestation Service means service of auditing or verification of financial transaction, books, accounts or the preparation, verification or certification of financial accounting and related statements as defined under section 2(2)(ii) of The Chartered Accountants Act, 1949.

However, the service of providing consultancy on management, taxation or allied issues, representing a client before authority, engagement for compliance of financial statements and engagement to assist client in preparing , compiling information other than financial statemets are specifically excluded from the definition of attestation services.

Objectives :

The main objectives of Peer Review are as follows :

• To ensure that, the Practising units while discharging their attestation function (a) comply with technical standards (b) follow proper system to maintain the quality of work .

• To identify areas where practising member requires guidance and to provide the guidance to members to improve their performance.

Review of the implementation of the Peer Review will take place in a phased manner as indicated in following table :

Units covered

date of implementation

Stage -1

• Central Statutory auditors of banks , public financial institutions, insurance companies, asset management companies and mutual funds

1st April 2003

• Statutory auditors of public sector companies

• Statutory auditors of central
co-operative societies.

Stage-II

• auditors of branches of banks

1st April 2004

• auditors of regional rural and co-operative banks.

• Auditors of companies , whichhave raised from public or financial institutions over Rs. one crore

Stage -III

all other practice units not covered above

1st April 2005

In all these stages practice units are selected on random basis However , the review of practice its covered in stage-I will performed once in three years . If any practice unit is not selected at any stage , it may suo moto apply for Peer Review. An auditee concern may also request to conduct the Peer Review of its auditor.

Procedure of Review :

(i)	The Peer Review is conducted according to a well-defined program, supervised by Peer Review Board. The reviewer is supposed to maintain strict confidentially about the affairs of the practice unit under the review
	• Obtaining primary information from the practice Unit. • Reviewing general controls and working papers of selected audit functions. • Preparation of report by reviewer. • Peer Review Board will consider report of review, and on that basis may make recommendation for improvement, or if it feels necessary may order follow up review after specific period.
(ii)	The reviewer evaluates the effectiveness of general control maintained by practice unit. On that basis, he will determine the extent to which reliance can be placed on them and will also determine the number of attestation service engagement to be reviewed. Statements on Peer Review has identified following core area of general controls to be reviewed.
	• Independence • Maintenance of professional skills and standards • Outside consultant • Staff Supervision and Development • Office Administration
(iii)	The reviewer will also review records and working papers of selected audit assignment covering different sized clients from different industries. The reviewer may use compliance procedure or substantive procedure. In compliance approach, reviewer will try to find out whether proper control is exercised for orderly maintenance of audit working papers , in review and evaluation of internal control system, in performance of substantive tests , while deriving audit conclusion , in presentation of financial statement and in preparation of audit report.
In a case , when the reviewer feels on the basis of his review of general control that standards of control are not satisfactory as required and concludes that he can not rely on specifie control of practice unit on his audit engagement, substantive procedures are followed. In substantive approach, in order to establish that the audit work is discharged in compliance with technical standards, detailed review of audit working papers is done. Liability of the Practice Unit : Proprietor or Partners of the practice unit will produce to the reviewer all documents which reviewer requires for Peer Review, allow him access to or to abstract from any of them, no matter even if these documents are available at different offices, in case when practice units have more than one office . Proprietors or partners of practice unit will also provide the reviewer such explanation or further particulars as may be required respect in of documents produced before him. Reviewer : The nature and complexity of Peer Review require the exercise of professional judgement. Accordingly, an individual serving as a reviewer shall : i. be a member ii. possess at least fifteen years of experience of audit; and iii. be currently active in the practice of accounting and auditing. Cost of Peer Review : The cost of Peer Review including honorarium and TA/DA for the reviewer and his qualified assistants may be decided from time to time by the peer Review Board. In case reviewer has to conduct the review for the second time , the same rate would apply. Each of the branches/considered under review would be considered separately. Immunity : Either of the practice unit, the reviewer and the members of the review board shall not incur any liability under the Code of Ethics under the Chartered Accountants Act, 1949. Confidentiality : Strict confidentiality provisions shall apply to all those involved in the Peer Review process, namely, reviewers, members of the board , the council or any person who assists any of these parties. Non-compliance with the secrecy provisions shall amount to professional misconduct as defined under Section 22 of the Chartered Accountants Act,1949. The Global Scenario : At this stage ,it will be relevant to know what type of system for Peer Review is adopted globally. As mentioned earlier, concept of Peer Review is just introduced in India, but in other countries it is a well-recognized practice. For example , in USA Peer Review was introduced first time in 1997, in UK from 1991, in France from 1969, in Japan 1998. Recently, the International Federation of Accountants (IFAC) has approved the Constitution of the forum of firms and provided for their global Peer Review. So far as the object of Peer Review is concerned, more or less it is the same i.e. compliance of technical standards, in all countries, But their approach differs . In USA review includes review of working papers rather than specific case. While in India, according to statement on Peer Review, audit assignment will be randomly selected for review. In USA and also in Global peer Review (IFAC), the review is directed towards the professional aspects of reviewed firm's accounting and auditing practice, it will not include the business aspects of the firm. In all countries, only the auditing services provided are covered and not other services provided to client. In India the Institute has adopted the same criteria. One of the important variance of Indian Peer Review system from global practice is that, there are no penal provisions. As, this concept is in nascent state, no penal provisions are applied, if the reviewed firm's report of Peer Review is not satisfactory. There are very strict provisions in this regard in other countries. In USA failure to maintain appropriate quality control attracts imposition of sanction. In Belgium the council of the institute takes action on the Peer Review reports. In Canada review can also lead to the disciplinary action. In Sweden persistent deficiencies can lead to expulsion from membership. The newly created Public Accounting Board replaced the Public Oversight Board to administer Peer Review. It is sought to be made independent of accounting profession. The independent Board is composed of non-industry appointees. In India, majority of members will be appointed by the Council of the Institute. 2/3 of members of Peer Review Board shall hold certificate of practice, and Chairman and vice Chairman shall be from members appointed by the Council. Conclusion : High quality financial statements depend on high quality accounting standards and legislation , which keep pace with the changing needs and expectations of those who rely on financial data. Good quality audit is a key. Ensuring quality audit requires the accountancy profession to have high criteria for education and experience; appropriate standard of audit methodology; consistent principles for ethical behaviour ; a credible disciplinary process to deal with complaints and problems; and a systematic and satisfactory approach to securing audit quality . These quality control programs have been designed to require firms of practicing accountants to establish appropriate Quality Control Policies and procedures so as to provide reasonable assurance to the outside world about conformance with the professional standards in the services rendered to them. These practices expected to bolster the confidence of the society in the quality of work of the practicing accountants around the world.