Peer Review

1. Anand, a practicing Chartered Accountant is appointed to conduct the peer review of another practicing
unit. What areas Anand should review in the assessment of independence of the practicing unit? (Jan-21
Old)

Review in the Assessment of Independence of the Practicing Unit – The reviewer should carry out the
compliance review of the five general controls, i.e., independence, maintenance of professional skills and
standards, outside consultation, staff supervision and development and office administration and evaluate
the degree of reliance to be placed upon them.
The degree of reliance will, ultimately, affect the attestation service engagements to be reviewed.

Independence is the main quality expected of an auditor. That is the very basis for the existence of the
profession of auditing. Independence is a condition of mind as well a personal character of a person. It is
difficult to define but very easy to perceive. Guidance Note on Independence of Auditors clarifies that
independence is of two types, viz. independence of mind and independence of appearance.
The Guidance Note further states that there are certain threats to independence which are classified as self
interest threats, self review threats, advocacy threats, familiarity threats and intimidation threats.

Responsibility of the Peer Reviewer, therefore, is to ascertain existence of independence and the absence
of threats to independence. Reviewer should, therefore, check the following aspects in respect of
assessment of independence of the practicing unit:
(i) Does the practice unit have a policy to ensure independence, objectivity and integrity, on the part of
partners and staff? Who is responsible for this policy?
(ii) Does the practice unit communicate these policies and the expected standards of professional behaviour
to all staff?
(iii) Does the practice unit monitor compliance with policies and procedures relating to independence?
(iv) Does the practice unit periodically review the practice unit's association with clients to ensure
objectivity and independence?
(v) How does the practice unit deal with the threats to independence?

2. What are the areas excluded from the scope of peer reviewer?

Areas excluded from the scope of peer reviewer:

(i) Management Consultancy Engagements;
(ii) Representation before various Authorities;
(iii) Engagements to prepare tax returns or advising clients in taxation matters;
(iv) Engagements for the compilation of financial statements;
(v) Engagements solely to assist the client in preparing, compiling or collating information other than
financial statements;
(vi) Testifying as an expert witness;
(vii) Providing expert opinion on points of principle, such as Accounting Standards or the applicability of
certain laws, on the basis of facts provided by the client; and
(viii) Engagement for Due diligence
(ix) Any other service rendered, or function performed by practitioner not prescribed by the Council to be
‘Assurance Engagement.

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3. Explain Stepwise approach adopted by the Peer reviewer.

Stepwise Approach of the Peer Reviewer: The stepwise approach which may be adopted by the reviewer is
discussed below-
(i) The reviewer should gain an understanding of the engagement letter since an assurance engagement or
for that matter any other kind of engagement should begin with an engagement letter. This understanding
would help him in planning the review of documentation.
(ii) The number of assurance engagements to be selected requires the exercise of judgement by the
reviewer based on the evaluation of replies given in the questionnaire and the size of the practice unit.
(iii) The practice unit may have policies and procedures for accepting a particular engagement. The reviewer
should, wherever possible, examine that the policies and procedures for acceptance of audit have been
complied with and necessary documentation with regard to the same exists.
(iv) The reviewer may follow a combination of compliance procedures and substantive procedures
throughout the peer review process.
(v) Finally, the reviewer while evaluating records may consider the following:
• determine that any significant issues, matters, problems that arose during the course of the
engagement have been appropriately considered, resolved and documented;
• determine that adequate audit evidence or other relevant evidence in relation to the engagement
is obtained to support the reasonableness of the conclusions drawn; and
• determine that significant decisions relating to the engagement, use of professional judgement,
resolution of significant matters have been properly documented.

4. Write short note on scope of peer review.

The Statement on Peer Review lays down the scope of review to be conducted as under: The Peer Review
process shall apply to all the assurance services provided by a Practice Unit.

1. Once a Practice Unit is selected for Review, its assurance engagement records pertaining to the Peer
Review Period shall be subjected to Review.

2. The Review shall cover:

(i) Compliance with Technical, Professional and Ethical Standards.
(ii) Quality of reporting.
(iii) Systems and procedures for carrying out assurance services.
(iv) Self-evaluation under Audit Quality Maturity Model or any other guideline issued by Centre for Audit
Quality.
(v) Training programmes for staff (including articled and audit assistants) concerned with assurance
functions, including availability of appropriate infrastructure.
(vi) Compliance with directions and / or guidelines issued by the Council to the Members, including Fees to
be charged, Number of audits undertaken, register for Assurance Engagements conducted during the year
and such other related records.
(vii) Compliance with directions and / or guidelines issued by the Council in relating to article assistants and
/ or audit assistants, including attendance register, work diaries, stipend payments, and such other related
records.

As it is clear from the above, that the Statement of Peer Review aims to confine the scope of review to
preceding three years since this would establish the consistency or deviations, if any, in respect of
procedures followed by the practice unit.

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5. The elements of skill, experience and independence of reviewers are ensured before initiating them in
Peer Review process. In the above light, state few eligibility criteria fixed for a person to be empanelled
and also tor being appointed as a Peer Reviewer. (MTP Oct-21 New)

Eligibility to be a Reviewer:
1. A Peer Reviewer shall: -
(a) Shall be a member in practice with at least 7 years of assurance practice experience.
(b) In case a member has moved from industry to practice and is currently in practice he should have at
least 10 years of audit experience in industry and at least 3 years audit experience in practice.
(c) Should have undergone the requisite training and cleared the requisite test for Peer Review as
prescribed by the Board.

2. A member on being appointed as a Reviewer shall be required to furnish-

(a) a declaration as prescribed by the Board, at the time of Empanelment as a Peer Reviewer.
(b) a Declaration of Confidentiality as per Annexure A to this Statement while giving consent for
appointment as a Peer Reviewer.

3. A member shall not be eligible for being appointed as a Reviewer of a Practice Unit, if -
(i) any disciplinary action / proceeding is pending against him;
(ii) he has been found guilty of professional or other misconduct by the Council or the
Board of Discipline or the Disciplinary Committee at any time
(iii) he has been convicted by a competent court whether within or outside India, of an
offence involving moral turpitude and punishable with imprisonment,
(iv) he or his partners have any obligation or conflict of interest in the Practice Unit.
(v) He has undergone training/articleship under any of the partner of Practice Unit.

4. A Reviewer shall not accept any professional assignment from the Practice Unit for a period of next two
years from the date of appointment. Further, he should not have accepted any professional assignment
from the Practice Unit for a period of two years before the date of appointment as reviewer of that Practice
Unit.

6. What are the objectives of Peer Review? (Nov-18 New)

Objectives of Peer Review: The main objective of Peer Review is to ensure that in carrying out the assurance
service assignments, the members of the Institute-
(1) comply with Technical, Professional and Ethical Standards as applicable including other regulatory
requirements thereto and
(2) have in place proper systems including documentation thereof, to amply demonstrate the quality of the
assurance services.

Thus, the primary objective of peer review is not to find out deficiencies but to improve the quality of
services rendered by members of the profession. The Statement of Peer Review also makes it clear that the
peer review, "does not seek to redefine the scope and authority of the Technical Standards specified by the
Council but seeks to enforce them within the parameters prescribed by the Technical Standards".

The peer review is directed towards maintenance as well as enhancement of quality of assurance services
and to provide guidance to members to improve their performance and adherence to various statutory and
other regulatory requirements. Such an objective of the peer review process makes it amply clear that the
reviewer is not going to sit on the judgment of the practice unit while rendering assurance services but to
evaluate the procedure followed by the practice unit in rendering such a service.

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Accordingly, where a practice unit is not following technical standards, the reviewers are expected to
recommend measures to improve the procedures. To elaborate further, the key objective of peer review
exercise is not to identify isolated cases of engagement failure, but to identify weaknesses that are pervasive
and chronic in nature.

The conclusion, therefore, is that the peer review seeks to identify and address patterns of non-compliance
with quality control standards.

7. What are the inherent limitations of Peer Review? (Nov-18 New)

Inherent Limitations of Peer Review: The reviewer conducts the review in accordance with the Statement
on Peer Review.
The review would not necessarily disclose all weaknesses in compliance of technical standards and
maintenance of quality of assurance services since it would be based on selective tests.
As there are inherent limitations in the effectiveness of any system of quality control which happens to be
subject-matter of review, departure from the system may occur and may not be detected.

8. Write a short note on Selection of sample by the reviewer in case of peer review. (RTP Nov-20)

Selection of Sample by the Reviewer:

(1) Before commencement, Reviewer shall ensure that Declaration of Confidentiality is furnished to
Practicing Unit and acknowledgement of receipt is obtained by him.

(2) On receiving Application cum Questionnaire in Form 1 from Practicing Unit, Reviewer shall initiate peer
review by intimating practicing unit of proposed visit and proposed samples selected to be kept ready by
Practicing Unit. Proposed samples selected are to be intimated by Reviewer in Form 5 prescribed by Board.

(3) Reviewer may seek further/ additional clarification in Form 6 from Practicing Unit which it shall provide
to Reviewer within 1 working day.

(4) Reviewer shall, within 2 working days of receiving information from Practicing Unit, select assurance
service engagements that he would like to review and intimate to P.U. and Board in Form 5.

(5) Reviewer shall plan for an “on–site review” visit for initial meeting in consultation with Practicing Unit
Reviewer shall give Practicing Unit at least 2 working days to keep ready necessary records of selected
assurance services.

(6) Reviewer and Practicing Unit shall mutually co-operate and ensure that entire review process is
completed within 20 working days from
Ø date of receipt of application from Practicing Unit for being Peer Reviewed or
Ø from date of notifying Practicing Unit about its selection for Review as the case may be.

(7) In case of Peer Review of a New Unit, Reviewer and Practice Unit shall mutually co-operate and ensure
that entire review process is completed within 7 working days from date of receipt of Application cum
Questionnaire from Practicing Unit for being Peer Reviewed.

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9. ABC & Co LLP is a large firm of Chartered Accountants based out of Chennai. ABC & Co. LLP is subject to
peer review which was last conducted 3 years back. For the peer review of the financial year ended 31
March 2021, the firm got an intimation on 31 May 2021. The process of peer review got started and was
completed on 15th June 2021. In view of peer reviewer, the systems and procedures of ABC & Co. LLP are
deficient/non-compliant. The peer reviewer did not share any of his observations with ABC & Co LLP as
draft and final report was submitted to the Board. Comment. (ICAI MTP)

Peer Review Report of Reviewer: After completing the on-site review, the Reviewer, shall submit the Peer
Review Report to the Board along with Form 9 if in his opinion, the Practice Unit has adequate systems and
procedures in compliance with the Technical, Professional and Ethical Standards. A copy of the report shall
also be forwarded to the Practice Unit.

(1) In case, in the opinion of the Peer Reviewer, the systems and procedures of the Practice Unit are deficient
or non-compliant with reference to any matter that has been noticed by him or if there are other matters
where he wants to seek clarification, he shall communicate his findings to the Practice Unit, in a Preliminary
Report issued by him.

(2) The Practice Unit shall, within two working days of the date of receipt of the findings, make its
submissions or representations, in writing to the Reviewer.

(3) If the Reviewer is satisfied with the reply received from the Practice Unit, he shall submit an unqualified
Peer Review Report to the Board along with Form 9. A copy of the report shall also be forwarded to the
Practice Unit.

(4) In case the Reviewer is of the opinion that the response submitted by the Practice

Unit under clause 9(4) above is not satisfactory, the Reviewer shall submit a Qualified Report to the Board
incorporating his reasons for the same along with Form 9. A copy of the report shall also be forwarded to
the Practice Unit.

In case of a qualified report, the Peer Review Board Secretary shall place the report before the Board for
consideration. The Board may decide for a “Follow On” Review after a period of one year from the date of
issue of report by the Peer Reviewer. If the Board so decides, the period of one year may be reduced but
shall not be less than six months from the date of issue of the report.

In the instant case, in view of peer reviewer systems and procedures in ABC & Co. LLP are deficient,
therefore, peer reviewer should not submit the report directly to the Board. Thus, contention of ABC & Co.
LLP is correct.

10. Write short note on difference between Peer Review and Quality Review.

Peer review is a review of the systems and procedures of an audit firm. Although sample
audit files are inspected by the peer reviewer, it is done for the purpose of testing the effectiveness of the
systems and procedures. The intention is to not to find faults but to help the firm develop effective systems.
It is a kind of mentoring process. Peer review is a part of the activities of ICAI aimed at improving the quality
of service.

In contrast, a quality review is supposed to act as a deterrent. Quality Review Board (QRB) is constituted by
the Central Government and is independent of ICAI. As per Section 28A of the Chartered Accountant’s Act,
the Central Government has the authority to constitute a Quality Review Board. QRB carries out supervisory

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and disciplinary functions. A quality review normally pertains to one particular audit conducted by an audit
firm. The main objective of quality review is to find errors or inadequacies, if any, committed by the auditor
while conducting the audit. Serious errors detected in quality review lead to disciplinary action against the
member.

11. CA S has been appointed as peer reviewer of Shivam & Co. LLP. Shivam & Co. LLP submitted a list of
its assurance and due diligence services for the peer review. CA S is in the process of deciding as to how
many assurance services should be reviewed. Guide CA S in deciding the number of assurance services
engagement to be reviewed. (Jan’21 New)

The number of assurance service engagements to be reviewed shall depend upon:

• The Standard of quality controls generally prevailing;
• The size and nature of assurance service engagements undertaken by the Practice Unit.
• The methodology generally adopted by the Practice Unit in providing assurance services.
• The number of partners/members involved in assurance service engagements in the Practice Unit;
• The number of locations/branch offices of the practice Unit;

12. CA. M, appointed as a Peer Reviewer for M/s. K Associates, has asked for all the compilation and the
Due Diligence engagements carried out by M/s. K Associates for her peer review during the period
considered for peer review purposes by the board. She has also sent out a mail to Peer Review Board
regarding her selection. Mr. K, the managing partner of the firm seeks your advise on this matter.
(Nov-20 Old)

Selection of Assurance Service Engagements for Review: The Statement on Peer Review defines the scope
of peer review which revolves around compliance with technical, ethical and professional standards;
quality of reporting; office systems and procedures with regard to compliance of assurance engagements;
and, training programmes for staff including articled and audit assistants involved in assurance
engagements. The entire peer review process is directed at the assurance services.

Assurance Services means assurance engagements services as specified in the “Framework for Assurance
Engagements” issued by the Institute of Chartered Accountants of India and as may be amended from time
to time. Assurance engagements does not include engagements for the compilation of financial statements
or engagements solely to assist the client in preparing, compiling or collating information other than
financial statements; or engagement for Due diligence.

In the given situation, CA. M is appointed as a peer reviewer for M/s K Associates, has asked for all the
compilations and the due diligence engagements carried out by M/s K Associates for her peer review. In
view of above, Peer Review of compilation and due diligence at the time of execution step by CA. M is not
correct as due diligence and compilation engagements are not covered in the scope of Assurance
engagement and Peer Review is directed at assurance engagement only.

13. CA Manoj has been appointed as Peer Reviewer of M/s UV Associates, a Chartered Accountant firm
consisting of 18 partners. As a Practicing unit what are the obligations that are to be complied by M/s UV
associates in addition to furnishing the questionnaire, statements and such other particulars as the Board
may deem fit? [Dec-21 New]

M/s UV Associates-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 comply with the
following:

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(i) Produce to the Reviewer or allow access to, any record, document or prescribed register maintained by
the Practice Unit or any other record or document which is of a class or description so specified, and which
is in the possession or under the control of the Practice Unit.

(ii) Provide to the Reviewer such explanation or further particulars/ information in respect of anything
produced in compliance with a requirement under sub clause (1) above, as the Reviewer shall specify.

(iii) Provide to the Reviewer all assistance in connection with Peer Review.

(iv) Where any information or matter relevant to a Practice Unit is recorded otherwise than in a legible form,
the Practice Unit shall provide and present to the Reviewer a reproduction of any such information or
matter, or of the relevant part of it in a legible form, with a translation in English or Hindi, if the matter is in
any other language, and if such translation is requested for by the Reviewer. The Practice Unit shall be
responsible and accountable for the accuracy and truthfulness of the translation so provided.

14. CA. S has been appointed as peer reviewer of JS & Associates, a Level-I CA Firm. CA S wants to appoint
CA K as his assistant, as he has working experience in a CA Firm. What aspects CA S should take care of
before appointing CA K as Assistant, for the peer review of JS & Associates? [Dec-21 Old]

Qualified Assistant: In the given situation, CA S has been appointed as Peer Reviewer of JS & Associate, a
CA Firm. CA S wants to appoint CA K as his assistance. CA S is required to take care of following aspects
before appointing CA. K as Assistant for the Peer Review of JS& Associates:

(1) The reviewer may take the help of a qualified assistant while carrying out peer review. In this context,
the Board decided to clarify that a reviewer is permitted to take the assistance of only one assistant who
shall be a chartered accountant and a person who does not attract any of the dis-qualifications prescribed
under Section 8 or Section 21 of the Chartered Accountants Act, 1949.
(2) The name of the qualified assistant which the reviewer would like to assist him shall be identified and
intimated to the Board as well as the practice unit before the commencement of the peer review.
(3) Such a qualified assistant shall also have to sign the declaration of confidentiality as annexed to the
Statement.
(4) He shall have no direct interface either with the practice unit or the Board. Further the person chosen
for assisting the reviewer shall be from the firm of the reviewer as a partner or paid assistant as per the
records of ICAI.

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