A Peer Review is a systematic review of a firm's accounting and auditing services performed by a peer reviewer who is unaffiliated with the firm being reviewed to ensure work performed conforms to professional standards.
A Peer Review is required for all California-licensed CPA firms, including sole proprietorship's that perform accounting and auditing services using the following professional standards:
A report with a “pass” rating will be issued when the team captain concludes that the firm’s system of quality control over its accounting and auditing practice is suitably designed, and the firm has complied with its policies and procedures so that it has reasonable assurance of performing and reporting in conformity with applicable professional standards. A “pass” report replaces the old unmodified reports—both those with and without a letter of comment. The letter of comments has been eliminated.
A report of “pass with deficiencies” will be issued when the team captain concludes that the firm’s system of quality control over its accounting and auditing practice is suitably designed and the firm has complied with its policies and procedures so that it has reasonable assurance of performing and reporting in conformity with applicable professional standards except for a certain deficiency or deficiencies that are described in the report along with recommendations for improvement. The deficiencies identified will be conditions noted by the peer reviewer that relate to the design of, or compliance with, the firm’s quality control system and create a situation where the firm would have less than reasonable assurance of performing or reporting in conformity with professional standards. The firm will then provide a formal letter of response, indicating what it intends to do to correct the deficiencies noted in the report. A “pass with deficiencies” report replaces the old modified report.
A report with a “fail” rating will be issued when the team captain has identified significant deficiencies and concludes that the firm’s quality control system is not suitably designed or has not been complied with to provide the firm with reasonable assurance of performing and reporting in conformity with professional standards. These deficiencies and appropriate recommendations for improvement will be described in the report. The firm will then provide a formal letter of response, indicating what it intends to do to correct the deficiencies noted in the report. A “fail” report replaces the old adverse report.