Common Deficiencies Noted on Peer Reviews

(All references are to Volume 1 of AICPA Professional Standards)

• The understanding of the entity's internal control structure not obtained and/or documented (AU section 319).
• Control risk for the assertions embodied in the account balance, transaction class, and disclosure components of the financial statements not properly assessed (AU section 319).
• Knowledge provided by the understanding of the internal control structure and the assessed control risk not used in determining the nature, timing, and extent of substantive tests for financial statement assertions (AU section 319). Internal control structure and control risk questionnaires may be completed, but no true bridging is made between the information and the nature, timing, and extent of substantive testing.
• The effect of a service organization on the internal control structure of the user organization, including a failure to obtain a service auditor's report, not considered (AU section 324).
• Analytical procedures were inadequately considered or inadequately documented, especially at the planning stage. Financial information for comparable periods is compared, but no consideration is given to possible reasons for fluctuations or no corroborating evidence is examined in support of the reasons given (AU section 329).
• Audit sampling was improperly used or inadequately documented (AU section 350). Sampling applications are not appropriately identified.
• Audit program was missing, not tailored to the client's industry, or otherwise inadequate (AU section 311).
• Lawyer's letters were missing, inadequate, or not dated reasonably close to the date of the auditor's report (AU section 337).
• Confirmations of receivables were inadequate or were not mitigated by appropriate alternative procedures. For example, negative confirmations are sent when positive confirmations are more appropriate, alternative procedures are not performed when positive confirmations were not returned, differences noted on confirmations returned are not projected to the populations as appropriate (AU section 330).
• A Reportable conditions as contemplated by AU section 325 were not properly identified and/or communicated, or reportable conditions communicated were not documented.
• Certain matters related to the conduct of the audit not communicated to those who have responsibility for oversight of the financial reporting process as required under AU section 380 (i.e., the audit committee) or those matters communicated were not documented.
• Significant procedures performed, conclusions reached, and communications made not documented including going concern considerations and oral updates received of lawyers letters (AU section 339 and 341).
• No documentation of consideration given to all passed adjustments and to the risk that the current period's financial statements are materially misstated when prior-period likely misstatements are considered together with likely misstatements arising in the current period (AU section 312).
• Client representation letters were not appropriately tailored or properly dated (AU section 333).
• Material differences between GAAP depreciation and tax depreciation methods were not sufficiently evaluated and related deferred task liabilities or assets were not appropriately recognized.
• Participant data on employee benefit plans not properly audited.

Common Compilation and Review Engagements Deficiencies

• Report did not properly report on all periods presented (including the comparative A current month column in computer-generated compilations).
• Financial statement and/ or accountant's report used inappropriate titles (such as A balance sheet and A income statement ) for OCBOA financial statements (cash basis, modified cash basis, and income tax basis).
• Interim, GAAP-basis financial statements omitted provisions for income taxes, depreciation, pensions, etc.
• No disclosure was made in the report or the footnotes regarding the basis of OCBOA financial statements and the fact that they are not intended to represent GAAP.
• GAAP-basis financial statements did not include a statement of cash flows for every period for which an income statement was presented.
• Accountant's report did not cover supplementary information.
• The accountant's compilation report on financial statements that omit substantially all disclosures includes inappropriate references to GAAP, financial position or results of operations when OCBOA financial statements were presented.
• Each page of compiled or reviewed financial statements did not include a reference to the accountant's report.
• Financial statements included improper classification of noncurrent assets as current or demand notes payable as long-term.
• Accountant's report departs from the guidance contained in SSARS 7, especially as it relates to references to the AICPA.
• Inconsistencies existed between titles presented in the accountant's report and those actually appearing on the financial statements.
• Financial statements including selected disclosures only not properly reported upon.
• Analytical procedures or inquiries of management not performed or documented on review engagements.

Common Reporting Deficiencies

• Auditor's reports lacked a title, including the word independent.
• Accompanying information was not covered in auditor's or accountant's report.
• Statements of cash flows prepared under the indirect method lacked supplemental disclosures of cash paid for interest and income taxes.

Common Disclosure Deficiencies

(Disclosures may be completely missing, incomplete or inadequate)

• Related party transactions including most often a description of the transaction and the dollar amount of the transaction.
• Pension plans.
• Leases.
• Current and deferred income taxes.
• Five-year debt maturities.
• Classification of debt.
• Concentrations of credit risk, especially as it relates to bank balances over $100,000.
• Industry specific disclosures (especially seen on governmental and compilation engagements).

Quality Control Deficiencies

• Failure to document the firm's compliance with its independence policies and procedures.
• Failure to document the resolution of independence questions.
• Failure to document consultation that took place.
• Insufficient CPE in accounting or auditing areas related to the firm's practice.
• Failure to perform or performance of an inadequate inspection of the firm's accounting and auditing practice.
• Failure to appropriately use reporting and disclosure checklists or to establish other procedures to ensure all required disclosures are made in the financial statements and footnotes or the appropriate report is issued in the circumstances.

For questions about the AICPA Peer Review Program, please contact the Peer Review Department at (317) 726-5000 or e-mail info@incpas.org.

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