Introduction: The Institute of Chartered Accountants of India (ICAI) has mandated a peer review for firms providing assurance services. This article aims to provide an overview of the process, guidelines for initiating peer reviews, and ensuring timely compliance with ICAI mandates.
Peer Review
- ICAI has mandated peer review of certain category of firms rendering assurance services to specific class or category of entities.
- Above has already been applicable from 01 April 2022, and recently ICA has announced the applicability for 2nd & 3rd phase which is applicable from 01 April 2024.
- The objective of this article is to give overview of the process, guideline to the firms to process the initiation of peer review and timely completion of the same in line with the mandate issued by the ICAI.
Page Contents
Objective of Peer Review
- ICAI has initiated the process of Peer Review process to ensure that practicing units while carrying out the assurance service assignments comply with:
> Technical
> Professional
> Ethical
Standards as applicable including other regulatory requirements thereto.
- The very purpose of the Peer Review is to ensure high quality of professional standard, documentation and demonstrate the overall quality of the assurance services.
- The roadmap has classified Practice firms into different categories and outlined the implementation of peer review process by 2025 covering each practicing unit.
Peer Review Mandate
- Holding a valid Peer Review certificate by Practice Units (referred to as ‘firms’) should be a pre-requisite for undertaking audit of all entities falling under phase I; II; III and IV of the mandate from respective dates of mandate becoming operative 1st April’ 2022.
- The Securities and Exchange Board of India (SEBI), the regulatory body for securities and commodity market in India, has already mandated Peer Review for auditors who are conducting statutory audit of listed entities. The SEBI Circular No. CIR/CFD/DIL/1/2010 dated April 5, 2010 states – “in respect of all listed entities, limited review/statutory audit reports submitted to the concerned stock exchanges shall be given only by those auditors who have subjected themselves to the peer review process of ICAI and who hold a valid certificate issued by the ‘Peer Review Board’ of the Institute.”
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Phase 1
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• Practice Units which propose to undertake Statutory Audit of enterprises whose equity or debt securities are listed in India or abroad as defined under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. |
| Phase 2 | • Practice Units which propose to undertake Statutory Audit of unlisted public companies having paid-up capital of not less than rupees five hundred crores or having annual turnover of not less than rupees one thousand crores or having, in aggregate, outstanding loans, debentures and deposits of not less than rupees five hundred crores as on the 31st March of immediately preceding financial year: For these Practice Units, there is a pre-requisite of having Peer Review Certificate.
OR Practice Units rendering attestation services and having 5 or more partners: For these Practice Units, there is a pre-requisite of having Peer Review Certificate before accepting any Statutory audit. |
| Phase 3 | • Practice Units which propose to undertake the Statutory Audit of entities which have raised funds from public or banks or financial institutions of over Fifty Crores rupees during the period under review or of anybody corporate including trusts which are covered under public interest entities : For these Practice Units, there is a pre-requisite of having Peer Review Certificate OR Practice Units rendering attestation services and having 4 or more partners: For these Practice Units, there is a pre-requisite of having Peer Review Certificate before accepting any Statutory audit. |
| Phase 4 |
• Practice Units which propose to undertake audits of branches of Public Sector banks : For these Practice Units, there is a pre-requisite of having Peer Review Certificate |
Peer Review Process – Overview
The Practice unit has to submit Form-1 to the Board at the e-mail id peerreviewboard@icai.in. This can be done either by requesting the said Form -1 via email or can also be downloaded from Peer Review page of ICAI website.
The Form-1 is divided into two sections the first part is the application and second part is pertaining to detailed information related to the following:
- Particulars regarding constitution of the Practice Unit; paid assistant/ staff including qualified members of the Institute and other professional bodies; details of branches etc. as per ICAI Firm card and pertaining to the Peer Review Period has to be provided. Peer Review period means three years preceding the year in which the practicing firm making an application to be peer reviewed detailing all assurance services signed by the applicant firm during the previous three years.
- Under this section, various aspects of the quality controls within the Practice Unit like policies and procedures addressing leadership responsibility, ethical requirements, acceptance and continuance of client relationship, human resource, engagement performance and monitoring etc. The reference shall be made to SQC-1.
- The third section is applicable for Practice firms conducting statutory audit of listed entities (other than branches of banks and Insurance companies) the Practice Unit has to provide self-evaluation scores for each clause/ sub-clause.
- Post submission of Form-1 the Peer review board gives an option to the applicant firm to select one reviewer out of three reviewer allotted. Post selection of the reviewer the reviewer has to sign Form-2– Confidentiality declaration to the applicant firm. The reviewer has to complete the review and submit the report to the board within stipulated time period. After consideration and approval the Peer review certificate is being issued to the Practicing firm.
Scope of peer review
- Peer review shall apply to assurance services provided by a practicing unit. Once a PU is selected for review, its assurance engagement records shall be subject to review. Practice Unit means members in practice, whether practicing individually or as a firm of Chartered Accountants.
- The reviewer shall cover:
> Compliance with Technical, Professional and Ethical standards
> Quality of reporting
> Systems and procedures for carrying out assurance services
> Training programs for staff (including articled and audit assistants) concerned with assurance functions, including availability of appropriate infrastructure
> Compliance with directions/guidelines issued by council to Members, including fees to be charged, number of audits undertaken register for Assurance Engagements conducted during year
> Compliance with directions and / or guidelines issued by the Council relating to article assistants and / or audit assistants, including attendance register, work diaries, stipend payments and such other related records
> Statement of Peer Review aims to confine scope of review to preceding 3 years since this would establish consistency or deviations in respect of procedures followed by PU.
Technical, Professional & Ethical Standards means ?
- Accounting Standards issued by ICAI applicable for entities other than companies under companies Act, 2013
- Accounting Standards prescribed u/s 133 of companies Act, 2013 by central government on recommendation of ICAI in consultation with NFRA
- Ind AS prescribed u/s 133 of companies Act, 2013 by central government on recommendation of ICAI in consultation with NFRA
- Standards issued by the Institute of Chartered Accountants of India including
> Engagement Standards
> Statements
> Guidance Notes
> Standards on Internal Audit
> Statements on Quality Control
> Notifications / Directions / Announcements / Guidelines / Pronouncements / Professional standards issued from time to time by the Council or any of its committees.
- Framework for the Preparation and Presentation of Financial Statements (FS), preface to standards on Quality Control, Auditing, Review, Other Assurance and Related Services and Framework for Assurance engagements.
- Provisions of the various relevant statutes and / or regulations which are applicable in the context of the specific engagements being Reviewer including instructions, guidelines, notifications, directions issued by regulatory bodies as covered in the scope of assurance engagements.
Assurance Engagements:
- Assurance Services include auditing or verification of financial transactions, books, accounts or records and verification or certification of financial accounting and related statements as defined under Section 2(2)(ii) of the Chartered Accountants Act, 1949
- Assurance Services does not include:
> Management Consultancy Engagements
> Representation before various Authorities
> Engagements to prepare tax returns or advising clients in taxation matters
> Engagements for the compilation of financial statements
> Engagements solely to assist the client in preparing, compiling or collating information other than financial statements
> Testifying as an expert witness
> 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 clients
> Engagement for Due diligence
Benefits of Peer Review Certificate
Some of the areas which may provide/ enhance professional growth/ opportunities both for Reviewer and Reviewee could be as under:
> Training of Reviewer and Reviewee would lead to updating of knowledge and consequently expansion of horizon of professional opportunities.
> For C&AG empanelment of CA firms/LLP’s and appointment maximum of 5 points are allotted to a Practice Unit having a Peer Review certificate as on 1st January of the year in which the application has been made for empanelment.
> Peer Review serves as a quality assurance certificate and invites preference from regulatory and other authorities while assigning professional work to Practicing units.
> Enhancement in the competence of members since such a process greatly increases the awareness about the implementation of Technical Standards both on the part of Reviewer and Reviewee.
> With the peer review mechanism the ICAI to build up the public confidence in the quality of audit and assurance services provided by the Practicing firms. Further, it also shaping up as a strong base to build a sense a confidence, fulfils the expectation of the stakeholders which is going to nurture the profession be more reliable and stronger tomorrow.
Conclusion: ICAI’s Peer Review is a crucial mechanism to uphold professional standards. It not only ensures compliance with regulations but also contributes to the professional growth of practitioners. The certification builds trust among stakeholders and establishes a reliable foundation for the auditing profession.
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The contributors to the Article are Sumit Mahajan, AccuWiz Consulting LLP along with inputs from CA Kapil Singhal.
Disclaimer: The content/information is only for general information of the user and shall not be construed as legal advice. The facts stated are based on information available in public domain. Views expressed above are personal.
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