Peer Review Process – Gearing up for the Mandate
ICAI has mandated Peer Review for certain category of firms rendering assurance services to specific class of entities. The mandate has already been made applicable w.e.f April 1, 2022. However, there are firms which lack clarity about the methodology to be adopted for initiation of the Peer Review process. This article is a step to guide the firms about the process of initiation of Peer Review and timely completion of the same so that they may adhere to the timelines of the ICAI Mandate.
The Peer Review mechanism has been introduced by the ICAI, with the setting up of the Peer Review Board in 2002. The main objective of Peer Review is to ensure that in carrying out the assurance service assignments, the members of the Institute comply with the Technical, Professional and Ethical Standards as applicable including other regulatory requirements thereto, and have in place proper systems including documentation thereof, to amply demonstrate the quality of the assurance services.
The Peer Review process is based on the principle of systematic monitoring of the procedures adopted and records maintained while carrying out audit and assurance services in the course of one’s professional responsibility to ensure and sustain quality. Peer Review is primarily directed towards ensuring that the quality of audit and assurance services of Chartered Accountants in Practice is enhanced. Any firm (referred to hereafter as practice Unit) can offer itself for being Peer Reviewed. However the peer review mechanism has been recently mandated by the Council for certain categories of Practice Units rendering assurance services to a specific class of entities. The roadmap has classified Practice Units into four categories and prescribed the implementation of peer review process for each such category by 2025. The phase-wise implementation of Peer Review mandate is as under:
| S. No. | Phase | Practice Units covered | Date of implementation |
|---|---|---|---|
| 1 | 1st Phase | 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 | April 1, 2022 |
| 2 | 2nd phase | 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 OR Practice units rendering attestation services and having 5 or more partners. | Applicability deferred by 1 year. Now applicable w.e.f. April 1, 2024 |
| 3 | 3rd phase | 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 any body corporate including trusts which are covered under public interest entities OR Practice units rendering attestation services and having 4 or more partners. | April 1, 2024 |
| 4 | 4th phase | Practice Units which propose to undertake audits of branches of Public Sector banks OR Practice units rendering attestation services and having 3 or more partners | April 1, 2025 |
It may be noted that the second phase of the mandate which was applicable w.e.f April 1, 2023 had to be deferred as many firms were not aware about the mandate. Hence with the deferment of the 2nd phase by 1 year, now both the 2nd as well as the 3rd phase will be implemented w.e.f April 1, 2024. So, it is necessary for the Practice Units falling under any of the above category to get themselves Peer reviewed timely.
The SEBI Mandate
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.”
The ICAI has also mandated the same w.e.f April 1, 2022 with the implementation of the first phase of the Peer Review mandate.
Peer Review process – Initiation
Many Practice Units have not yet geared up for Peer Review as there is a lack of awareness about the Peer Review Process.
The Peer Review process can be initiated by the Practice Unit by submitting Form 1 – ‘Application cum Questionnaire’ to the Board at the e-mail id peerreviewboard@icai.in. The Practice unit can either make a request at the said email id for the respective Form or download it from the Peer Review Board’s page of ICAI Website.
Form 1 is divided into two parts:
- The first part is the application in which the Practice Unit has to apply for Peer Review.
- The second part is the Questionnaire which is divided into three different sections: Part A, Part B, and Part C.
Structure of Form 1 Questionnaire
i. Part A (Firm Profile & Engagement History): Under Part A, the Practice Unit has to provide its profile. 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 financial years preceding the year in which the Practice Unit is making an application to be Peer Reviewed. For example if the Practice Unit makes an application in November 2023; Peer Review period will be from April 1, 2020 till March 31, 2023. Under this part, the PU is also required to provide details of all assurance services signed by it during this period.
ii. Part B (Internal Quality Controls & SQC 1): Part B of the Questionnaire deals with 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 Practice Unit may refer to the implementation Guide to SQC 11 for filling this Part of the Questionnaire. However, the application of SQC-1 will depend on various factors such as the size and operating characteristics of the Practice Unit.
iii. Part C (AQMM Self-Evaluation for Listed Audits): Under Part C which is applicable for Practice units 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 using AQMM rev v1.0.
Submission of Form 1 is a Pre-requisite for a Practice Unit to get its Peer Review initiated.
On receipt of completely filled Form 1, the Board gives an option to the Practice Unit to select one reviewer out of a panel of three Reviewers allotted to them by the Board. The Reviewer so selected by the Practice Unit shall submit Form 2 – declaration of confidentiality to the Practice unit. Thereafter he shall conduct the Peer Review as per the procedures prescribed by the Board and submit the report to the Board. The Board has prescribed a time period of 20 working days for completion of the Peer Review process which will be reckoned from the date of receipt of Form 1 from the Practice Unit for being Peer Reviewed. The Peer Review Certificate is awarded after consideration and approval of the report by the Board.
Potential Delays, Renewal & Continuity
Although the entire process has a pre-defined timeline, there may be overall an delay due to one or more of the following reasons:
- Filling complete Application cum questionnaire: Form 1 requires the Practice Unit to provide information regarding assurance service rendered from each of its locations from where such services are being rendered as well as assurance services being rendered by all of its partners. The Form also requires details like net worth, borrowings, turnover etc. in respect of all assurance assignments handled by the Practice Unit during the peer review period. Collating this information is a time taking process for Practice Units especially those having multiple branches or having a large clientele.
- Other Professional commitments: Partners of Practice unit co-ordinating for Peer Review and/ or the Peer Reviewer may have other professional commitments. There may be times when the Reviewer or the Practice unit has to meet other statutory timelines like timely completion of audit etc;
- Other unforeseen circumstances: like medical reasons; social commitments etc.
The above is just an illustrative list citing reasons for unforeseen delay in completion of Peer Review Process. Keeping in mind the above reasons, the Practice Units should ensure to timely initiate the process as the second and third phase of the mandate is applicable from April 1, 2024.
Revised C & AG Policy for Empanelment
The C & AG has revised the Policy of Empanelment of CA Firms/LLPs and appointment of auditors of Companies under Section 139 (5) and 139(7) of the Companies Act 2013 and of Statutory Corporations/Autonomous Bodies as per the provisions of their respective Acts.
C&AG Scoring Point Structure for Peer Review:
- A maximum of 5 points are allotted to a Practice Unit having a Peer Review certificate as on 1st January of the year in which it makes an application for Empanelment.
- Points ranging from 4 to 1 are also allotted for holding the Peer Review Certificate as on 1st January for each preceding 8 years from the date of making an application for empanelment.
- Overall a maximum of 25 points have been allotted to firms which hold a Peer Review Certificate on the date of making an application for empanelment. Having a Peer Review Certificate will be an added advantage for these firms.
Conclusion
In the interest of Practice units rendering assurance services, Peer review is a tool of introspection. It provides an opportunity to the Practice Units to improve upon the inadvertent mistakes committed in the course of professional assignments to overcome them and strengthen their systems and procedures.
The Institute considers the Peer Review Process as a service being offered to the members and no fee is payable to ICAI for the Peer Review. With the Peer Review mechanism in place, the Institute endeavours to build up the public confidence in the quality of assurance services provided by CA Firms. The Peer Review process is a step forward to fulfil the expectation of the stakeholders which is ultimately going to nurture the profession for a stronger tomorrow.