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DEPARTMENT OF CONSUMER AND REGULATORY AFFAIRS
NOTICE OF FINAL RULEMAKING
The Director of the Department of Consumer and Regulatory Affairs, pursuant to the authority set forth in D.C. Official Code § 47-2853.08(1) (2005 Repl.) and D.C. Official Code 47-2853.10(a)(12) (2005 Repl.)), and Mayor’s Order 2000-70, dated May 2, 2000, hereby gives notice of the adoption of the following amendment to chapter 25 (Accountants) of title 17 (Business, Occupations, and Professions) of the District of Columbia Municipal Regulations.
This rulemaking establishes a peer review program requirement for District-licensed certified public accountant firms (CPA firms), so as to be consistent with similar requirements throughout the country. The peer review program will ensure that CPA firms periodically subject themselves to an independent evaluation of their accounting and auditing practices.
A Notice of Proposed Rulemaking was published in the D.C. Register on June 17, 2011, at 58 DCR 5175. In response to comments received, substantial changes were made in a Second Notice of Proposed Rulemaking that was published in the D.C. Register on February 17, 2012, at 59 DCR 1211.
One comment was received from the American Institute of CPAs in response to the Second Notice of Proposed Rulemaking that suggested reorganization of the chapter. No substantive changes have been made to the rulemaking as a result, although a spelling mistake in the title of section 2554 has been corrected.
The proposed rules were adopted as final on May 3, 2012. These rules shall become effective on the date of publication of this notice in the D.C. Register.
Title 17, BUSINESS, OCCUPATIONS, AND PROFESSIONS, of the District of Columbia Municipal Regulations is amended as follows:
Chapter 25, ACCOUNTANTS, is amended by adding the following new sections to read as follows:
2548 PEER REVIEW REQUIREMENT
2548.1 All CPA firms that perform audits, reviews, compilations, or any engagements governed by the Statements on Standards for Attestation Engagements (SSAE), Statements on Auditing Standards (SAS), or Statements on Standards for Accounting and Review Services (SSARS) shall enroll in and complete an approved peer review program with standards that are equivalent to, or better than, those established by the American Institute of Certified Public Accountants (AICPA), as determined by the Board.
2549 SPONSORING ORGANIZATIONS
2549.1 Each sponsoring organization administering a peer review program must have standards of review that are equivalent to or better than the “Standards for Performing and Reporting on Peer Reviews” of the AICPA. The AICPA and other entities fully involved in the administration of the AICPA peer review program are approved by the Board as sponsoring organizations.
2549.2 Any sponsoring organization seeking to administer a peer review program other than that of the AICPA must be approved in advance by the Board. For such approval, the sponsoring organization must establish, to the Board’s satisfaction, that its proposed peer review program is substantially equivalent to the AICPA peer review program.
2549.3 A sponsoring organization shall bear the costs of verifying that it is operating the peer review program in compliance with the approved standards for performing peer reviews.
2549.4 No firm shall use a peer reviewer to conduct a peer review unless the Board approves the sponsoring organization and its program.
2550 PEER REVIEW REQUIREMENTS FOR APPLICANTS FOR INITIAL FIRM LICENSURE
2550.1 If a firm applies to receive an initial license, it shall advise the Board if it performs any engagements that are subject to peer review in accordance with § 2548. A firm that indicates it will perform any of these services shall submit with its license application:
(a) Proof from a sponsoring organization that it is currently enrolled in a peer review program;
(b) The approximate due date of the firm’s next peer review report; and
(c) A copy of the firm’s most recent peer review report and the sponsoring organization’s acceptance letter that was received by the firm within three (3) years prior to submitting the application. If the firm has not received a peer review report and acceptance letter within the three (3) year time period, it shall notify the Board of that fact.
2550.2 Failure to submit proof of enrollment and, if applicable, a copy of the peer review report and acceptance letter shall result in the applicant firm being deemed ineligible to perform audits, reviews, or compilations until the Board receives the appropriate documents. If a firm fails to notify the Board in writing at the time of application for licensure or renewal of licensure that it performs audits, reviews, or compilations, the license of the firm may be revoked.
2550.3 A firm that is applying for an initial license that received a peer review report classified as adverse, fail, second successive modified, or second successive pass with deficiencies within three (3) years prior to submitting its application, shall also submit with its license application a copy of:
(a) All documents received from the sponsoring organization detailing any remedial or corrective action required;
(b) All of the firm’s written responses to any of the reports listed above;
(c) A letter from the firm describing the current status of deficiencies that comprised the basis for any of the reports listed above; and
(d) If available, a letter from the sponsoring organization notifying the firm that required actions have been appropriately completed.
2550.4 For any firm subject to § 2550.3:
(a) The Board shall review and consider the reported deficiencies and any remedial action taken by an applicant firm to determine if the firm shall be issued a license; and
(b) If the Board decides to issue a license, it may impose restrictions on the firm after taking into consideration the reported deficiencies and any remedial action since the issuance of any adverse reports.
2551 PEER REVIEW REQUIREMENTS FOR CURRENT LICENSEES
2551.1 The Board shall determine if a firm with a current license is required to be enrolled in a peer review program pursuant to § 2548.
2551.2 If the Board determines that a firm is required to be enrolled in a peer review program, notice shall be sent to the firm manager requiring him or her to submit to the Board, within thirty (30) days from receipt of the notice,:
(a) Proof from a sponsoring organization of the firm’s enrollment in a peer review program;
(b) The approximate due date of the firm’s next peer review report; and
(c) A copy of the firm’s most recent peer review report and the sponsoring organization’s acceptance letter that the firm received within three (3) years prior to submitting the application. If the firm has not received a peer review report and acceptance letter within the three (3) year time period, it shall notify the Board of that fact.
2551.3 Failure to comply with the requirement imposed in § 2551.2 above shall result in the Board initiating disciplinary action against the firm’s license.
2551.4 If the Board receives a peer review report on a licensed firm that is classified as adverse, fail, second successive modified, or second successive pass with deficiencies, the firm’s responses to the report shall be presented to the Board for review and determination of any action to be taken against the firm, after taking into consideration:
(a) The deficiencies described in the report;
(b) The firm’s written response to the report that was sent to the sponsoring organization;
(c) A letter from the firm describing the current status of the deficiencies that comprised the basis for the report; and
(d) Any remedial action instituted by the firm since the issuance of the report.
2551.5 If a firm is not enrolled in an approved peer review program when it enters into an agreement to perform any engagement that is subject to peer review in accordance with § 2548, it shall not continue to work on the engagement until it has:
(a) Enrolled in an approved peer review program; and
(b) Submitted to the Board a letter of enrollment in an approved peer review program from a sponsoring organization.
2552 PAPER REPORTS
2552.1 Except as provided in § 2554, when a firm receives a peer review program report, the firm shall provide the Board with a copy of the report within fifteen (15) business days of receiving that report.
2552.2 If the report is classified as pass or unmodified, or as either modified or pass with deficiencies where neither is a second successive such report, no further action on the part of the firm or the Board is required.
2552.3 If the report is classified as adverse or fail, or is a second successive report classified as modified or pass with deficiencies, the firm shall submit the acceptance letter describing the corrective actions required by the peer review committee or report acceptance body for any of the reports from the sponsoring organization to the Board for review and determination of any action to be taken against the firm, after taking into consideration:
(a) The deficiencies described in the report;
(b) The firm’s written response to the report that was sent to the sponsoring organization;
(c) A letter from the firm describing the current status of the deficiencies that comprised the basis for the report; and
(d) Any remedial action instituted by the firm since the issuance of the report.
2553 ELECTRONIC SUBMISSION OF PEER REVIEW REPORTS TO THE BOARD
2553.1 In lieu of submitting a hard copy of a peer review report and all accompanying documents, a firm manager may notify the Board that the documents requested can be viewed and downloaded at the website of the sponsoring organization. The firm manager may also email a copy of the peer review program report and any supporting documents to the Board.
2553.2 If the Board is not able to download a copy of the requested documents, the firm manager shall submit the required hard copy to the Board.
2554 EXTENSION OF TIME TO SUBMIT PEER RVIEW REPORT
2554.1 Sponsoring organizations may grant an extension of time to a firm to complete the peer review program process.
2554.2 If a firm is granted an extension of time, the firm shall immediately submit to the Board a copy of a letter from the sponsoring organization that granted the extension.
2555 EXEMPTION FROM PEER REVIEW
2555.1 If a firm’s sole practice is the preparation of compiled financial statements for management use only in accordance with SSARS No. 8, the firm shall be exempted from the peer review program requirement.
2556 ETHICAL DUTIES OF Peer REVIEWERs
2556.1 A peer reviewer shall be independent of the reviewed CPA firm and shall comply with the AICPA Standards for Performing and Reporting on Peer Reviews.
2556.2 Any information obtained as a consequence of the peer review concerning a participating CPA firm, its clients or personnel, is confidential and shall not be disclosed to any person not involved in the peer review process.
Section 2599, DEFINITIONS, is amended by adding the following terms and definitions:
Peer review – an independent study, appraisal, or review of one (1) or more aspects of the professional work of a CPA firm which may include an internal review or inspection to ensure the firm’s compliance with required professional standards relating to quality control policies and procedures.
Peer review committee – a committee appointed by a sponsoring organization to oversee the administration, acceptance, and completion of a peer review. The committee is primarily responsible for determining whether a peer review has been performed in accordance with required standards, interpretations, and related guidance materials.
Peer reviewer- a CPA firm responsible for conducting a peer review.
Report acceptance body – a subcommittee established by a peer review committee which is responsible for, but not limited to, the acceptance of peer review documents.
Sponsoring organization – an entity administering a peer review program whose standards of review are equivalent to or better than the “Standards for Performing and Reporting on Peer Reviews” of the American Institute of Certified Public Accountants (AICPA), as determined by the Board.
