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DEPARTMENT OF CONSUMER AND REGULATORY AFFAIRS
NOTICE OF PROPOSED 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)(2001), 47-2853.10(a)(12)(2001), and Mayor’s Order 2000-70, dated May 2, 2000, hereby gives notice of the intent to adopt the following amendment to chapter 25 (Accountants) of title 17 (Business, Occupations, and Professions) of the District of Columbia Municipal Regulations in not less than thirty (30) days from the date of publication of this notice in the D.C. Register.
This proposed rulemaking will establish a peer review program requirement for District-licensed certified public accounting 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.
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 sections:
2548 PEER REVIEW REQUIREMENT
2548.1 All firms that perform audits, reviews, or compilations shall enroll in and complete, as periodically prescribed by AICPA standards, an approved peer review program with standards that are equivalent to, or better than, the peer review program administered by the AICPA, as determined by administrative regulations promulgated 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. Peer review programs administered by, or conducted in association with, the AICPA are approved by the Board as sponsoring organizations.
2549.2 If the peer review program is not conducted in association with the AICPA, then the Board shall determine if the program of each sponsoring organization is substantially equivalent to the peer review programs administered by, or conducted in association with, the AICPA.
2549.3 Each sponsoring organization shall make available to the Board the name of every firm licensed in the District that is enrolled in its peer review program and the name of every firm dropped or terminated from its program within the last three (3) months.
2549.4 A sponsoring organization shall bear the costs of verifying that it is operating the peer review program in compliance with the standards for performing peer reviews.
2549.5 No firm shall use a sponsoring organization to perform a peer review program unless the sponsoring organization and its program have been approved by the Board.
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 audits, reviews, or compilations. 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; and
(b) A copy of the firm's most recent peer review program report 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 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 program report shall result in the applicant firm being deemed ineligible to perform audits, reviews, or compilations until such time that the appropriate documents are received by the Board. If a firm fails to notify the Board at the time of application for licensure or renewal of licensure, in writing, 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 program report that is classified as adverse, fail, second successive modified, or second successive pass with deficiencies within three (3) years prior to submitting the 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; and
(c) A letter from the firm describing the current status of deficiencies that comprised the basis for any of the reports listed above.
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.
(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; and
(b) The approximate due date of the firm’s next peer review program report.
2551.3 Failure to comply with the requirement imposed above shall result in the Board initiating disciplinary action against the firm's license.
2551.4 If the Board receives a peer review program 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 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 engage in performing an audit, review, or compilation, 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 the 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 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 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 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 REVIEW REPORT
2554.1 Sponsoring organizations may grant one (1) extension of time 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.
2254.3 The peer review program report shall be submitted to the Board by the firm no later than the date set forth in the letter from the sponsoring organization that granted the extension.
2555 TYPE OF REVIEW REQUIRED
2555.1 A System Review is required for firms that perform engagements governed by the Statements on Auditing Standards (SAS) or examinations of prospective financial information governed by the Statements on Standards for Attestation Engagements (SSAE), as established by the AICPA, or the Government Auditing Standards (the Yellow Book) issued by the U.S. Government Accountability Office.
2555.2 An Engagement Review is required for firms that are not required to have a System Review, but perform engagements in accordance with the Statements on Standards for Accounting and Review Services (SSARS) or review engagements in accordance with SSAE.
2556 EXEMPTION FROM PEER REVIEW
2556.1 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.
Section 2599, DEFINITIONS, is amended by adding the following terms and definitions:
Engagement Review – a type of peer review that is a study and appraisal by a sponsoring organization of a sample of a CPA firm’s actual accounting work, including accounting reports issued and documentation prepared by the CPA firm, as well as other procedures that the firm performed.
Peer review – a study, appraisal, or review of one (1) or more aspects of the professional work of a person or firm licensed to practice and may include a quality assurance or peer review, or any internal review or inspection that is required by 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.
Report acceptance body – a subcommittee established by a peer review committee to which a portion of the committee’s report acceptance functions is delegated.
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.
System Review – a type of peer review that is a study and appraisal by a sponsoring organization of a CPA firm’s system of quality control over its performance of accounting and auditing work. The objective of such a review is to determine whether the policies and procedures established by a CPA firm conform to professional standards, and whether the firm is complying with its system appropriately.
All persons desiring to comment on these proposed regulations should submit comments, in writing, to Helder Gil, Legislative Affairs Specialist, Department of Consumer and Regulatory Affairs, 1100 Fourth Street, SW, Room 5164, Washington, D.C. 20024, or by e-mail to helder.gil@dc.gov, not later than thirty (30) days after publication of this notice in the D.C. Register. Copies of the proposed rules can be obtained from the address listed above. A copy fee of one dollar ($1) will be charged for each copy of the proposed rulemaking requested. Free copies are available on the DCRA website at dcra.dc.gov by going to the “About DCRA” tab, clicking “News Room”, and clicking on “Rulemaking.”
