Peer reviews are an important aspect of many different fields. Said fields include math, law, engineering, medicine and accounting. The experts of those areas are the most suitable for providing well-educated assessments about certain applications of their job. It is conducted to check the quality, validity and originality of the texts being published. Its main goal is to ensure the integrity of science by removing irrelevant or badly written works (AICPA, n.d.). Peer review matters in accounting because this field works with complicated scenarios for clients. Its goal is to assess the firm’s quality management system once in three years, making failing and deficient ones to experience a detailed process to ameliorate their quality.
This procedure is necessary for multiple reasons: accountability, standards and transparency. Audits should be conducted while following professional standards, since it provides critical assurance on financial statements. The latter are used by management, investors and regulators for crucial decisions. The firms that have poor performance will be demanded to improve their quality through a remediation process or have their CPA license revoked. Finally, most peer review reports are accessible if a firm consented to sharing their results. Extra transparency of such assessments helps users of audits and defends the public interest portrayed by audited organizations. It ensures public trust, as it helps the work to be assessed by the most qualified individuals, i.e., other auditors. The knowledge and dedication of the latter assist with contributing to the publicly reliable quality
There are two types of such reviews: the system and the engagement one. The former checks the firm’s system of quality assessment for the performance of accounting and auditing. Engagement reviews examine a sample of the CPA firm’s accounting work (Corporate Finance Reviews, 2020). However, the firms that undergo such reviews do not deal with audits. The people responsible for peer review are usually highly qualified specialists. Thus, this procedure is crucial, as it promotes accountability, transparency and ensures public trust.
Engagement letters are important documents in the area of business. It helps define the relationship between an accounting business and its clients. It creates terms of agreement between the two, involving such sections as the fees, responsibilities and scope (Corporate Finance Institute, 2020). They may help prevent or decrease the amount of misunderstandings and assist with setting comprehensive expectations for both sides. Besides the aforementioned sections, the document should include other ones, like standards, confirmation of terms and professional standards. That way, it sets a comprehensive means of communication between both sides.
Sometimes, one auditor may be replaced by another, which creates a set of special responsibilities for the two. The predecessor must converse with the successor in terms of different aspects that are later included in the audit of the latter (AccountingTools, n.d.). Meanwhile, the successor must obtain the client’s consent to discuss some issues with the predecessor. That way, they may decide whether they should accept the engagement or not, as some of them may be rather risky or damaging for the firm.
External auditors are responsible for ensuring confidence in financial accuracy and compliance to accounting standards in businesses and organizations. After reviewing a firm’s financial statements, they prepare an independent assessment of what they have discovered. They need to thoroughly comprehend their clients’ businesses and industries in the process of reviewing related risks (Hanghieu, 2022). During that action, they point out their expertise, while only accepting engagements they may perform in appropriately.
References
AccountingTools. (2022). Predecessor auditor definition — AccountingTools. Web.
AICPA. (n.d.). Peer review: A vital component in audit quality. American Institute of Certified Public Accountants | AICPA. Web.
Corporate Finance Institute. (2020). Engagement letter. Web.
Hanghieu. (2022). Why is it important for the external auditor to have an appropriate understanding of the clients business? hanghieu. Web.
Ignition. (n.d.). Create proposals, win new clients and get paid. Web.