Preparing for Practice Review

Practice review is a necessity in public practice. It may feel like an intrusion, yet it is one of the ways the Chartered Accountancy profession maintains its high standards and pre-eminence as the top accounting body. In Alberta, practice review is mandatory for all registered public accounting firms, whether in full or part-time practice and regardless of whether you prepare financial statements, tax services or business valuations.

The Major Focus of a Practice Review is Education

Comments and recommendations are intended to assist members with maintaining the high standards of practice expected of Chartered Accountants and in our fast-paced professional environment this is a continual challenge.

Practice Review Process

The following is a brief description of the practice review process.

Scheduling

The scheduling process begins with a call from the Institute practice review coordinator advising that the firm is scheduled for a practice review. Cooperation in forwarding the completed forms on a timely basis and in scheduling the practice review visit greatly enhances the efficiency of the process.

File Selection

Files are selected by the reviewer from the public accounting firm's complete client list which identifies all audits, reviews, compilation and other engagements. Accordingly, if not already available, a complete client listing should be prepared prior to the visit. The clients should be identified by partner responsibility to facilitate a cross-section selection of files from all partners, if possible, this list should indicate the service provided to the client (e.g. audit, review, compilation and tax). The public accounting firm does not pre-select the files to be reviewed, nor does the practice reviewer pick files from a "short-list" prepared by the public accounting firm.

Prior to the file selection, the practice reviewer will assess the quality assurance manual of the firm as it will be a factor in determining the number of files selected.

In conducting the income tax component of practice review, the reviewer may request access to tax files, as appropriate.

Partner Availability

The time scheduled for a review is only an estimate. Factors which influence the duration of the review are firm size, client mix. The availability of the partner coordinating the review is important. The coordinating partner is requested to be available for a meeting with the reviewer at the beginning of the visit. This discussion expedites the file selection process, assists in scheduling the availability of other partners, coordinates the exit interview timing and ensures that the review time is used efficiently.

Member Participation

Firm partners and staff are encouraged to actively participate in the practice review process. During the visit to your office, please encourage discussion with the practice reviewer including clarifying questions raised during the file reviews and using our review team as a resource to answer technical or practice questions that may arise in your office. Active, two-way communication enhances the value of the practice review to your firm.

Tips for a Successful Practice Review

Those firms who receive compliance recommendations generally:

• encourage members to attend professional development courses 
• are aware of events within the profession
• are aware of revisions to the CICA Handbook 
• have adequate working paper file documentation 
• maintain a system of quality control

Prepare for practice review by maintaining high standards of practice on a current basis. As well, a cooperative attitude makes the process more time and cost efficient for both parties.

For your information a copy of the ICAA Practice Review Procedures are attached. If you have any questions or require further information prior to your practice review, please contact Rachel Miller, Director, Practice Review or Erin Wallish, Senior Manager, Practice Review.

PRACTICE REVIEW PROCEDURES

The purpose of a practice review is to determine whether the practice in a public accounting firm (PAF): 

(a) complies with generally accepted accounting, auditing, and assurance standards, 

(b) complies with the standards of practice as set out in the Rules of Professional Conduct of the Institute,

(c) maintains sufficiently high standards having regard to generally accepted standards in the practice of the profession,

(d) complies, where appropriate, with the minimum standards for firms employing students, and

(e) adheres to the identified income tax standards as defined by ICAA Practice Review Committee.

The scope of the practice review covers primarily the assurance and accounting practice of the firm, and the system of providing of tax services. Other services such as, business valuation, bankruptcy or other management advisory services are not directly encompassed by the review, except to the extent that they are associated with professional standards.

Quality control policies and procedures adopted by a firm provide reasonable assurance that audit, non audit and tax services engagements are carried out in accordance with the standards set out in the CICA Handbook, ICAA Rules of Professional Conduct, the identified Tax Standards and in accordance with standards of practice of the profession.

Practice reviews are primarily intended to evaluate whether a reviewed firm's quality control policies and procedures for its accounting, auditing and tax services practice are appropriately comprehensive and suitably designed. A public accounting firm may find it useful to document its quality control procedures prior to the practice review.

The following procedures are followed during a review:

1. The firm is notified in writing that they have been selected for practice review and will receive a Scheduling Questionnaire for completion. If the firm is a part time office, they will also receive a Confidential Client List for file selection.
2. Once the firm has returned the Scheduling Questionnaire, it is reviewed by the Director of Practice Review to determine the length of the time needed to conduct the review. The firm will then be contacted by the Practice Review Coordinator to schedule the dates(s) for the review. 
3. The firm will then receive Confidential Information Questionnaire and Tax Management Questionnaire to be completed prior to the date of their scheduled review. If a firm has Approved Training Office status, completion of Quality Control Policies and Procedures Questionnaire is also required.
4. The following general procedures will be followed during the firm visit:
   
   (i) The reviewer will meet with the member in charge of the practice review.
   
   (ii) Files will be selected by the practice reviewer in consultation with the member in charge of the review. The member should have an up-to-date client list available for the reviewer to assist in the file selection. This list should be by partner and indicate the type of engagement.
   
   (iii) The firm will be asked to provide the reviewer with all the working papers of the engagements which have been selected. These working papers would normally include the current working paper file(s) (for the most recent year end), and the financial statement, tax, permanent, billing and correspondence files.
   
   (iv) The individual engagement working papers will be reviewed to determine that they meet professional standards and the items noted will be discussed with the member in charge of the engagement. The reviewer will provide that practitioner with copies of his notes on the engagement. The member is encouraged to discuss the reviewer’s findings and, where available, provide additional information to the reviewer.
   
   (v) The reviewer will summarize his findings on the engagement files and will determine if additional procedures are required. This summary of the reviewer's findings will be discussed with the practitioner in charge of the review (and, if applicable, at the practitioner's option, with other partners or staff members) at the exit interview.
   
   (vi) The reviewer will prepare a draft report which has the following features:
   
   
   (a) An assessment as to whether anything has come to the attention of the practice reviewer that causes he/she to believe that the firm is not in compliance with professional standards;
   (b) Exhibit A - a summary of the major deficiencies;
   (c) Exhibit B - a summary of the findings and recommendations for improvement;
   (d) An office profile, data sheet and reviewer's checklist; and
   (e) Approved Training Office Checklist (if applicable).

    

5. Copies of the draft report will be forwarded to the firm for review. Prior to submitting the report to the Practice Review Committee, the firm must acknowledge the contents by signing the front page of the draft report and return it to the Institute within three weeks of the date of receipt.
   
   The Practice Review Committee encourages members to submit written comments concerning the content of the practice review report. The Practice Review Committee considers the practice review report and the firm’s comments when forming its assessment of the firm.
6. The report is presented to the Practice Review Committee in a manner which protects the identity of the firm, its members and clients. The Practice Review Committee makes the decision regarding adherence to professional standards. The Practice Review Committee may reject, modify or accept the recommendation concerning compliance by the practice reviewer. The Committee may also request additional information from the firm prior to making its assessment. 
7. Firms are provided with the opportunity to make oral representations to the Practice Review Committee where they disagree with the reviewer's opinion; however, by attending the Practice Review Committee meeting the firm may lose its anonymity. 
8. The firm will be notified of the Practice Review Committee's decision and recommendations. The decision regarding re-approval to train students, if applicable, is now the decision of the Registration Committee; however, the firm will be notified of the recommendation made to the Registration Committee. 
9. Firms that are registered with the Canadian Public Accountability Board (CPAB) will have their assessed practice review report sent to the CPAB directly from the Practice Review Committee.
10. Only the formal report, scheduling questionnaire, and confidential questionnaire are retained once a firm has been found to comply and practice review fees paid. All other working papers, detailed notes, client list for part time offices, etc., are destroyed. 
11. For firms receiving a non-comply decision, a follow-up Practice Review will be scheduled usually within 12 months of the date of the initial practice review visit. The time frame of the follow-up review is at the discretion of the Practice Review Committee.

The member is referred to Section C (pages 1-2), in the Member's Handbook of the Institute of Chartered Accountants of Alberta for further information. These Rules cover the guidelines for selecting firms, the authorization for the reviewer to make certain requests of the member, the content of the draft report and the requirement that it be discussed with the public accounting firm, the report to the Committee and the decision of the Committee, and confidentiality.