F&Q related to Peer Review Audit of Practice Unit (PU)

F&Q related to Peer Review Audit of Practice Unit (PU)

Q.: Does empanelment guarantee peer review work?

Ans. No. Assignments are based on matching experience with PU’s nature of work.

Q.: Can a Reviewer decline an assignment?

Ans. Yes, due to conflict of interest, health, or pre-occupation, but must inform the Board.

Q.: Can a Reviewer take assistance?

Ans.  Yes, but only one qualified CA who:

• • Is not disqualified.
  • Has worked with the Reviewer for at least 1 year.
  • Signs a Declaration of Confidentiality.
  • Cannot directly interact with PU or Board.

Q.: Can the assistant sign the review report?

Ans.  No. Only the Reviewer must sign and submit the report.

Q: Does a Peer Review Certificate protect a Practice Unit (PU) from disciplinary action?

Ans. No. The Peer Review Certificate is not a shield against disciplinary proceedings.

• Peer Review is a system review, not an audit or assurance of correctness of each engagement.
• However, neither the Institute nor the Reviewer can file a complaint based on deficiencies found during the review.

Reviewer Eligibility Criteria :

To qualify as a Reviewer:

1. Member of ICAI with at least 10 years’ cumulative experience in practice.
2. In active practice under the CA Act, 1949.
3. Completed prescribed Peer Review training (valid for 5 years).
4. Must submit declarations (as per Board format) including:
   • Declaration of Confidentiality.
5. For reviewing Level I Entities, must have audited such entities for at least 7 years.

Must NOT:

• Have any pending or concluded disciplinary action.
• Have any criminal conviction involving moral turpitude.
• Have conflict of interest with the PU or its personnel.
• Accept any assignment from the PU for 2 years post-review.

Q.: what is Sample Selection Criteria?

Ans. Based on PU’s size, control standards, methodology, locations, fees, etc.

• Mandatory inclusion in sample:
  1. Assignment with highest turnover.
  2. At least one Public Ltd. Company, if applicable.
  3. Tender-based assignment, if applicable.
  4. If fewer engagements than minimum sample, 100% selection is compulsory.
• Sample should be representative of all engagements.

Additional Compliance:

• Board may seek Reviewer’s working papers.
• Reviewer must notify Board of any disciplinary action initiated later.

Q.: Whether all Practice Units (PUs) will be subjected to peer review?

Ans. No, not all PUs are subjected to mandatory peer review immediately. The Peer Review process in India has been introduced in three stages and applies progressively based on the classification of Practice Units (PUs) into Level I, Level II, and Level III based on the nature and scale of assurance services provided.

Q.: What are the common Mistakes in Empanelment Form ?

Ans.  How to Apply for Empanelment : Use prescribed empanelment form available on ICAI website or from the Peer Review Board office. Ensure all required fields and formats are filled accurately.

• Dates of Associate/Fellow membership not provided.
• Improper audit experience (e.g., resume format, industrial experience, articleship).
• Missing:
  • Working duration and position in the firm.
  • Firm details (partners, CAs, constitution date).
  • Specifics on clients, responsibility, turnover, audit fees, type of audit.
  • Number of Tax Audits and XBRL filing experience.

Q.:  Can a PU Refuse Peer Review?

Ans. No. Once selected by the Peer Review Board, the PU cannot refuse to undergo Peer Review. It is obligatory.

Q.: What is Cost of Peer Review (as per ICAI Notification) ?

Ans. Total Revenue from Attestation Services (Per Annum)	Cost Payable by PU
Less than ₹10 Lakhs	₹15,000/-
₹10 Lakhs to ₹50 Lakhs	₹25,000/-
₹50 Lakhs to ₹1 Crore	₹40,000/-
₹1 Crore to ₹3 Crores	₹60,000/-
₹3 Crores to ₹5 Crores	₹75,000/-
Above ₹5 Crores	₹1,00,000/-

• Cost includes honorarium + TA/DA for the Reviewer and their qualified assistant.
• Average of 3 years’ assurance revenue is taken to compute fees.
• Consolidated Cost is for the entire review period (not per year).
• Paid directly by PU to the Reviewer by crossed account payee cheque/DD within 30 days of invoice.

Other Financial & Compliance Considerations

🔹 Follow-on Review : Same cost structure applies as original review.

🔹 Proof of Payment : PU must submit proof of payment to ICAI for issuance of Peer Review Certificate.

🔹 GST Applicability

• GST (if applicable) is to be paid by the Reviewer.
• PU pays GST-inclusive fee.
• PU can claim input credit, but GST registration of Reviewer (not Reviewer’s firm) must be used.

Reviewer from Outside the State/Region

• PU may request a Reviewer from outside its region by giving valid reasons.
• Such requests must be made within time limit specified in the Peer Review intimation letter.

Review Locations & Branches

• Review is conducted at:
  • Head Office and/or
  • Branch(es) or any other operational location.
• If a branch’s assurance turnover > ₹25 Lakhs, Reviewer is advised to visit it.
• For branches with turnover < ₹25 Lakhs, documents/personnel may be brought to the HO.

Change in Constitution of Firm

• If the Firm Registration Number remains unchanged, Peer Review remains valid.
• If Firm Registration Number changes, the entities are considered separate, and the Peer Review must be reinitiated for the new firm.

Summary of Key Takeaways

Aspect	Details
Obligation	Mandatory for Level-I PU; refusal leads to misconduct under CA Act.
Cost	₹15,000 to ₹1,00,000 (based on average revenue from attestation).
Payment Timeline	Within 30 days of invoice; paid directly to Reviewer.
GST	Applicable; input credit possible using Reviewer’s GSTIN.
Reviewer Choice	Can request out-of-region Reviewer with valid reason.
Firm Constitution Change	Valid if FRN remains same; new review required if FRN changes.

Responsibilities of the Reviewer – Working Papers

Q: In respect of which matters should a Reviewer maintain working papers?

Ans.  A Reviewer should maintain working papers that:

• Substantiate the review performed.
• Document the findings, particularly:
  • Deficiencies in the PU’s quality control policies and procedures.
  • Significant non-compliance with quality control policies.

Q: For how long should a Reviewer preserve working papers?
Ans.  Working papers must be retained:

• For a period as prescribed by the Peer Review Board, or
• Until:
  • The PU appeals before the Peer Review Board/Council, or
  • Final judgment is made by the Board/Council,
    Whichever is later.

Q.: What matters should a Reviewer maintain working papers for?

Ans.  A Reviewer should document working papers to:

• Substantiate the review performed and findings.
• Record deficiencies in the Practice Unit’s (PU’s) policies and procedures.
• Highlight any significant non-compliance with quality control procedures.

Q.: How long should a Reviewer preserve working papers?

Ans. A Reviewer should retain working papers:

• As prescribed by the Peer Review Board, or
• Until:
  • The PU’s appeal (if any) is resolved, or
  • Final judgment by the Board/Council is passed.

Q.: Does adequate documentation signify that the quality control system is adequate?

Ans. No. Documentation is evidence of procedures, not a substitute for:

• Professional skill, care, and judgment.
• Actual compliance with technical standards.

Q.: What are the basic elements of the Reviewer’s Report?

Ans. The Reviewer’s Report should contain:

1. Reference to quality control standards.
2. Statement that quality control is PU’s responsibility.
3. Scope of the review.
4. Limitations, if any.
5. Clarification that not all non-compliances may be found.
6. Opinion on quality control adequacy and effectiveness.
7. Modifications, if any, and reasons.
8. Reference to Preliminary Report.
9. Attachment: Overview of peer review.

Note: Report must be on Reviewer’s individual letterhead, signed personally, and sent to the Peer Review Board.

Q.: What does a clean report signify?

Ans. A clean report indicates that the PU is:

• Operating in a manner that ensures quality of services.
• Complying with applicable technical and quality standards.

Q.: When can a Reviewer qualify the report?

Ans. In case of:

• Non-compliance with technical standards.
• Deficiencies in quality control system.
• Lack of compliance with quality procedures.
• Absence of:
  • Training programs.
  • Internal control system.
  • Proper current and permanent files.

Q.: How should a Reviewer decide between a clean or qualified report?

Ans: Reviewer decide between a clean or qualified report  then Reviewer must evaluate:

• Design and implementation of PU’s quality control system.
• Compliance with quality control policies.
• Staff training mechanisms.
• Expertise availability for consultation.
• Skill matching for engagement assignments.
• Monitoring and review of audit progress.
• Documentation of audit plan, procedures, and conclusions.
• Compliance with laws and regulations impacting FS.
• Internal controls of the PU for ensuring quality.

Referral of Disputes: Procedure

1. Initiation of Dispute Referral:
   • If a dispute arises in connection with the peer review process, either the Practice Unit (PU) or the Reviewer, or both, can refer the matter.
   • The dispute must be referred in writing (in duplicate) within 30 days from the date of completion of the review.
   • It must be verified and signed by the authorized person.
   • The referral should be lodged with the Secretary, Peer Review Board.
2. Board’s Consideration and Decision:
   • The Peer Review Board will consider any written submissions or representations from the PU and/or Reviewer.
   • Based on its consideration, the Board will:
     • Decide on the dispute and communicate the decision to both parties.
     • Issue directions to the PU or Reviewer, as applicable, requiring compliance.
     • Convey the decision to the appellant within 15 days from the date of decision to allow sufficient time to respond.
3. Further Appeal to ICAI Council:
   • If dissatisfied with the Board’s decision, the PU may submit a petition to the Council of ICAI.
   • This must be done within 60 days from the receipt of the Board’s decision.
   • The petition should be:
     • In duplicate
     • Verified and signed by the authorized person
     • Filed with the Secretary, Peer Review Board

Q.: What is the need for Peer Review?

Ans.: Peer Review ensures stakeholders that ICAI members maintain high professional standards. It’s a mechanism for continual improvement in audit and assurance services.

Q.: What is the main objective of Peer Review?

Ans.: To ensure members:

• Comply with ICAI’s Technical, Professional, and Ethical Standards.
• Maintain proper systems and documentation for quality assurance services.

Q.: To whom is Peer Review applicable?

Ans.: To all practicing Chartered Accountants and firms providing assurance services.

Q.: Is identifying deficiencies the primary objective?

Ans.: No. Peer Review aims to improve quality, not to detect isolated deficiencies, but to highlight systemic weaknesses.

Q.: What professional opportunities does Peer Review offer?

Ans.:

• Knowledge enhancement for Reviewer and Reviewee.
• Implementation of best practices.
• Increases competence and awareness of standards.
• Facilitates networking.
• Acts as a quality assurance certificate.
• Reviewers earn remuneration as per ICAI’s prescribed scale.

Q.: What are “Assurance Services” under Peer Review?

Ans.: Assurance services include audits, verifications, and certifications involving assurance elements (e.g., internal audit, concurrent audit), but exclude:

• Tax returns
• Due diligence
• Expert opinions
• Consultancy & representation services

Q.: What are “Technical Standards” under Peer Review?

Ans : Technical Standards” under Peer Review  Includes:

• Accounting Standards (AS) by ICAI/Central Govt.
• Auditing & Assurance Standards
• Engagement Standards, Guidance Notes, Statements
• Standards on Internal Audit, Quality Control
• Relevant laws, rules, and regulatory guidelines

Q.: What is the scope of Peer Review?

Ans : scope of Peer Review Focuses on:

• Compliance with standards
• Quality of reporting
• Systems/procedures for assurance services
• Staff training
• Compliance with ICAI directions (e.g., audit limits, article assistants)

Q.: What time period of records is covered under Peer Review?

Ans : Assurance records of last 3 completed financial years are reviewed. And For newly constituted firms: Peer Review applicable if the proprietor/partner has ≥ 5 years of experience.

Q.: What is the minimum sample size for Peer Review?

Ans : Entity Level	Sample Size	Certificate Validity
Level I	8 engagements	3 years
Level II	5 engagements	4 years
Level III	3 engagements	5 years

For newly constituted firms (<1 year old):

• Minimum 3 engagements → 1-year certificate
• If minimum 5 engagements reviewed → 3-year certificate

Q.: Does a Peer Review Certificate provide immunity from disciplinary proceedings?

Ans : No. Grant of a Peer Review Certificate does not mean the Practice Unit (PU) is exempt from disciplinary actions, even for engagements covered under review. Peer Review checks systems and procedures, not individual engagements in detail.

However, neither the Reviewer nor the ICAI can file a complaint based solely on deficiencies observed during Peer Review.

Q.: Is the information shared by the PU kept confidential?

Ans : Yes. Reviewers are bound by a confidentiality agreement with the Peer Review Board. Any misuse can attract disciplinary action against the Reviewer.

Q.: Is Peer Review mandatory for all Practice Units?

Ans : Peer Review is introduced in three stages:

• Stage I: Mandatory review once in every 3 years
• Stage II: Once every 4 years
• Stage III: Once every 5 years

Note: PUs can also request (suo moto) or be requested for Peer Review by their clients (auditees).

Q.: Can a PU reject the reviewer panel provided?

Ans : Yes, up to three panels. After that, the Board will appoint a reviewer.
New panels are given only in these cases:

• Conflict of interest
• All reviewers decline
• Health/preoccupation issues

Q.: Are audit assignments won through tender included?

Ans : Yes. All assurance services, including those obtained via tenders, are covered.

Q.: Can a PU advertise Peer Review on its website?

Ans : Only the fact of being peer-reviewed may be mentioned.
Peer Review Certificate or Peer Review Report must not be uploaded.

Q.: How is a PU selected for Peer Review?

Ans :

• Random selection as per criteria laid down for each stage
• Voluntary application by PU
• Auditee’s request

In the case of client requests, the cost is borne by the auditee.

Q.: What is the review periodicity?

Ans :

• Stage I: Once every 3 years
• Stage II: Every 4 years
• Stage III: Every 5 years

Period starts from the date of issue of certificate, not the review period.

If a PU is upgraded to Stage I (e.g., now audits listed entities), it must:

• Inform the Peer Review Board
• Undergo voluntary Peer Review every 3 years

Q.: What are a PU’s obligations?

Ans :

• Submit declaration form & questionnaire
• Provide relevant records, explanations, and access to documents
• Cooperate fully with the Reviewer
• Ensure sample from any branch with > ₹25 lakh assurance turnover
• Translate documents into English if needed
• Maintain confidentiality — reviewer can’t make copies of client files

Q.: What happens if a Stage I PU does not apply for Peer Review?

Ans : Non-compliance is considered Professional/Other misconduct under Sections 21 and 22 of the Chartered Accountants Act, 1949.

Q.: Can a PU refuse to be Peer Reviewed?

Ans : No. Once selected, compliance is mandatory.  Purpose of Peer Review – What It Is Not:

• Not for setting new auditing standards.
• Not meant to second-guess an auditor’s professional judgments.
• Not a source of competitive information.
• Not a platform to demean a fellow professional or conduct a witch hunt.

Need for Peer Review:

• To meet clients’ expectations for quality service.
• To bridge the gap between minimum expected quality and actual service delivered.
• To restore public confidence in audit assurance services offered by Chartered Accountants.

llustrative Time Schedule of the Peer Review Process:

Step	Process Description	Timeline	Cumulative Day
1	PRB notifies PU of selection & sends panel of 3 reviewers, Questionnaire, Declaration, Cost details	Day 1	Day 1
2	PU selects one reviewer from panel	Within 10 days	Day 11
3	PRB notifies selected reviewer; Reviewer gives consent + Declaration of Confidentiality (including assistant’s, if any)	Within 15 days	Day 25
4	Reviewer may call for additional info after reviewing Questionnaire	Within 5 days	Day 30
5	PU submits additional info	Within 5 days	Day 35
6	Reviewer selects initial sample	Within 7 days	Day 42
7	Reviewer notifies PU about selected sample (minimum 5 days before visit)	5 days before review visit	Day 47
8	On-site review visit (date mutually agreed)	Within 70 days from notification	Day 70
9	Reviewer sends preliminary report to PU	Within 5 days post-visit	Day 75
10	PU submits response on preliminary report	Within 5 days	Day 80
11	Reviewer submits final report + annexures + explanations to PRB	Within 10 days	Day 90