Peer Review – Challenges and Opportunity

The Institute of Chartered Accountants of India has initiated peer review of Chartered Accountant Firms in a phased manner. The Institute appointed Peer Reviewers are undertaking a cold file review of selected CA firms, with a view to report on their documentation, compliance's, quality of procedures and adherence to mandatory accounting standards, auditing standards, statements and guidance notes issued by the Institute of Chartered Accountants of India. Securities and Exchange of India (SEBI) has recently made it mandatory that only the CA firms who have been reviewed by the peer review process of the Institute and have obtained a successful clean peer review certificate will be entitled to undertake the audit of listed companies. The Reserve Bank of India, Insurance Regulatory and Development Authority and other regulators may follow such decision for audits of banks and insurance companies. The Institute has also permitted CA firms to get themselves peer reviewed on a voluntary basis in those cases where their names are not selected for the peer view. The CA firms who are selected for the peer review have a number of apprehensions in their mind about the review process. In fact the objective of the peer review is to undertake a review of the Chartered Accountants’ working methodology, audit process and documentation by another Chartered Accountants in practice. Peer review is being undertaken with an objective of improving the quality of audit and assurance.  The Peer Reviewers have been provided with a Peer Review Manual, copies of which are also available for sale at the Institute. The Reviewers are also provided a detailed training by leading experts and senior Chartered Accountants from various parts of the country. The Peer Reviewers have been advised that their role is to review the audit process and not to review the audit opinion. The audit opinion formation is the sole prerogative of the auditor and the peer reviewer cannot question the judgment of the auditor. There is a Chinese wall between the peer review wing of the Institute and its disciplinary wing and no information obtained during the peer review process can be used for disciplining the members. This is a challenge on the one hand but a great opportunity on the other as this review will ensure general improvement of quality of audit and assurance engagement. This will further improve independence and integrity of the audit processes. The application of detailed standards on Auditing may be suitably modified in audit of smaller enterprises. The adherence to the basic principles, procedures and documentation in all kind of Audit and assurance engagements will however ensure more safety for the Auditor and will limit their liabilities significantly. The Audit risk can be significantly contained by adherence to ICAI standards. The respect for auditors in the mind of auditee, regulators, government, user of financial statements and the society will improve significantly. The small and mid size audit firms will also have better acceptability for larger and complex audit assignments arising out of better audit processes and improvement in quality of audit.