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Auditing involves examining a subject matter to ensure it meets some predefined criteria. Usually, it requires independent auditors who assess a client’s financial statements against accounting and other regulatory frameworks. Based on their work, auditors provide an audit report that includes their conclusion and opinion of the subject matter.
While working, auditors must also ensure the quality of their work. Consequently, there may be several internal and external checks to do so. One of these includes a peer review audit.
What is a Peer Review Audit?
A peer review audit is an internal check of accountants’ and auditors’ work by other colleagues. However, it does not involve a group of independent auditors who come from an outside firm or company. Instead, a peer review audit gets conducted internally to ensure the quality of the services provided by a firm. The primary objective is to help uphold the quality standards expected of such professional firms.
A peer review audit may apply to various areas. While most firms focus on the auditing department, this review can also help in tax, accountancy, consultancy, and other services. With these audits, the primary goal is to improve the service quality that auditors and accountants provide. Consequently, it also enhances the work done by these professionals for clients.
How does a Peer Review Audit work?
Unlike external and internal audits, peer review audits do not have a specific standard procedure. Instead, each accountancy or audit firm has internal policies that dictate how these audits are conducted. However, they may use some guidance provided by accountancy bodies. In some cases, peer review audits may be mandatory under the law and come with more specific requirements.
In most firms, peer review audits get conducted by professionals registered with an accountancy body. For example, these may include CPAs, ACCAs, chartered accountants, etc. Firms also set an experience requirement for the professionals that conduct peer review audits. Typically, auditors with at least five years of experience in their field can conduct these audits.
Firms may conduct peer review audits every 1-3 years based on the requirements of their relevant accounting bodies. Some small firms may not conduct these audits at all. Furthermore, firms may perform two types of peer review audits. System peer reviews involve examining a firm’s quality control and engagement reviews. Engagement reviews focus on specific clients and audit engagements.
What is the importance of a Peer Review Audit?
A peer review audit is crucial for several reasons. Firstly, it helps enhance the quality of services by an audit firm. It can provide two benefits to any firm. Firstly, it promotes the work provided by the firm, creating a better image in the market. On the other hand, it also ensures clients receive the best quality services.
Peer review audits also help identify weaknesses in the services provided by a firm. Once established, firms can work towards solving issues that cause limitations to their work. On top of that, peer review audits also act as an internal control and review tool. These audits can also provide insights about services and help create more efficiencies.
A peer review audit is an internal examination conducted internally by audit firms. This audit ensures the quality of services provided in various areas. Usually, the procedure for this audit differs from one firm to another. However, accountancy and auditing bodies give some guidance on how to perform these. Peer review audits are crucial in helping audit firms achieve better work quality.
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