Improve Peer Review by Improving Audit Quality

Improve Peer Review

If you’ve gone through peer review in the past two years, you noticed some changes. Specifically, the AICPA has worked hard to address concerns over audit quality. Therefore, year-end planning is a great time to think about improving YOUR audit quality. Additionally, doing so will help you improve peer review.

A recent webinar discussed this topic. Panelists included:

  • Deana Thorps, manager of audit quality initiatives, AICPA
  • Troy Coon, CPA, partner and peer reviewer, Watson Coon Ryan
  • Patrick Tokarski, Accounting and Audit Solutions, Wolters Kluwer

AICPA Enhanced Audit Quality initiative

Obviously, the AICPA works to enhance audit quality across the profession. For example, when the Enhanced Audit Quality (EAQ) initiative began, peer reviewers detected 22% of problem engagements. Now, after reforms in the program, reviewers catch 80% of nonconformity.

Remember, when you improve audit quality you will also improve peer review. So, knowing what the AICPA’s current areas of focus are can help. They include:

  • One, risk assessment
  • Two, engagement acceptance
  • Three, internal control
  • Four, auditing revenue recognition
  • Five, SOC engagements

Notably, firms make the most missteps in risk assessment, internal controls, and revenue recognition. Interestingly, these three areas share a common need for proper documentation.

Risk assessment

To start, without good risk assessment auditors cannot plan an effective audit. Additionally, peer reviews show most risk assessment errors happen when auditors fail to:

  • First, understand the client’s internal controls
  • Second, address significant risks
  • Third, focus on assertion-level risks
  • Fourth, link risks to procedures

Further, auditors who don’t understand a client’s controls may fail to identify significant risks. This can result in poor planning. Also, auditors may fail to perform substantive procedures. So, don’t focus on the account level but not the assertion and financial statement levels too.

“They should not perform substantive procedures without linking them to the risk assessment,” Thorps warned. She likened this to throwing darts blindfolded. “Occasionally you may hit the target, but more often than not, you may fall short in addressing the actual risk.”

Internal Controls

Next, analysis of peer review data shows that common internal control errors occur when auditors:

  • One, believe a client has no controls
  • Two, don’t understand which controls are relevant to audit
  • Three, stop after determining whether controls exist
  • Four, improperly assess control risk
  • Five, fail to link further procedures to control-related risks

Furthermore, problems occur when auditors cannot identify which controls are relevant to an engagement.  For example, consider journal entries and new or non-routine processes as relevant. Specifically, be sure to examine anything that addresses a new standard or ties to a significant accounting estimate.

“Processes are not controls,” Troy Coons cautioned. “Processes are fine to document, but you have to make sure that you’re documenting the controls of the organization. Your only requirement is that the controls exist, and that they’re operating. Effectiveness is a whole different question…that’s part of risk assessment.”

Revenue Recognition

Finally, FASB ASC topic 606 causes issues in accounting for revenue from customer contracts. For example, peer reviews reveal common mistakes occur when firms fail to:

  • First, assess risks related to material estimates
  • Second, evaluate design and implementation of controls around revenue
  • Third, compare PY estimates
  • Fourth, evaluate assumptions/methods
  • Fifth, document auditor’s review of material accounting estimates
  • Sixth, evaluate the effect of multiple non-attest services provided to attest clients

Moreover, firms must not jeopardize independence when clients request help with ASC 606 plans. To emphasize, Thorps recommends creating proper safeguards. For one thing, clients should designate an internal employee to oversee their plans. Also, they must assume all management responsibilities.

CCH Axcess™ Knowledge Coach and TeamMate Analytics®

Indeed, the future of audit and advisory will require a dynamic approach. By all means, firms may need to update some of their tools to enhance audit quality and improve peer review. Definitely, Wolters Kluwer’s Integrated Audit Approach enables firms to produce high quality, data driven audits, which satisfies this need.

In short, Knowledge Coach produces knowledge-based audit plans with a focus on risk assessment. Moreover, it properly documents risks and links them to procedures. As a result, this helps auditors make a plan that avoids over- and under-auditing.

Then, TeamMate Analytics incorporates audit data analytics (ADA) into the workflow. In addition, it also helps firms standardize tests. All in all, ADAs enhance audit quality by:

  • One, helping auditors understand an entity’s operations and risks
  • Two, increasing the potential for detecting material misstatements
  • Three, improving dialogue with those charged with governance


To summarize, this blog post only touches the surface of the webinar’s peer review insights. For that reason, and so you have all the insights to improve peer review, view the recording.

Additionally, for more information check out these other resources as well: Guide to Audit Data Analytics,,


Wendy Cable

All stories by: Wendy Cable