Arkansas Administrative Code › Agency 019 - State Board of Accountancy › Rule 019.00.20-007 - Rule 14 "Quality Review"

Current through Register Vol. 49, No. 6, June, 2024
Rule 14
QUALITY
		  REVIEW PROGRAM
14.1 PURPOSE
There is hereby established a Quality Review Program (the
			 "Program"). The purpose of the Program is to improve the quality of financial
			 reporting; specifically, financial statements for which compilation reports are
			 issued. The Program emphasizes education and rehabilitation rather than
			 disciplinary action. Appropriate educational programs or procedures will
			 ordinarily be recommended or required where reporting does not comply with
			 appropriate professional standards. However, when a licensee is unwilling or
			 unable to comply with such standards, or a licensee's professional work is so
			 egregious as to warrant disciplinary action, such action may be taken as the
			 appropriate means of protecting the public interest.
14.2 REPEALED
14.3 QR SURVEY
Quality Review (QR) is to be conducted annually on one third of
			 the licensees on a rotating basis. QR may be required more frequently as
			 provided herein.
(a) The Board will
		  mail a QR survey to one-third of its licensees annually. The recipient shall
		  return the completed survey form within the time specified and submit reports,
		  for QR purposes, when compilation reports have been issued during the QR period
		  as stated in the instructions in said survey form.
(b) Failure to respond to the QR survey
		  mailed by the Board or to submit reports for QR purposes, when reports were
		  issued during the subject period, shall be a basis for the non-renewal of the
		  license, after notice and hearing, as provided by Ark. Code Ann. §
		  17-12-507.
(c) In response to the
		  QR survey, the licensee shall submit the most recently issued compilation
		  report with disclosures and compilation report without disclosuressince initial
		  licensure by the Board or since June 30th of the year the latest QR survey was
		  completed by the licensee.
(d)
		  Submission to the Board of an acceptable peer review report, performed by a
		  CPA, PA or firm, licensed in this or another state, which is conducted
		  consistent with a peer review program authorized by a professional accounting
		  organization and approved by the Board, dated within the QR period or the
		  thirty months immediately preceding the QR period, will exempt the licensee
		  from QR. For purposes of this paragraph, acceptable peer review reports shall
		  be those classifications designated by the peer review program that are
		  generally comparable to pass and pass with deficiencies QR reports as defined
		  in Rule 14.8, and which the Board identifies in its approval of the individual
		  peer review program as comparable to pass and pass with deficiencies QR
		  reports.
(e) A firm or licensee
		  registered in a jurisdiction other than Arkansas that is not required to
		  register in this state pursuant to A.C.A. § 17-12-311 or A.C.A. §
		  17-12-401 and that performs engagements for clients in this state that are
		  performed in accordance with Statements on Standards for Accounting and Review
		  Services (SSARS), such as compilations and reviews, must receive an acceptable
		  peer review performed by a CPA, PA or firm in lieu of the Quality Review
		  required under Rule 14.3 or must receive an acceptable quality review performed
		  under the rules of the state of licensure.
14.4 QR REVIEWERS
The QR reviewers shall have the following qualifications:
(a) Licensed by and in good standing with the
		  Board,
(b) The licensee or firm in
		  which he is associated has completed an acceptable peer review pursuant to Rule
		  14.3(d), or has completed the Board's Quality Review with no fail reports
		  within three years immediately preceding the appointment,
(c) The licensee or his firm has no pending
		  investigation or disciplinary matters by the Board, and
(d) Shall have a minimum of 5 years of
		  experience in accounting and auditing, including experience in
		  compilations.
14.5 TEAM
		  CAPTAINS
Team captains shall have the following qualifications:
(a) Licensed by and in good standing with the
		  Board,
(b) The licensee or firm in
		  which he is associated has completed an acceptable peer review pursuant to Rule
		  14.3(d), or has completed the Board's Quality Review with no fail reports
		  within three years immediately preceding the appointment,
(c) The licensee or his firm has no pending
		  investigation or disciplinary matters by the Board, and
(d) Shall have a minimum of 5 years of
		  experience in accounting and auditing, including experience in
		  compilations.
(e) Shall have served
		  as a quality reviewer for a minimum of one year, and
(f) Shall be approved by the QR
		  Consultant.
14.6 QR
		  CONSULTANT
The QR consultant shall have the following qualifications:
(a) Licensed by and in good standing with the
		  Board,
(b) The licensee or firm in
		  which he is associated has completed an acceptable peer review pursuant to Rule
		  14.3(d), or has completed the Board's Quality Review with no fail reports
		  within three years immediately preceding the appointment,
(c) The licensee or his firm has no pending
		  investigation or disciplinary matters by the Board, and
(d) Shall have a minimum of 5 years of
		  experience in accounting and auditing, including experience in compilations,
		  and
(e) Shall be approved by the
		  Board.
14.7 QR PROCEDURE
The QR process shall include:
(a) Review and classification of the report
		  and a statement of reasons for the classification by an assigned
		  reviewer.
(b) Review of that
		  classification and reasons therefore by the QR team captain who may make
		  appropriate changes after consulting with the assigned reviewer.
(c) Review of that classification and reasons
		  therefore by the Board's QR Consultant who may make appropriate changes after
		  consulting with both the assigned reviewer and team captain.
14.8 QR CLASSIFICATIONS
The QR will result in a determination whether each report rating
			 is fail, pass with deficiencies, or fail.
(a) "Pass" means that the report contains no
		  deficiencies or only minor deficiencies.
(b) "Pass with Deficiencies" means that the
		  report contains more serious deficiencies, such as departures from the
		  technical reporting or accounting standards set forth in Board Rule 8, but of
		  the type that will not render the statement materially inaccurate or
		  misleading.
(c) "Fail" means that
		  the report is materially inaccurate or misleading; such a report violates one
		  or more significant reporting standards, seriously departs from Generally
		  Accepted Accounting Principles, or does not include material disclosures
		  necessary for a fair presentation.
(d) "Deficiency" means a failure to comply
		  with any provision in the Professional Standards identified in Board Rule
		  8.
14.9 NOTIFICATION AND
		  RESPONSE
(a) The licensee will be notified in
		  writing of the QR classification of each report. Notice of pass with
		  deficiencies and fail reports shall be by certified mail, return receipt
		  requested. No response is necessary for a "pass" or "pass with deficiencies"
		  classification, and QR will be closed. If the licensee who has received a pass
		  with deficiencies classification disagrees, he should notify the Board in
		  writing within 30 days. The notification will instruct the licensee who has
		  received a fail classification to reply to the Board in writing within 30
		  days.
(b) Pass with Deficiencies
		  classification. If the licensee agrees with the pass with deficiencies
		  classification, no reply is necessary and the QR is complete. However, if the
		  licensee disagrees with the classification, he may, but is not required to file
		  a notice including an explanation of his objection, citations to applicable
		  professional standards, and any relevant documentation supporting his objection
		  to the classification for consideration by QR Consultant. This notice must be
		  written and filed with the Board within 30 days. After reconsideration of the
		  Summary of Deficiencies and Comments, original documents from the licensee, and
		  any supplemental information from the licensee that may have been requested by
		  the QR Team, the QR Consultant will affirm the classification of or reclassify
		  the licensee's report. The licensee will be notified of this result in writing
		  for informational purposes. The QR will be closed and the licensee will remain
		  in the same QR cycle.
(c) Fail
		  Classification.
(1) First fail
		  classification.
(A) Within 30 days the
		  licensee shall respond in writing to the Board's notification of a first fail
		  classification stating whether he agrees or disagrees with that
		  classification.
(B) If the licensee
		  agrees with the fail classification, the Board shall request that the licensee
		  obtain 16 hours of CPE in specific subjects. Said CPE is intended to be
		  educational, for the purpose of improving the quality of the licensee's
		  reports, rather than disciplinary in nature, shall not be self-study, and shall
		  be approved in advance by the Board's Executive Director. The licensee shall
		  complete said CPE hours and deliver acceptable documentation thereof to the
		  Board on or before June 30 of the following year.
(C) If the licensee disagrees with the fail
		  classification, he may deliver written notice to the Board within 30 days
		  explaining the objection to the classification, citation to applicable
		  professional standards and any relevant documentation supporting the licensee's
		  objection to the classification. The QR Consultant shall review the Summary of
		  Deficiencies and Comments, original documents from the licensee, and any
		  supplemental information from the licensee that may have been requested by the
		  QR Team, and will affirm the classification of, or reclassify the licensee's
		  report. The licensee will be provided written notice of the QR Consultant's
		  review of the report by certified mail, return receipt requested.
(D) The licensee can appeal the QR
		  Consultant's decision on the classification, and obtain a hearing by the Board
		  by filing a written notice of appeal with the Board within 30 days. The Board
		  shall notify the licensee of the time and place of the hearing and shall
		  consider the classification of the report based solely upon the record
		  considered by the QR Consultant, as per paragraph (b). When the evidence of
		  record that the report is a fail report is considered, the Board will consider
		  all relevant facts. Should the facts show convincingly that the report should
		  be classified as "fail", the Board will consider the report as fail. If the
		  evidence of record is equally balanced, or the Board cannot find that the facts
		  are convincing, the Board shall determine that the report should not be
		  classified as fail. Should the Board find that the report should be classified
		  as fail, it may require appropriate action by the licensee that is designed to
		  assure that the licensee's professional services are performed consistent with
		  applicable professional standards as provided under these procedures.
(E) Following any first fail classification
		  of the report that becomes final prior to appeal to the Board, the licensee
		  will be requested to obtain the 16 hours of CPE as stated in paragraph
		  14.9(c)(1)(B) above. Upon request of the licensee, or should the licensee not
		  agree to obtain CPE described above, fail to complete said CPE, or fail to
		  timely deliver satisfactory documentation thereof to the Board, the Board shall
		  conduct a hearing to determine whether the licensee has failed to comply with
		  the Code of Professional Conduct and the Public Accountancy Act of 1975, Ark.
		  Code Ann. § 17-12-101 et seq. and, if so, the necessary corrective action
		  to be taken to improve the quality of the licensee's reports or to otherwise
		  protect the public interest.
(2) Second consecutive fail report.
(A) Within 30 days the licensee shall respond
		  in writing to the Board's notification of a second fail classification stating
		  whether he agrees or disagrees with that classification.
(B) If he agrees with the classification, the
		  licensee will be requested to submit reports for pre-issuance review pursuant
		  to the Board's current Pre-Issuance Review Procedures that shall be provided to
		  the licensee.
(C) If the licensee
		  disagrees with the fail classification, he will be instructed to file notice
		  including an explanation of his objection to the classification, citation to
		  applicable professional standards, and any relevant documentation supporting
		  his position for reconsideration by QR Consultant. The provisions set forth in
		  subparagraph 14.9(c)(1)(D-E) for reconsideration by the QR Consultant and
		  appeal to the Board are also applicable to second consecutive fail
		  reports.
(D) Upon appeal, should
		  the Board find that the report should be classified as fail, it may require
		  that the licensee take action deemed appropriate by the Board to assure the
		  licensee's professional services are performed consistent with applicable
		  professional standards or to otherwise protect the public interest.
(E) If at any stage of the QR procedure in
		  this subparagraph 14.9(c)(2) pertaining to second consecutive fail reports, the
		  licensee fails to respond to the notice of the classification of the report as
		  fail in the original review or upon reconsideration by the QR Consultant or
		  review by the QR Committee, the Board will determine whether to schedule a
		  hearing to find whether the licensee's report should be classified as fail and
		  whether the Board shall require the licensee to obtain pre-issuance review and
		  subsequent QR pursuant to the Board's current Pre-Issuance Review Procedures or
		  take other action appropriate to protect the public interest.
(3) Third consecutive fail report.
(A) Within 30 days the licensee shall respond
		  in writing to the Board's notification of third fail classification stating
		  whether he agrees or disagrees with that classification.
(B) If the licensee agrees with the
		  classification, the Board will determine whether to conduct a hearing to
		  consider whether the licensee's report violates the Board's Code of
		  Professional Conduct and the Public Accountancy Act of 1975, Ark. Code Ann.
		  § 17-12-101 et seq.
(C) If the
		  licensee disagrees with the fail classification, he will be instructed to file
		  notice including an explanation of the objection to the classification,
		  citation to applicable professional standards and any relevant documentation
		  supporting his position for consideration by QR Consultant.
(D) The procedure set forth in sub paragraph
		  14.9(c)(1)(D-E) for reconsideration by the QR Consultant and appeal to the
		  Board are also applicable to third consecutive fail reports.
(E) Upon appeal, should the Board find that
		  the report is in violation of the Code of Professional Conduct or the Public
		  Accountancy Act of 1975, Ark. Code Ann. § 17-12-101 et seq., it may take
		  appropriate action to protect the public interest.
(F) If at any stage of the QR procedure in
		  this paragraph 14.9(c)(3), the licensee fails to respond to the notice of the
		  classification of the report as fail in the original review or upon review by
		  the QR Consultant or review by the QR Committee, the Board will determine
		  whether to schedule a hearing to determine whether the licensee has violated
		  the Board's Code of Professional Conduct or the Public Accountancy Act of 1975,
		  Ark. Code Ann. § 17-12-101 et seq., and the appropriate action to be taken
		  as a result of the violations found.
(G) Consent orders. At any stage in the QR
		  process, when a licensee will agree not to perform any further reports that
		  have been classified as fail or to other appropriate action to protect the
		  public interest, the Board may resolve the controversy by an appropriate
		  Consent Order.
14.10 PRE-ISSUANCE REVIEW PROCEDURES
(a) Pre-Issuance Reviewer (Reviewer) shall be
		  a CPA or PA currently holding an Arkansas license to practice public
		  accountancy, who has undergone quality or peer review within the past 3 years
		  with reports thereon determined to be acceptable pursuant to Rule 14.3(d), and
		  approved by the Board prior to performing preissuance reviews for the subject
		  Accountant (Respondent). Prior to performing any pre-issuance review services,
		  the Reviewer shall deliver a written confirmation to the Board to provide
		  pre-issuance review of each compilation report prepared by the subject
		  respondent for the period of the engagement. The Respondent whose Reports are
		  being reviewed shall be solely responsible for any expense for the pre-issuance
		  review.
(b) Reviewer shall review,
		  prior to release to Respondent's client, each Report as identified above to
		  determine compliance with professional standards identified in Board Rule 8 or
		  otherwise applicable to the particular type of Report and shall authorize the
		  release of a Report only after making a written determination that the Report
		  complies with said standards. In the event a submitted Report does not comply
		  with said standards, the reviewer shall provide written comments or
		  instructions for the Respondent to revise the Report in compliance with
		  applicable professional standards.
(c) Reviewer shall maintain a pre-issuance
		  review file on each Report review performed. The file shall contain each
		  original Report submitted to reviewer, the reviewer's written comments or
		  instructions in any form regarding necessary revisions for the Report to comply
		  with professional standards, any revised Report(s) and the Report(s) approved
		  for release to the client. Reports reviewed and found acceptable with no change
		  shall be clearly noted on the file Report, "Accepted-No Change
		  Required".
(d) Reviewer shall
		  maintain the pre-issuance review files for a minimum of five years after each
		  pre-issuance review engagement is completed and shall make said records
		  available to the Board upon request.
(e) Reviewer shall submit a written report to
		  the Arkansas Board of Public Accountancy every ninety (90) days following the
		  date of the Reviewer's confirmation to the Board. The report shall contain a
		  summary of the number of Reports reviewed, number of Reports with no change
		  required, and number of Reports requiring amendment. For Reports requiring
		  change, a copy of each original Report submitted by Licensee, Reviewer
		  notations, and/or comment sheet(s) and the revised and approved Report(s) must
		  accompany the report.
(f) Reviewer
		  may recommend in writing with accompanying supporting documentation that the
		  Respondent be released from continuing pre-issuance review. Should the Board
		  determine that the Respondent appears to have demonstrated an ability to issue
		  Reports in compliance with applicable professional standards without the
		  necessity of continuing pre-issuance review, it shall terminate the
		  pre-issuance review, but may require the Respondent to participate in annual
		  quality review for a specific or indefinite term.
14.11 REPEALED