"Quality
is never an accident; it is always the result of high intention,
sincere effort, intelligent direction and skillful execution;
it represents the wise choice of several alternatives ..."
PBTK
is proud to report that for the fifth consecutive time (that
is, every time in the history of the Firm), we received the
highest marks possible from our
independent peer reviewers on the effectiveness of our
quality control system over our accounting and auditing
practice. As an audit firm engaged in SEC practice, and a
member of the American Institute of CPA’s Center for Public
Company Audit Firms (CPFAF), we are required to undergo an independent
peer review (which consists of the most intense independent evaluation
available of the
effectiveness our system of quality control over our non-SEC accounting
and auditing practice) and an inspection of our SEC audit
practice by the Public Company Accounting Oversight Board, every three years.
This time,
in November 2004, as for
the previous reviews three and six years ago, our
independent peer reviewers had
no findings deemed significant enough to include in a letter
of comments, which commonly accompanies a peer review report
(even if unmodified); therefore, none was issued. Our latest
peer review report is reproduced below.
Our 2004 peer review
report. Our most recent peer review report issued
in late 2004 under the auspices of the CPCAF by independent
peer reviewers reads as follows:
November 18, 2004
To the Shareholders of
Piercy Bowler Taylor & Kern, CPAs and Business
Advisors and
the Center for Public Company Audit Firms Peer Review
Committee
We have reviewed the system
of quality control for the accounting and auditing practice
of Piercy Bowler Taylor & Kern, CPAs and Business
Advisors, (the firm) applicable to non-SEC issuers in effect for the year ended
June 30, 2004. The firm’s accounting and auditing practice
applicable to SEC issuers was not reviewed by us since the
Public Company Accounting Oversight Board (PCAOB) is
responsible for inspecting that portion of the firm’s
accounting and auditing practice in accordance with PCAOB
requirements. A system of quality control encompasses the
firm’s organizational structure and the policies adopted and
procedures established to provide it with reasonable
assurance of complying with professional standards. The
elements of quality control are described in the Statements
on Quality Control Standards issued by the American
Institute of Certified Public Accountants (the AICPA). The
design of the system, and compliance with it, are the
responsibilities of the firm. Our responsibility is to
express an opinion on the design of the system, and the
firm’s compliance with that system based on our review.
Our review was conducted in
accordance with standards established by the Peer Review
Committee of the Center for Public Company Audit Firms and
included procedures to plan and perform the review that are
summarized in the attached description
of the peer review process. Our review would not necessarily
disclose all weaknesses in the system of quality control or
all instances of lack of compliance with it since it was
based on selective tests. Because there are inherent
limitations in the effectiveness of any system of quality
control, departures from the system may occur and not be
detected. Also, projection of any evaluation of a system of
quality control to future periods is subject to the risk
that the system of quality control may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the system
of quality control for the accounting and auditing practice
applicable to the non-SEC issuers of Piercy Bowler Taylor &
Kern, CPAs and Business Advisors,
in effect for the year ended
June 30, 2004, has been designed to meet the requirements of
the quality control standards for an accounting and auditing
practice established by the AICPA, and was complied with
during the year then ended to provide the firm with
reasonable assurance of complying with professional
standards.
The following
detailed description of the 2004 peer review process and its scope
was appended by our peer reviewers to their report:
Description of the Peer Review
Process
Overview
Firms enrolled in the AICPA
Center for Public Company Audit Firms (the Center) Peer Review
Program must have their system of quality control periodically
reviewed by independent peers. These reviews are system and
compliance oriented with the objectives of evaluating whether:
·The reviewed
firm’s system of quality control for its accounting and
auditing practice applicable to non-SEC issuers has been
designed to meet the requirements of the Quality Control
Standards established by the AICPA.
·The reviewed
firm’s quality control policies and procedures applicable to
non-SEC issuers were being complied with to provide the firm
with reasonable assurance of complying with professional
standards.
A peer review is based on
selective tests and directed at assessing whether the design of
and compliance with the firm’s system of quality control for its
accounting and auditing practice applicable to non-SEC issuers
provides the firm with reasonable, not absolute, assurance of
complying with professional standards. Consequently a peer
review on the firm’s system of quality control is not intended
to, and does not, provide assurance with respect to any
individual engagement conducted by the firm or that none of the
financial statements audited by the firm should be restated.
The Center’s Peer Review
Committee (PRC) establishes and maintains peer review tandards.
At regular meetings and through report evaluation task forces,
the PRC considers each peer review, evaluates the reviewer’s
competence and performance, and examines every report, letter of
comments, and accompanying response from the reviewed firm that
states its corrective action plan before the peer review is
finalized. The Center’s staff plays a key role in overseeing the
performance of peer reviews working closely with the peer review
teams and the PRC. Once the PRC accepts the peer review reports,
letters of comments, and reviewed firms’ responses, these
documents are maintained in a file available to the public. In
some situations, the public file also includes a signed
undertaking by the firm agreeing to specific follow-up action
requested by the PRC.
Firms that perform audits or play
a substantial role in the audit of one or more SEC issuers, as
defined by the Public Company Accounting Oversight Board (PCAOB),
are required to be registered with and have their accounting and
auditing practice applicable to SEC issuers inspected by the
PCAOB. Therefore, we did not review the firm’s auditing practice
applicable to SEC issuers.
Planning the
Review for the Firm’s Accounting and Auditing Practice
Applicable to Non- SEC Issuers
To plan the review of Piercy
Bowler Taylor & Kern, CPAs and Business Advisors,
we obtained an understanding of (1) the nature and extent of the
firm’s accounting and auditing practice, and (2) the design of
the firm’s system of quality control sufficient to assess the
inherent and control risks implicit in its practice. Inherent
risks were assessed by obtaining an understanding of the firm’s
practice, such as the industries of its clients and other
factors of complexity in serving those clients, and the
organization of the firm’s personnel. Control risks were
assessed by obtaining an understanding of the design of the
firm’s system of quality control, including its audit
methodology, and monitoring procedures. Assessing control risk
is the process of evaluating the effectiveness of the reviewed
firm’s quality control system in preventing the performance of
engagements that do not comply with professional standards.
Performing the Review for the Firm’s Accounting and Auditing
Practice Applicable to Non-SEC Issuers
Based on our assessment of the
combined level of inherent and control risks, we identified
selected engagements performed by the firm to test for
compliance with the firm’s system of quality control. The
engagements selected for review included engagements performed
under the Government Auditing Standards and audits of Employee
Benefit Plans. The engagements selected for review represented a
cross-section of the firm’s accounting and auditing practice
with emphasis on higher-risk engagements. The engagement reviews
included examining working paper files and reports and
interviewing engagement personnel.
The scope of the peer review also
included examining selected administrative and personnel files
to determine compliance with the firm’s policies and procedures
for the elements of quality control pertaining to independence,
integrity, and objectivity; personnel management; and acceptance
and continuance of clients and engagements. Prior to concluding
the review, we reassessed the adequacy of scope and conducted a
meeting with firm management to discuss our findings and
recommendations.
Our PCAOB inspection. Our Firm was selected for
inspection of its SEC audit practice by a team of PCAOB
inspectors in early May 2005. The results of that inspection
will be made public when the PCAOB issues its report. We cannot
predict when that report will be forthcoming, but the results
will be posted on this page when they are available.
Our 2001 peer
review. Our 2001 peer
review was more intense than ever before because of our voluntary
participation in an experimental pilot program described in
the following four paragraphs.
In 1999, the
AICPA's SEC Practice Section (SECPS) Executive Committee formed a task force
for the purpose of recommending ways of improving the effectiveness
of peer reviews. The task force’s report was later incorporated
into the final report dated August 31, 2000, of the Public
Oversight Board’s Panel on Audit Effectiveness, along
with additional recommendations of the panel. The SECPS Peer
Review Committee decided to field test an approach to implementing
these recommendations during the 2001 peer review season with
what was called a “pilot program.” All of the
12 largest firms were required to participate in the pilot
program, and many smaller firms that were scheduled for peer
reviews that year were invited to volunteer to participate.
We were one of only two firms in the nation to
participate voluntarily in the pilot program.
Among the
recommendations were perceived improvements in the way peer
reviews would be conducted, largely to enable more qualitative,
subjective and judgmental considerations and findings by reviewers,
but more significantly, a more intense focus on how the reviewed
firms typically address audit areas in their guidance and
training and actual practice that are of heightened concern
because they appeared to contribute to many serious audit
failures uncovered in the recent past. Seven such areas were
identified for emphasis in the foreseeable future. In our
opinion, the most important were the identification of significant
risks of misstatement and the linking thereof to the selection
of substantive audit procedures to be applied (commonly called
“risk-based” auditing) and the use of materiality
concepts in the audit process. The other focus areas included
auditing estimates and judgments, use of analytical procedures,
identifying revenue recognition issues, going concern questions,
and communications with audit committees.
For over 20 years, PBTK
audit principals have been among leaders in the profession
in the application of modern, risk-based auditing methods.
We viewed the challenge to voluntarily subject our auditing
to scrutiny in this process as an opportunity to demonstrate
our advanced capabilities as measured against the same strict
criteria applied to the largest firms.
"Quality
is never an accident; it is always the result of high intention,
sincere effort, intelligent direction and skillful execution; it
represents the wise choice of several alternatives..."
