1. Introduction:

The Institute of Certified Public Accountants in Israel has made the goal of maintaining a high level of professional competence of its members one of its main objectives.

As this issue is presently on the international public agenda, there is no doubt that broadening and institutionalizing accounting standards serves the public interest and strengthens the confidence of the capital market.

These facts formed the background to establishing a framework for a peer review program under the supervision of the Institute of Certified Public Accountants in Israel.


2. Guidelines:

2.1.

The peer review under the supervision of the Institute of Certified Public Accountants in Israel will be binding on firms of certified public accountants which audit the financial statements of public companies (for this purpose, companies are defined as companies that are subject to the Israel Securities Law, or that have their securities traded on foreign stock exchanges). (Members who wish to audit public companies will be able to join the pool of firms, at their request).

 

2.2.	The Institute of Certified Public Accountants in Israel has set, at its sole discretion, the date and frequency of the review. Nevertheless peer reviews of firms will be undertaken not less than once every three years, at least, and the review at the five largest firms will be undertaken yearly.

 

2.3.	The Institute of Certified Public Accountants will set up a steering committee to administrate the reviews. Its responsibilities will be as follows:

 

a.

Selection and affirmation of certified public accountants who will undertake the review work

 

b.

Supervision over the review - timing and frequency of the review, branch offices that are reviewed, considering the need for repeat reviews, etcetera. In deciding on the timing of the review, the steering committee will take into account, inter alia, the periods of work – related pressures at the firms under review.

 

2. Guidelines (continued):

 

2.3 Continued:

 

c.

Receiving the review reports and the preparation of findings. The steering committee will consider forwarding its broad findings to every firm and will consider the need to publish its guidelines/clarifications, and if necessary, will forward its recommendations to the Accounting Standards Committee for further attention.

 

d.

Coordination with other bodies, as follows:   Auditors’ Council - the steering committee will update the Auditors’ Council in circumstances where it has uncovered significant violations that were not corrected, and which constitute violations of the Auditors’ Law and Regulations.    Securities Authority - the steering committee will advise the Securities Authority of every report to the Auditors’ Council, as noted above. In addition, the steering committee will advise the Securities Authority of any violation (which is not technical in nature) even if it is not a violation that requires a report to the Auditors’ Council. In addition, the steering committee will update the Securities Authority on a regular basis, at least once per year, on the broad findings that were uncovered during the reviews. This update will be undertaken without noting the identities of the firms involved. The Securities Authority, for its part, will advise the steering committee of any specific matters which, in its opinion, should be included in the review framework.

 

2.4.

a.

The steering committee will be consist of 14 certified public accountants who are also members of the Institute:

 

- The chairman of the steering committee.

 

- 5 members representing the five largest firms, one from each firm (these members will be chosen by the steering committee, preferably in cooperation with the firms).

 

- 5 members in public practice.

 

- 3 members, whose main pursuits are not in public practice (controllers, managing directors, lecturers from academia, etcetera).

 

b.

The chairman of the steering committee and its members will be chosen by the central committee. The first chairman of the steering committee will be the president of the Institute of Certified Public Accountants in Israel (as requested by all the large firms).

 

c.

The chairman and members of the steering committee will be chosen for a period of three years and they may be chosen for additional terms (maximum of three consecutive terms).

2. Guidelines (continued):

 

2.4 Continued:

 

d.

Decisions of the steering committee will be taken by a majority of votes by those present. In the event of a tie, the chairman of thesteering committee will have the deciding vote (six members of the committee will form a legal quorum for meetings of the committee).

 

2.5	The certified public accountants who are undertaking the review must comply with the following conditions:

 

a.

They must be certified public accountants, and members of the Institute of Certified Public Accountants of Israel.

 

b.

They must have an advanced level of professional knowledge and an appropriate professional standing

 

c.

They must have 10 years of up-to-date experience with audits in public practice. Preference will be given to knowledge and experience with public companies, where possible.

 

d.

They must maintain complete full confidentiality. Any information that they may have access to, which belongs to the firm under review, or to clients of the firm under review, will be kept in full confidence, and no unwarranted use may be made of it whatsoever. This duty is also binding on members of the steering committee of the Institute of Certified Public Accountants in Israel.

 

e.

The certified public accountants who are undertaking the review must be independent of the firms under review. Said accountants will undertake their duties in fairness, objectively and with due professional care. This responsibility is also binding on members of the steering committee.

 

2. Guidelines (continued):

 

 

2.6	The review procedures:

 

a.

The review procedure will include the firm’s professional practice (accounting and auditing, including a review of the interim financial statements), including the aspects of independence and professional ethics, acceptance of clients, etc.   The scope of the review will not include the business aspects of the firm such as budgets of the firm, profitability, compensation to partners and employees etcetera. In addition, the review will be undertaken only at the offices of the firm, without any possibility of access to, in any manner, clients of the firm, during or after the review.

 

b.

The reviewers will study the structure of the firm and its professional practice

 

c.

The reviewers will study how the firm’s system of quality control is set up, how it functions, and how it is managed

 

d.

In the event that a review of the firm was previously undertaken, the reviewer will study developments at the firm and the conclusions drawn from the last review, including reviews undertaken by the international network of firm.

 

e.

The reviewers will test compliance by the firm under review with work procedures and quality control. The compliance test will include a review of a sample of engagements with clients, including documentation in the working paper files, interviews with professional staff of the firm that deal with clients and quality control, a review of additional evidence that supports the policies of the firm and its procedures (for example employee files in the human resource department, professional follow-up, guidance, professional bulletins, correspondence, etcetera).

 

f.

The reviewer will be assisted in his work by a review program. The program will be prepared by the steering committee. The program will be updated according to need and circumstances, from time to time

 

g.

The reviewer will prepare a report on their findings, including comments as necessary. The report will include the comments/remarks of the firm under review.