Getting Proactive About Quality Review

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JULY 2005 - Last year, the NYSSCPA’s 2004/05 President John Kearney appointed a Quality Enhancement Policy Committee, chaired by then President-Elect Steve Langowski, to examine how the AICPA’s peer review program affects the quality of New York State CPA firms’ audits and other assurance services. The NYSSCPA administers peer review in New York State, applying the standards, policies, and procedures set by the AICPA. Currently, 37 states require peer review for licensure. New York is the only large state that does not require peer review for licensure, although the Society has supported various legislative initiatives in recent years that would make peer review mandatory. Peer review is mandatory for New York State CPA firms only if they are AICPA members that perform attestation services.

Legislative proposals under consideration as this goes to press include provisions that, in addition to making peer review mandatory, would place the program under state government oversight with state-approved reviewers. The legislature has considered these bills for several years, but the recent scandals uncovered in Long Island school district audits has given them new impetus. These positive reforms would make apparent other much-needed changes in the program, including the qualifications and training of peer reviewers.

Meeting Demand and Raising the Bar

New York currently has only about 120 active peer reviewers, down from around 200 five years ago. Mandatory peer review would cause many more firms to enter the program, creating an enormous gap between expected demand and current capacity. If we want to set the bar of reviewer qualifications higher, not lower, we need to plan how to recruit, train, guide, and monitor reviewers. In addition, the program will need a new approach to matching reviewers with firms, in order to improve quality. The fact that firms select their own reviewers has raised questions about independence. In addition, relying too much on a limited number of reviewers would eventually create a class of professional reviewers who are not “peers,” because they spend most of their time on reviews and therefore are not current on accounting and auditing practice.

The NYSSCPA is considering many aspects of how a quality peer review is carried out. In the accounting profession, reviews are currently done firm-on-firm. A different approach can be seen in academia, where a team comprised of members from different schools is assembled for each review and then disbanded after the site visit is completed and the report submitted. One way to deal with a shortage of reviewers may be to require that all CPA firms that are peer reviewed provide a certain number of reviewers to the professional community. Another would be to require participating firms to contribute a certain number of professional hours to the review program, based upon a sliding scale tied to firm size.

Putting Quality on the Agenda

This month, at our annual leadership conference, the Society’s leadership will discuss the current peer review program and the Quality Enhancement Policy Committee’s findings and recommendations. Input from the entire membership is an important part of this process, so I encourage you to let me know your opinions about the Society’s current agenda for improving quality review for CPA firms, and other ideas that may not be on the table yet.

Louis Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA
lgrumet@nysscpa.org

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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