| Mr.
Langowski asked President-elect Riley, who chairs the Quality
Enhancement Policy Committee, to summarize actions taken
by the QEPC to bring its whitepaper into final form since
the September Board meeting. Mr. Riley reported that QEPC
had met twice since September. At the first meeting, Henry
Krostich – an active peer reviewer, current member
and former chairman of the NYSSCPA Peer Review Committee,
and a former member of the AICPA Peer Review Board –
addressed the QEPC to share concerns the Peer Review Committee
has had with the whitepaper. He noted conceptual agreement
with all aspects of the paper except the “pooling
concept.”
At its
following meeting, the QEPC discussed the pooling concept
at length and determined that it was a key element of needed
reform to the peer review program and that, despite claims
pooling had not worked in previous decades, renewed effort
could make the concept work. In the end, the QEPC remained
committed to the pooling concept and recommended that the
board endorse the whitepaper with the pooling concept intact.
Mr.
Grumet mentioned a discussion he had with Susan Coffey,
AICPA Senior Vice President–Member Quality & State
Regulation, about the draft whitepaper and the AICPA’s
own process to revise the peer review program. Ms. Coffey
mentioned that the AICPA committee’s draft report
was due for release in December. Also, she said that she
had no objection to the Society’s draft whitepaper;
although they were skeptical about the workability of the
pooling concept. The two also discussed the possibility
of New York implementing a pilot program with respect to
the QEPC-recommended changes to the Peer Review program.
Mr. Grumet said that Ms. Coffey indicated a pilot program
was not prohibited under peer review program rules, but
that approval would need to be obtained.
Mr.
Riley then noted that the QEPC had received an invitation
to brief the New York State Board for Public Accountancy
(SBPA) regarding the draft whitepaper. He was accompanied
to the SBPA meeting by members of the QEPC and he said that
the state board appeared very interested in the whitepaper
and asked a number of questions. Mr. Grumet stated that
there had been some confusion about whom the whitepaper
indicated would be responsible for oversight of the quality
review program if mandated by statute. The state board was
concerned that regulatory authority would be vested in the
Legislature rather than the Regents. Mr. Grumet stated that
this was not intended and offered a clarification to the
whitepaper that the Regents would be delegated responsibility
to oversee the quality review program. This appeared to
allay the SBPA’s concerns. Subsequently, the QEPC
incorporated this change into the whitepaper.
Mr.
Riley asked Mr. Stubbs, who had also attended the SBPA meeting,
what his reactions were. He said he believed the board was
taking the whitepaper very seriously and found the pooling
concept intriguing. He observed that the questions posed
by the SBPA suggested that the board was interested in implementation
details, and he suggested that the white paper address implementation
steps more explicitly. A discussion ensued regarding Mr.
Stubbs suggestions. Several noted the inherent differences
between legislation and regulations, where legislation was
often broadly worded with implementation details delegated
by the legislature to regulatory agencies such as the state
Board of Regents. Mr. Grumet agreed that some more detail
might be helpful to clarify the regulatory implementation
aspects. The committee also discussed generally other regulatory
schemes, such as a state collaboration with an independent,
non-profit entity.
During
the discussion, those present reached consensus in support
of the pool approach, and then discussed how such a pool
might be chosen. They noted a possible requirement mandating
appropriate CPAs from quality-reviewed firms to participate
in the peer reviewer pool. There was agreement that participation
should be subject to extensive training and very high qualifications.
In this respect, service in the pool would be viewed as
an elite privilege and professional duty by members, not
as a chore.
The
committee discussed the issue of compensation for participating
in the pool. Several stated that the cost of a pool approach
needed to be confronted in order to grow membership support
for the pool concept.
Mr.
Riley then reported that Mr. Nowicki who was unable to attend
the special meeting of the Executive Committee had submitted
commentary on the current whitepaper draft. Mr. Riley determined
that all the participants, including those on the phone,
had in fact received Mr. Nowicki’s comments. The committee
paused to study the commentary and proceeded to a detailed
discussion of the pooling concept, which was the sole objection
being raised by Mr. Nowicki.
One
executive committee member believed the argument that pooling
had not worked in the past was no proof that it would fail
under a different regulatory structure. That member noted
that when first implemented, peer review had been educational
and remedial; but that peer review had begun over a generation
ago and it was clearly time to move beyond that model. Another
committee member said that his or her firm was very open
about sharing its peer review report with potential clients.
The report had become a badge of honor for many firms with
the result that the public had begun to have expectations
of the peer review program. The current model no longer
sufficiently addressed the expectations being placed upon
it.
Yet
another committee member noted one argument raised against
pooling, to the effect that this would send a message to
the public that the Society was endorsing the assignment
of auditors to clients by outsiders. This argument had been
referred to as the “slippery slope” argument.
The committee member said the “slippery slope”
argument was inapplicable because quality review as envisioned
by the QEPC would be part of the regulation of the profession
and had little to do with audits of business enterprises
by the profession. The committee member believed that pooling
was desirable in the quality review context. Treasurer Grusd
said that the premise underlying the slippery slope argument
wasn’t entirely solid in that financial institutions
such as his employer put auditor veto clauses in their loan
documents in the event they were unhappy with a debtor/client’s
choice of auditor.
Several
questions during the discussion resulted in requests for
later follow up as follows:
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A committee member asked if CAMICO Insurance Company,
the Society’s endorsed provider of professional
liability insurance for members, viewed an insured’s
participation in the peer review program as a mitigating
factor in the underwriting and premium-setting process
for that firm. Mr. Grumet agreed to find out the answer
to this question and report back to the committee at a
later time.
-
A brief discussion ensued regarding the effect that financial
scandals such as Enron may have had on the passage of
mandatory peer review in the states. Several suggested
that the issues brought to light by these scandals would
have made passage very difficult. In response to a question,
staff agreed to research how many states have actually
passed mandatory peer review post-Enron.
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The committee briefly discussed a potential future information
and educational process to inform members about the issues
raised in the QEPC white paper, including the development
of a media piece and webpage on the organization’s
website. Mr. Grumet informed the committee that an interim
white paper executive summary with request for comments
had been placed on the website approximately one month
ago. He stated that, to date, a single response had been
received, and that was from a CPA in Illinois. At the
request of a committee member, Mr. Grumet agreed to provide
the number of hits this page had received to date for
the Board’s information at next week’s meeting.
At this
point Mr. Grusd moved and Ms. Cutler seconded the following
motion:
RESOLVED,
that the Executive Committee endorses the final draft
of the QEPC Whitepaper and forwards it to the NYSSCPA
Board with the recommendation that the Board approve the
document for exposure to the membership and development
of a legislative strategy and other steps necessary for
implementation.
Following
additional discussion, the resolution passed unanimously.
Mr. Lauchert, who had to leave the discussion before the
vote later rejoined the call, was briefed on the resolution
and result of the vote. He indicated his wholehearted approval.
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