
A bill (S6026A/A7895A) that would require mandatory peer review for all CPA firms in New York state that do attest work was passed in the Senate and Assembly in June and now requires only Gov. Andrew Cuomo’s signature to become law.
The Society advocated for passage of the act, which eliminates an exemption from mandatory peer review for firms with two or fewer CPAs, in order to protect the public interest by ensuring best practices among all CPA firms that perform audits. The legislation also streamlines the language used to describe the review process, using the term “peer review” throughout, rather than “mandatory quality review.” This change was made because the process is known as peer review throughout the country among those in the public accountancy profession.
The bill passed, 60-2, in the Senate on June 21, and was sponsored by Republican Sen. Pamela Helming; Democratic Assemblyman Albert “Al” A. Stirpe Jr. sponsored the Assembly bill, which passed, 108-0, on June 14.
With the passage of this legislation, New York joins every other state in the country in requiring mandatory peer review—periodic, third-party evaluation of a CPA firm’s accounting and auditing practices—for all firms that do attest work.
New York state law defines “attest” to mean providing the following public accountancy services, which all require the independence of licensees: a. any audit to be performed in accordance with generally accepted auditing standards or other similar standards, developed by a federal governmental agency, commission or board or a recognized international or national professional accountancy organization, that are acceptable to the department in accordance with the commissioner’s regulations;
b. any review of a financial statement to be performed in accordance with standards, developed by a federal governmental agency, commission or board or a recognized international or national professional accountancy organization, that are acceptable to the department in accordance with the commissioner’s regulations;
c. any examination to be performed in accordance with attestation standards developed by a federal governmental agency, commission or board or a recognized international or national professional accountancy organization, that are acceptable to the department in accordance with the commissioner’s regulations; or
d. any engagement to be performed in accordance with the auditing standards of the [Public Company Accounting Oversight Board].
While sole proprietors and firms with two or fewer CPAs have been exempt from the peer review requirement since it was first made mandatory in New York state in 2012, that exemption has never applied to any firm doing attest work for a governmental agency, in conformity with governmental auditing standards of the U.S. comptroller general (the Yellow Book).
Compilations are not considered attest work. Any sole proprietor or two-person firm that does compilations but not reviews or audits is not required to undergo peer review.
The Assembly has until Dec. 31 to deliver the bill to the governor’s office.
According to rules of the Legislature, if the governor receives the bill when the Legislature is in session, he would have 10 days to sign or veto it, and his failure to act would mean the bill becomes law automatically. If the Legislature is out of session, he would have 30 days to sign it, and his failure to act would have the effect of a veto.
If Cuomo signs the bill into law, the state’s already existing regulation, Section 70.10.c.5, Mandatory Quality Review Program, will apply to those firms that would become subject to peer review, which requires firms to notify the department of its change in status within 30 days and provide the department with evidence of enrollment in an acceptable peer review program within one year of either the date of the firm’s re-registration or the firm’s “initial performance” of attest services. However, the New York State Education Department (SED) is recommending that firms notify the SED of their change in status and show enrollment in an acceptable peer (or quality, as the regulations currently state) review program within 30 days, so that they can meet the requirement of having completed a peer review of their attest services by the 18-month deadline.
“What we have found is that it is nearly impossible to enroll [at the] one-year mark and complete the process within six months,” said New York State Board for Public Accountancy Executive Secretary Jennifer Winters at a recent state board meeting. “So what we advise people is that they enroll [and] notify [the state board office] within 30 days and get everything done they need to do. And then they don’t have to come back to us twice. Do they technically have that year? Yes.”
Once the bill is signed, the SED will send a mailing to all CPA firms registered in New York state, notifying them of the new requirement, Winters said.