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The peer review program is one of the most important aspects of the profession's self-regulatory programs. The U.S. General Accounting report, The Accounting Profession, Major Issues, Progress, and Concerns, issued last fall gave the profession high marks for the peer review program and said that it has improved audit quality. The GAO's review was concentrated in the SECPS peer review program, but those involved in the mandatory AICPA program have seen the benefits of that program on overall quality.

A major concern that remains as the program grows and becomes more effective is the disproportionate cost of individual peer reviews to small practitioners. It is here that the AICPA and others involved in the self-regulatory process need to explore new approaches to assuring the public of quality services.

The fact remains that because of the nature of the peer review process, firms with relatively small accounting and auditing practices incur a greater cost proportionately for their peer reviews than do larger firms. A firm that only does one audit and a few reviews and compilations will have a substantial portion of that work peer reviewed at a relatively substantial cost to the firm.

The AICPA has thought about this problem, and various committees and others have proposed solutions such as extending the time between reviews for small firms that have had an acceptable peer review. But for some reason, the AICPA's peer review board has rejected them. It is time for the AICPA to rethink the problem and develop real solutions.

One that comes to mind is the possibility of applying sampling techniques to peer reviews of small firms. The first step would be to stratify the population of firms into the type of work they perform. Those that do audits of enterprises with a strong public interest--health care facilities; recipients of Federal, state, and local government grants; employee benefit plans; and the like--would be reviewed in the usual way once every three years. Those that audit other enterprises, once an initial unqualified peer review has been performed, based upon size criteria, would be chosen for peer review on a random statistical sampling basis, with the cost of the review paid for out of fees charged to all firms in the group to be sampled. In that way, both sampled and nonsampled firms would pay a portion of the cost. There would have to be severe penalties if a sampled review turned up information about a practice that had not been reported to the AICPA on the annual scheduling forms.

It is time for creative thinking to revise the process to reduce the cost to small firms, while at the same time providing assurance to the public
that appropriate self-regulation is taking place. *

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