Statistical hair-splitting?

Clarification would be beneficial regarding the article “Secrets to a Successful On-site Peer Review” (October 2000). The author says,“Historical evidence from the Pension Benefit Guarantee Corporation, supported by the AICPA peer review statistics, indicates that as many as 85% of the pension reports issued by CPAs have serious flaws.” I believe the author has inadvertently used some incorrect statistics. In a 1995 study, the U.S. Department of Labor’s Pension and Welfare Benefits Administration (PWBA) found that, for the 1992 plan year, 19% of the audits reviewed contained one or more GAAS violation and 33% were not in accordance with ERISA reporting and disclosure requirements. AICPA peer review program statistics also confirmed high rates (but somewhat lower than the PWBA study) of noncompliance with GAAS reporting and disclosure requirements.

Freundlich and I discussed my reference to the 85% error rate in ERISA engagements, and he is absolutely correct. My factor was based upon cases referred to the AICPA Ethics Division for 1995, involving ERISA issues. Therefore the number of questionable engagements should be factored against a larger population in order to arrive at the correct (lower) percentage. However, Freundlich’s statistic still supports my point: that ERISA engagements are high-risk engagements that show an unacceptable degree of noncompliance with GAAS and GAAP. I would hope that peer reviewers and peer reviewed firms treat ERISA engagements as potential time bombs that may explode unless we take care to disarm them through careful professional efforts.

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