| Getting
Proactive About Quality Review
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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