During 1991 approximately 14,000 firms will undergo quality reviews. Based on the experience of members of the AICPA Division for CPA Firms ("Division"), a "value-oriented review" is largely dependent upon the person performing the review. Therefore, careful attention should be given to selecting the firm's reviewer.

Many firms are unaware of the benefits associated with a peer quality review. Firms undergoing their first review are usually apprehensive about costs and benefits. Based on the experiences of Division members, benefits often exceed associated costs. Careful selection of the reviewer can help assure this outcome.

Review Costs

Fees for Private Companies Practice Section (PCPS) members of the Division in 1989 ranged from $1,000 to $15,000 for small and medium- sized firms. For firms with 6 to 10 professionals, the fees for 1989 averaged $4,566. Fees for quality reviews are similar and are a function of the accounting and auditing hours of the firm.

An equally important cost factor is the time involvement of the firm being reviewed. Many hours are spent preparing for and participating in a review. One cost estimate for a small firm for staff-hours used in preparing for and participating in a PCPS review is about $5,000. This figure, of course, will vary from firm to firm.

Review Benefits

A study on peer reviews conducted by one of the authors shows that a large majority of members believe their quality control system has improved as a result of their review. An overwhelming majority believe their review provided the impetus to maintain the highest degree of compliance with professional standards. Equally important was that a majority of firms thought their reviewers provided helpful suggestions for operating more efficiently or effectively.

For instance, reviewers have often suggested to firms that they use one of the published accounting and auditing practice guides. These guides contain easy-to-use preparer, reviewer, and disclosure checklists. Because the guides are continually updated by their publishers, substantial time can be saved versus keeping internally produced checklists up to date. Guides can also be substantial time savers on recurring engagements.

There are also intangible benefits from having undergone a review. The Division study supports the assertion that firms have more confidence in their practices and procedures as a direct result of their reviews. Further, increased firm confidence is more likely to be inspired by reviewers who have good communications skills. For example, most reviewers result in the discovery of quality control deficiencies, and a reviewer who can explain the nature of the deficiencies and offer clear suggestions to correct them will help the firm improve its system. Consequently, an improved quality control system will bring about more confidence in firm practices. In addition, a reviewer who provides fitting suggestions on how the firm might improve the efficiency of their accounting and auditing practice will promote economic benefits within that firm.

The challenge of a review and its successful completion can have a positive effect on the firm's morale. Each person in the firm will have more pride in the quality of their work and the work of fellow employees. These feelings often lead to greater cohesiveness and productivity within the firm.

Firm morale is also influenced by the reviewer in another way. A reviewer who believes that company success is a function of the efforts of each person in the firm will involve as many of the staff as is practicable in the review. Also, the reviewer will organize the exit conference to include all firm members, or at least extend the invitation to all. In the exit conference it is made clear that successfully completing a quality review depends on the efforts of each person.

Possibly the most significant finding in the Division study was the favorable opinion that member firms have toward peer review. Specifically, 82% of the firms described their attitude toward peer review as either favorable or strongly favorable. This should help alleviate the apprehension firms have before they experience their first review.

Overcoming the Obstacles

Obstacles sometimes arise during a value-oriented review. The obstacles can impede the efforts of even the best of reviewers. Fortunately, they can be overcome.

Like any engagement, the reviewer is trying to complete the review within budget. Budget guidelines have been developed by the AICPA based on the number of audit and accounting hours of the reviewed firm. However, meeting the guidelines is sometimes difficult, for a variety of reasons. For example, a firm may have a diverse clientele requiring specialized expertise, or it may operate in several locations and have many partners.

The pressure to complete the review within the budget guidelines may limit the reviewer's ability to render a value-oriented review.

Communication and planning between the reviewer and the firm help overcome such obstacles. The firm should provide the reviewer with a complete firm profile one to two months before the review begins. This allows the reviewer time to plan the engagement properly. There must be an understanding with the reviewer about the scope of the engagement, i.e., if you want observations from the reviewer about how to practice more efficiently and effectively (a value-oriented review), make sure the reviewer understands this.

Other Planning Matters

Complete the checklists given to you well before the review. This includes completing profiles on your major clients. It also includes a summary of accounting and audit hours on each engagement, hours spent by office locations, etc. Gather and assemble CPE and personnel files to have them readily available upon request. Finally, plan to have all of your professional staff available to the reviewer during the review period.

Communication, planning, and cooperation throughout the review are the keys to a successful review.

Finding the Right Reviewer

For on-site reviews, firms have three alternatives: * CART, committee- appointed review team; * Firm-on-firm review; or * Association-sponsored review.

A CART review team is selected by the AICPA or participating state CPA society, from a data bank, which matches the reviewed firm's specialties with reviewer specialties. This can be a real hit or miss proposition, because your firm has little or no input into the selection of the reviewer. Here are two examples of what can happen.

A firm chooses a CART review. The reviewer does a thorough review and provides invaluable suggestions on staffing, marketing strategies, and ways to increase productivity. In sum, the reviewer performed a value- oriented review that helped the firm operate more confidently, efficiently, and profitably.

In contrast, another firm claims they didn't understand the nature of the quality control deficiencies discovered during their CART review. As a result, they did not know how to go about correcting their system. They feel that the reviewer was not interested in being helpful.

Fortunately, this latter experience, as evidenced by the Division study, is generally the exception, yet it points out the importance of being involved in selecting your reviewer.

If you are considering an association review, you will want to investigate how reviewers are assigned in order to assure that your desires and needs will be met.

For many firms the best choice will be a firm-on-firm review. Selecting the firm is much like finding a top quality employee. It takes time, you must be persistent, and you will need to rely on your intuition. The key of course is to get references. The best place to start is with firms to have already been reviewed. Talk to fellow CPAs whose firms have recently been reviewed. Speak to your state CPA society and to experts and persons involved in the quality review process. Contact the AICPA Division for CPA Firms to get its member directory to help locate reviewed firms. The Division also publishes an annual "Firm- on-Firm" directory that lists member firms interested in performing peer or quality reviews.

After you have identified a number of reviewed firms for references, contact each firm and ask questions. Who performed their reviews? Was the review worth everything it cost? Are they more confident about their practices and procedures? Has firm morale improved? Was it a thorough review? Do they recommend the reviewer and why?

Based on the recommendations, contact four or more of the reviewers. Provide the contact person with a complete firm profile. Bear in mind there must be a match between firm specialties and reviewer specialties. Assuming this hurdle is overcome, explain exactly what you believe the review should encompass. If you want a value-oriented review, make it clear.

Your role is now that of a potential client; listen intently and determine the following: 1. Is this a person who will perform a meticulous review? 2. Is this an individual who cares about the profession? 3. How much experience does this person have? 4. Are communication skills adequate? 5. Is this an individual with whom you can establish rapport?

Individuals that perform reviews usually do it because they care about the profession. To be sure that the would-be reviewer cares about the profession, you need to ask more questions. How does the reviewer feel about quality and peer reviews? Are reviews necessary and why? All in all, you will be more satisfied with a review done by a person who is interested in improving the profession.

Experience is repeatedly the best teacher. You will want someone who is not only skilled in accounting and auditing matters, but also someone who has tried in numerous ways to improve his or her firm's efficiency. A reviewer who has tried many ways to improve efficiency has probably found a few that work.

Good communication skills are also necessary. Unfortunately, there is often no correlation between experience and the ability to communicate that experience.

Rapport between the reviewer and the firm may be the most important attribute. Does the reviewer listen to you without interruption and respond to your concerns? Listening without interruption shows respect which is critical to establishing rapport. Do you and the reviewer have similar interests and experiences? If it is difficult to establish an appropriate level of compatibility with this person, then keep searching. You will know when the right reviewer is interviewed.

The evidence suggests your chances are quite good of finding a reviewer that has a reputation for being meticulous, cares about the profession, is experienced, has good communication skills, and is a person with whom you can establish rapport.

Robert K. McCabe, DBA, CPA, and Keith W. Lantz, PhD, both of California State University, Fullerton