Should CPAs be required to undergo periodic review of their accounting and auditing practices?
Originally approved in 1988 with subsequent revisions, the AICPA, through its bylaws, now requires members engaged in the practice of public accounting be associated with a firm that is enrolled in an Institute-approved practice-monitoring program, if the services performed by such a firm are within the scope of the AICPA’s practice monitoring standards and the firm issues reports purporting to be in accordance with AICPA professional standards.
Firms that are required to be registered with and inspected by the PCAOB as well as certain firms that perform audits of non-SEC issuers pursuant to PCAOB standards are required to enroll in the Peer Review Program (PRP) administered by the AICPA’s National Peer Review Committee. All other firms subject to peer review are required to enroll in a PRP administered by one of the 41 other administering entities.
Revisions to the Standards for Performing and Reporting on Peer Reviews (Standards) and Interpretations, applicable to all AICPA member firms subject to peer review, became effective for all peer reviews commencing on or after January 1, 2009.
The revisions include more principles-based standards, and other changes to system, engagement and report reviews. Also, the peer review reporting process has been reengineered to include a shorter and more concise peer review report, which enhances its clarity, comparability and understandability. A new peer review report rating model of “Pass, Pass with Deficiencies and Fail” replaces the previous model of “unmodified, modified and adverse” respectively.
The revisions were designed to meet stakeholders’ needs, yet ensure the AICPA PRP’s integrity and usefulness. The revisions recognize the public interest in the quality of the accounting, auditing and attestation services provided by CPA firms and also recognize the importance peer review plays in the state board of accountancy licensure process and that of other regulators, such as the Government Accountability Office. The revisions are expected to result in a more effective peer review process.
- The Revised Standards and Interpretations are available here.
- A June 2008 white paper Navigating Through the Revised AICPA Standards for Performing and Reporting on Peer Reviews and Related Interpretations serves as a bridge between the current and revised Standards and is available here.
Importance to CPAs
Peer reviews are designed to improve the quality of accounting and auditing services provided by CPAs as well as providing public protection.
The AICPA promotes the concept of peer review and supports state boards that have enacted programs. The AICPA believes that states should recognize equivalent reviews, such as those performed as part of the AICPA programs, as sufficient to satisfy a state requirement.
The AICPA/NASBA Uniform Accountancy Act (UAA) contains a peer review section that was modified based on the recommendations of the AICPA/NASBA Joint Committee on Regulation of the Profession. UAA section 7(h) requires that firms performing the attest function undergo a peer review every three years. For more information on this model requirement, consult section 7(h) of the UAA.
The UAA extends peer review to individuals performing compilation services outside of a licensed CPA firm. This requirement conforms to the UAA by removing compilations from the definition of “attest services,” thereby allowing licensees to perform SSARS compilations outside of a CPA Firm. For more information on this model requirement, consult section 6(j) of the UAA.
The AICPA has implemented a process called Facilitated State Board Access (FSBA) to achieve greater transparency of peer review results that is responsive to all stakeholders. The process involves a mechanism whereby firms subject to peer review may voluntarily allow the entity administering their peer reviews to make available the results of the firms’ peer reviews on a secure state board access-only web site. Access to the results would only apply to state boards of accountancy that require peer review for licensure (and are not prohibited by law from access to peer review results).
FSBA was piloted in North Carolina, Ohio, Oklahoma, South Dakota, Tennessee and Texas from October 2007 through early 2008. Several other states have elected to early adopt the process in the summer and fall of 2008 with full implementation expected to occur throughout 2009.
Currently, 44 licensing jurisdictions have peer review requirements in effect. In addition, Illinois has enacted legislation to implement peer review effective in 2012.
AICPA Staff Contact
Jim Brackens, Member Quality and International Affairs, 919.402.4003
Facilitated State Board Access (FSBA)
Uniform Accountancy Act (UAA)