The selection of the peer reviewer(s) is a critical step in ensuring that a firm's peer review is efficient, cost-effective, and adds value to the firm's quality control policies and procedures. Firms that approach this decision with due care are likely to receive the optimal benefits of the process.

This selection process should begin well in advance of the firm's peer review due date. Reviews are administered by approved state CPA societies and other approved entities (both referred to as administering entities) in accordance with policies and procedures established by the AICPA Peer Review Board. The administering entities send out requests for scheduling information to firms approximately six to nine months before the review is due. Firms may want to begin the reviewer selection process even before the request is received.

Organization of  Peer Review Teams

Most peer review "teams" only consist of one reviewer. On some larger system reviews, a team of more than one person may be involved in the review. The lead peer reviewer on a system review is called the team captain and other reviewers are known as team members. The AICPA maintains a database of individuals interested in serving as reviewers.  All reviewers complete a "resume" containing information that is listed in the database. The information includes the reviewer's firm, the last peer review training course attended, the industries in which the individual has expertise and how that expertise was obtained, and other information. The AICPA Standards for Performing and Reporting on Peer Reviews sets the minimum requirements that team captains and peer reviewers must possess, including experience, continuing professional education, peer review training, etc. All reviewers are expected to update their resume every year and the information is available to the administering entities for assembling committee-appointed review teams (CARTs) and for verifying the qualifications of firm-on-firm and association reviewers.

The most common way a peer review team is formed is known as a firm-on-firm review (FOF). The firm to be reviewed directly engages another firm to perform the review. The fees associated with the actual peer review are negotiated between the two firms.

Some administering entities offer CARTs. In this second method of organizing the review team, a firm requests its administering entity to choose the reviewer from a pool of qualified reviewers. The selection is made based on information the firm submits about its size, industry specialization, and geographic restrictions. For example, some firms are unable to locate a peer reviewer in their area or do not want a review team from their local area. The administering entity makes its selection based on the firm's requirements, but the firm has the right to reject the team once it is appointed and ask the administering entity to select another team. The review team's billing rates are set by the administering entity. Not all administering entities offer CART reviews.

Another way a review team may be formed is by an association of CPA firms.  If a firm is a member of an association of CPA firms that is authorized by the AICPA Peer Review Board to organize review teams, it may request its association to select the review team similar to a CART review.

Whichever method the firm uses to select its review team, the firm must notify the administering entity of all the peer reviewers and the administering entity must approve all of them prior to the start of any aspect of the peer review.

Members of the peer review team must be independent in fact and in appearance with respect to the firm.  If the firm is unsure as to its independence status with respect to any members of the peer review team, the matter should be discussed with the administering entity.

Selecting the Right Firm-on-Firm (FOF) Review Team

Firms engaging their own peer reviewers have greater control over the process, cost of the review and any value-added benefits it would like to derive from the review. As a result, most firms favor FOF reviews.

Where possible, a firm should find a reviewer whose practice is similar to their own in terms of size and industry specialization. In addition, the reviewer should have significant experience in all of the key areas in which the firm operates. Requests for proposals and telephone interviews with prospective reviewers can be a key component to a successful process.

There are several ways to learn about prospective reviewers. Administering entities and associations of CPA firms often have lists of firms that perform reviews, some of which are on their web sites. Many reviewers advertise in CPA periodicals and newsletters. Partnering for CPA Practice Success, the AICPA Alliance for CPA firms (PCPS) has a Firm-on-Firm Review Directory available on its web site which lists many firms that perform peer reviews and includes information on firm specialization by industry and size. Firms can also consult other CPAs with similar practices, in order to find out which reviewers they might recommend.

Once firms have the names of potential reviewers, they can send out requests for proposals (RFP) about six to nine months prior to the review taking place. Firms will then have time to evaluate responses, and call those reviewers they might consider as potential peer reviewers and pose specific questions to them.

Requests For Proposal (RFP) and Telephone Interviews

The RFP should contain information about the firm's accounting (not bookkeeping) and auditing hours, specialization, personnel, and peer review history. This document should also address the firm's interest in other possible practice management/value-added type engagements and any other information the reviewer should consider in the proposal. Upon receipt of the proposals, firms can begin to conduct telephone interviews to learn more about each of the potential reviewers, as this is often the best way to gauge their expertise as well as their communication skills and general past peer review experiences.

Team captains should be very familiar with and experienced in a firm's most important areas of specialization. Team captains generally familiar with standards in certain industries may not have the same depth of expertise as a practitioner who specializes in these industries. Firms often find their best peer reviewers are those that are truly peers.

There are several questions a firm may wish to ask prospective reviewers in determining whether they are a peer and obtaining an overall level of comfort with the reviewer.  How does the reviewer's firm's size compare in terms of billings and number of personnel? What size are its clients? Does it specialize in the same industries and have the same depth of knowledge in those areas? Does it perform similar kinds of other engagements? The firm may even want to ask the reviewer for a copy of his or her firm's most recent peer review report, and if applicable, letter of comment and letter of response. The firm should be certain that the potential review team has a personal understanding of the firm's unique practice issues in order to perform the best job possible.

The firm does not always have to select a peer reviewer whose firm is the same size.  Firms that are exactly the same size sometimes struggle with similar issues as the firm under review. Slightly larger firms may have a different insight and solutions to offer regarding practice problems, since they may have already solved these issues within their own firm. In addition, firms that are seeking to expand can learn from a reviewer whose firm has already experienced growth.

As part of the selection process, firms may want to ask potential reviewers what value-added insights it could offer as an extension of the peer review. Firms may want to take advantage of the peer review process by hiring a reviewer who can compliment traditional peer review with value-added services. Firms hire outside consultants to analyze partner compensation, hiring practices, human resource matters, billing, collection, technology issues and other important practice management matters. Many firms that take greater care in the selection of their peer review team are also able to contract with them to perform some of these value-added services. These types of value-added services are planned and billed separately from the peer review. An experienced review team does offer valuable advice as part of the traditional peer review and can make observations about efficiencies and best practices observed at other firms it has reviewed.

Cost is obviously a consideration in selecting a peer reviewer. The average direct expense of a system review is between $2,000 and $4,000 depending on the size, nature and complexity of the firm's accounting and auditing practice. The average direct expense of an engagement or report review is between  $400 and $900.  On a FOF review these expenses are negotiable between the reviewing and reviewed firms. Administering entities also charge an "administrative" fee, which is structured somewhat differently at each entity, with an average of approximately $300 over each three-year peer review cycle.

Although it is often important to minimize costs, firms should not use price as the only criteria when selecting a review team. Review teams that cost a little more may be able to help firms by not only performing the peer review, but offer suggestions that may lower the firm's expenses or increase productivity. In addition, review teams that promise to complete the engagement quickly may be performing the absolute minimum or cutting corners that could reduce the value of the process. This is why it is very important for the firm to take great care in questioning the potential reviewers.

Therefore, the selection of the peer review team should not be taken lightly. There are many matters to be considered when selecting the review team and a firm that takes the time and special care during this process is more likely to get the most out of its peer review.