Notes on AICPA Peer Review & Audit Quality Impact first appeared on AccountingWeb https://www.accountingweb.com/community/blogs/brian-bluhm/notes-on-aicpa-peer-review-audit-quality-impact on 8/19/2021.
In our continuing effort to improve the AICPA Peer Review Program, we rarely take a step back to look at how far we have come and the positive impact the peer review process has on our profession, those it serves and its overall impact on audit quality.
The AICPA, its Peer Review Board (PRB) and the profession is focused on protecting the public interest. We achieve this by performing the highest quality audits possible and pursuing ongoing education, technology adoption and maintaining dialogue with stakeholders. It cannot be understated that the nearly 11,000 CPA firms – and their employees – that perform audit engagements of private companies, not-for-profit organizations, governments and employee benefit plans and are enrolled in the Peer Review Program also protect the public interest through those audits and other attest engagements, maintaining independence and many, many other initiatives.
The accounting profession of today has a highly effective internal monitoring system of review, remediation and discipline thanks to its foundation of professional and ethical standards, disciplinary procedures and educational resources, as well as its commitment to evolve with the fast-paced business environment. Our focus on protecting and serving the public interest is unwavering. AICPA and the PRB are proud of our efforts to evaluate (and when necessary, remediate) auditors and peer reviewers, develop innovative and proven solutions to improving audit quality and work closely with a network of stakeholders – including state licensing boards, the GAO and auditees such as government agencies and private companies – to bring awareness, transparency and access to Peer Review data and processes.
Peer Review is one of the profession’s many initiatives that contribute to high audit quality. For example, the AICPA’s Governmental Audit Quality Center (GAQC), Employee Benefit Plan Audit Quality Center (EBPAQC) and Enhancing Audit Quality (EAQ) initiative – as well as the robust delivery of guides, training, education, tools and other resources – moves the profession’s focus on high performance and continuous improvement forward.
As an integral part of CPAs’ regulatory framework, Peer Review’s primary role is evaluation and remediation, when warranted. When coupled with other hallmarks of CPA licensure, educational and experience requirements, passing the CPA exam and meeting continuing education requirements, the accounting profession is recognized by many as forward looking, service oriented and focused on quality.
As an example, in 2014 the PRB implemented significant improvements to help peer reviewers maintain focus on what matters most and more quickly identify practice issues. These reforms, which resulted in more targeted, meaningful and timely remediation, included:
Requiring deep subject matter experts to review engagements of significant public interest after the peer review is performed (Enhanced Oversight Program), but prior to the issuance of a peer review report to assure the findings’ appropriateness.
Instituting new procedures to expedite removal of poor performing firms (those that fail to remediate) from the Peer Review Program and referring those firms to their state licensing bodies. Since peer review is required in every state as a condition for licensure, this has the impact of either requiring a firm to remediate or eliminating their ability to practice in the attest space.
Implementing new peer reviewer training requirements to facilitate detection and remediation of reviewer performance issues.
Building a new data-matching program designed to assure that all firms that should be subject to peer review are, and that all engagements that should be subject to review are included in the scope of peer review.
The AICPA and PRB also work with state boards of accountancy to collaborate and together we educate and share information about compliance activities. This interaction is effective because the information we provide state boards often makes it possible for them to follow up on noncompliant firms. For example, the Facilitated State Board Access program provides all state boards with peer review information for all firms registered in their state, including a firm’s two most-recent peer review reports.
Peer Review transparency reassures auditees, regulators and others that the profession is continuously improving. For example, the majority of peer review information is publicly available through a variety of sources such as AICPA’s Peer Review Public File and its Peer Review Firm Drops and Terminations list. Federal agency peer review report disclosure requirements also help broaden access and we encourage firms to share their peer review reports and for auditees to ask for them.
Ongoing dialogue between the peer review community, federal and state regulators and others help keep Peer Review dynamic, responsive and accessible. AICPA takes great strides to make sure the standards upon which the profession’s services are performed reflect the realities of today’s complex business environment.
We educate members on how to effectively perform services and help firms remediate if problem areas are detected. When AICPA and the PRB identify a potential challenge for the profession, such as the application of new, complex standards, we collaborate with interested parties such as state boards, regulators, state CPA societies and CPA firms to improve auditor performance.
The data shows that peer review works as designed and identifies areas where firms need additional support. AICPA and the PRB have also conducted further analysis to better understand the effectiveness of required remediation. Today, peer reviewers are detecting four times as many deficiencies than they were in 2014 as a result of the improvements we made at that time, with a corresponding 170 percent increase in required remedial actions.
Our current data shows that remediation improved the report ratings (in the subsequent peer review) of firms that received a non-pass report when they took the following required, remedial actions:
77 percent when firms’ staff completed targeted continuing professional education (CPE).
86 percent when, in addition to CPE completion, an outside third-party performed a review of engagements or quality control documents.
90 percent when, in addition to CPE completion, engagements were reviewed by an individual (not part of the engagement team) prior to the issuance of the audit report.
The profession should be proud of our collective efforts to maintain high audit quality and, as chair of the PRB, I am thankful for our volunteers and peer reviewer community whose tireless efforts contribute to protecting the public interest. Together, we are focused on continuous improvement, innovation and dialogue with various stakeholders, including peer review administrators, technical reviewers, AICPA members and many others.
The dialogue during the Peer Review Conference – as well as the steps the profession takes every day – reaffirms to me that our dedication is having a positive impact.