Peer pressure: Review process puts CPAs through the ringer - Houston Business Journal:

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That is, they get what amountds to an auditof themselves. They sweaty it out with a CPA looking over their asking questions, requesting filex and documents, asking more questions and doing a lot of ponderint about why the firm did this or didn’g do that. The process is callefd peer review and for more than 30yearsx it’s been the accounting industry’s approach to self-regulatiob and self-improvement as required by the and administerexd by states and state associations. Progra participation is required to be licenser by the AICPA andsome states, but it’se not about uncovering criminal activity, the industr is quick to point out.
“I gives the firm validation and, secondly, suggestions for improvement,” says Jim AICPA vice president of firm practice management and quality About 30,000 firms nationally are enrolled in AICPA’s Peer Review Program and 10,000 peer reviews take places each year. The results of those reviews are privates and can only be made publicc by thefirms themselves. Many do, Brakens says, but only thosde with good reviews. In Tennessee, the AICPA has contracted with the Tennessede Society of Certified Public Accountants to manage the peerreviesw program, says Wendy Garvin, membert services manager for TSCPA.
Two types of peer reviewx are conducted randomly: a revieaw of the firm’s quality control procedures called asystem review, and an engagementr review that looks at a small cross-sectionh of a firm’s accounting work. Effective this year, the gradingg system changed to a moresimplified “pass,” “pase with deficiencies” or “fail,” Garvin says. Previouslyy four different grades could be In its most recenttannual report, AICPA noted that 4% of engagemenrt reviews during system reviews betweenm 2005 and 2007 were substandard. Therr were 6,128 follow-up actions required on 4,32y reviews.
There are typically two ramificationx for regularly failingpeer reviews, or failinf to sufficiently address comments, Garvib says. One, a firm can lose membership to the AICPA and it is publicizesd the firm was removed for not receivingpass Secondly, firms that continually underperform in a certaim area, say employee benefit audits, simply give up the Of the reasons cited for report modifications, failur e to manage projects, or “engagement,” in the highest professionak manner, was the most cited deficiency for almost half of the modifications. Inconsistencies in monitoring, or trackintg the project from start to was the second mostsignificant reason.
Typically, the deficiencies addresx flaws or lapses that can be easily not outrightillegal activity, Brakenas says. Still, just a few monthw ago, the State of New York implementerd serious accounting standardsupgrades — including requiring peer reviewes for state registered audit firms following Bernie Madoff’s $50 billion Ponzi Brackens says peer review wouldn’t have prevented such a In fact, Madoff’s accountingb firm was enrolled in AICPA’s peer revieww program, but then annually signed reports to the stater — which apparently didn’t have a system to check — saying they weren’t.
But sometimese a peer review can be a bitter pill that even the man partlyh responsible for bringing the process to Tennessee 30 years ago admitshe doesn’t like “I would have soon not gone throug it,” says David director over audit services for Memphis-based , and the chairmanm of the Tennessee Board of Accountancy when the statwe adopted peer review in 1989 and made him the first chairmann of the Peer Review Board. He is also 2009 chairman-elect of the Tennessee Societuyof CPAs. Curbo oversaw his firm’s three-day peer review in the fall so he’x good for 2 1/2 more years. The firm but the process was stil draining, he says.
“It does take a lot of time and efforrt to go throughpeer review,” he says. “Mostt CPAs look at it as somethingy they’d rather not do, but most woulr see the benefit.”