By Allison M. Henry, CPA, CGMA, vice president – professional and technical standards
As a part of its Enhancing Audit Quality Initiative, the AICPA has identified inconsistencies across the administering entities (AEs) in the program that have impacted the quality of peer reviews. At one point there were over 40 separate peer review administering entities across the country, and many had numerous technical reviewers. This resulted in firms and reviewers being held to different interpretations of AICPA guidance, depending on which AE administered the peer review. To address audit quality issues and prepare for a more rigorous practice monitoring program, the AICPA Peer Review Board (PRB) issued several concept papers on how peer review will be administered in the future.
The PRB recently finalized its plan to achieving consistency across AEs by using a series of benchmarks designed to measure compliance with administrative requirements. One of the requirements is that the AE have a CPA on staff who assumes overall responsibility for program compliance. This approach, combined with the expected retirement of a number of administrators, will likely encourage greater consolidation of the number of administering entities.
At the same time, peer review program enrollment is experiencing significant changes as firms consolidate or discontinue their accounting and auditing practice, and practitioners retire. PICPA’s peer review program enrollment, for example, has decreased 15 percent since 2011.
Program costs, on the other hand, are going in the other direction. Given the heightened regulatory focus on audit quality, new requirements continue to be added that increase the overall costs of administration. The technical review process, for example, has become more rigorous, adding significant time to evaluate peer reviews with high-risk engagements (primarily single audit and employee benefit plan audits).
The confluence of these variables is shifting the AE landscape. In March 2017, the board of the New York State Society of CPAs (NYSSCPA) made the decision to discontinue its administration of the peer review program for firms with home offices in New York. It approached the PICPA about assuming the administration of the peer review program for these firms. The PICPA formed a peer review transition task force to perform certain due diligence procedures, which ultimately recommended that the PICPA assume the administration of the peer review program for New York firms. PICPA’s Board authorized the arrangement, and on Oct. 19, 2017, the PICPA received consent from the AICPA’s Peer Review Oversight Task Force to assume the administration of the peer review program for firms located in New York that were previously administered by the NYSSCPA. The transition will occur March 15, 2018.
In May 2017, the AICPA launched a new Peer Review Integrated Management Application that will “allow the AICPA to identify firms that take on their first engagement in a new industry or area and provide them with targeted resources.” This data-based approach to peer review brings us a step closer to realizing a practice monitoring plan that was envisioned in the AICPA’s Future of Practice Monitoring Concept Paper that was released in December 2014. While the transition to this new platform has been a challenge, it is helpful to understand that the investment in this new system is one part of the overall effort to enhance audit quality and transform the administrative process as we prepare for the future of peer review.