Peer pressure: Review process puts CPAs through the ringer - Minneapolis / St. Paul Business Journal:

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That is, they get what amounts to an auditof themselves. They sweaty it out with a CPA looking overtheir shoulders, asking questions, requestingg files and documents, asking more questiond and doing a lot of pondering about why the firm did this or didn’t do that. The processe is called peer review and for more than 30yeara it’s been the accountinbg industry’s approach to self-regulatiob and self-improvement as required by the and administered by statess and state associations. Program participation is requires to be licensed by the AICPA andsome states, but it’s not aboug uncovering criminal activity, the industry is quick to pointy out.
“It gives the firm validation and, secondly, suggestionx for improvement,” says Jim Brakens, AICPA vice president of firm practic e management and quality About 30,000 firms nationally are enrollesd in AICPA’s Peer Review Programk and 10,000 peer reviews take place each The results of those reviews are private and can only be made publifc by the firms themselves. Many do, Brakens says, but only thosw with good reviews. In Tennessee, the AICPA has contracted with the Tennessed Society of Certified Public Accountants to manag e the peerreview program, says Wendy Garvin, membere services manager for TSCPA.
Two typexs of peer reviews areconductedd randomly: a review of the firm’s quality control procedures callex a system review, and an engagement review that looks at a smal l cross-section of a firm’s accounting Effective this year, the gradingt system changed to a more simplifier “pass,” “pass with deficiencies” or Garvin says. Previously four differengt grades couldbe given. In its most recent annual report, AICPA notesd that 4% of engagement reviews during systej reviews between 2005 and 2007were substandard. There were 6,12i8 follow-up actions required on 4,32y7 reviews.
There are typically two ramifications for regularly failing peer or failing to sufficientlyaddressw comments, Garvin says. One, a firm can lose membership to the AICPs and it is publicized the firm was removed for not receivingbpass reports. Secondly, firma that continually underperform in acertaij area, say employee benefit simply give up the practice. Of the reasons cited for reporf modifications, failure to manage projects, or “engagement,” in the highesyt professional manner, was the most citexd deficiency for almost half of the Inconsistenciesin monitoring, or tracking the project from start to finish, was the second most significant reason.
the deficiencies address flaws or lapsew that can beeasily fixed, not outrighf illegal activity, Brakens says. Still, just a few monthsz ago, the State of New York implemente d serious accounting standardsupgrades — including requiringg peer reviews for state registered audit firmxs — following Bernie Madoff’s $50 billionb Ponzi scheme. Brackens says peer review wouldn’t have prevented such a In fact, Madoff’s accounting firm was enrolledin AICPA’s peer review program, but then annually signed reportes to the state — which apparently didn’t have a system to check saying they weren’t.
But sometimes a peer revieqw can be a bitter pill that even the man partlt responsible for bringing the process to Tennesse 30 years ago admitshe doesn’r like taking. “I would have soon not gone througuh it,” says David director over audit servicesfor Memphis-based , and the chairmanm of the Tennessee Board of Accountancy when the statd adopted peer review in 1989 and made him the firstr chairman of the Peer Review He is also 2009 chairman-elect of the Tennessee Society of CPAs. Curbo oversaw his firm’e three-day peer review in the fall so he’sz good for 2 1/2 more years. The firm but the process was still draining, he says.
“Itr does take a lot of time and effort to go throughnpeer review,” he says. “Most CPAs look at it as somethinvg they’d rather not do, but most would see the