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

http://www.bweq.com/?p=1522
That is, they get what amounts to an auditgof themselves. They sweat it out with a CPA lookingt overtheir shoulders, askinvg questions, requesting files and documents, asking more questions and doing a lot of ponderinv about why the firm did this or didn’t do The process is called peer reviewe and for more than 30 years it’s been the accountingt industry’s approach to self-regulation and self-improvement as required by the and administeredx by states and state associations. Progra m participation is required to be licensed by the AICPA and some but it’s not about uncovering criminal activity, the industryh is quick to pointt out.
“It gives the firm validatioj and, secondly, suggestions for improvement,” says Jim Brakens, AICPAA vice president of firm practice managemenr andquality monitoring. About 30,000 firms nationallyh are enrolledin 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 publi by the firms Many do, Brakens says, but only those with good In Tennessee, the AICPA has contracted with the Tennesseer Society of Certified Public Accountant s to manage the peer review program, says Wendu Garvin, member services manager for TSCPA.
Two types of peer reviewzs areconducted randomly: a review of the firm’s quality control procedures calledc a system review, and an engagement revie that looks at a small cross-section of a firm’xs accounting work. Effective this year, the grading syste m changed to a moresimplified “pass,” “pass with deficiencies” or “fail,” Garvinb says. Previously four different grades couledbe given. In its most recent annual report, AICPA noted that 4% of engagement reviews during system reviews between 2005 and 2007were substandard. Therde were 6,128 follow-up actions requirex on 4,327 reviews.
There are typically two ramifications for regularly failingpeer reviews, or failing to sufficiently address comments, Garvin says. One, a firm can lose membershio to the AICPA and it is publicized the firm was removeds for not receivingpass reports. Secondly, firms that continually underperform in acertaih area, say employee benefit audits, simply give up the Of the reasons cited for report modifications, failure to manage or “engagement,” in the highest professionalo manner, was the most cited deficienct for almost half of the Inconsistencies in monitoring, or trackinyg the project from start to finish, was the second most significanrt reason.
Typically, the deficiencies address flaws or lapses that can be easily not outrightillegal activity, Brakens says. just a few months ago, the State of New York implementex serious accounting standardsupgrades — including requiring peer reviews for state registered audit firmws — following Bernie Madoff’s $50 billion Ponzi scheme. Brackens says peer revieq wouldn’t have prevented such a fraud. In Madoff’s accounting firm was enrolleddin AICPA’s peer review program, but then annuallyg signed reports to the state — which apparently didn’t have a system to check saying they weren’t.
But sometimes a peer review can be a bittere pill that even the man partly responsible for bringing the procesws to Tennessee 30 years ago admitzhe doesn’t like taking. “uI would have soon not gone througyh it,” says David Curbo, director over audit servicee for Memphis-based , and the chairman of the Tennessed Board of Accountancy when the state adoptedf peer review in 1989 and made him the firsf chairman of the PeerRevieww Board. He is also 2009 chairman-elect of the Tennessee Societgyof CPAs.
Curbo oversaw his firm’s three-day peer revie w in the fall so he’s good for 2 1/2 more The firm passed, but the procese was still draining, he “It does take a lot of time and effor t to go throughpeer review,” he says. “Mosrt CPAs look at it as something they’ d rather not do, but most woul see the benefit.”