July 29, 2016
Director — Peer Review Operations
AICPA Peer Review Program
American Institute of CPAs
220 Leigh Farm Road
Durham, NC 27707-8110
Dear Ms. Thoreson:
On behalf of the 12,000 members of the Virginia Society of CPAs (VSCPA), we are writing to share our comments on the discussion paper Proposed Evolution of Peer Review Administration. Thank you for your hard work and dedication to finding solutions to best protect the public and addressing the changing needs of the CPA profession and its regulators.
On June 28, the VSCPA Board of Directors voted in support of the discussion paper in overall concept, and the Board believes changes to administration, including consolidation of administering entities, are necessary to improve the consistency and quality of administration of the Peer Review Program.
The VSCPA has received feedback from its Peer Review Committee and Peer Review Program staff on the discussion paper, and we offer the following comments and suggestions for consideration in determining the next steps in evolving peer review administration.
The VSCPA believes the proposed timeline is aggressive and does not represent a sufficient amount of time for most Administering Entities (AE) to make a decision about their future role in peer review. Time is needed for state societies to consult with appropriate stakeholders and perform a detailed analysis to determine whether continuing as an AE is prudent, practical and economically feasible. More time also is needed to collaborate with other AEs about their intentions and determine the best path forward depending upon the specific needs of the individual AEs. Once the path forward is determined, additional time will be needed to ensure a seamless transition for the AEs and enrolled firms in order to prevent disruption of the peer review process and cycle as well as adequate customer service without overburdening successor AEs. Lastly, the financial impact of the changes must be managed carefully both for the AEs choosing to transition out and those choosing to expand their operations.
We believe the process of consolidation should be allowed to occur more organically than proposed and not be based on the number of reviews administered or the size of an AE’s staff. Rather, the process should be based on proven ability to administer the program effectively and commitment of sufficient staffing to handle the workload and maintain quality while keeping costs and fees reasonable. Staffing turnover at AEs could create natural opportunities for consolidation, particularly for smaller AEs with few resources.
Positions and Qualifications
The proposed qualifications for peer review administrators and managers could create a barrier to filling those positions, specifically with respect to the need for a bachelor’s degree in a related field. Many of the most talented, effective current administrative staff do not have degrees or their degrees are not in related fields. While the proposal does contain provisions allowing grandfathering of current staff that have demonstrated sufficient expertise and competency, there is still concern that these qualifications would make it difficult to hire additional staff as needed. As an alternative, minimum qualifications should be focused on the specific competencies necessary to fulfill the job responsibilities. Additionally, consideration should be given to creating a certification or training program for new staff.
The proposed qualifications for technical reviewers lack specificity related to “current public accounting experience.” At least a portion of this experience should be at a manager or supervisory level within a public accounting firm’s audit and attest practice. This would ensure that technical reviewers have sufficient opportunity to develop the professional judgment necessary to effectively review the work of peer reviewers as well as demonstrate competency in auditing and accounting. Additionally, consideration should be given to whether an AE’s technical reviewers need to be full-time staff of an AE. Virginia currently uses three contract technical reviewers — two who are current practitioners and one who recently retired from public practice. One of the most important benefits to this model has been that their public accounting experience is always current. Lastly, the requirement that technical reviewers participate in at least one peer review annually should include active involvement, not just reviewing checklists and remotely participating in an exit conference. This will help technical reviewers better understand what peer reviewers face while performing reviews.
Although the discussion draft indicates that committee and RAB members should be Team Captain qualified, they should also be currently performing peer reviews. Much of the success of the administration of the Peer Review Program in Virginia is a direct result of the fact that, historically, Virginia’s committee members and technical reviewers have been active peer reviewers and, therefore, have a greater understanding of the problems and issues encountered by peer reviewers and those firms that are peer reviewed.
Although subject matter experts (SME) are only referenced in and not addressed by the discussion draft, we recommend that SMEs should be practicing CPAs and currently performing peer reviews. This will allow for more effective oversight since they will be familiar with the process. This also reinforces the “peer review” aspect of this program.
The discussion draft appears to propose an expansion in the scope of technical review to a full working paper review, similar to current working paper oversights. This has the potential to become overly burdensome for all parties and will significantly increase the costs of administering the program. While some expansion of scope may be appropriate, consideration should be given as to whether the same goals can be accomplished by utilizing a more selective and targeted approach such as an increase in the volume of required oversights as well as expanding criteria warranting mandatory oversight.
Report Acceptance Bodies (RAB)
In addition to committee and RAB members possessing the minimum qualifications outlined, care also should be taken to ensure there is proportional representation of various firm sizes based on upon program enrollment. Additionally, AEs should strive to engage members with expertise in industry areas common and/or unique to geographic regions for which they administer the program. This will help committees and RABs more readily identify problem reviewers.
Great care should be taken to ensure that professional judgment and peer-to-peer interactions remain an integral part of this program. Much of this proposal appears to minimize those aspects under the guise of striving for greater consistency, yet those two things are not necessarily mutually exclusive. For example, training programs for peer review are limited. While professional judgement is integral to the process, individuals with limited experience and training may not make the same judgments as consistently as more experienced reviewers from engagement to engagement or from reviewer to reviewer. Education should focus on bridging the gap between concepts in the program manuals and judgments made by individual reviewers with regard to findings, conclusions and evaluation of corrective action plans.
As the profession strives to adequately respond to the needs of regulators, it is critical that we do so in a way that maintains the educational and remedial aspects that the Peer Review Program was founded on while effectively improving audit quality and standards compliance.
Again, the VSCPA thanks the AICPA Peer Review Program for its efforts. Thank you for the opportunity to convey our thoughts on the discussion draft. Should you have any questions or need additional information, please contact me or VSCPA Vice President of Advocacy Emily Walker at (804) 612-9428 or [email protected].
VSCPA President & CEO