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That is, they get what amountsw to an auditof themselves. They sweat it out with a CPA lookinbg overtheir shoulders, asking questions, requestingt files and documents, asking more questions and doin a lot of pondering about why the firm did this or didn’gt do that. The proceszs is called peer review and for more than 30yearxs it’s been the accounting industry’z approach to self-regulation and self-improvement as required by the and administerede by states and state associations. Programn participation is required to be licensecd by the AICPA andsome states, but it’a not about uncovering criminal activity, the industry is quick to point out.
“It gives the firm validatiom and, secondly, suggestions for says Jim Brakens, AICPA vice president of firm practicee management and quality About 30,000 firms nationally are enrolled in AICPA’s Peer Revie w Program and 10,000 peer reviews take place each The results of those reviews are private and can only be made publixc by the firms Many do, Brakens says, but only thosre with good reviews. In Tennessee, the AICPA has contracted with the Tennessee Society of Certified Public Accountants to manage the peerreviewq program, says Wendy Garvin, member services managee for TSCPA.
Two types of peer reviewsw areconducted randomly: a revieew of the firm’s quality controkl procedures called a system review, and an engagement review that looks at a smalpl cross-section of a firm’s accounting work. Effective this year, the grading system changed to a moresimplifieds “pass,” “pass with deficiencies” or Garvin says. Previously four different grades could be In its most recentannual report, AICPAq noted that 4% of engagement reviewss during system reviews between 2005 and 2007 were substandard. Therre were 6,128 follow-up actions required on 4,327 reviews.
There are typically two ramifications for regularly failingpeer reviews, or failin g to sufficiently address comments, Garvin One, a firm can lose membership to the AICPAs and it is publicized the firm was removed for not receivin g pass reports. Secondly, firmzs that continually underperform in acertain area, say employee benefity audits, simply give up the practice. Of the reasonsw cited for report modifications, failure to managr projects, or “engagement,” in the highest professionall manner, was the most cited deficiency for almosr half ofthe modifications. Inconsistencies in monitoring, or tracking the project from startto finish, was the secondf most significant reason.
Typically, the deficienciesa address flaws or lapses that can be easily not outrightillegal activity, Brakens says. just a few months ago, the State of New York implementedd serious accounting standardsupgrades — including requiring peer reviews for stats registered audit firms following Bernie Madoff’s $50 billion Ponzi scheme. Brackens says peer reviews wouldn’t have prevented such a fraud. In fact, Madoff’s accountint firm was enrolledin AICPA’s peer review but then annually signed reports to the state — whichu apparently didn’t have a system to check saying they weren’t.
But sometimes a peer review can be a bitteer pill that even the man partly responsiblw for bringing the process to Tennessee 30 year s ago admitshe doesn’t like “I would have soon not gone through it,” says Davide Curbo, director over audit services for Memphis-based , and the chairmanb of the Tennessee Board of Accountancy when the statd adopted peer review in 1989 and made him the first chairman of the Peer Review Board. He is also 2009 chairman-electg of the Tennessee Societyof CPAs. Curbo oversaa his firm’s three-day peer review in the fall so he’s good for 2 1/2 more The firm passed, but the process was still he says.
“It does take a lot of time and effort to go throughpeer review,” he says. “Mosf CPAs look at it as something they’df rather not do, but most would see the benefit.”
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