Raising the bar: the AICPA Peer Review Program moves toward more transparency

Since 1977, more than 50,000 CPA firms have undergone more than 160,000 peer reviews thanks to the AICPA Peer Review Program resulting in reports that provide insight into participating firms' stated quality standards and how they put those standards into practice in the conduct of their attest engagements.

In a 1987 referendum, which took effect in January 1988, AICPA members voted to make peer review mandatory under a system that kept the results of the reviews confidential. The approved member ballot essentially required a member with an accounting or auditing practice to practice in a firm enrolled in a peer review program.

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Over the years, peer review information has been increasingly sought after by, and made available to, a variety of parties seeking to assess the quality of a firm's practice. Since 1977, members of the AICPA's SEC Practice Section, now the Center for Public Company Audit Firms, and the Private Companies Practice Section, now Partnering for CPA Firm Success, have made their peer review information available to the public. These reports are available for anyone and accessible from the AICPA website.

In spring 2004, AICPA Council approved a resolution expressing its support for increased transparency in the peer review process. One of the rationales was that greater transparency in peer review will increase the public's level of trust in the profession and enhance the CPA's image.

A substantive increase in transparency can only be put in place after AICPA members have had the opportunity to vote on the change. As part of a member education campaign, the AICPA has compiled these frequently asked questions that overview the issue of increased transparency in peer review. More information is available at www.aicpa.org/transparency/index.htm.> Why is the AICPA recommending the profession move to an even greater level of transparency in peer review?

Transparency of information has always been a core principle of our profession as it relates to our clients' financial information. How can we support greater transparency of our clients' information when we are unwilling to support it for our own?

What are the benefits to the profession's members?

The regulatory community, our clients and the public are more inclined to trust a profession that imposes a transparent system upon itself, providing stakeholders with information to make educated decisions. Greater transparency is likely to increase the public's confidence in the profession's core values of competence, integrity and objectivity.

What are the benefits of greater transparency to others?

Those organizations that regulate the profession and anyone who uses a CPA firm will benefit by having easier access to a consistent and understandable evaluation of the firm's peer review. Peer review information provides insight into a firm's stated quality standards and how those standards are put into practice in auditing and accounting engagements. These are important criteria in helping users of CPA services to choose a firm.

What are the options relating to peer review transparency? What are the benefits of each?

The AICPA is focusing on two approaches that would lead to greater transparency. The first provides the public online access to selected peer review information, such as the peer review report, letters of comments and response.

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The second would allow only state boards of accountancy to access peer review information of firms licensed in their state through a secure, password-protected web interface.

Providing public access allows the profession to proudly promote that our peer review results are available online for anyone to see, including clients and prospective clients. However, allowing exclusive access to state boards provides the information to those most interested, while minimizing the potential for abuses.

Because state confidentiality protections vary, some peer review information provided to state boards could be accessed through a Freedom of Information Act request.

What documents does the AICPA envision being made public?

The Peer Review Board has yet to determine exactly which documents would be available to state boards or the public under the alternative options. However, it would likely include the:

* Most recently accepted peer review report;

* Most recently accepted letter of comments, if applicable;

* Most recently accepted letter of response, if applicable; and

* Letter notifying the firm that the peer review has been accepted--which would also include follow-up actions required to be taken by the reviewed firm as a condition of acceptance.

It would not likely include work papers or any other underlying documents that the Peer Review Board has not approved for inclusion.

Why would the AICPA, as a membership organization, impose this requirement on its members? What happened to the commitment of confidentiality in peer review?

The AICPA supports the profession's commitment to the public interest. That commitment requires evolving to meet the needs of the current business environment.