Peer review; CalCPA bill pushes CBA to decide on mandatory peer review.

AuthorAllen, Bruce C.

CalCPA-sponsored AB 1185 (Hayashi, Ma) would require the California Board of Accountancy to report to the Legislature by September 2008 on whether or not to implement a mandatory peer review program for the evaluation of the quality control systems of accounting firms that provide attest services (audits and financial reviews).

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Currently, the CBA is scheduled to report on the subject by September 2011.

New CBA president David Swartz, CPA, has indicated that he supports peer review and would like to see California conform with the 39 other states that have a mandatory peer review requirement.

CalCPA has a long-standing policy of supporting mandatory peer review, including legislation enacted in 2000 that required peer reviews beginning in 2006 for firms with four or more CPAs on staff. After the original enactment, a CBA task force chose not to implement a peer review program and, with board and legislative agreement, postponed the mandate to 2008.

In subsequent action, the mandate was postponed indefinitely, but a requirement to restudy the issue by 2011 was inserted into law.

At the time of the postponement, one of the major concerns was that the mandate would not apply to small firms and there were questions about the availability of peer review reports to regulators and the public. The profession has engaged in an extended debate over the availability of peer review reports to regulators and the public and whether or not the reports could be used for disciplinary purposes by boards of accountancy.

States with a requirement can mandate licensees to submit those reports as part of renewal. The debate seemed esoteric, but some boards of accountancy wanted to receive the reports directly from the administrating entity rather than requesting them from licensees.

Additionally, clients can ask for a copy of a firm's latest peer review report.

The AICPA has since developed a website that regulators may access if their state requires peer review.

Firms that are performing audits for publicly traded companies already are required to undergo inspections by the Public Company Accounting Oversight Board. Portions of those inspection reports are made public on the PCAOB website, www.pcaob.org, but information critical of a firm's systems is not included in the public reports unless the firm fails to address the defects within 12 months of the report.

The intent is to encourage a dialogue with the inspectors about how to correct...

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