Practitioners are subject to much more punitive peer review standards put in place by the profession following the Department of Labor’s harsh criticism of employee benefit plan audits. The ramped-up peer review standards, part of the AICPA’s Enhancing Audit Quality initiative, are significant, and practitioners on all types of engagements should take note, said Mike Manspeaker, a past MACPA chair and past chair of the Maryland Peer Review Committee.
Manspeaker shared these remarks at the MACPA’s 2017 Annual Meeting.
MACPA CEO Tom Hood told the 400-plus Annual Meeting attendees that the MACPA has been extremely active on the peer review front.
“We’ve actually had several task forces working on this because there are different moving parts,” said Hood. “It started with the AICPA’s project on the future of practice monitoring, setting the tone where they think it needs to go, to the idea of EAQ, the six-point plan, and the proposed evolution of peer review administration.”
“The AICPA’s EAQ initiative was inspired by pretty significant criticism of our profession, received primarily from the DOL and some other studies,” added Manspeaker. The resulting peer review and practice monitoring initiatives, comprising two points of the six-point plan, represent “probably the most significant impact to date of the entire EAQ initiative,” with significant changes impacting peer reviewers, firms and the peer review administration process.
As described in an AICPA report, highlights on the peer review front in 2016 include the following:
If it’s not documented, it’s not done
“From the point of view of firms being peer reviewed, you can’t mince words: It’s a much more punitive process,” said Manspeaker. Peer reviews are now more detail-oriented, with more focus on processes of the firm and quality control processes.
The documentation related to audit engagements is going to be critical to helping you get through peer review, Manspeaker said.
“As a peer reviewer, if we can’t find it in the workpapers, it’s not good enough to have the practitioner say, ‘Here’s the circumstances, here are my thought processes, here is what I considered,’” he said. “If it’s not documented, it’s not done.”
CPAs practicing in the area of ERISA audits, single audits (previously A-133 OMB audits), or audits of broker-dealers — all of which are considered to be high-risk, “must-selects,” said Manspeaker — should be prepared for extra scrutiny in peer review.
“Even if you only practice in compilations and reviews, make sure you are up to date with the latest standards,” he said. “Make sure your reports, engagement letters and so on comply with SSARS 23, because all of those things come into play and are given much more scrutiny.”
He also warned not to underestimate what may appear to be relatively minor issues raised by a peer reviewer. “The peer review committee asks, what’s the systemic cause, what’s the defect in the quality control system, and it gets blown up to a much bigger systemic problem.”
Proposed changes to peer review administration
Another significant change relates to the peer review administration process, said Manspeaker, and this could have significant implications for practitioners in Maryland.
“As most of you know, the MACPA has been administering peer reviews for many, many years. We feel it is a very important role we play as an association and peer review committee in helping to have a consistent measure of quality in our profession.”
He continued, “We feel we have a great relationship with the state board that requires peer review as a licensing requirement. We want to stay in that role. We feel we are accessible, so Maryland firms are better served by us continuing to be in that role.”
According to Manspeaker, an earlier AICPA proposal would have greatly limited the ability of many states to continue to take part in the peer review administration process.
The MACPA will submit a comment letter in response to the AICPA’s revised discussion paper on evolution of peer review administration.
“How that process plays out will have a lot to do with how peer reviews are administered and the role that Maryland is able to continue to play on behalf of Maryland-based firms,” Manspeaker said. “The entire process is in significant upheaval. We hope it all ends with the desired impact of increasing consistency and quality. “
A balancing act
Hood added, “Our job is balancing the need to be proactive and protective of the future and being over-compliant in terms of our practitioner community. That’s the tension we face. Most of this is in the limelight of the DOL investigations on peer review, which were horrendous, and we almost lost our franchise doing EBP audits. Now we are trying to delicately balance that.”
Update your browser to view this website correctly.
Update my browser now