It’s amazing how fast time flies by! It seems like just yesterday I was involved in the firm’s peer review process for the first time. That was July 2013 and a lot has happened since then, both professionally and personally. Not to mention all the changes that have hit the accounting profession in that time, which includes a strong push by the AICPA towards strengthening the peer review process, as a whole
You’re probably thinking: “What is the peer review process for accounting firms and how big of a deal is it?” For us, and just about all public accounting firms in the United States that perform financial statement audits and/or review and compilation engagements of nonpublic entities, a peer review is a very big deal, as well as a labor-intensive process. Essentially, a peer review is an independent evaluation of a firm’s system of quality control that’s required to occur every three years. An external peer reviewer determines whether or not they are reasonably assured that the firm’s system of quality control is set up in such a way that the firm is performing and reporting in compliance with applicable professional standards.
While this may sound like it could be accomplished through a simple test, the testing performed is actually very detailed and rigorous as it involves much more than just the work performed on specific engagements. Although the peer reviewer will make a selection of a firm’s engagements that are subject to peer review, they will also make selections to test that the firm is 1) in compliance with all six elements of quality control and 2) that each element is in accordance with applicable professional standards which are being followed by the firm. The six elements of quality control are: leadership responsibilities for quality within the firm; relevant ethical requirements; acceptance and continuance of client relationships and engagements; human resources; engagement performance; and monitoring.
To put this process into perspective, consider your own company. Now think about all of the processes, policies, and procedures that are in place to ensure your business is producing or providing quality goods or services. Add to that the professional standards, legal, and regulatory regulations that must also be followed and that may differ by level of service and industry. Essentially all of that, combined, is what’s being evaluated during the peer review process. Upon conclusion of the peer review, a firm will receive a grade of pass, pass with deficiencies, or fail. These reports are public knowledge so the grade we get (and all previous grades received) are available to anyone, which also explains why our peer review is such a big deal.
So flash back a bit to July 2016, marking the beginning of the most recent peer review process for us, when the letter arrives announcing that it’s time for our firm to go through a peer review. Even though I knew it was on its way and was mentally preparing for it, you can’t help but feel a mix of emotions that range from nervous to excited. Nervous is pretty self-explanatory, especially if you have ever been through a peer review, but excited might surprise you a bit. The excitement was because I knew it was an opportunity for us as a group to learn and grow. We already work diligently and obey the firm’s carefully thought out system of quality control so while peer review is always a bit scary, it also allows for the opportunity of validation – a confirmation of sorts that the hours we all put in and the high standards on quality we hold ourselves to will pay off and be acknowledged by an outside, independent party.
In August, we started the preparation process which includes a lot of internal discussion, analysis, document gathering, and research. Review what you’ve got so far, then repeat a few dozen times (depending on your level of obsessive compulsive disorder) until the date when all requested information is due to the peer reviewer. From there, the reviewer analyzes what’s been assembled by the firm and makes selections for testing. Once on site, the peer reviewer scrutinizes everything in detail, and asks questions based on his or her findings. After all information has been reviewed and all questions/comments have been answered and discussed, the peer reviewer will submit notes on findings, if any. Findings are areas for improvement or, if severe, deficiencies. The firm must then wait for the final rating to come via mail. This can take up to four months.
Even after the final letter arrives in the mail, the process continues on and never really ends because we are constantly putting checks and balances in place to ensure that our system of quality control remains strong and is being followed by everyone in the firm. In order to do this, one of the procedures we have set in place is to update the firm’s quality control documents which contain policies, procedures, and processes related to the six elements of quality control. These documents are updated at least annually and are then communicated to the department.
Now that I am sure you are all feeling that excitement emotion, just as I am, it’s time to sit back and wait for the peer review results.