Peer review is the accounting profession's primary mechanism for self-regulation. It provides an external check on whether CPA firms are meeting professional standards in their attest and compilation practices.
Types of Peer Review
System Review
- For firms performing: Audits, examinations, agreed-upon procedures
- Scope: Reviews the firm's quality control system AND selected engagements
- Report: Opinion on whether the system provides reasonable assurance
- Frequency: Every three years
Engagement Review
- For firms performing: Only compilations, reviews, and preparation engagements
- Scope: Reviews selected engagements
- Report: Whether engagements were performed per professional standards
- Frequency: Every three years
The Peer Review Process
1. Selection
- Reviewed firm selects (or is assigned) a reviewer
- Reviewer must be independent and qualified
- Administered by AICPA or state CPA society
2. Planning
- Reviewer assesses firm's practice and risk areas
- Determines engagement selection criteria
- Plans review procedures
3. Fieldwork
- Review of firm's quality management policies
- Detailed review of selected engagements
- Interviews with firm personnel
- Assessment of firm's monitoring activities
4. Reporting
- Issue peer review report
- Identify any deficiencies or significant deficiencies
- Firm responds with corrective action plan (if needed)
- Report and response filed with administering entity
Peer Review Ratings
| Rating | Meaning |
|---|---|
| Pass | System meets professional standards |
| Pass with Deficiency(ies) | System generally adequate but with identified weaknesses |
| Fail | System does not meet professional standards |
Why Peer Review Matters
For Firms
- Validates quality to clients and regulators
- Identifies improvement opportunities
- Required for AICPA membership
- Required by many state boards of accountancy
For the Profession
- Maintains public confidence in CPA services
- Identifies systemic quality issues
- Promotes continuous improvement
- Supports self-regulation over government regulation
Common Peer Review Findings
- Documentation deficiencies: Insufficient workpaper documentation
- Independence issues: Failure to properly evaluate independence
- Report deficiencies: Reports not conforming to standards
- Engagement performance: Insufficient procedures performed
- Quality control policies: Missing or inadequate firm policies
Best Practices
- Prepare year-round: Don't wait until the review is scheduled
- Self-inspect: Conduct internal inspections before external review
- Address prior findings: Complete corrective actions from prior reviews
- Document thoroughly: Workpaper quality is the most common finding area
- Engage positively: Treat peer review as a learning opportunity