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State Board Report

June 2016

The AICPA will be sending State Boards a discussion paper in early July for their feedback on proposed changes to the structure and criteria for administering entities (AEs) of the Peer Review Program and other related matters, according to AICPA Senior Vice President Susan S. Coffey. Among the changes initially proposed in a paper circulated to the State Societies was a decrease in the number of AEs from the current 41 down to perhaps eight to ten, with each AE capable of effectively administering at least 1,000 peer reviews per year. The restructuring is part of the AICPA’s Enhancing Audit Quality initiative and is being discussed with the State Boards at both June Regional\ Meetings. Ms. Coffey wrote to the Boards that the July paper would be a follow-up to the discussions at the Regional Meetings. Besides the reorganization of the AEs, the July paper will contain "additional issues of importance to State Boards, including oversight of the Peer Review Program and access to peer review information."

"Currently AEs vary in the number of peer reviews that they administer, ranging from approximately 100 to more than 5,000 peer reviews over a three-year period. As a result, though they all comply with AICPA Standards, the AEs differ in structure, policies, the composition and involvement of employees and volunteers, use of contractors, Report Acceptance Bodies frequency and Peer Review Committee engagement," Ms. Coffey pointed out. "State Boards of Accountancy have always been a key stakeholder in peer review and your input about the initiative is important as we consider critical changes to administration of the Program," she wrote.

In preparation for the June Regional Meetings, NASBA’s Compliance Assurance Committee, chaired by John F. Dailey, Jr. (NJ), polled the State Boards to discover concerns they had about the AICPA’s proposal. "While we all stand behind improvements for the peer review process, the importance of State Board oversight of this mandated program cannot be ignored," Mr. Dailey observed. He pointed out that the AICPA has indicated the proposed changes are still under consideration.

Janice L. Gray (OK), member and past chair of the Compliance Assurance Committee, reported several of the concerns raised by the State Boards responding to the poll were:

  • The loss of State Board oversight of the proposed process: How does the proposal provide for the states’ oversight of the program?
  • Some State Boards are very satisfied with their current administering entity and did not agree that because an administering entity handles more reviews per year that it is better than others that handle a smaller number. "Bigger does not make better," Ms. Gray noted.
  • Costs associated with the new program were also of concern to the Boards, as the administering entities will need to hire full-time staff and technical reviewers. How will these increased costs affect the firms and, in turn, their legislators?
  • The timeliness of responses from these larger entities is a concern. Also the Boards questioned the overall ease of communication with these entities, as opposed to their current direct relationships with local state societies.
  • Will the larger administering entities be familiar with differences among the states’ laws?

Ms. Gray underscored the need for the State Boards to have open dialog with the administering entities so they are not blindsided.

The NASBA Compliance Assurance Committee will be meeting with the Peer Review Board in July. NASBA President Ken Bishop noted that just as the AICPA has worked with NASBA to successfully offer the computer-based Uniform CPA Examination, that can happen with the revised peer review program; however, he emphasized NASBA and the State Boards need to be brought into the program’s development early, rather than when it is closer to completion.

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