The SEC practice section peer review process task force has issued a report containing recommendations to strengthen the peer review process to help it keep pace with changes in the accounting profession.
Mike Conway, chairman of the SECPS executive committee, which approved the task force’s proposals after they were made in January, said, “The new rules will make the process more effective because it will focus on evaluating auditor performance instead of examining documents to see whether a firm is complying with quality control systems and professional standards.” He also added that “the peer review reporting process will be more transparent.”
The SECPS executive committee directed the SECPS peer review committee to implement those recommendations falling within its purview. Meanwhile, the auditing standards board and the Public Oversight Board also are addressing the task force’s proposals.
Rick Miller, chairman of the task force, told the JofA that “the peer review process is nearly 25 years old and although we improve it every year, the time had come to reflect on it because of the rapid pace of changes in our profession—globalization, alternative practice structures, developing audit methodologies and quality control systems, technology and new staffing and training models. The peer review process needs to keep pace with these changes.”
The task force identified a need for improvement in the following areas of the peer review program: reporting, process, governance and oversight, and qualifications and training of peer reviewers.
The task force found not everyone who uses the peer review process fully understands it. “We need to improve that,” Miller said. “We also need to better communicate things noticed during peer reviews—best practices, constructive suggestions and matters that go beyond professional standards. This will encourage candid communication,” he added.
Regarding the review process itself, Miller said, “We need to recognize differences in firms’ size and complexity. Right now, there’s mostly a one-size-fits-all approach that we must customize. For larger firms, we need to better integrate the peer review and inspection processes, have more frequent reviewer involvement and better focus on higher-risk areas and emerging issues. Finally, we want the review process to be more flexible and responsive to change.”
On the subject of governance and oversight, Miller said, “The POB plays a key role in overseeing and adding credibility to the peer review process, so we recommended it deepen its oversight during the performance of reviews.”
With respect to training peer reviewers, Miller said, “The task force recommended better training—primarily of review team captains—and establishment of an evaluation process to provide feedback and help eliminate poor performers.”
The AICPA peer review board also will consider the task force’s recommendations for applicability to the AICPA peer review process.
Miller expressed hope that the task force’s recommendations would be implemented in time for peer reviews conducted in 2001.