Private equity and peer review: Proposed change targets consistency

A proposed change to the AICPA Peer Review Program would centralize the administration of peer reviews for firms operating under alternative practice structures, such as those with private equity investments.

The AICPA Peer Review Board is seeking public comment through Oct. 25 on Peer Review Standards Update (PRSU) No. 3, Modernizing Peer Review Administration Requirements.

According to a news release, firms operating under alternative practice structures (APS) currently have peer reviews administered by one of 23 state administering entities. Under the PRSU, the AICPA National Peer Review Committee would administer APS firms’ peer reviews in order to promote the consistency of how a peer review is conducted and evaluated, and protect the public interest as the profession adjusts to new operating structures.

Under the AICPA Peer Review Program, firms are reviewed every three years, a process designed to provide reasonable assurance they are adhering to AICPA and other professional standards in their work and have robust quality systems in place. If the PRSU is approved by the Peer Review Board, it would be effective for peer reviews with years ending on or after Dec. 31, 2025.

The proposed change to the standards, according to the news release, allows the Peer Review Board discretion to require certain peer reviews be administered by the National Peer Review Committee – a panel of 15 to 17 practitioners with broad, national experience and expertise – through the issuance of application guidance.

“Changing business structures create both opportunity and risk for the profession,” said Sue Coffey, CPA, CGMA, the AICPA’s CEO–Public Accounting. “Making sure firms have quality management systems designed to comply with professional standards is foundational to protecting the public interest. The administration of these reviews by the National Peer Review Committee assures the appropriate and consistent degree of oversight of APS audit practices over the next several years, as more firms take on private equity investment.”

According to the news release, the proposed update notes some of the concerns raised by stakeholders about private equity investment, including the challenges of operating separate attest and nonattest entities, monitoring compliance with independence and other professional standards, and maintaining quality of services. The National Peer Review Committee administration of APS reviews, according to the release, will allow time for the development of guidance and training for the state administering entities.

In addition to the APS-related provision, the proposal includes a change to qualifications for peer reviewers of firms that perform or assist in engagements under PCAOB standards. The change is designed to ensure that practitioners who have a deeper familiarity with those standards are assigned to those review teams.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.