Magazine article The CPA Journal

Selecting a Value-Oriented Reviewer

Magazine article The CPA Journal

Selecting a Value-Oriented Reviewer

Article excerpt

During 1991 approximately 14,000 firms will undergo quality reviews. Based on the experience of members of the AICPA Division for CPA Firms ("Division"), a "value-oriented review" is largely dependent upon the person performing the review. Therefore, careful attention should be given to selecting the firm's reviewer.

Many firms are unaware of the benefits associated with a peer or quality review. Firms undergoing their first review are usually apprehensive about costs and benefits. Based on the experiences of Division members, benefits often exceed associated costs. Careful selection of the reviewer can help assure this outcome.

Review Costs

Fees for Private Companies Practice Section (PCPS) members of the Division in 1989 ranged from $1,000 to $15,000 for small and medium-sized firms. For firms with 6 to 10 professionals, the fees for 1989 averaged $4,566. Fees for quality reviews are similar and are a function of the accounting and auditing hours of the firm.

An equally important cost factor is the time involvement of the firm being reviewed. Many hours are spent preparing for and participating in a review. One cost estimate for a small firm for staff-hours used in preparing for and participating in a PCPS review is about $5,000. This figure of course, will vary from firm to firm.

Review Benefits

A study on peer reviews conducted by one of the authors shows that a large majority of members believe their quality control system has improved as a result of their review. An overwhelming majority believe their review provided the impetus to maintain the highest degree of compliance with professional standards. Equally important was that a majority of firms thought their reviewers provided helpful suggestions for operating more efficiently or effectively.

For instance, reviewers have often suggested to firms that they use one of the published accounting and auditing practice guides. These guides contain easy-to-use preparer, reviewer, and disclosure checklists. Because the guides are continually updated by their publishers, substantial time can be saved versus keeping internally produced checklists up to date. Guides call also be substantial time savers on recurring engagements.

There are also intangible benefits from having undergone a review. The Division study supports the assertion that firms have more confidence in their practices and procedures as a direct result of their reviews. Further, increased firm confidence is more likely to be inspired by reviewers who have good communication skills. For example, most reviews result in the discovery of quality control deficiencies, and a reviewer who can explain the nature of the deficiencies and offer clear suggestions to correct them will help the firm improve its system. Consequently, an improved quality control system will bring about more confidence in firm practices. In addition, a reviewer who provides fitting suggestions on how the firm might improve the efficiency of their accounting and auditing practice will promote economic benefits within that firm.

The challenge of a review and its successful completion can have a positive effect on the firm's morale. Each person in the firm will have more pride in the quality of their work and the work of fellow employees. These feelings often lead to greater cohesiveness and productivity within the firm.

Firm morale is also influenced by the reviewer in another way. A reviewer who believes that company success is a function of the efforts of each person in the firm will involve as many of the staff as is practicable in the review. Also, the reviewer will organize the exit conference to include all firm members, or at least extend the invitation to all. In the exit conference it is made clear that successfully completing a quality review depends on the efforts of each person.

Possibly the most significant finding in the Division study was the favorable opinion that member firms have toward peer review. …

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