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The AICPA/NASBA proposed agreement on oversight review - another perspective.

The AICPA/NASBA Proposed Agreement on Oversight Review--Another Perspective

James E. Thomashower's letter-to-the-editor in this issue of the National Public Accountant points out that we erred in the January Washington Comment in stating that the American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accountancy (NASBA) had signed a Memorandum of Understanding on a quality review program. Mr. Thomashower is NASBA's executive director, and we defer to his superior knowledge on the matter. According to Mr. Thomashower, the AICPA/NASBA Memorandum of Understanding is a document approved for exposure but signed by neither organization. Indeed, the Memorandum of Understanding is labeled "Revised Draft, August 10, 1989," but the term "Exposure" is noticeably absent.

Meanwhile, the "revised draft" of the AICPA/NASBA Memorandum of Understanding seems to have stirred a sleeping giant; namely, a number of small CPA practitioner firms as well as the small licensed public accountant firms. What are the concerns and apprehensions of these practitioners as reflected in their correspondence with NSPA?

One major concern appears to be the cost of a quality review program as envisaged by the draft Memorandum of Understanding. According to correspondence received by NSPA, practitioners were initially advised that the cost of a quality review would be in the neighborhood of several hundred dollars. Now, (subsequent to the 1987 AICPA membership vote to require the membership to participate in a quality review program as a prerequisite for AICPA membership) the member is reportedly being told the cost of a quality review could be as much as several thousand dollars. Unquestionably, some AICPA members, especially the small practitioner firms, feel that they were misinformed when they were advised to vote for compulsory membership participation in a quality review program.

Apparently, growing number of CPAs in public practice, particularly the small practitioner firms, are becoming somewhat resentful of AICPA's role as spokesman for the profession. Many CPAs belong to professional organizations other than (or in addition to) AICPA. CPAs are members of the National Society of Public Accountants and other professional accounting societies that are perfectly capable of speaking for their segment of their membership.

The matter of an unauthorized disclosure of client information appears to present a legal problem to some practitioners who question the propriety of turning over the client's records to a voluntary reviewer (a member of the state CPA society, rather than a legislatively designated individual) without the client's permission. Suppose the cleit does not consent? In that event, the licensee presumably fails the review. An alternative is to turn over the client's records without consent. The whole business of making records available for mandatory review without the client's consent is an ugly can of worms.

There is the additional matter that the designated reviewer may have clients of his/her own that are in competition with the reviewed accountant's client. Can the designated, voluntary reviewer be relied upon to recognize a situation of conflict and thereby recluse himself or herself? Where does the legal liability lie if the reviewed accountant's client's financial information finds its way to the reviewer's clients? To what extent is the reviewed accountant required to hold the reviewer harmless? And, finally, does the reviewer's error and omission insurance cover his/her liability in the event of an allegation of negligent handling of the reviewed accountant's client's information? Several states have attempted to meet this problem through legislation intended to relieve the reviewer of liability.

How much personal liability, if any, is a reviewer exposed to when he or she volunteers to do a quality review? Assuming that the reviewer is held harmless by the reviewed firm or that state law provides the reviewer with some type of immunity, are those safeguards sufficient to protect the reviewer against allegations of wrongdoing by a client whose financial statements are being reviewed?

The extension of a quality review or peer review program to financial statements beyond the certified opinion audit seems to impose an accounting overload on the small accounting firm. Extending the scope of services to be reviewed by including compilation and review financial statements that convey no assurances appears to go far beyond a state's responsibility to assure competence on the part of the practitioner. Accountants subject to a quality or peer review program have expressed the thought in their correspondence with NSPA that the extension of quality review to non-assurance financial statements is a clear case of legislative overkill.

A mandatory quality review program that: (1) extends beyond the certified opinion audit; (2) increases the cost of doing business to the small accounting firm; (3) imposes additional exposure to liability to the client; (4) adds little or no measurement of the practitioner's competence; (5) involves the voluntary participation of a membership association in the official work of a state administrative agency; and (6) provides for different standards of compliance for those licensees who are members of an association and for those who are not members adds up to te conclusion that quality review is biased to favor the larger accounting firm to the disadvantage of the smaller firm.

A further analysis leads to the conclusion that a joint AICPA/NASBA quality review program will tend to create larger accounting firms and the exercise of a greater monopoly over the accounting services available to the consumer. Small business entities whose accounting and tax work products are performed by small accounting firms will be at a disadvantage. Costs of accounting services to small businesses will increase without corresponding benefits.

The Federal Trade Commission, which has demonstrated such an intense interest in the maintenance of professional advertising so that the public may be informed as to costs and services and which considers a prohibition on the receipt of commissions and contingent fees by licensed accountants to be anticompetitive and therefore contrary to the public interest, should perhaps turn their attention to mandatory quality (or peer) review programs.
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Title Annotation:American Institute of Certified Public Accountants, National Association of State Boards of Accountancy
Author:Sager, William H.
Publication:The National Public Accountant
Article Type:column
Date:Mar 1, 1990
Words:984
Previous Article:NSPA names recipient of 1990 Golden Quill Award.
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