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Arranging for a successful review: good preparation and a team that's right for your firm can mean a profitable, even fun, review.


Good preparation and a team that's right for your firm can mean a profitable, even fun, review.

Getting ready for peer or quality review can be frightful or fun, depending on the attitude and approach taken by a CPA firm's management. Fun? Sounds impossible in this world of never-ending regulation. In my opinion, well-prepared firms--firms with finely tuned policies and procedures--are generally more profitable and they can achieve many benefits from their reviews.

This article discusses the last two steps in setting up a review:

* How to select an appropriate review team.

* How to prepare for the arrival of the reviewers.

Previous Journal articles have discussed the quality review program (Feb.89, page 34), lessons learned from peer review (Apr.89, page 96), how three firms benefited from peer review (June89, page 87) and preparing for your first review (Aug.89, page 80).


Unquestionably, the most important decision in arranging for a review is the selection of an appropriate team. CPA firms have three options:

1. Committee-appointed review team (CART) reviews.

2. Firm reviews.

3. Association review teams.

Association reviews, of course, are available only to members of an association of CPA firms and therefore won't be discussed in this article.

Each of these approaches has certain benefits. Here are some of the pros and cons of selecting a CART versus a firm review.

CARTs. Firms arrange for CART reviews by asking a state CPA society participating in the administration of the program or the American Institute of CPAs quality review division to select a team of CPAs. CART reviews offer the advantages of

* A simplified selection process.

* An opportunity to get a cross section of ideas from CPAs from several firms.

CART reviews can be more or less expensive than firm reviews. Exhibit 1 on page 77 summarizes the cost of peer reviews conducted by CARTs for AICPA private companies practice section reviews in 1988. The costs of quality reviews are expected to be similar.

Firm reviews are becoming more and more popular for a number of reasons. The advantages are

* Choice. CPA firms can choose any reviewing firm they wish as long as it meets the qualifications governing the program. Therefore, firms undergoing review generally know more in advance about their review teams than they would with a CART. This minimizes concerns about

1. Possible competition from reviewers.

2. The danger that reviewers may use their knowledge to attempt a merger or acquisition.

State CPA societies and the AICPA quality review division maintain listings of firms interested in performing firm reviews. In addition, the AICPA division for CPA firms publishes a firm review directory that's updated annually. Firm review teams also can be found by consulting other CPAs about their experiences.

It's important to check out firms before they are engaged to minimize the chance of a bad experience. The best way to do this is by asking other CPA firms about their experiences with the proposed review firm. (See related article on page 103.)

* Cost. Firm review fees are negotiable. It's entirely possible to find firms with substantial experience or qualifications that are willing to perform reviews for rates less than or competitive with CART rates. Even when firm reviews are more expensive, some CPA firms decide to pay more to have greater control over the reviewer selection process. Obviously, the total cost of the review also depends on the team's efficiency--more experienced teams frequently perform reviews in less time.

* Continuing relationships. Many firms establish ongoing relationships with their reviewers, who are asked to serve as consultants afterward.


The method for selecting or organizing a review team varies. CARTs ordinarily are selected about three to four months before the review. If a firm wishes the participating state CPA society or the AICPA to select a CART team for it, the AICPA computer program considers

* The size and location of the reviewed firm. Reviewers generally come from firms of comparable size unless the firm being reviewed chooses otherwise.

* The expertise of the team members. Reviewers are selected because they're familiar with the firm's type of practice and its industry specializations.

* The experience of the reviewers. Those selected for the review team are asked if there's any reason why it would be inappropriate for them to participate and they're asked to confirm their willingness to serve on the team. On the other hand, the firm being reviewed is asked to approve the reviewers; if it objects--because of a conflict of interest, for example--another team is selected.

Firm reviewers. CPA firms that pick their own review teams should consider

* Geography. Out-of-pocket expenses are reduced significantly when teams are chosen from nearby practice areas. However, some CPA firms are afraid of competitive disadvantages when bringing in another local team.

* Size and structure of the reviewing firm. Although most firms prefer reviewing firms of comparable size and structure, some prefer the different perspective offered by larger or smaller firms.

* Industry concentration and expertise. Reviewers should be familiar with the type of practice under review and its industry specializations.

* Cost. As discussed above, the least expensive firm may not always be the most efficient or the best match.

* Timing. The firm and the review team must have compatible schedules. Key firm personnel should have time available when the team arrives.

* Reviewers' backgrounds. As noted, experienced reviewers usually are the most efficient. Firms also should try to match their expectations with the reviewers' expertise. One benefit of peer or quality reviews is that reviewers often can provide useful management, marketing, administrative or other information based on their observations. This can be arranged formally during preliminary negotiations or accomplished informally.

* AICPA division for CPA firms membership. Division members must use reviewers that meet its criteria, including membership in the division and successful completion of a peer review with an unqualified report.


During the last quarter of each year, the managing partner or owner of a CPA firm will be contacted by the participating state CPA society or the AICPA. Each firm will be asked to complete a request for scheduling and to answer these questions:

1. Does the firm perform auditing or accounting engagements?

2. Is its review to be performed by a team appointed by the AICPA or the participating state CPA society (a CART), by an authorized association (an association review) or a qualified firm?

3. In what areas does the firm practice? Are there any industry concentrations involving more than 10% of the firm's accounting and auditing practice hours?

Firms that choose CART reviews also will be asked to provide the information necessary to assemble a team:

1. When should the review begin?

2. How many hours of accounting and auditing does the firm estimate it will have during the year under review?

3. Does the firm want the reviewer to come from outside its state or area?


After deciding which review team to choose, a CPA firm must now make sure it's ready for the team. Exhibit 2 on page 79 presents a checklist of steps to take before the review team actually arrives. It's important to complete all steps and be ready: If the team's first impression is of a well-organized and well-prepared firm, the review will get off to a good start.

If the review team is from out of town, arrangements must be made for lodging, meals and so forth. Be sure to take the review team out to lunch or dinner. Many experienced reviewers believe the most productive part of a peer or quality review is the informal exchange of ideas made over a meal or cocktails. In this setting, firms can obtain insights from their reviewers.

Two final double checks are necessary before the review team arrives:

* Make sure that the firm's quality control system is documented. The quality control policies and procedures questionaire presented on page 84 of the August issue of the Journal should be accurately filled out. Remember that reviewers take into account firm size and other characteristics. Smaller firms aren't expected to have the highly structured policies and procedures of larger firms.

* List and summarize the firm's accounting and auditing hours. The list helps reviewers determine the scope of the firm's engagements and make engagement selections. Many firms have difficulty determining total accounting and auditing hours; it's particularly difficult to eliminate time spent on tax and management advisory services. If that's the case, reasonable estimates will suffice.

Exhibit 3 above shows a possible format for preparing this list; firms that have developed their own formats can use them as long as they provide the necessary information.


A firm that's adequately prepared for review increases its chances of having a successful, enjoyable review. It can choose a review team that not only will understand its practice but also help improve it. That can turn into additional profits for the savvy CPA firm.


A quality review checklist--the final steps

Before the review

* Identify the person, usually a partner, who will act as a liaison with the review team.

* Review and sign the engagement letter for the review.

* Confer with the team captain on when the review will begin. Decide on the 12-month period to be covered and the expected exit conference date.

* Submit the following to the team captain as soon as possible:

1. A completed quality control policies and procedures questionnaire (see JofA, Aug.89, page 84).

2. Relevant manuals, checklists and so forth.

3. A list of accounting and auditing engagements as shown in exhibit 3 on page 80.

4. A list of the firm's professional personnel, giving names, positions and years of experience with the firm and in total.

5. Any other information requested by the team captain. Based on this information, the team captain will make a preliminary selection of engagements for review and notify the firm of its choices. The firm then should

* Complete profile sheets on those engagements and assemble all work papers, including permanent files and reports, before the review begins.

* Look over the guidelines the review team will be using to assess the firm's quality control policies and procedures and make sure any necessary documentation will be available. Such documentation might be

1. Independence confirmations, documentation of correspondents' independence and documentation supporting the resolution of independence questions.

2. Personnel files, if maintained by the firm.

3. Continuing professional education records.

4. Documentation of consultations.

During the review

* Make sure the firm's personnel are available for discussion with reviewers when necessary. The reviewers will try not to disrupt the firm's operations.

* The team captain will ask the firm to respond to "matter for further consideration" forms. Firms should provide thorough written responses to avoid any misunderstanding about their quality control policies and procedures or the circumstances of an engagement.

* Arrange for appropriate staff and partners to attend the exit conference. If the firm disagrees with any of the reviewers' findings, those differences should be discussed. A summary of significant review findings, the report and the letter of comments will be covered during the exit conference.

After the review

* Obtain the report and letter of comments, if any, from the team captain. These should be delivered to the firm within 30 days of the exit conference.

* Within 30 days of the receipt of the report and letter of comments, prepare a letter of response and submit all three documents to the participating state society or the AICPA if it's the administering entity. The letter of response should be prepared carefully because of the important bearing it may have on decisions reached in connection with acceptance of the review report.

* Although the state society and the AICPA won't make the review report available to the public, the firm itself may do so. However, the firm should not publicize the results of the review or distribute copies of the report to its personnel, clients or others until the report has been accepted by the administering entity. [Exhibit 1 and 3 Omitted]

BRUCE S. BOTWIN, CPA, is president of Botwin & Co., Marlton, New Jersey. A member of the American Institute of CPAs quality review executive committee and the continuing professional education standards subcommittee, he is a member of the New Jersey, New York and Pennsylvania societies of CPAs.
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Author:Botwin, Bruce S.
Publication:Journal of Accountancy
Date:Dec 1, 1989
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