In 1988, AICPA members voted to make peer review mandatory, but to keep the results confidential. Since then, there has been a steady march toward lifting the veil of confidentiality and making peer review results public.

Today, for example, all member firms of the Institute’s audit quality centers and the Private Companies Practice Section (PCPS) post their peer review reports on the AICPA web site, accessible to anyone who wants to view them. In fact, of the approximately 16,000 firms that perform audits, about 11,000 currently make some aspects of their peer review results available outside their firm, whether its through membership in one of the above centers or as a
requirement by a state board or the Government Accountability Office (GAO).

Many other firms voluntarily make their reports public, either in response to client requests, or as part of an effort to demonstrate their commitment to quality. Some firms even trumpet the results in their advertising.

Regulators Moving Toward Public Disclosure
Regulators are moving in this direction as well. Both banking regulators and the Department of Labor are on record supporting greater transparency of peer review reports for those accounting firms that audit financial institutions and pension plans. In addition, the National Association of State Boards of Accountancy (NASBA) and many state boards of accountancy have become strong advocates for requiring the disclosure of peer review information.

Currently, there are about 33,000 firms in the United States subject to the AICPA peer review program because they employ AICPA members and engage in audits, reviews or compilations. The majority of these firms are headquartered in states that require peer review as a condition of licensure. Of the 39 states and territories mandating peer review, about 20 also require peer review information to be submitted to the state board at some point in the process. As more states implement mandatory peer review requirements the number of states requiring submission will likely increase.

NASBA has underscored its position in recent proposed amendments to the Uniform Accountancy Act (UAA) statute. These proposed revisions would give state accountancy boards the authority to require administrators and licensees to remit peer review documents to them. In order to allow the AICPA to keep its 1988 commitment that peer review materials be kept confidential, the proposed provision in the current UAA exposure draft – a joint document of NASBA and the AICPA – is marked with an asterisk stating, “Due to its 1988 commitment to its members, the AICPA cannot support this provision at this time.”

Bear in mind the AICPA’s Board of Directors and Governing Council have gone on record in support of greater transparency of the peer review process. The need to provide the disclaimer in the body of the UAA is dictated exclusively by the 1988 confidentiality commitment. Any change to this confidentiality commitment allowing the profession to pursue transparency would require a member referendum.

Why Now?
Why have so many state boards and other regulatory authorities begun to insist on public disclosure of peer review results? The move toward greater transparency of the peer review process is being driven by several factors. In addition to regulatory pressures, the general public is clearly demanding more transparency in all businesses and business transactions. People expect openness and full disclosure when making investment decisions; they expect nothing less when choosing a CPA firm. Transparency rewards those firms that perform at the highest professional level, and penalizes those that do not.

Why is the AICPA leadership so supportive of greater transparency? The AICPA Board of Directors and Council do not support greater transparency just because it is inevitable; they support it because they believe it is the right thing to do. By taking the lead and making a change to this aspect of self-regulation, the profession would be making a strong statement about its ability and willingness to regulate itself. More importantly, it would be helping to preserve the uniformity of the peer review process among the states.

Is Peer Review Ready for Transparency?
Some members have expressed concerns that certain aspects of the peer review program may be problematic in a transparent environment. Some of those views are based on a lack of information about recent enhancements to the peer review program that just became effective a few months ago. For example, some members have expressed a concern that the prospect of greater transparency may cause peer reviewers to mitigate their findings in an attempt to protect a firm from an adverse impact on its practice, or may discourage CPAs from volunteering as reviewers. However, enhanced oversight is helping to prevent substandard reviews, and a number of steps have been taken to increase the supply of peer reviewers.

Ready for Change
The CPA profession has a long history of changing its rules in order to voluntarily raise the bar on itself and adapt to the demands and expectations of evolving economic and market environments. Most recently, for example, AICPA members voted overwhelmingly to approve bylaw changes that have strengthened the Institute’s ethics enforcement process, ensuring the AICPA has greater flexibility to act in the public interest, in the event a member violates the profession’s code of ethics.

Now the AICPA leadership, NASBA and many state boards of accountancy believe it is time for another important
change – full disclosure of peer review results. It stands to reason a trusted profession must be willing to let people know what independent assessments have to say about them. Indeed, transparency of financial information has always been a core principle of the CPA profession.

On a more practical level, the regulatory community, clients and the public are more inclined to trust a profession that takes the initiative to impose upon itself a transparent system that will provide them with the information they need to make informed decisions. The fact is that public disclosure of peer review information is occurring with or without the consent of the profession. Great professions do not wait for others to impose action upon them, but instead, step up to the plate to design a system that reflects its core values, while at the same time fulfilling its commitment to the public interest.