AICPA proposes peer review changes for PE-backed firms

The American Institute of CPAs’ Peer Review Board has proposed to update its peer review requirements as more accounting firms receive private equity funding and set up alternative practice structures to comply with state laws.

The proposed change would require firms operating under non-traditional business models to have their peer reviews administered by the AICPA’s National Peer Review Committee, as opposed to one of the 23 state-administered entities. The AICPA contends that would promote the consistency of how a peer review is conducted and evaluated as the accounting profession adjusts to the proliferation of new operating structures. The AICPA is asking for comments on the proposal until Oct. 25. 

The proposed modification to the standards would give the Peer Review Board discretion to require certain peer reviews be administered by the National Peer Review Committee, made up of 15 to 17 practitioners, by issuing guidance that would apply across the country.

“Changing business structures create both opportunity and risk for the profession,” said AICPA CEO of public accounting Susan Coffey in a statement Tuesday. “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.”

If the change is approved by the Peer Review Board, it would take effect for peer reviews with years ending on or after Dec. 31, 2025.

Under the AICPA Peer Review Program, CPA firms are reviewed every three years to provide reasonable assurance they’re complying with AICPA and other professional standards in their work and have robust quality systems in place. Firms are rated “pass,” “pass with deficiencies” or “fail.” One of the main emphases of the program is to detect deficiencies and remediation of problem areas.

The exposure draft for the proposed update points to some of the concerns that have been raised by constituents about PE 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 plans to allow time for the development of guidance and training for the state administering entities.

Along with the provision related to alternative practice structures, the proposed standards update also includes a change to qualifications for peer reviewers of firms that perform or assist in engagements under Public Company Accounting Oversight Board standards. The change aims to make sure practitioners who have a deeper familiarity with those standards are assigned to those review teams.