One year out from mandatory statewide peer reviews, many CPAs say they largely approve.
Peer reviews are analysis of an accounting firm’s work papers and financial statements to ensure compliance with the American Institute of CPAs’ General Accounting and Auditing Procedures.
The verifications are currently voluntary within New York. Beginning in January 2012, though, the state Department of Education, which licenses CPAs, will require reviews every three years to maintain a CPA license. The new requirement was part of a sweeping series of financial reforms adopted in New York in 2009.
Given the damage dealt to the accounting industry’s reputation in the wake of the Madoff, Enron and other scandals, the heightened standards are needed and valuable, according to Paul Salmin, partner with Rochester-based Salmin, Celona, Wehrle and Flaherty LLP.
“The industry has been hurt by a few bad apples that have emerged over the years,” said Salmin, who is past chair of the New York State Society of CPAs Peer Review Committee. “This will hopefully help move the industry forward.”
Dave Moynihan, Syracuse-based past president of the New York State Society of CPAs, said that that those scandals reflect an industry that failed. Industrywide peer review is part of the solution.
“There are too many practices not doing the (needed) quality of work,” Moynihan noted.
Ray Jacobi, partner with Mengel, Metzger, Barr & Co. LLP, agreed that demonstrating transparency to the public should be of the utmost importance for anyone doing CPA work.
“This gives the public a greater sense of confidence,” he said.
However, for many firms, including Jacobi’s, the new requirement is not likely to significantly change how they do business. Peer reviews are currently a requirement of membership in the American Institute of CPAs and the New York State Society of CPAs.
“Unless New York State comes out and issues their own unique twist on this, I don’t think it will affect us at all,” Jacobi said.
Membership in either of those organizations is not mandatory, however, which leaves a loophole for some firms to avoid peer review.
In that sense, New York was a bit of an anomaly, said Salmin; 47 states currently require peer review for licensure. New York is one of three that don’t.
New York’s new rules will require accounting firms with more than three professionals to undergo reviews tri-annually by AICPA-approved reviewers. Firms with less than three professionals will be exempt.
For firms that do not currently engage in peer-review, the process of adapting may be a bit a challenge — particularly smaller firms with fewer resources, according to some. Robert Mayer, managing partner of the Woodbury, N.Y. accounting firm Mayer & Co., said that some smaller accounting firms are considering merging with larger firms to accomplish the requirements of peer reviews.
“It’s part of the reason for all of the mergers taking place in our industry,” Mayer said. “Because of these new guidelines, there are more things these firms must do, new procedures they didn’t have before, and it can be quite a cost to incur.”
“It is definitely a commitment and the smaller you are, the more difficult it would be to do that,” Jacobi said. Smaller firms may just need to find ways to adapt or may need to move into areas of accounting that don’t require a CPA license, such as tax preparation, he added.
Moynihan agreed with those sentiments.
“There are some firms that aren’t happy about this,” he said. “If you are going to step up to the game, you have to make some kind of commitment to quality.”
— Gregory Zeller of Long Island Business News, sister paper to The Daily Record, contributed to this report.