The Importance of Peer Review When choosing an accounting firm there are so many things to take into account. But having a firm that is peer reviewed should be high on your list. Peer Review was established by the American Institute of Certified Public Accountants (AICPA) approximately 30 years ago as a membership requirement for member firms with an Accounting and Auditing (A&A) practice. In 2012, NYS made peer review a licensing requirement for most firms performing A&A services in NYS, and this is referred to as Mandatory Quality Review (MQR). A&A services are also known as attest services. Under the law that was effective January 1, 2012, a firm performing attest services in NYS or for NYS clients must enroll and participate in a peer review program if the firm, other than an unincorporated sole proprietorship, has three or more CPAs and/or NYS Public Accountants (PAs). Therefore, firms with two or fewer CPA members are exempt from Peer Review. What is Peer Review? Peer Review is a periodic independent evaluation of a CPA firm’s A&A practice, conducted by a third-party.  The Peer Review is intended to preserve and improve the quality of A&A services provided by CPAs. What goes into a Peer Review? Every three years NYS member firms are required to undergo a mandatory quality review. The MQR is performed by an appropriately qualified individual or team, under specific standards promulgated by the AICPA. There are two typed of MQRs: (1) System Review and (2) Engagement Review.  The focus of a “system review” is the reviewed firm’s system of quality control, whereas the focus of an “engagement review” is on the firm’s accounting engagements.  Both types of reviews culminate in a report on the condition of the firm’s quality control system for a system review, or whether the firm’s engagements as tested by the reviewer conformed in all material respects with professional standards. In NYS, the New York State Society of Certified Public Accountants (NYSSCPA) administers Peer Reviews both for AICPA and non-AICPA member firms that are required to have a Peer Review for licensing. Real Life Experience We were recently engaged to conduct a forensic audit for a company that was a new client to the Firm.  As a result of our forensics audit, we uncovered the theft of nearly 30 thousand dollars from the company by its treasurer.  This fraud was perpetrated over several years, while the company received a “clean” opinion annually from a small firm that was exempt from Peer Review.  During our forensics audit we also discovered that there were several signs that could have led to the earlier discovery of the fraud, had the CPA conducted a “real audit”.  Additionally, based on our research, this CPA’s audit and tax preparation fee of $2,500 was a fraction of the fees charged by firms that conduct “real audits” for similar-sized companies. Firms that are Peer Reviewed are required to follow specific guidelines set forth by the Auditing Standards Board (ASB).  The ASB requires that audits include, but are not limited to the following: • Risk analysis. • Documentation of work performed. • Use audit programs/checklists. • Use of professional judgement. The above are the components of a “real audit” which every company should be receiving from its CPA.  Selecting a non-peer reviewed firm, with perhaps the lowest fee, is not in the best interests of the company.  In fact, such a decision might be very costly, as was demonstrated above. Additionally, reviewed and compiled financial statements are also subject to examination during a CPA’s tri-annual Peer Review.  These statements are prepared in accordance with Statements on Standards for Accounting and Review Services (SSARS) issued by the Accounting Review Services Committee.  SSARs contain specific guidelines for preparing reviewed and compiled financial statements. Firms that are Peer Reviewed are required to adhere to strict quality standards, which results in properly conducted engagements, and financial statements that meet the requirements of the AICPA, including format and all required footnote disclosures.  Those financial statements will therefore furnish the owners with valuable information about the company.  Properly prepared financial statements will also serve to provide lenders and insurance companies with valuable information needed by both of these entities, which could have an effect on a lender’s interest rate or the premium charged by an insurance carrier. Every firm that is peer reviewed receives the report mentioned above, in the form of a letter, which should be provided to any existing or potential client upon request.  Therefore the Board and its lenders should definitely receive the accountant’s Peer Review letter. Remember, you get what you pay for. Woody Goldstein, CPA is a senior manager at Mayer CPAs LLP, Woodbury, N.Y.