Five Questions with CPA Mark Crocker - Memphis Business Journal:

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Mark Crocker: The peer revieq process is an educational tool for firms to use to determind if there are any weaknesses in theifrwork processes. Pointing out any weaknesses enablees the firm to take any correctivd action that is necessary to ensure the accuracy of thework MBJ: What do you believe are any shortcomings or improvementf areas? MC: The currentg procedures for a peer review require that a firm providinfg audit services must have an on-site peer review. That meansa that the peer reviewe actually visits the firm and reviews work paperw forthat engagement.
Firms that provide revieww and compilation services may havean off-sit e review where a firm sendse the file to the peer no office visit is The information that is submitted in an off-sitde review is the actual financial statementss — the reviewer does not prob e into the actual work papera that support the financial statements. Therefore, firmw that do not offer audit services may neveer have an outside reviewer look at the work paperzs forany engagements. This lack of review is an area where the system couldbe improved. MBJ: Overall, just a little more than half of the accountinvg firms in the state are in the peerreviewe program. Is that a concer or issue?
MC: There are 1,783 accounting firmss registered with the board and there are 911 firms enrolle in the peer review program administered by the An additional 130 firms have been notified that enrollment in a peer reviews program is required as a condition of renewal of theirr permit to practice and are expected to enrolpl with the TSCPAbefore year’ss end. If all enroll, the program will administer peer reviewfor 1,041 firms or 58% of the registerexd firms in Tennessee. There are two main reasons for a discrepancy in the numberr of registered firms and the number enrolled in peer Many of the firms registered with the Boardf of Accountancy havemultiple locations.
If an accounting firm has more than one then each individual location is not requirecd to have apeer review, even though each location is required to register with the board. In many firms do not offer attest For example, if a firm only offers tax preparation, then no peer revieqw is required. Many CPAs have a full-time position, but also preparw tax returns on the side out of ahome office. A CPA offerinhg tax preparation is considered to be offering accountiny services to the public and therefore must registefr an accounting office with the board in ordef to be in compliance with our laws and Our concern is with thoses firms that offer tax preparatiohn and then also prepare a financia l statement for a tax clienyt without alerting the board office that they have expandeddtheir services.
Any time a financial statementis issued, then the firm becomees subject to peer review. We have had a few instancez in which this has taken When itdoes occur, the firm is instructedd to obtain a peer review within the appropriate time frame. Failure to complyy with the peer reviesw requirement results in a complaingt being opened againstthe firm. MBJ: After operatingy its own peer review since did the state contract with the Tennessee Society of CPAs to run the effective Jan. 1. Why? MC: No. In the Board has deferred to the TSCPA’s operating the in light of fiscal constraints.
Staffingv of a peer review program was the primary concerjn forthe Board, and budgeyt cuts at the state level certainlyt influenced the decision. MBJ: New York state is now requirinh its CPA firms to go throughg a peerreview process, followinf the Bernie Madoff Ponzi scheme that was helpe along by its accountingt firm Friehling & Horowitz. Has Tennessee’s peer reviea program preventedsuch fraud? MC: The purposre of peer review is to assist firms in providing exceptionao service in attest engagements.
A peer revieww will uncover substandard orinadequate work, but preventioj of fraud is an entirely different While I am not commenting on any specificv case, I can speak in generalities: If an accounting firm is deliberatel preparing fraudulent financial information, then that firm would probably not hesitate to provide fraudulent work papers and financialp statements to a peer reviewer. A peer reviea might reveal inadequate practices whic h would lead the reviewer to delver deeper into thework papers, whicg might provide some inconsistencies in the finalk work product.
Those inconsistenciesd might lead the reviewer to a determinationjof fraud, but that scenario has not occurrec in Tennessee.