A report by the U.S. Department of Labor states as many as one-third of all audits performed by certified public accountants for employee benefit plans lack proper audit quality. In response, the AICPA stated the organization needed to improve the peer review process in order to improve the quality of accountants' work.
AICPA president and CEO Barry Melancon said the report is "very critical" of the role accountants play in peer review of employee benefit plans. Anticipating the report, the AICPA proposed a six-point plan to improve audits covering benefit plans, private company financial statements and government entities.
One way to alleviate the government's concerns is to evolve the peer review portion of accounting in order to improve audit quality. The organization needs to encourage accounting firms to examine a peer's books more thoroughly. Other at-risk industries also need more in-depth looks, and the government report targets various areas for the AICPA to examine.
The difficulty is to find the right balance between doing more work and overburdening accountants. A peer review must be more thorough and quality improved, but not so much that accounting firms spend too much time policing each other rather than focusing on clients. The AICPA should examine how people can go about doing these higher-quality services in a more efficient manner.
The group's Peer Review Board shall suggest ways to improve benefit plan audits. The initial step involves seeking input from firms, state CPA societies and industry organizations. This way, the AICPA figures out how firms handle good audits versus bad ones. Seeking input also raises the overall awareness of these types of processes.
Specific improvements include proper collection of Employer Identification Numbers, inventory information sharing among firms and greater communication during enforcement processes, especially among state boards of accountancy. Changes to reviews hope to move the industry towards a practice-monitoring system in the future.
One way to improve audit quality involves accounting firms moving forward with cloud computing capabilities. Only 10 percent of accountants use cloud software. This type of program allows firms to have real-time access to a company's books so accountants can suggest positive changes. As firms review each other, cloud computing helps accountants during regular peer monitoring that occurs every few years.
A new five-year plan implemented by the IAASB includes stipulations to improve quality control of audits, which, in turn, can improve the way firms conduct reviews. In order to improve the overall quality of an audit, each firm should have some kind of method to oversee the work of a colleague within the firm itself. One of the easiest ways to do this is to review the general audit documentation and note weak areas of the report.
Peer review, before government oversight, remains one key aspect accounting firms use to monitor the industry's best practices. This self-monitoring has come under greater scrutiny in order to move the industry forward with respect to higher quality and better accounting practices.
Photo courtesy of Stuart Miles at FreeDigitalPhotos.net
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