Tightening peer review standards, and the desire to maximize potential M&A opportunities are among the top issues facing CPA firms today. These issues can be especially challenging for small CPA firms and sole practitioners.
Peer Review
As part of the AICPA’s Enhancing Audit Quality initiative, and in response to criticism from regulators, peer reviews of all types (engagement as well as system reviews) are being subjected to more intense scrutiny by AICPA staff and consultants—from the solo practitioner to the largest accounting firms. (See our earlier report, Ramped up peer review standards more stringent.)
As a result, more peer reviews conducted in the State of Maryland and many other states are being selected for professional oversight by the AICPA, says Anthony (Tony) Cuozzo, Senior Advisor to Councilor, Buchanan & Mitchell, P.S., and a nationally recognized peer review expert.
“The objective of such oversight is to ensure the integrity of the peer review program and determine that peer reviews are being performed in accordance with the peer review standards,” says Cuozzo. The oversight process also looks to whether significant deficiencies in audit firms’ systems of quality control and/or engagements submitted for review are being recognized and reported on accordingly.
Biggest mistake
The biggest mistake smaller firms make? Not keeping up with current standards, which is reflected in their work.
“Smaller firms that are primarily tax focused rather than full service accounting and/or auditing firms generally do not get adequate current professional development courses in accounting and/or auditing topics—including GAAP and GAAS,” says Cuozzo. For example, changes in SSARS standards require entirely different formatted compilation and review reports.
“Practitioners who do not attend A&A update courses year-in and year-out – and who do not engage someone with current knowledge of such standards to perform a pre-issuance review of the financial statements and report before they are issued – would not know of these changes,” says Cuozzo.
As a result, these firms tend to issue the old -style compilation or review report.
“For a firm receiving an engagement peer review, this would likely result in either a pass with deficiency or fail report and require some type of corrective action, such as attending an 8-hour course on the current SSARS standards,” says Cuozzo.
Changing M&A landscape
Achieving successful peer reviews is not only important in its own right in serving clients, but is also an important factor in demonstrating the value of a practice to prospective staff and firm suitors.
Ira Rosenbloom, Chief Operating Executive of Optimum Strategies, LLC, an advisory firm to CPA firms, says that deal making in 2017 has been significantly impacted by heightened selectivity by potential firm suitors/successors, and a growing number of baby boomers ready or near-ready to deal.
As a result, Rosenbloom says, “Transactions are becoming more innovative and less by the book.”
He sees this pattern continuing, adding, “The Art of the Deal will be heavily about the right filters to use, the value that should come from passing thru the filters, and the incentives and security need to be blended to get a deal done.”
What are some of these ‘filters’? Examples Rosenbloom cites include upside potential, integration ease, client and staff profiles, retention hurdles and performance synergies.
Learn more at the Practitioners Conference
Learn more from Cuozzo, Rosenbloom and other expert speakers at the MACPA’s annual Practitioners Conference, taking place on Nov. 2, 2017 at Martin’s West near Baltimore, Md. The conference, open to all CPAs, is focused on the small, sole or solo practitioner and his/her specific needs.