Peer Review as a Mechanism for Audit Quality: A Historical Perspective and Synthesis of the Literature

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 8: Audit Quality II

Abstract

The accounting profession has long engaged in practicing peer review as an audit quality mechanism. Self-regulatory peer review practices ostensibly failed to prevent the well-publicized audit failures that led to the PCAOB inspection program. CPA firms also audit employee benefit plans and government entities. However, regulatory studies of audit quality in those sectors have for decades identified significant audit deficiencies, leading us to question whether the current self-regulatory peer review system will withstand regulatory scrutiny. We seek to provide a landscape against which to understand peer review, its role as a mechanism for audit quality, and its role in the future of practice monitoring. Since the AICPA will soon move from peer review to real-time practice monitoring of higher risk audits and other monitoring for all other audits, we provide guidance to regulators and the profession to help ensure that practice monitoring will improve audit quality. We offer a historical perspective of peer review and lessons derived from regulatory intervention to serve as a cautionary tale and motivation for research. We structure this work around three distinct periods that we define based on key events: (1) voluntary peer review in self-regulation (1962-1988); (2) mandatory peer review in self-regulation (1988-2002); (3) mandatory peer review with regulatory intervention (2003-present). We review relevant literature and offer suggestions for future research to inform the profession, regulators, and the public about the future of peer review’s structure and effectiveness.

Authors

• Barbara Apostolou, West Virginia University

• Alan Reinstein, Wayne Stsate University