Self-Regulatory Peer Review as a Mechanism for Audit Quality: A Synthesis of the Literature

• In Event: All Things Audit

Abstract

The accounting profession has long engaged in 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 continue to participate in
the AICPA's peer review program to determine whether they comply with professional standards
in other than issuer audits (e.g., employee benefit plan and government audits). 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 is
adequate to protect the public. We provide a landscape to better grasp self-regulatory peer review
as an audit quality mechanism and its role in the future of practice monitoring. As the AICPA
gradually shifts from triennial peer review to real-time practice monitoring, we provide guidance
to regulators and the profession to help 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 synthesize relevant literature and offer suggestions for future
research to inform the profession and regulators about the future of self-regulatory peer review.
The examined literature shows that the profession seeks more competent peer reviewers to
perform higher quality peer reviews in response to concerns about more intense government
scrutiny and regulation, much like we have observed with the PCAOB.

Author

• Alan Reinstein, Wayne State University