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

• In Event: Research Paper Session—Auditing and AIS

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 continue to participate in the AICPA's peer review program to ensure compliance with professional standards other than issuer audits (e.g., employee benefit plan and governmental 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 can withstand regulatory scrutiny. We provide a landscape to better grasp peer review, its role 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 ensure that refinements to extant practices 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 synthesize relevant literature and offer suggestions for future research to inform the profession, regulators, and the public about the future of self-regulatory peer review.

Authors

• Barbara Apostolou, West Virginia University

• Alan Reinstein, Wayne State University