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TSCPA outlines peer review trends: enrollments down, corrective actions common; termination process explained
Summary
A Tennessee Society of CPAs (TSCPA) presenter told the board enrolled firms have declined about 6% per year, 446 firms remain enrolled, and the peer review program issues corrective actions (CPE, pre/post issuance reviews) when reviews pass with deficiencies or fail; TSCPA described the drop/termination process and oversight steps.
A TSCPA representative briefed the Tennessee State Board of Accountancy on the peer review program's administration, enrollment trends and corrective‑action practices during the board's July meeting.
TSCPA reported 446 firms were enrolled in its peer review program and said enrollments have declined on average about 6% per year, a trend TSCPA attributes mainly to firm mergers, retirement and firms choosing not to perform services that trigger peer review requirements. The presenter said the decline mirrors national trends and noted some firms register peer reviews through AICPA national administration instead of the state administering entity.
TSCPA reviewed the peer review workflow: a firm selects an approved peer reviewer, the reviewer completes fieldwork, the firm submits the report to TSCPA for administrative and technical review, and a peer review committee issues an acceptance, requests revisions, or assigns corrective actions. During the 12 months ending June 30, TSCPA accepted 85 engagement reviews and 51 system reviews; engagement reviews were accepted as "pass" in about 85% of cases, while system reviews passed in about 84% of cases. When corrective actions are assigned, the most common required steps were targeted continuing professional education (CPE) and pre‑ or post‑issuance review of future engagements.
The presenter walked the board through the program's noncooperation process. TSCPA distinguishes a "drop" (failure to cooperate prior to the start of a peer review, such as not scheduling or failing to pay administrative fees) from a "termination" (failure to cooperate after a review has commenced, or repeated non‑past reports). TSCPA said it notifies the board in real time when firms are dropped or terminated; terminated firms may appeal within 30 days and the action is published after the appeal period.
Board members asked about peer‑reviewer capacity, and TSCPA said reviewer counts have declined slightly but firms may use qualified reviewers from other states if needed. Members also raised concerns about aging small firms in rural counties and the risk that retirements could reduce local audit capacity; TSCPA said it is tracking pipeline issues and workforce trends.
Why it matters: Peer review is a core mechanism to monitor audit and review quality; the program's enrollment and reviewer‑capacity trends can affect availability of approved reviewers and therefore the ability of firms to satisfy reporting requirements to licensing boards and clients.
Clarifying details: TSCPA said firms must undergo peer review every three years; acceptance windows are typically 60 days for clean engagement reviews and up to 120 days for system reviews with issues. TSCPA also said during the 12‑month period it most commonly issued corrective actions requiring CPE or pre/post issuance reviews for remediation.
