Texas Representative Phil Stephenson is trying to exempt CPAs who only prepare financial statements for small business (a.k.a. "the little guys") from the state's mandatory peer review program. The change would have no impact on audit reports or reviews, it would only exempt compilation reports prepared for micro or small businesses from peer review.
"CPAs who prepare reports for small businesses with fewer than 100 employees and under six-million dollars in revenue do not present as great a risk for the public as those who prepare reports for large national businesses. Loosening this requirement will not harm the public's interest," said Stephenson.
President of the Texas Association of CPAs John Furge agrees with Stephenson, basically saying that its the small business stakeholders' asses on the line, no sense pestering them with a peer review requirement for compilations. "The typical small business has stakeholders who are intimately involved with the business. They are on-site every day," he said. "There are no remote investors or pensions to protect. Even if there were to be an accounting failure, the consequences would affect very few people. The burden of inspection is simply not justified."
The AICPA, (American Institute of CPAs), peer review program inspects financial reports issued by CPA firms ONLY for the purpose of insuring compliance with AICPA standards. It does NOT look for fraud. The Arthur Andersen CPA firm, for example, was peer-reviewed "without qualification" during the same period in which it reported on Enron. In the case of Enron, the reports were in compliance with AICPA standards, but the underlying accounting was rotten.
As it stands, the Texas Board of Accountancy interprets the AICPA peer review rule as mandatory for any Texas CPA who performs any attest work, regardless of the size of the entity about which a financial report is prepared. But Furge feels like this has harmed Texas CPAs. According to the Board of Accountancy, "fifty-five percent of Texas CPA practice units have signed an affidavit stating they will no longer issue compilation reports. This is not good for the public."
Not only that, said Furge, "If you have fewer CPAs performing these services, inevitably, the cost of obtaining these services must rise. This hurts small business!"
It may hurt small businesses but we bet the big firms are having a blast picking up the slack and overcharging for it.