What is the mark of a good peer review? Is it delivering a “Pass” without exceptions? Is it guaranteeing a conflict-free process for the firm? When we review fellow insurance CPA firms, neither of these play into our metrics for success. Rather, our goal is to help our colleagues resolve struggles they’re experiencing so they can perform higher-quality audits. And we take great pride in finding these solutions. We know our colleagues have a desire to perform top-notch audits, so instead of a quick fix, we always strive to find and help implement the permanent fixes that will serve them well into the future. We recently asked JLK Rosenberger partner James Dougherty, CPA, CGMA what he enjoys about performing peer reviews. He said, “I like to get to know the firm and their desire to do things correctly and know that we made a difference.”
James was recently the lead partner on a peer review of a young CPA that audited an insurance company. Very few peer reviewers across the country are experienced enough to effectively review the specialty insurance niche, and the young CPA was new to the field and untested. In fact, he had only performed one audit before we started the peer review process. Having found us from a referral source, James immediately got to work with his fellow partner Doug Kalmbach, CPA, CFP to perform the review. Unfortunately, they discovered substandard financial statements and work papers and it immediately became clear that a failed audit report was issued.
Our colleague was devastated, and we told him how we would work with him throughout the remediation process. He knew it wouldn’t be easy, but we provided the tools and encouragement he needed to clean up his audit work and improve the statutory financial statements. He convinced his client of the needed corrections, and he requested more money. Together, he and the client performed the extra work we recommended for remediation. In the end, his client had a better product, and the young CPA walked away with knowledge of how to perform a quality audit and ensure proper statutory reporting in the future.
Performing Peer Reviews
While the outcome of the above case was positive for both us and our client, many peer reviews are not. Over the years, the AICPA Peer Review Board through oversight of peer reviewers has discovered a litany of less-than-thorough reviewers, and they have learned of others ignoring their clients’ underlying issues all together. With pressure from the US Department of Labor and US Inspectors General relating to governmental and single audits, the board is reviewing cases much more closely than they were 20 years ago via oversighting, which means that fewer CPAs are interested in taking on the additional risk of becoming a peer reviewer. Firms willing to review audits of niche markets, like specialty insurance firms, are especially hard to find. Those that perform those services are well-vetted to fill that role. They have been tested time and time again and have proven they know their stuff.
The mark of a good peer reviewer is somebody who can look beyond just the requirements. James said, “My specialty is my ability to communicate with the firm, help them understand what the challenge is, then advocate for the firm” as they navigate the technical review process. For example, on a recent peer review of the audit of a captive insurance company, our firm reported two negative findings – one was for omitting a required report, and one was for relying too heavily on the investment custodian. James and his team provided the CPA firm timely feedback, giving the firm time to remediate mistakes and implement change, quashing the Peer Review Board’s concerns before they had a chance to formalize them.
A quality insurance peer review can be seen as a planning opportunity rather than a compliance requirement. A good reviewer will help you navigate the world of public audits, and if you find one who is an expert in your industry, they can provide valuable guidance for your particular niche. If you would like to discuss your next peer review, JLK Rosenberger can help.