QROC Holds First Meeting

The state's Quality Review Oversight Committee (QROC), the Regents-appointed, five-member body that will oversee the state's mandatory quality review review program that goes into effect Jan. 1, 2012, met for the first time in Albany on June 7 to discuss the basic purpose, structure and functions of the committee.

For the first time in New York state's history, the state will be providing oversight of the peer review process for New York state firms and requiring registered firms to be peer reviewed.

The 2009 accountancy reform law requires that every firm that provides attest services in New York state -- except for sole proprietorship firms or firms with two or fewer accounting professionals -- to both register with the State Education Department (SED) and undergo mandatory quality review every three years as a precondition to firm registration and registration renewal. The requirement to be registered and undergo a quality review will also apply to any firm, regardless of size, that performs attest services for any New York state governmental agency, performs a governmental or proprietary function for the state or any of its municipalities or performs "services specifically required to be performed pursuant to New York state law." In addition, sole proprietorships or firms with two or fewer accounting professionals may voluntarily undergo a quality review. This program goes into effect on the first day of next year.

"We need to work on where the committee needs to be by Jan. 1, 2012," said State Board for Public Accountancy Executive Secretary Daniel J. Dustin.

Dustin is also serving as QROC's executive secretary -- the Regents appointed the QROC under the authority of the accountancy reform law, and as both the state board and QROC are in the realm of public accountancy, Dustin said there was no need to appoint a separate executive secretary for the new committee. However, he stressed that the New York State Board for Public Accountancy and the QROC are unrelated entities.

The responsibilities of QROC, the program's oversight body, have already been established: In addition to the approval and monitoring of sponsoring organizations, including review and approval of each sponsoring organization's plan of administration, the QROC will also be charged with informing the State Education Department (SED) of any problems related to the quality review program that may require the department's intervention, making an annual recommendation as to the qualifications of sponsoring organizations, assessing the quality review program overall, reviewing review reports to ensure firms are complying with the standards and ensuring that documents received from a reviewer or firm are confidential and do not constitute a public record.

Though the new quality review program mirrors the AICPA peer review program already in place in New York, the QROC is a new authoritative body with no set precedents for process or procedures. Thus, those were among the chief concerns discussed at the first meeting in Albany June 7.

For example, how many times will the group need to meet to solidify the quality review framework before the program goes live in seven months? How will peer review failures be dealt with and what would qualify a case for referral to the Office of Professional Discipline (OPD)? How will sponsoring organizations ultimately be approved to administer the program? And who should chair the five-member public body?

In a three-hour session, Dustin provided background information on the accountancy reform law, which, in addition to requiring quality review, expanded the scope of practice of the profession of public accountancy to include CPAs providing taxation, government, academia, financial advisory and consulting services, and the regulations that implement the law for the new QROC members. While some issues are as yet unresolved, the group hashed out many of the details of how QROC will get off the ground and prepare for the launch of the quality review program.

Composition

The QROC is currently made up of four members, and a fifth public member will soon be appointed, Dustin said. The current members include:

• J. Roger Donohue, former NYSSCPA Peer Review Committee chair, past Society vice president and past Suffolk Chapter president;
• David J. Moynihan, past NYSSCPA president and former NYSSCPA Peer Review Committee chair;
• John C. Olsen, former State Board for Public Accountancy chair; and
• Frank S. Venezia, past chair of the Society's Peer Review Committee.

Members of the QROC will serve five-year terms, except for this initial group of appointees, whose terms are staggered so that as equal a number as possible terminate annually.

The board expects to meet three times prior to the implementation of the program, with the next meeting scheduled for 2 p.m. on Sept. 20 in New York City.

Processes and Procedures

Dustin first defined for the QROC members its position as a committee: "You are a public body," he said, as the QROC was appointed by the Board of Regents and is not a subcommittee of the State Board for Public Accountancy or any other authority.

That designation means that the QROC's meetings will be open to the public, and it will need to go into executive session in the event discussion of audit failures and disciplinary referrals is necessary.

While the SED expects a significant number of review reports to be submitted, Dustin said it's unknown exactly how many.

"We have not begun to analyze the demographic information that is being collected with the annual firm reporting forms that [the SED has] recently received so we haven't estimated the total number of firms at this point," he said.

How many of these that could turn out to be disciplinary cases is also unknown, Dustin said.

One factor that will aid the committee in handling its responsibilities is the firm reregistration aspect of the regulations, Dustin said -- reregistrations are somewhat staggered based on the type of entity (For example, partnerships and LLPs reregister in October). And if a firm has already received an acceptable AICPA peer review -- receiving a grade of either "pass" or "pass with deficiencies" -- within the past three years, it will not need to get a quality review until its next reregistration date.

QROC's Role

The QROC has the authority to refer cases for discipline, but its members agreed that its purpose is not punitive.
"It's not about punishment," Venezia said. It's about getting [practitioners] to understand what needs to be done. I'm all about helping firms do a better job, understand the requirements, and ensure what they do is up to the highest level of their ability."

However, there will be cooperation between the QROC and the OPD, as one of the committee's mandates is to, when necessary, refer cases to the OPD.

"It's not like we send you to the OPD if you're short a couple hours [of mandatory continuing education]," Dustin said. "We'll work with you. I think in some ways, initially, quality review in New York state will be more remedial education than a disciplinary sanction."

But, Dustin said, that doesn't mean there will be no need for discipline. "There are going to be times when we're going to do that," he said. "Those are the times when we'll need to go into executive session to make some decisions."

Dustin said he is going to invite OPD Senior Prosecutor Dennis Spillane to the September meeting to allow the QROC and Spillane a chance to understand more about the coordination between QROC and the OPD. Dustin also noted that the new law created a CPA unit within the OPD's investigations division. "While he's a prosecutor," Dustin said, "you essentially have two individuals working on CPA matters, and Dennis Spillane who prosecutes these matters."

Olsen said he supports such cooperation, and noted that there was a need for better regulation of the profession that was filled by the passage of the accountancy reform law. "I think it's fair to say, when you go through discipline cases over a number of years, prior to this recent legislation, there were too many loopholes," he said, adding that the most significant were in the areas of continuing professional education and peer review.

"A practitioner in good faith could provide services that were of less quality than we'd like to see in this state," he said. "I was thrilled when the new law passed. It increases our chances of delivering high-quality CPA services in New York state."

Moynihan agreed. "I personally have been very discouraged by what I've seen done in our profession by a number of firms and practitioners," Moynihan said. "From a competitive standpoint, it's a great disadvantage to the people out there trying to do it right [and] following the standards."

The QROC's "mantra," Dustin said, "is always public protection and enhancing the integrity of the profession."

Unresolved Issues

Sponsoring organizations are an integral part of the quality review program, as they are entities approved by the SED to oversee and facilitate quality reviews performed by a reviewer.

"It is anticipated that the NYSSCPA would be a sponsoring organization similar to what has occurred in other states," Dustin said. For example, Texas, a state whose quality review program served as somewhat of a model for New York's, he said.

However, Dustin said a contract agreement has not yet been developed for potential sponsoring organizations to apply for such status with the SED because he is working to ensure these agreements are developed and approved through the proper channels.

"I think in the regulations, it made a reference that the QROC would approve agreements with sponsoring orgs," Dustin said, adding that he is going to meet with Office of the Professions counsel to make sure this is correct and that the draft agreement is appropriate for distribution to sponsoring organization applicants.

"I'm hoping that we can just process the agreements through the [state] board office," Dustin said, adding that he anticipates these agreements to be ready within the next 60 days.

"It's a work in progress," he said. "No one has done this before."

As a public board, the QROC is also mandated to elect a chair. Although the appointment of a chair for the QROC was discussed at the meeting, there was no final decision made regarding a chair nor was one named.