The most significant challenge facing small firms in the Public Company Accounting Oversight Board's inspection process is the difference between the board's approach versus that taken during the peer reviews of the past, the deputy director of inspections in the board's New York office told a group of CPAs gathered here.

"The most significant change to small firms is that this isn't peer review. When we come in to do an inspection, we'll have a view and that view counts," Paul Bijou told attendees at a Foundation for Accounting Education-sponsored auditing conference Thursday. "We won't tell you what the answer is. You should have the technical capabilities or the access to technical capabilities to development your own judgments and remedial actions as necessary."

"If we find an issue, we'll give you the reasons why we believe it to be an issue, but we won't tell you how to correct it," Bijou said during a discussion of the inspection process.

Bijou noted that of the 136 firms registered with the board in the Northeast region (New York, New Jersey, Connecticut, Massachusetts, Rhode Island, Maine and Vermont), the overwhelming majority (105) are firms with fewer than five issuer clients.

Bijou began his remarks by noting, "This isn't a 'gotcha' system. It's about audit quality and improving audit quality."

However, he did note that in cases where problems are identified, "the unpredictability of the inspection process is a tool we'll use," since rules established under Sarbanes-Oxley require that small firms be inspected not less than once every three years. In other words, if the board finds an issue, it doesn't have to wait three years to re-visit a firm.

Among the issues that the board has come across in its inspections of small firms so far are the availability of staff; accessibility to work papers, since some may be kept at the client site; and the location of the inspection, since some small firm owners may operate out of their homes.

"We're not going to come into your residence," Bijou assured attendees. "We'll work with small firms to agree to a mutual location," such as a hotel room, a temporary office or, when necessary, a PCAOB office.

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