NEW YORK -- New York state-licensed CPAs will have more than a year to meet the state's new competency standards, required by a new state law that went into effect July 26, as a result of revised emergency regulations that the state Board of Regents unanimously adopted at its Oct. 19 meeting.

Although the emergency regulations still have to undergo another public comment period before they go before the Board of Regents in December for adoption as a permanent rule, the board's unanimous vote at its October meeting allows CPAs who were licensed before July 26, 2009 (the day the accountancy reform bill became law), to have until Jan. 1, 2011, to meet the state's new competency requirements.

"The concern is that there are practitioners right now who are reading the current regulations and concerned they shouldn't be signing the auditor's reports because they may not meet the competency standard you adopted" in June which became effective in July, said State Board for Public Accountancy Executive Secretary Daniel J. Dustin.

The provision in question requires CPAs who provide attest services—specifically audits and reviews—to have earned 1,000 hours of experience preparing or reviewing financial statements or reports within the past five prior years, 40 hours of continuing professional education (CPE) and meet professional standards.

"We had a lot of comments [responding to that provision] because that 1,000-hour threshold was difficult to meet for some small practitioners," Dustin said. Commenters also expressed concern that earning 40 hours of CPE by the deadline was difficult to comply with.

The revised emergency regulations adopted on Oct. 19 waive the 1,000-hour experience requirement for CPAs who sign or authorize someone to sign an accountant's report on a financial statement, if the firm for which they work has received the grade of pass or pass with deficiencies on a peer review.

New York state CPAs who perform only compilation services will now only have to complete 40 hours of CPE and meet professional standards, according to the revised regulations. The 1,000-hour threshold does not apply, nor must it be substituted by, the peer review provision.

"If you're doing a compilation … which is low level, basically assembling financial statements for your clients, we removed the 1,000 hours,” Dustin said. “There is no reliance and the accountants report actually says you should not place reliance on the report.”

Other regulations revisions included a redefining of unprofessional conduct and “commission,” as well as a change in firm registration fees.

On another controversial issue, Regents Chancellor Merryl H. Tisch questioned the State Education Department's (SED's) Office of Counsel interpretation that the use of title by retired CPAs who sit on corporate and nonprofit boards requires registration and CPE.

"I'm getting a lot of back traveling about some of the specifics in the new regulations," Tisch said."It seems to me a lot of it has to do with the continuing education requirements for retirees."

During the summer, Dustin provided the State Board for Public Accountancy with the following legal interpretation of how retired CPAs who sit on nonprofit boards of directors should be treated under the new regulations. A retired CPA who:

Neither the law nor the regulations include this language or CPE requirements for retirees, specifically. The law does state that if a licensee uses the professional skills and competencies of a CPA, as outlined in the emergency regulations, that CPA must be registered with the state and earn CPE. The emergency regulations do address how New York—and with these latest revisions, out-of-state—CPAs use their professional title.

The regulations state that "use of title" shall mean any representation that a person holds a license as a certified public accountant or public accountant, provided that representation is made by the licensee, or by someone associated with the licensee who the licensee has knowingly allowed to make such a representation, or by someone serving as the licensee’s agent who the licensee has knowingly allowed to make such representation."

The next provision in the regulations provides some specific guidance on just what the SED is getting at: “a representation shall include, but not be limited to” any oral, electronic, or written communication within licensee’s control, indicating that the person holds a license, including the use of titles or designations on letterheads, reports, business cards, brochures, resumes, office signs, telephone directories, websites, the Internet, or any other advertisement, news article, publication listing, tax return signature, signature on experience certifications for licensure applicants, the display of licenses as CPAs or PAs, from New York state or any other jurisdiction, or the display of certificates or licenses from other organizations which have the designation “CPA” or “PA” or use of the title “certified public accountant” or “public accountant” with the licensee's name.

With this in mind and one of the comment letters in hand, Tisch began asking pointed questions about CPE in general—how it is defined and who is allowed to provide it in New York state.

"We are now moving in an area of teacher certification to very much align professional development with real competency,” she said. “I want to know who the providers are under CPE. Who provides this?"

Dustin responded that the CPA firms, the NYSSCPA or the AICPA, or third-party vendors provide CPE, adding that there are close to 300 approved CPE vendors in New York state.

“So this is a real cash cow for them,” Tisch said. “I want to know what we do to regulate those outside providers the way we regulate teacher education preparation.”

The SED generates samples of licensees who are asked to supply the department with completion certificates for coursework they’ve taken, Dustin said. A second audit is then conducted with the CPE provider, who is asked for an attendance list for the course. Providers register on a triennial basis and have to reapply by submitting specific documentation and sign off that they’ll meet certain standards.

NYSSCPA Executive Director Louis Grumet said the Society, which is the largest CPE provider in New York state, would welcome a study that would compare its CPE-providing program, with course leaders consisting of CPAs, attorneys and Ph.D.s, to other CPE providers in the state.

"So why couldn't a retiree who comes out of one of the [Big Four] continue his continuing education as part of being a retiree from one of these firms?" Tisch asked.

Grumet agreed.

He said that the Society is providing free CPE for companies all over the state on ethics and on the new legislation.

"We don't make money on this," he said.

Grumet and Tisch agreed to talk about the issue after the meeting. But Tisch came back to the issue later, after Dustin reviewed the revised emergency regulations.

"I'm going to have to vote against this,” she said. “I am hearing a lot of talk that this is not business-friendly.”

She referred to New Jersey Gov. Jon Corzine moving 1,500 financial jobs out of New York and relocating them to New Jersey. She said New York was feeling the same pressure from Connecticut.

“New York right now has its neck up against the wall with a lot of people with their fingers around our throats,” she said. “I need to have assurance in my mind that what we are doing is not regulating to the point that we will force business out of the city that is looking at declining revenues, while on the other hand, not walking away from our responsibility to have best practices in place.”

Tisch said her own experience with sitting on nonprofit boards allows her to see the “reality on the ground.”

“Everyone is looking for retired CPAs to chair their audit committees,” she said, “because no one wants to sit on a board of directors on a corporation or a not-for-profit that doesn’t have an audit committee chaired by some kind of CPA. So I just want to say that there is a real practice backlash to what this will create if we do something that forces people to resign en masse from boards of directors. I just want to make sure that the sign in New York City and New York state still says ‘Open for Business’ when we’re done regulating.”

Grumet proposed that the regulations before the Regents be approved that day and before the next Regents meeting, regulations be drafted to deal with the nonprofit issue in "one way or another," but that there is "nothing you're voting on today that deals with this issue.

"What you're doing today is to implement a law which is the biggest change in 110 years," he said. The law and the regulations that implement it are not bad for business, he said; it actually brings New York up to the state of law in other states.

“I would strongly urge you to vote for the emergency regulations with the understanding among all of us that it doesn’t deal with the nonprofit issue,” Grumet said.

SED Associate Commissioner Frank Muñoz reminded the committee that the issue centers on how the regulations were interpreted, not the regulations themselves.

"The interpretation is what is the problem,"he said. He urged the committee to further discuss the interpretation at a later date.

The Professional Practice Committee voted, 5-0, in favor of approving the revised emergency regulations. The full Board of Regents also voted to adopt the revised emergency regulations unanimously.

Other Revisions

Aside from the competency provision revision, the new emergency regulations contain other changes that address comments made during the public comment period, Dustin said.

In respect to nonattest practice in New York state by out-of-state licensed CPAs, the revised emergency regulations now require these practitioners to, when using their CPA title, indicate in parentheses the state in which their principal place of business is located.

“That way the public in New York has the opportunity to know that the out-of-state CPA is the one performing services, not a New York CPA,” Dustin said. “And if there is a complaint, it would help us identify that state that would be a contact in order to file any complaint with the state board.”

Another “fairly simple one but one that has some impact on us” is a change that allows out-of-state firms to register with New York state. The amendment requires $50 for a firm that has no offices located in New York and $10 for each CPA licensed in New York that signs or authorizes someone to sign an engagement on behalf of a New York client, but whose principal place of business is not located in New York state, Dustin said.

Also revised was the definition of “commission” in the regulations.

“There was a comment that while we reflected that in certain situations CPAs could accept commissions, we didn’t accept referral fees,” said Dustin. “So we added ‘referral fees’ to the regulation.”

The revision now stipulates that CPAs are prohibited from collecting commissions and referral fees if they are doing any service that requires independence, he said.

“However, if you’re doing financial planning or estate planning, just as anyone who is not licensed, you could earn a commission, for example, for a sale of a mutual fund,” he said.