02 – F – 0

Call to Order

02 – F – 1

Minutes of September 25, 2002 Meeting

Ms. Golden asked Board members if they had any changes to the minutes. There being none, Mr. Frank moved to approve the minutes as amended. Mr. Bloom seconded the motion. There being no objection, the motion passed unanimously. Messrs. Nowicki and Grusd did not participate in the vote.

02 – F – 2

Treasurer’s Report

Mr. Aquilino presented the Treasurer’s Report. He noted that there are two new subcommittees of the Finance Committee:

• The Investments Subcommittee, composed of Messrs. Aiken, Evangelista, and Aquilino, and
• The Borrowing Subcommittee, composed of Ms. Kirby and Messrs. Barback and Hoops.

He reported that the Society’s funds were invested with the Bank of New York. In addition, FAE had formed its own Finance Committee consisting of Mss. Newman-Limata and Fierstein and Mr. Riley. The FAE and NYSSCPA Finance Committees held a joint meeting on October 30. The Committee Action Plan was reviewed and approved. September 2002 financial statements were discussed. Ms. Chambers gave an overview of the budgeting process, and an explanation of the timesheet system used to allocate operational expense.

The financial statements for the period through November 30, 2002, reflected combined total assets for the NYSSCPA and FAE of $6,642,000, total liabilities of $6,170,000, and, therefore, net assets of $472,000. (These numbers excluded FAE’s permanently restricted fund, the NYSSCPA Benevolent Fund, and the CPA PAC.) The current year’s net income was $801K, which was $254K higher than budget.

Additional highlights of Mr. Aquilino’s report included the following:

• Reporting of cash flow was changed to conform to the fiscal year.
• From this point on in the fiscal year, cash flow was expected to tighten because there is no year-end influx of dues revenue. Latter-half cash inflows primarily would include peer review administrative fees of approximately $400,000. In addition, FAE registrations for fall and winter events would bring in some cash.
• The balance sheet included deferred registration and POP revenue of $767K.
• The cash flow statement showed a $231,327 realized and unrealized loss on investments.

Mr. Schmelkin said that FAE registrations were up 20 percent for the 2002 busy season – June 1 through August 31 – while the budget had assumed a 10% increase. However, revenue was not up proportionately because the busy-season registrations were 40% POP registrations, while the budget had assumed 20%. He added that in the current quarter, POP registrations accounted for only 12 percent of the total.

One board member remained troubled by the variance between registrations and revenue. Ms. Newman-Limata, the FAE president, echoed the concern. Mr. Grumet stated that staff would provide the Board and the FAE Trustees a more detailed variance analysis at their next meetings.

Mr. Aquilino noted that a shift in membership in favor of lower dues-paying categories, such as students and candidates, had resulted in lower total dues revenue despite the stable total number of members.

Ms. Barry noted that the Finance Department had implemented a tighter collection policy for advertising revenue, noting that vendors received a reminder letter from legal counsel when they were 45 days past due, and subsequently were being referred to a collections agency after 60 days.

Mr. Aquilino moved, and Mr. Barback seconded, a motion to accept the Treasurer’s Report. The motion passed unanimously.

02 – F – 3

President’s Report

a. AICPA Council Meeting

President Golden stated that the Executive Committee recently engaged in a lengthy discussion regarding what messages she, as an AICPA Council member, should bring to the Council meeting on behalf of the NYSSCPA. After Executive Committee discussion of such issues as governance and leadership, among others, a resolution was proposed asking the Council to conduct an intensive, independent review of the AICPA governance structure. Ms. Golden stated that the resolution was introduced at Council, watered-down during the course of the discussion, and ultimately postponed indefinitely pending appointment of a task force by AICPA Chairman Ezzell.

Ms. Golden believed that the Society’s various resolutions over the years had had an impact on Council discussion. She stated that the Council discussed CPA2Biz at length.

She then turned the floor over to Mr. Colson who reviewed the AICPA’s audited financial statements, focusing on the note relating to CPA2Biz.

Mr. Colson summarized the AICPA Financial Report for the year ending July 31, 2002. Among other things, he noted that CPA2Biz had accumulated losses of approximately $80 million. He added that in a management discussion and analysis section of the AICPA audited financials, management cautioned that if CPA2Biz could not meet projections, it would be reason for concern.

b. Annual Conference

President-Elect Hoops noted that the next Annual Conference would be held from July 13 to 15 at the Gideon Putnam Resort in Saratoga Springs, New York. A limited number of early arrivals could be accommodated at the member’s expense on a first-come-first-served basis for July 11 and 12.

c. Bylaws Revision Task Force Interim Report

Ms. Golden turned the floor over to Ms. Napoleon-Hudson to provide an update on the Bylaws Revision Task Force. She noted that the Bylaws Revision Task Force, consisting of Ms. Fierstein, chair, Messrs. Sokolski, Caswell, and Grassi, and herself, was currently working on proposals to revise the Nominating process. She said that the most significant proposal to date was to suggest that the Board create “nominating protocols” to be used by the Nominating Committee in arriving at its nominations. The final report of the task force was expected to be presented to the Board at its April 23, 2003 meeting.

d. Chapter Presidents Conference Call

The report was deferred

e. Chapter Visits

President Golden noted that 15 chapter visits had occurred to date. She added that Ethics presentations had been provided by CAMICO Mutual Insurance Company at each chapter. She said that the visits had allowed for more dialogue between Society officers and members.

f. Legislative Update

President Golden provided background on the Legislative Task Force, headed by former vice president Kevin McCoy. Since the last Board meeting, members of the task force had scheduled a meeting with Mr. Dan Dustin, Executive Secretary of the State Board for Public Accountancy and representatives of the four largest firms regarding legislative proposals.

Ms. Golden asked that the board reassert its position regarding the Society’s legislative proposals. Mr. Nelson moved and Dr. Wolitzer seconded that the Board reaffirm its approval of the Society’s legislative proposals as asserted earlier in 2002 and posted on the website. Ms. Golden restated the question and opened the floor for discussion. Following discussion, the resolution passed unanimously.

g. Nominating Committee Update

President Golden noted that Mr. Grusd and Ms. Doran, the Board-designated members of the Nominating Committee will be joined by seven of the following thirteen people who petitioned to serve on the committee:

• Michael Borsuk
• Thomas Boyd
• Brian Caswell
• Debra Cutler
• G. William Hatfield
• Elliot Hendler
• Scott Jaffee
• Stuart Kessler
• Don Kiamie
• James Passikoff
• Frank Pellegrino
• Barry Seidel
• P. Gerard Sokolski

Ms. Golden reported that a membership ballot was being prepared and would be mailed shortly. It was expected that the final composition of the Nominating Committee would be known by late December or early January.

h. Real Estate Task Force Update

President-Elect Hoops noted that he and Mr. Grusd were serving on the task force, which was being chaired by former Society President Steven C. Baum. Staff completed office space questionnaires from GVA Williams, the Society’s real estate broker. Williams is also analyzing dependencies and the need for interaction and proximity to other working groups. These relationships impact the suitability of certain potential office space over other spaces. Finally, Williams is also tabulating all current occupancy costs as well as expenses associated with holding events off premises, since these numbers will factor in the overall cost of new office facilities.

i. Recent Society Comments

Ms. Golden noted that there had been more comment letters submitted since the beginning of the fiscal year than during the entire preceding year. She commended the following committees on their recent comments, which had been circulated to the Executive Committee:

• The Financial Accounting Standards Committee, chaired by Steven Rubin, for their October 28, 2002 “Comments on FASB Exposure Draft, Accounting for Stock-Based Compensation-Transition and Disclosure, a Proposed Amendment of FASB Statement No. 123”, Fred R. Goldstein, Principal Drafter.
• Letter, dated November 5, 2002, from Don Kiamie, Real Estate Committee Chair, to New York City Department of Finance Commissioner Martha Stark and Reed Schneider, General Counsel, regarding fair reporting of net operating income of real property subject to real estate tax assessments by the New York City Department of Finance and about the appeal of those assessments to the Tax Commission of the City of New York.

02 – F – 4

Executive Director’s Report

Mr. Grumet noted that several Board members asked for and will receive the names of members in their respective firms who have not paid their dues.

Mr. Grumet noted that 25 persons attended a managing partners meeting in Buffalo. He emphasized that the managing partners could become important to the Society’s legislative efforts. He added that there was a similar meeting in Owego the previous week with managing partners from the Southern Tier and the Central Southern Tier chapters.

a. Advertising

Mr. Grumet announced that the Society is now utilizing the services of an outside advertising agency to solicit ads for Society publications. He said the present revenue goal for the current fiscal year was $400,000, but he was optimistic it could be raised. He also reported that, assuming the agency achieves this goal, it would be paid $120,000.

b. COAP Update

Mr. Grumet reported that LeMoyne College in Syracuse New York had expressed an interest in hosting an upstate COAP Program next year.

c. FAE Update

Mr. Grumet discussed some FAE operating statistics with the committee, noting that for the 12-month period ending August 31, 2001, 13,543 members attended courses, as compared to 15,758 for the same period ending 2002. He also said that last year’s cancellation rate was 12 percent, while this year’s stood at 6 percent.

02 – F – 5

Membership Report

Mr. Pape presented the membership report, which included 221 new members (including 43 new associate members), 13 reinstatements, 16 deaths, 45 resignations and 5 terminations. These changes reflected a revised total membership of 30,097 as of the date of the meeting.

Mr. Berlant moved, and Mr. Schlegel seconded, that the Board accept the membership report. The Board unanimously approved the motion. Messrs. Nowicki and Grusd did not participate in the vote.

02 – F – 6

Society Government Relations Program

President Golden began by noting that the Government Relations Directors (GRD) program had been in place at the Society since the early 1990’s as a “grassroots” effort for contacting legislators. Among other things, the GRD program focused on members attending legislator fundraisers, inviting legislators to chapter programs, serving as campaign treasurers, and delivering the Society’s legislative position to district legislators.

In contrast to GRDs, the Society had key contact persons who had close relationships with, or personally knew, their legislators. Ms. Golden noted that during the Uniform Accountancy Act and post-Enron legislative initiatives, such key contact persons were relied on more heavily than GRDs. She added that some politically active or influential members are unwilling to serve as GRDs because of the added time commitment, but nonetheless are ideal key contact persons to a State legislator with whom the member already shares a personal, business, or political relationship.

By way of comparison, Ms. Golden noted that the AICPA maintains a “Key Person Program” for members of Congress which could serve as a model for the implementation of a Society Key Contact Person Program. Key contact persons would replace GRDs, and should already know and be willing to personally contact their legislators when called upon by Society leadership.

President-Elect Hoops moved, and Vice President Keiser seconded a motion to replace the GRD program with a Key Contact Person Program at the Society for each of the 212 state legislators. The motion passed unanimously.

Mr. Grumet noted that Society may explore hiring one or more outside firms to assist in lobbying efforts. No objections were raised to the hiring of outside lobbyists for the Society.

02 – F – 7

Strategic Plan

Mr. Nelson moved, and Mr. Riley seconded, a motion to accept the Strategic Plan. In the discussion which ensued, Mr. Hoops asked if the resolution contemplated acceptance of the comments added to the Strategic Plan by the Rochester Chapter. Several members indicated their desire to have the Rochester chapter comments incorporated into the final document.

The Board then discussed whether the Peer Review and Ethics discussion would provide a useful foundation for consideration of the Strategic Plan. Mr. Weiner moved, and Mr. Eassa seconded, a motion to place the pending motion on the table until after the Board considered Peer Review and Ethics. Over an objection by Ms. Kirby, the motion passed.

After the Peer Review and Ethics discussion, the Board took the strategic plan adoption resolution from the table. Mr. Nelson asked the chair for permission to withdraw the pending motion. Leave to withdraw the motion was granted without objection.

Mr. Evangelista then moved and Mr. Bloom seconded that the strategic plan be approved as amended to incorporate the comments from the Rochester chapter and that the Strategic Planning Task Force be granted the authority to submit the final document for publication. The motion carried unanimously. Messrs. Nowicki and Grusd did not participate in the vote.

02 – F – 8

Proposed Society Policies Regarding Conflicts of Interest

Mr. Langowski reported that the task force established to prepare policies pertaining to conflicts of interest and Society communications had met and given legal counsel instructions on an approach to take regarding the conflict of interest policy. He said he hoped to have draft policies readied for the Board’s next meeting.

02 – F – 9

Report of Finance Committee

See item 02 – F – 2, above.

02 – F – 10

Society Peer Review and Ethics Programs

President Golden introduced the following guests whom she had invited to participate in the discussion of the Society’s Peer Review and Ethics Programs:

• Henry J. Krostich – Former member of AICPA Peer Review Board, former chair and current member of NYSSCPA Peer Review Committee
• David C. Pitcher – Chair, NYSSCPA Peer Review Committee
• Rona L. Cherno – Chair, NYSSCPA Professional Ethics Committee

In addition, Ms. Golden noted that Mr. Nowicki was currently serving on the AICPA Peer Review Board and NYSSCPA Peer Review Committee. She added that Ms. Napoleon-Hudson was serving on the Society Professional Ethics Committee, and that Mr. Love was a former Professional Ethics Committee chair. Ms. Golden mentioned that former NYSSCPA Professional Ethics Committee chair Allen L. Fetterman also had been invited and wanted to assist in the Board’s deliberations, but was unable to join the discussion due to recent surgery.

Ms. Golden noted that at its July, 2002, meeting, the Board unanimously voted to direct the Bylaws Revision Task Force to add peer review as a NYSSCPA membership requirement. The task force had informally requested that the Board reconfirm this directive.

Ms. Golden noted that Messrs. O’Leary, Government Affairs Director, and Colson, Technical Services Division Director, prepared an issue paper on mandating peer review and linking it with the professional disciplinary process. She then asked Messrs. O’Leary and Colson to summarize their work. They made the following points:

• The accounting and auditing problems at Enron, WorldCom, Xerox, Adelphia, Cendant, and other large companies, coupled with the subsequent passage of the Sarbanes-Oxley Act had fundamentally changed the landscape in the peer review and ethics areas.
• The new Public Company Accounting Oversight Board (“PCAOB”) and the SEC rules process implementing Sarbanes-Oxley, would effectively move audit, independence, and quality standards for auditors of SEC clients from the AICPA to the new board. In addition, inspections (peer review) and discipline (ethics enforcement) would also move to the new board for auditors of SEC clients.
• Sarbanes-Oxley also directed the PCAOB to share the results of inspections with the state regulatory bodies and encouraged the SEC to transmit to the state regulatory bodies its administrative and civil actions in a way that differed from the past.
• The confluence of the AICPA no longer being in the SEC peer review and ethics enforcement arena, except as it related to membership, and the sharing of federal disciplinary actions with the state raised the issues of where the states would turn for expertise in dealing with peer review and ethics issues for auditors of SEC clients. There were indications that they would not turn to the AICPA for assistance, but that they could turn to their state societies. Several state societies, including Florida and California, no longer participated in the AICPA Joint Ethics Enforcement Program (“JEEP”) and had no state-level ethics program. The Florida Institute of CPAs considered itself a trade association rather than a professional organization.
• At the current time, the NYSSCPA had limited capacity in both the ethics and peer review areas. It administered the peer review program for the AICPA and participated in the AICPA JEEP. Because it had come to rely on the AICPA for many of the functions of peer review and ethics, the Society might not currently have the capacity independent of the AICPA to run a full-service peer review and ethics program to enhance professional standards and conduct.
• There were other issues related to the expectations of the public and the role quality programs and ethics in a professional society:
  • Should the Society’s peer review and ethics program operate independently of the AICPA or in conjunction with it?
  • Should the Society mandate peer review and ethical standards at higher levels than required by state law as a condition of membership?
  • To what degree should information be shared with state regulatory authorities concerning peer review and professional ethics enforcement?
  • What linkage, if any, should exist between the Society’s peer and professional ethics programs?

Ms. Golden then turned to the expert guests for comment. Mr. Krostich made the following points in describing the current peer review program:

• Peer review applied only for accounting and auditing work; tax practitioners were supervised by taxing authorities.
• The AICPA mission statement included “protection of the public.” The AICPA peer review program was designed as a public service.
• The peer review process was not designed to be punitive. Rather it had been remedial, designed to help practitioners improve their assurance practices.
• The merger of the ethics and peer review programs would be counter-productive in that practitioners would not be as forthcoming with reviewers. It would likely affect the selection of working papers practitioners would make available to the reviewers for evaluation.
• Currently, the Society was under contract to provide peer review administration in New York for the AICPA. If the Society introduced a program that deviated from the AICPA, how would this affect the contractual relationship with the AICPA?
• Is the Society prepared to underwrite the significant cost of administering an independent peer review program?

Ms. Cherno noted that there were two roles of the Professional Ethics Committee, education and investigation. She stated that the current program needed to become more transparent. She added that the committee was exploring what unique issues existed under the Code of Professional Conduct for members in industry.

Board members made the following comments:

• How would a revised peer review program have affected the Enron and WorldCom situations? If it would have prevented those scandals, then the revisions could be beneficial.
• Peer review had been helpful to the small firms without a quality review person on staff.
• The Society might lose members if peer review were required for membership and then tied to the system used for professional discipline.
• The problems that created WorldCom and Enron were ethical lapses. Peer review would not have corrected that. In other words, peer review had been linked to competency, not ethics.
• Peer review would never replace ethical judgment.
• The public believed that peer review was more than just remedial; they believed it could result in professional discipline.
• Peer review should be a tool to make one’s practice better, but if the Society were to tie peer review to ethics, it would become adversarial and counterproductive.
• The current program was effective. The Society was not equipped to review national firms, and would not be able to find every failed audit.
• Concern was expressed over the potential of losing members. The society should check with its members before mandating peer review.
• One member asked how many members belonged to firms that participated in peer review. Mr. Grumet responded that approximately 80% of the Society’s members were also members of the AICPA. And although some were members in industry or government where peer review had not been required for AICPA membership, the bulk of the Society’s membership already was being peer reviewed.
• Mandating peer review would make an important statement to the public.
• • Mandating peer review could adversely impact quality tax practitioners who would not be able to claim they had been peer reviewed.

Mr. Krostich mentioned a new AICPA rule terminating the memberships of all owners of firms that failed peer review three times. He added that if this were to occur with the present Society membership requirements, the terminated AICPA member’s NYSSCPA membership would be unaffected.

Mr. Grumet responded to a suggestion that peer reviews reports be made public. He noted that there was a conscious decision not to publish peer review reports because it gave an unfair disadvantage to those who participated. One director asked how many members the Society might lose if it were to mandate peer review. Mr. Grumet responded that there had been no assessment of that impact. However, he believed small firms would be concerned with the time and expense involved in being reviewed. He added that the Society could design a program with an eye toward minimizing both inconveniences for smaller firms.

Mr. Grumet noted that the difference between a professional society and a trade association often was that professional societies regulate themselves and set standards. Trade associations focused on lobbying and selling products and services. He added that some CPA societies appeared to be leaning more toward acting solely as trade associations. Ms. Golden noted that this distinction would be important as the Society considered this debate. She asked which of the two roles the Society would fill.

A lengthy discussion of the differences between a professional society and trade association ensued, during which the sense of the Board was requested and the Board indicated without objection that the Society should endeavor to fulfill the role of a professional society.

Mr. Nelson moved that President Golden be directed to appoint a task force with the charge to assess the following issues and report back to the Board:

• Public involvement in peer review and ethics oversight at the Society
• The nature of the link between peer review and ethics if any
• Whether peer review should be mandatory for Society membership
• Whether disciplinary hearings should be suspended while civil or criminal cases remain pending
• Whether the Society should continue in the AICPA ethics and peer review programs
• How the Society should approach identifying and establishing the appropriate level of policy, executive, administrative, and technical case management capacities to support its ethics and peer review programs.
• Whether the Society should offer voluntary quality programs in areas other than peer review for audit, attest, and compilation practices
• How to organize the committees in a Quality Control and Ethics Division for the Society to adequately provide policy, case management, and judicial due process functions
• How the Society should approach greater cooperation with state regulators in regards to peer review and ethics
  Mr. Peare seconded the motion, which, following further discussion, passed unanimously.