S04834-A
STATE OF NEW YORK
________________________________________________________________________
4834--A
2003-2004 Regular Sessions
IN SENATE
April 23, 2003
___________
Introduced by Sen. LAVALLE -- (at request of the Attorney General) --
read twice and ordered printed, and when printed to be committed to
the Committee on Higher Education -- committee discharged, bill
amended, ordered reprinted as amended and recommitted to said commit-
tee
AN ACT to amend the education law, in relation to oversight of account-
ants
The People of the State of New York, represented in Senate and Assem-
bly, do enact as follows:
1 Section 1. The second undesignated paragraph and paragraph a of subdi-
2 vision 1 of section 6508 of the education law, as amended by chapter 866
3 of the laws of 1980, are amended to read as follows:
4 Except as provided in paragraph [(a)] a of this subdivision, the
5 membership of each professional licensing board, other than the board
6 created under section seventy-four hundred three of this chapter, shall
7 be increased by one member, and each such board shall have at least one
8 public representative who shall be selected by the board of regents from
9 the general public.
10 a. The membership of the professional licensing boards created under
11 sections sixty-five hundred twenty-three, sixty-eight hundred four, and
12 sixty-nine hundred [three, and seventy-four hundred three] four of this
13 chapter shall be increased by two members, and each such board shall
14 have at least two public representatives, who shall be selected by the
15 board of regents from the general public.
16 § 2. Section 7401 of the education law, as amended by chapter 994 of
17 the laws of 1971, is amended to read as follows:
18 § 7401. Definition of practice of public accountancy. 1. The practice
19 of the profession of public accountancy is defined as [holding one's
20 self out to the public, in consideration of compensation received or to
21 be received, offering to perform or performing for other persons,
22 services which involve signing, delivering or issuing or causing to be
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD09763-05-3
S. 4834--A 2
1 signed, delivered or issued any financial, accounting or related state-
2 ment or any opinion on, report on, or certificate to such statement if,
3 by reason of the signature, or the stationery or wording employed, or
4 otherwise, it is indicated or implied that the practitioner has acted or
5 is acting, in relation to said financial, accounting or related state-
6 ment, or reporting as an independent accountant or auditor or as an
7 individual having or purporting to have expert knowledge in accounting
8 or auditing]:
9 a. performing or offering to perform attest or compilation services,
10 as defined in section seventy-four hundred one-a of this article;
11 b. incident to the services described in paragraph a of this subdivi-
12 sion, rendering or offering to render professional services to clients
13 in any or all matters relating to accounting concepts and to the record-
14 ing, presentation, or certification of financial information or data; or
15 c. performing or offering to perform for other persons one or more
16 types of services, exclusive of services within paragraphs a and b of
17 this subdivision, involving the use of professional skills or competen-
18 cies of a licensed accountant as described in the rules of the board of
19 regents, including professional services rendered to one's employer
20 relating to the recording of financial data or information or the prepa-
21 ration or presentation of financial statements, while holding one's self
22 out as a certified public accountant or public accountant or using a
23 "CPA" or "PA" designation.
24 2. Any person not licensed pursuant to this article, and any other
25 legal entity not registered pursuant to this article, may offer the
26 services set forth in paragraph c of subdivision one of this section if
27 the person or other legal entity does not hold itself out as a certified
28 public accountant or public accountant, a registered partnership, a
29 professional service corporation, professional service limited liability
30 partnership, or professional service limited liability company, licensed
31 or authorized to practice public accountancy, or otherwise solicit or
32 advertise for clients using a "CPA" of "PA" designation or other similar
33 designation in violation of subdivision two of section seventy-four
34 hundred eight of this article.
35 § 3. The education law is amended by adding a new section 7401-a to
36 read as follows:
37 § 7401-a. Definitions. As used in this article:
38 1. "Attest" means providing the following public accountancy services
39 which all require the independence of licensees:
40 a. any audit to be performed in accordance with generally accepted
41 auditing standards or other similar standards developed by a federal
42 governmental agency or board, or by a recognized international or
43 national professional accountancy organization, acceptable to the
44 department in accordance with the commissioner's regulations that estab-
45 lish auditing standards;
46 b. any review of a financial statement to be performed in accordance
47 with standards developed by an agency, commission or board of the feder-
48 al government, or by a recognized international or national professional
49 accountancy organization, acceptable to the department in accordance
50 with the commissioner's regulations that establish standards for
51 performing such services; or
52 c. any attestation engagement to be performed in accordance with
53 attestation standards developed by an agency, commission or board of the
54 federal government, or by a recognized international or national profes-
55 sional accountancy organization, acceptable to the department in accord-
S. 4834--A 3
1 ance with the commissioner's regulations that establish standards for
2 performing such services.
3 2. "Certified public accountant" means any person who has received a
4 license from the department as a certified public accountant for the
5 practice of public accountancy.
6 3. "Compilation" means providing a service to be performed in accord-
7 ance with standards developed by an agency, commission or board of the
8 federal government, or by a recognized international or national profes-
9 sional accountancy organization, acceptable to the department in accord-
10 ance with the commissioner's regulations that establishes such stand-
11 ards, and that is presenting in the form of financial statements
12 information that is the representation of management or owners without
13 undertaking to express any assurance on the statements.
14 4. "Firm" means a sole proprietorship, a professional corporation, a
15 partnership, an incorporated association, a limited liability company, a
16 limited liability partnership, or any other form of organization engaged
17 in the practice of public accountancy.
18 5. "Public accountant" means any person who has received a license
19 from the department as a public accountant for the practice of public
20 accountancy.
21 § 4. Section 7402 of the education law, as amended by chapter 994 of
22 the laws of 1971, is amended to read as follows:
23 § 7402. Practice of public accountancy and use of title "certified
24 public accountant" or "public accountant". 1. Only a person licensed or
25 otherwise authorized to practice under this article shall practice
26 public accountancy and use the title "certified public accountant" or
27 the designation ["C.P.A."] CPA or "public accountant" or any other
28 derivative or designation provided in section seventy-four hundred eight
29 of this article.
30 2. Except as otherwise specifically authorized pursuant to the
31 provisions of subdivision two of section seventy-four hundred one of
32 this article, only a certified public accountant or public accountant
33 shall engage in the practice of public accountancy, as defined in para-
34 graphs a and b of subdivision one of section seventy-four hundred one of
35 this article, provided that such person may engage in such practice in a
36 firm registered pursuant to section seventy-four hundred eight of this
37 article.
38 § 5. Section 7403 of the education law, as amended by chapter 245 of
39 the laws of 1977, is amended to read as follows:
40 § 7403. State board for public accountancy. 1. A state board for
41 public accountancy shall be appointed by the board of regents on recom-
42 mendation of the commissioner for the purpose of assisting the board of
43 regents and the department on matters of professional licensing and
44 professional conduct in accordance with section sixty-five hundred eight
45 of this title. The board shall be composed of [not less] no fewer than
46 [twenty] sixteen licensed accountants, [not less than fifteen of whom
47 shall be licensed as certified public accountants in this state,] and no
48 fewer than nine public representatives, and the board [should] shall be
49 kept in such proportion if [it] the number of members of the board is
50 ever increased. In appointing members of the state board for public
51 accountancy who are licensed accountants, the board of regents should
52 seek to appoint individuals with a broad range of practice experience
53 and from geographic regions throughout the state. An executive secretary
54 to the board shall be appointed by the board of regents on recommenda-
55 tion of the commissioner and [shall] may be a [certified] current or
56 former public accountant [licensed in this state].
S. 4834--A 4
1 2. For the purposes of this article, a "public representative" shall
2 not have been at any time:
3 (a) a licensee or the immediate family member of a licensee;
4 (b) a current or former public accountant or certified public account-
5 ant licensed in another state, or the immediate family member of such
6 person;
7 (c) an employee of a licensee, or an employee of a firm engaged in the
8 practice of public accountancy; or
9 (d) a person with a financial interest in the business of a licensee
10 or a firm engaged in the practice of public accountancy.
11 3. Notwithstanding the provisions of paragraph b of subdivision one of
12 section sixty-five hundred ten of this chapter, where the department is
13 investigating a complaint alleging professional misconduct against a
14 public accountant or certified public accountant, the professional
15 conduct officer may determine that no further action should be taken on
16 such complaint only after such officer has consulted with a public
17 representative of the board who has concurred in writing with such
18 determination.
19 4. Notwithstanding the provisions of paragraph b of subdivision two of
20 section sixty-five hundred ten of this chapter, the professional conduct
21 officer may determine that a matter should be terminated through the
22 issuance of an administrative warning only after such officer has
23 consulted with a public representative of the board who has concurred in
24 writing with such determination.
25 § 6. Section 7408 of the education law, as added by chapter 987 of
26 the laws of 1971, the opening paragraph of subdivision 1 and subdivision
27 2 as amended by chapter 994 of the laws of 1971 and paragraph e of
28 subdivision 1 as amended by chapter 62 of the laws of 1989, is amended
29 to read as follows:
30 § 7408. Special provisions. 1. Nothing contained in this article
31 shall be deemed to prohibit two or more certified public accountants or
32 two or more public accountants, or any combination thereof, from forming
33 a [partnership] firm; provided, however, that no [partnership] firm
34 shall use the words "certified public accountant" or "certified public
35 accountants" or the letters ["C.P.A.'s"] "CPA" or "CPAs" in connection
36 with its name unless the sole proprietor or each partner, owner or
37 shareholder of such [partnership] firm, resident or engaged within the
38 United States in practice is in good standing as a certified public
39 accountant of one or more of the states or political subdivisions of the
40 United States, and the sole proprietor or each partner, owner or share-
41 holder thereof resident or engaged in practice within the state is
42 licensed under this article; and provided further that such firm is
43 registered pursuant to the provisions of this section.
44 a. A registration shall be issued to a [partnership] firm upon payment
45 of the fee prescribed by the commissioner upon application showing that:
46 (1) At least one partner, owner or shareholder of such [partnership]
47 firm or the sole proprietorship is licensed under this article and his
48 or her license to practice is not currently suspended, annulled or
49 revoked in any jurisdiction and he or she is regularly engaged in prac-
50 tice on behalf of the [partnership] firm within the state;
51 (2) The [partnership] firm, other than a sole proprietorship, consists
52 of at least two [present members] partners, owners or shareholders; and
53 (3) The [partnership] firm, other than a sole proprietorship, contains
54 at least as many [present] partners, owners or shareholders as the total
55 number of names in the firm name, or, where the word "company" or abbre-
S. 4834--A 5
1 viation "co." is used, the number of [present] partners, owners or
2 shareholders shall be greater than the number of names in the firm name.
3 b. [Such registration may be revoked] The board of regents make revoke
4 or take other disciplinary action after a hearing conducted in accord-
5 ance with the provisions of section sixty-five hundred ten of this title
6 upon proof:
7 (1) That the registration was obtained by either misrepresentation or
8 suppression of any material fact;
9 (2) That the license or authorization to practice of any partner, sole
10 proprietor, owner or shareholder is suspended, annulled or revoked in
11 any jurisdiction;
12 (3) That any partner, sole proprietor, owner or shareholder in such a
13 [partnership] firm is or has been engaged in the practice of public
14 accountancy in this state who is not licensed in this state; [or]
15 (4) That the [partnership] firm failed to file the written notifica-
16 tion required pursuant to paragraph d of this subdivision [of this
17 section.]; or
18 (5) That the firm has engaged in professional misconduct pursuant to
19 section sixty-five hundred nine of this title or section seventy-four
20 hundred ten of this article, or has violated the provisions of section
21 seventy-four hundred eleven of this article.
22 c. Personal service on any general partner, sole proprietor, owner or
23 shareholder of a notice of hearing to revoke a [partnership] firm regis-
24 tered hereunder shall be deemed service on the [partnership] firm.
25 d. A [partnership] firm registered to practice pursuant to this
26 section shall file with the department on or before July first of each
27 year written notification of:
28 (1) Any admission of a partner, owner or shareholder,
29 (2) Any resignation, termination, retirement or death of a partner or
30 owner or shareholder,
31 (3) Any termination of [partnership] a firm, or
32 (4) Any occurrence of any event or events which would eliminate as to
33 such [partnership] firm conformity with the applicable requirements of
34 this section.
35 e. [Partnerships] Firms shall register triennially [and pay a fee of
36 fifty dollars].
37 2. a. No firm shall engage in the practice of public accountancy as
38 defined in subdivision one of section seventy-four hundred one of this
39 article or use the title "CPA" or "CPA firm" or the title "PA" or title
40 "PA firm" without a registration from the department. As a condition of
41 registration or renewal, the firm shall demonstrate that it has complied
42 with the provisions of this article, any other applicable laws and such
43 other requirements as the department may impose, consistent with this
44 article.
45 b. The commissioner, in consultation with the board, shall establish
46 in regulations a registration process for certified public accountancy
47 firms and public accountancy firms, including the imposition of applica-
48 tion and registration fees and procedures to suspend or revoke a regis-
49 tration for cause.
50 3. Any person shall be guilty of a class A misdemeanor who shall use,
51 in connection with the practice of public accountancy, or in any manner
52 tending to imply that he is an independent accountant or auditor, the
53 designations "chartered accountant", "certified accountant", "expert
54 accountant", "certified tax accountant", "tax accountant", "enrolled
55 accountant", "enrolled public accountant", "registered accountant",
56 "licensed accountant", "incorporated accountant", "registered public
S. 4834--A 6
1 accountant", "licensed public accountant", or any abbreviation thereof,
2 or the letters "C.A.", "E.A.", "C.T.A.", "T.A.", "E.P.A.", "R.A.",
3 "L.A.", "I.A.", "P.A.", "R.P.A.", or, "L.P.A.", except as provided else-
4 where in this article, or any other designation tending to imply that he
5 or she has expert knowledge in accounting or auditing. The title
6 "enrolled agent" or the designation "E.A." may only be used by individ-
7 uals so designated by the United States Internal Revenue Service.
8 § 7. The education law is amended by adding three new sections 7410,
9 7411 and 7412 to read as follows:
10 § 7410. Professional misconduct by accountants. In addition to the
11 misconduct set forth in section sixty-five hundred nine of this title,
12 each of the following is professional misconduct by a public accountant,
13 certified public accountant, or firm:
14 1. to attest to or otherwise express an independent opinion, or know-
15 ingly permit his or her firm to attest to or otherwise express an inde-
16 pendent opinion, on financial, accounting or related statements of an
17 enterprise, if the licensee or a partner or employee in the firm is not
18 independent with respect to such enterprise;
19 2. conduct resulting in the cancellation, revocation or suspension of
20 a certificate or other right or authority to practice, or refusal to
21 renew the certificate or other right or authority to practice as a
22 certified public accountant or a public accountant, or any other disci-
23 pline by any other state or any foreign country, where the grounds for
24 such action would constitute professional misconduct under the laws of
25 this state;
26 3. conduct resulting in the cancellation, revocation or suspension of
27 the right or authority to practice public accountancy before any govern-
28 mental body or agency;
29 4. dishonesty, gross negligence, negligence on more than one occasion
30 within a five year period, or breach of fiduciary responsibility in
31 connection with the practice of public accountancy;
32 5. knowing preparation, publication or dissemination of false, fraudu-
33 lent, or materially incomplete or misleading financial, accounting or
34 related statements, reports, or information;
35 6. embezzlement, theft, misappropriation of funds or property, or
36 obtaining money, property, or other valuable consideration by fraudulent
37 means or false pretenses;
38 7. conduct resulting in the imposition of any discipline, penalty or
39 sanction by any governmental body or agency in connection with the prac-
40 tice of public accountancy or the preparation, publication or dissem-
41 ination of any financial, accounting or related statements, reports or
42 information;
43 8. any violation of any provision of this article, or any rule or
44 regulation promulgated pursuant to this article or article one hundred
45 thirty of this chapter; or
46 9. any violation of any federal, state or local law, rule, regulation
47 or order committed in connection with the practice of public accountan-
48 cy.
49 § 7411. Conflicts of interest. 1. It shall be unlawful for any firm to
50 perform any attestation service for a publicly traded corporation if a
51 chief executive officer, controller, chief financial officer, chief
52 accounting officer, managing partner or any person serving in an equiv-
53 alent position for the corporation was employed by such firm and partic-
54 ipated in any capacity in the attestation of that corporation during the
55 one-year period preceding the date of the initiation of the attestation.
S. 4834--A 7
1 2. It shall be unlawful for any licensee to accept employment with a
2 publicly traded corporation within twelve months of the date of issuance
3 of a financial statement by such corporation if:
4 a. the licensee has participated in an attestation engagement for the
5 corporation and held responsibility, with respect to the attestation
6 engagement, requiring the licensee to exercise significant judgment in
7 the attestation engagement process, including but not limited to posi-
8 tions, however titled, where the licensee was the person in charge of
9 the fieldwork, up through positions where the licensee was a partner on
10 the engagement; and
11 b. the employment would permit the licensee to exercise significant
12 authority over accounting or financial reporting, including authority
13 over the controls related to those functions.
14 3. It shall be unlawful for any firm to perform any attestation
15 service for a publicly traded corporation if the lead or coordinating
16 attestation partner having primary responsibility for the attestation,
17 or the attestation partner responsible for reviewing the attestation,
18 has performed attestation services for that corporation in each of the
19 five previous fiscal years of that corporation.
20 4. It shall be unlawful for any licensee to perform any attestation
21 service for a corporation if the licensee or the immediate family member
22 of a licensee has a direct or material indirect financial interest in
23 such corporation. It shall be unlawful for any firm to perform any
24 attestation service for a corporation if any partner, sole proprietor,
25 owner or shareholder of the firm, or the immediate family member of such
26 person, has a direct or material indirect financial interest in such
27 corporation.
28 5. It shall be unlawful for any licensee or firm that performs any
29 attestation of a publicly traded corporation to provide such corpo-
30 ration, contemporaneously with the attestation, any non-attestation
31 services, including:
32 a. bookkeeping or other services related to the accounting records or
33 financial statements of the attestation client;
34 b. financial information systems design and implementation;
35 c. appraisal or valuation services, fairness opinions, or contribu-
36 tion-in-kind reports;
37 d. actuarial services;
38 e. internal attestation outsourcing services;
39 f. management or human resources functions;
40 g. broker or dealer, investment adviser, or investment banking
41 services;
42 h. legal services and expert services unrelated to the attestation;
43 and
44 i. any services determined by the public company accounting oversight
45 board to be impermissible.
46 A firm may engage in any non-attestation service, including tax
47 services, that is not described in any of paragraphs a through i of this
48 subdivision for an attestation client, only if the activity is approved
49 in advance by the audit committee of the client (or, in the case of an
50 attestation client that is not required by law to have an audit commit-
51 tee, such other person or persons as the commissioner shall designate to
52 pre-approve such non-attestation services).
53 The commissioner may, on a case-by-case basis, after consultation with
54 the board, exempt any licensee or transaction from the prohibitions set
55 forth in this subdivision, to the extent that such exemption is neces-
56 sary or appropriate in the public interest; provided that any exemptions
S. 4834--A 8
1 granted by the public company accounting oversight board pursuant to
2 subdivision two of section two hundred one of the federal Sarbanes-Oxley
3 act of two thousand two shall be deemed to be in the public interest and
4 shall result in an automatic exemption under this paragraph.
5 6. For the purposes of this section the term "corporation" shall mean
6 any organization or entity, including but not limited to a for-profit
7 corporation, not-for-profit corporation, partnership, sole proprietor-
8 ship, limited liability company, limited liability partnership and a
9 professional corporation.
10 § 7412. Penalties for professional misconduct. Notwithstanding the
11 provisions of subdivision six of section sixty-five hundred eleven of
12 this title, and in addition to the penalties set forth in subdivisions
13 one through five, seven and eight of such section, a certified public
14 accountant or public accountant or firm that is found guilty of profes-
15 sional misconduct may be subject to a fine not to exceed twenty thousand
16 dollars for a licensed individual or two hundred thousand dollars for a
17 firm, upon each specification of charges of which the respondent is
18 determined to be guilty. The amount of the fine for each specification
19 shall not exceed the greater of fifty thousand dollars for a licensed
20 individual or three hundred fifty thousand dollars for a firm, if the
21 professional misconduct involved fraud, deceit, manipulation or deliber-
22 ate or reckless disregard of this chapter, rules of the board of regents
23 or regulations of the commissioner.
24 § 8. This act shall take effect on the one hundred eightieth day after
25 it shall have become a law; provided, however, that licensed accountants
26 who are currently members of the board for public accountancy pursuant
27 to section 7403 of the education law shall continue to so serve until
28 their term of office expires, after which date such member shall no
29 longer serve on such board, and no further appointments or reappoint-
30 ments of licensed accountants shall be made to the board until there are
31 fewer than sixteen licensed accountant members of the board; and
32 provided further that all actions necessary to ensure the inclusion of
33 at least nine public representatives on such board shall be completed no
34 later than 180 days after this act shall have become a law.