S2456 LAVALLE

BILL NUMBER: S2456

TITLE: AN ACT to amend the education law, in relation to the

profession of public accountancy

PURPOSE: To update the current law relating to the profession of public accountancy in order to enhance interstate reciprocity and practice across state lines by CPAs, meet the future needs of the profession, respond to today's marketplace and protect the public that the profession services relating to the powers of the Regents to authorize the Regents to establish rules on substantial equivalency to facilitate interstate practice of accountants.

Section two of the bill amends the section relating to the discipline of professional to authorize the Department to discipline State licensed CPAs who commit professional misconduct in another State.

Section three of the bill amends article 149 of the education law as follows:

S.7401 of the article 149 relating to the definition of the practice of public accountancy is amended by replacing the current definition with a more specific one that clarifies the scope of practice of a licensed CPA. The new definition identifies the attest functions performed by CPAs.

S.7402 is amended to remove the distinction between certified public accountants and public accountants, and specify that only a licensed individual can use the title of "certified public accountant" or "CPA" and that a CPA may perform attest engagements only in a firm registered by the department. S.7403 relating to the composition of the State Board is amended to conform with the change to combine certified public accountants and public accountants into one class.

S .7404 relating to the State licensure requirements of a CPA is amended as follows:

a) EDUCATION - starting with any application for licensure after August, 2007, an applicant must receive 150 semester hours of college education that include a concentration in accounting;

b) EXPERIENCE - one year's experience in any services using accounting, attest, management or financial advisory, tax or consulting skills verified by a NYS licensed CAP in good standing. The experience may be obtained in the private or public sector, government or academia.

c) EXAMINATION - adding a requirement that the examination, the examination process and passing standard should to the extent possible be uniform with other states. This Act authorizes the department to contract with third parties to administer the examination.

S.7404 is also amended by placing the requirements for a "public accountant" (formerly, S.7405, infra) in this section in order to combine CPAs and PAs into one class; and to establish the legal requirements for "substantial equivalency" and the legal rights of CPAs who are practicing in this State on the basis of "substantial equivalency".

S.7405 relating to the licensure requirements of public accountants is repealed for the purpose of creating only one class of CPAs. The language of such section has been added to S.7404, as amended.

S.7406 and S.7407 are amended by technical amendments to ensure consistency with this Act and current practice.

S.7408 is amended by repealing the current provisions relating to CPA partnership and replacing them with the following:

a) CPA firms that intend to engage in the practice of public accountancy in this State must be registered by the department.

b) CPA firms may include non-CPA owners provided, among other conditions, that the majority of the firm in terms of equity and voting rights belong to licensed CPAs and that the non-CPA owners must be actively engaged in the firm or any affiliated entity thereof as their principal occupation.

c) A CPA firm must undergo a quality review of its attest functions every three years as a condition for renewal of its registration.

S.7408 is also amended by adding provisions to allow CPAs to accept commissions, referral fees and contingent fees from non-attest clients, provided that the acceptance of such commissions and fees must be disclosed to the client. S.7409 relating to mandatory continuing education is amended to provide that as of September 2001, a CPA must undergo 120 hours of continuing education over a three year period, with a minimum of 20 hours per year. Current law requires a minimum of 40 hours per year. The change is made to conform with uniform requirements.

S.7410 is new and added to require every CPA firm to undergo a review of its attest practice once every three years. This new section ,authorizes the State Board to approve standards and procedures for such reviews. This section also exempts records relating to the review from State FOIL.

Section four of this bill provides that any applicant for licensure who, as of the effective date of this Act, has completed the new experience requirements or is performing activities allowed under the new experience requirements shall be deemed to have fulfilled or is fulfilling the experience requirements for the purpose of State licensure.

Section five of this bill contains a separability clause. immediately, except that (1) no CPA firm is required to register under this Act until January 1, 2003; and (2) any CPA partnership, limited liability partnership or professional corporation that is currently operating under a valid registration or certificate will not be required to register with the department under this Act until January 1, 2003 or the expiration of the current registration certificate, whichever is later.

JUSTIFICATION: The purpose of this bill is two-fold: (1) to update and clarify the scope of practice of the profession of public accountancy; and (2) to facilitate interstate practice of the profession. The current definition of the scope of practice is vague and confusing. The public has no real idea what services are unique to the profession and, thus, are subject to regulation by the State. This Act clarifies the scope of practice by clearly identifying those services that are exclusive to the profession; that of audits, reviews, compilations and attestation engagements, the product of which may or could be relied upon by the public for business or commercial purposes. The biggest challenge facing the accounting profession today is the establishment of uniform national standards that will allow CPAs to perform services outside their home State. In today's global and technology-driven marketplace, where more and more companies are doing business across state lines and all over the work, as well as on the Internet, it is vital that CPAs who are licensed by this State be able to practice their profession beyond the State. Differing requirements for CPA certification, reciprocity, temporary practice and other aspects of state accountancy legislation constitute artificial barriers the interstate practice and mobility of CPAs. This is particularly true in this State, which is the principal place of business or headquarters for many of this nation's largest companies. The current article was first enacted over fifty years ago, in 1947, at a time when intercontinental travel and computers were considered to be pipe dreams. The law has not changed in any substantial form since then. In this age of jet travel, the Internet and intense competition among states for corporate businesses, the traditional structure of state by state regulation of the profession of public accountancy, and of what constitutes the very practice of the profession, are anachronisms. In 1896, the State of New York enacted the first CPA law thereby giving birth to the accounting profession in this country. Today this State can once again be among the leaders in modernizing and bringing the accounting profession into a new century.

LEGISLATIVE HISTORY: S.4402, 1999-00; The current article was first enacted in 1947 and has not been changed in any substantial way since then. The purpose of this bill is to update and modernize current law.

FISCAL IMPLICATIONS: None.

EFFECTIVE DATE: This act shall take effect immediately, provided, however, that paragraph a of subdivision 2 of section 7408 of the education law, as added by section three of this act, shall take effect January 1, 2003; provided further, that any partnership, limited liability partnership or professional services corporation engaged in the practice of public accountancy that, on the effective date of this act, posses a valid registration or certificate issued by a state licensing entity shall be required to be registered by the department under this act by the later of the effective date. Nothing therein shall be construed to prohibit or prevent the applicable state licensing entity from taking disciplinary action against any partnership, limited liability partnership or professional services corporation that has violated the terms of its registration or certificate.