No Rest for the Weary
CPAs Have Obligation to Professional and Public Issues

By John J. Kearney

For those of you who have just concluded another grueling tax season, let me be the first to say that I hope you are enjoying the fruits of your labor on a deserted beach somewhere. And for everyone else for whom April 16 offers no respite, I also hope a weeklong getaway is forthcoming. But whenever you may find the time to enjoy a little R&R, I ask that you come back ready to work hard for our profession. The future direction of our practices and businesses and the continued well-being of the public interest depend on it.

As most of you know, this winter has seen a number of accounting reform bills emerge from Albany. Some of these bills are approaches to updating a 58-year-old state accounting statute that is nearly obsolete, and addressing developments like the highly publicized financial scandals in the Long Island school system. Other proposed legislation, however, is misguided.

I would like to draw your attention to a bill that New York State Attorney General Eliot Spitzer recently submitted to lawmakers, parts of which the Society believes could be detrimental to the profession and the public it serves. Introduced into the Senate on March 18, the bill, S. 3501, would call for increased oversight of public accountants, change the composition of the state board of accountancy, raise fines for professional misconduct, and, depending on certain circumstances, prohibit specific employment opportunities and the provision of attestation services to publicly traded corporations. Some of these items, such as the expanded definition of the practice of public accountancy, are concepts the Society has supported for years, but other aspects of the bill are especially troubling. In particular, the bill also would impose mandatory rotation of lead and reviewing audit partners and a ban on nonaudit services for clients that include publicly traded corporations as well as all New York state and local governmental agencies and political subdivisions, including school districts, BOCES, public authorities and public benefit corporations.

Because the Sarbanes-Oxley Act and federal Yellow Book requirements already address the provision of nonaudit services to publicly traded audit clients and government-affiliated audit clients, respectively, the Society has consistently opposed any legislation that would seek to do the same and essentially create separate federal and state standards on the matter. Further, the Society believes the proposed provision could adversely affect local government agencies that rely on small CPA firms for more than just their audit expertise. The provision also sets a dangerous precedent for small business audit clients that do not have the ability to hire more than one accounting firm for their needs.

The Society also believes mandatory partner rotation unfairly punishes legitimate CPA firms that perform good work but simply lack the personnel depth to rotate and are forced to forfeit their audit contracts after five years. Additionally, the Society is concerned that the requirement could create a service delivery problem. Because government auditing is a highly specialized field, CPAs and public officials, including Nassau County Comptroller Howard Weitzman, acknowledge that, at least in certain areas of the state, there could be a real shortage of firms that have the expertise necessary to conduct these types of audits. At least one other bill, A6082, introduced in the Assembly on March 4, to improve school district oversight and accountability, would impose a requirement that could have similar repercussions. That provision prohibits audit engagements from extending beyond five consecutive years with the same firm, and is opposed by the Society.

While the Society strongly supports efforts to modernize New York’s accountancy law to adequately address today’s practice, and recognizes the importance of ensuring independent audits and mitigating the potential for fraud and mismanagement of public funds, the NYSSCPA leadership feels that there are more prudent methods of satisfying these objectives. For example, while the intent of mandatory partner rotation or five-year firm limits is to help prevent conflicts of interest and substandard audit work, a mandatory request-for-proposal process for selection of school districts’ auditors would establish an impartial method for selecting professionally competent audit firms without unnecessarily penalizing small firms or risking a dearth in the availability of qualified practices. This process is one of the provisions in New York State Comptroller Alan Hevesi’s five-point plan, endorsed by the Society, to strengthen internal controls and create a comprehensive state audit program for school districts.

If you haven’t already, I urge you to get politically active and contact your local legislators in support of the comptroller’s proposal. Among its other major provisions, his proposal would require more external audit involvement and financial oversight training for school board members, and establish an internal audit function and audit committee for each school district. At the same time, encourage your Assembly members to work with the Senate to pass accounting reform legislation this year that will raise the level of practice and provide increased protection for the public interest, without mandating auditor rotation.

As CPAs, we have the greatest insight into the primary concerns and needs of our profession and our clients, and it is our responsibility to ensure that lawmakers develop viable, appropriate solutions to the complex problems that face us. In that light, state senators for the past two years have twice tried to pass meaningful accounting legislation, only to watch it fail, both times, to advance in the Assembly. This legislation, S302-D, calls for mandatory peer review; a 40-hour CPE requirement for all CPAs, including those in industry, government and not-for-profits, as well as in public practice; registration of all CPAs; regulation of all services within the CPA’s scope of practice; expansion of experience for licensure; and temporary practice permits. These standards conform to those in nearly all of the other states, and as the home of one of the largest groups of CPAs in the country, it is simply inexcusable that New York remains out of step.

At the federal level, we also have an obligation to get involved in the Social Security debate. As I wrote in my column last month, our knowledge and expertise is invaluable to any effort to improve the financial condition of our nation’s retirement program. And we have a vested interest in making certain that our clients will be prepared for any changes that Social Security experiences. As reported in the story on page 1, the Society for the last several months has been working behind the scenes to help explain to the public and to policy makers the different alternatives, and their impact, to Social Security reform. Along these same lines, Society members have also been developing a white paper that will provide Congress with a framework to approach tax simplification.

Finally, and on a more local level, I and the rest of the NYSSCPA leadership hope you will give serious consideration to a new initiative launched this month called CPAs on Boards, which matches CPAs with nonprofit groups. The primary purpose of the program is improve the level of oversight by these boards, which often lack the financial expertise necessary to ensuring good governance and effective fiscal management. CPAs who participate provide an invaluable service to their communities and raise the image of the profession and their firms.

As Society president and a partner of my firm, I recognize that free time is a luxury few of us have. While spending the few extra moments we possess to do things like contact our state representatives or volunteer our skills to a nonprofit might not sound especially appealing or even worthwhile, I firmly believe that grassroots involvement is the surest way to effect meaningful change that can significantly benefit both our profession and the public we serve.

Your voice matters. Get involved.