State’s Biggest Firms Urge NYSSCPA to Reconsider Stance on Mobility

By Colleen Lutolf, Trusted Professional Staff

NEW YORK—As New Yorkers are getting to know their newly sworn-in governor, David A. Paterson, New York CPAs are learning that they have a supporter in the statehouse when it comes to accountancy reform.

For the past five years, the Senate has unanimously approved an accountancy reform bill for New York state; four of those five years, Paterson served as Senate minority leader, becoming lieutenant governor last year.

With Paterson in the governor’s seat and a compromise on accountancy reform reached last spring by the NYSSCPA, the New York State Education Department (SED) and New York’s largest firms, new life may be given to a law that hasn’t been amended since the year Jackie Robinson joined the Major Leagues, 1947.

The bill, which the SED sent to the legislature in March, specifically deals with most of the key reforms that the NYSSCPA has supported for years, including:

The bill’s mobility provisions detail how CPAs may practice across state lines and who they have to notify to do so. The provisions have been the most challenging aspect of the bill since the Society dropped the issue of non-CPA ownership of accounting firms some time ago after meeting with significant resistance from lawmakers on that issue. In the March bill, mobility is accomplished through temporary practice permits and incidental practice provisions.

A temporary practice permit would allow an out-of-state CPA to practice attest or compilation services for 180 days per year and may be renewed up to four times. The permit would not be required to do tax preparation, but such practice would be regulated under the current bill.

In the bill, “incidental practice” relates to a current exemption for out-of-state CPAs who perform attest services in New York that are incidental to services performed outside the state. Some Society members, the AICPA and particularly the largest national and some regional firms think this is not enough mobility, and are aggressively working toward even more mobility in New York state in an effort to become a more mobile nation of CPAs.

The problem is that while the Senate has approved previous accountancy reform bills, the Assembly has rejected them, with mobility being the Assembly’s major concern.

At the time of the past rejections, the problem was a notification and fee regime under the 1998 draft of the Uniform Accountancy Act (UAA). That draft was found unworkable by the Assembly and by its original drafters, although for very different reasons. The Assembly found the old Article 23 too mobile, while its drafters found it not mobile enough.

The UAA Amendment

The current version of a national mobility standard was recently redrafted by the AICPA and the National Association of State Boards of Accountancy (NASBA). It amended Section 23 of the UAA by removing all notification and fee requirements when a CPA practices out-of-state. Instead the firm must register to practice if it either has an office in the state or if its staff travels to a state to do an audit of an enterprise with a home office in the state. Individuals could remain licensed in whatever state they claimed was their principal place of business, in effect allowing firm registration in the UAA to replace New York state’s individual registrations for notices and/or fees, where applicable.

If the new version of Section 23 were passed into law, individual CPAs practicing in New York state with out-of-state licenses would, however, fall under the full jurisdiction of New York state if the CPA broke any rules or laws in New York or if the services were performed or customers were located in New York. This is sometimes referred to as “no escape.” NASBA and the AICPA have, therefore, dubbed the entire legislative package as providing “no notice, no fee, no escape.”

Twelve states have adopted some form of the “no notice, no fee” amendment (See Table 1, page 3)—New Mexico most recently—while 21 states have legislation pending, according to the AICPA .

Dear Lou:

In a Feb. 25 letter addressed to Society Executive Director Louis Grumet, 11 representatives (six of whom are Society members) from 10 of New York’s largest firms advised Grumet and the Society’s Board that “the firms, working collectively, will pursue legislation in New York to implement the new ‘no notice, no fee, no escape’ mobility provision of the Uniform Accountancy Act.”

The six-page letter (available on the Society’s Web site at www.nysscpa.org under “For Your Info”) traces the need and history of the mobility movement, which has been the passion of the Big Four and members from many of our larger practices for some time now. Click here to read the letter from the accounting firms to Grumet.

The letter further stated that the notification systems are “particularly burdensome for smaller firms who may lack the resources to track and comply with the current crazy-quilt notification requirements.”

The writers also stated that neighboring states New Jersey, Massachusetts and Connecticut are considering “retaliatory actions.”

The letter’s authors are: Philip H. Politziner, president and chief executive officer of Amper, Politziner & Mattia, P.C.; Alan W. Sellitti, office business line leader, assurance, of BDO Seidman, LLP; Gregory T. Durant, vice chairman of Deloitte LLP’s regional managing partner, northeast; Charles Weinstein, managing partner of Eisner LLP; Mark Manoff, vice chairman, Northeast area managing partner of Ernst & Young LLP; Martin E. Cooperman, Northeast regional managing partner of Grant Thornton LLP; Thomas Marino, partner and CEO of J.H. Cohn LLP; Robert F. Arning, managing partner of KPMG LLP; Donald A. Lipari and Steven J. Mayer, co-managing partners of McGladrey & Pullen, LLP’s New York office,; and Brendan Dougher, New York metro managing partner of PricewaterhouseCoopers LLP.

A notification requirement in New York will be “very damaging—and perhaps fatal” to the ultimate goal of achieving accountancy reform in the state, a goal that the profession has come close to but been unable to achieve for the past nine years, according to the letter.

The former version of the UAA led to a “breakdown in interstate CPA mobility” by requiring an unspecified form of notification of practice by nonresident CPAs leading to a “crazy quilt of inconsistent requirements that raised serious barriers to their ability to serve clients on a real-time basis,” the letter stated.

While the UAA’s prior attempt at “substantial equivalency” was widely supported and adopted by many states, its concepts were never embraced by the New York regulators or lawmakers.

Substantial equivalency allows a CPA with a license in good standing from a state that utilizes the UAA version of CPA certification criteria (150 hours of education, passing the Uniform CPA Examination and at least one year of experience) to be qualified to practice in another state that is not the CPA’s home state. In its implementation, the concept didn’t work, due in part, according to NASBA, to a lack of uniformity in the notice requirement as implemented by the states.

Grumet’s Concerns

After the Society, the SED and New York’s largest firms reached a compromise last spring, Grumet expressed concern in a response letter that the firms would pursue separate legislation in New York to implement the new substantial equivalency “no notice, no fee, no escape” mobility provision to the UAA.

“The Assembly rejected this provision because it felt it would not adequately protect the citizens of New York by allowing out-of-state CPAs to practice in New York,” the response read. In short, Grumet said it would be surprising if any bill with even less notice, particularly no notice, would meet with the approval of the New York regulators.

From the New York regulators’ perspective, “it is not all about punishing the bad guys; it is also about identifying the good ones who are regulated,” Grumet said in the six-page response dated March 6, which is also available on the Society’s Web site. Click here to read Grumet's response to the accounting firms.

He told the firm partners and CEOs that the Society has actively supported accountancy reform, including mobility, since 1999. In fact, he said, the accounting reform legislation that has come before the New York Legislature included borrowed language from Section 23 of the UAA, but even that was a non-starter to many key Albany decision-makers.

“Your only interest appears to be mobility and while I am sympathetic to your needs, the Society’s other members and the public have needs too,” Grumet stated.

Grumet: State Board Not On Board

Grumet said in his letter that the New York State Board of Public Accountancy does not share NASBA’s view that notification provides little or no consumer protection. If it did, “New York’s State Board would seek introduction of legislation for ‘no notice, no fee, no escape.’ It has not made this recommendation,” Grumet said.

While state board Chair John C. Olsen never publicly opposed the UAA amendment, he did say after a Sept. 5 board meeting (see The Trusted Professional, Oct. 1, 2007) that he would prefer the board prioritize amending the law’s definitions of scope of practice, firm registration, CPE improvements and quality review adoption in New York state before resolving the mobility issue.

No Small Firm Voice

Grumet observed in his letter that none of the letter signers was a member of small or medium-sized firms. He pointed out that 92 percent of the Society’s almost 30,000 members do not work for the firms the letter writers do.

Grumet cautioned: “Pursuit of your too narrowly focused agenda could hurt the bulk of Society members, delay passage of the current compromise, and could have negative repercussions on the public all CPAs are licensed to serve.”

Many small firm practitioners view the large firms’ support of the UAA amendment as an effort to increase the large firms’ competitive advantage by bringing out-of-state CPAs into New York to compete with them without being required to meet New York’s standards for licensure.

Grumet said the UAA amendment is not popular with the Society’s membership. He said he could attest to this after visiting all of the Society’s 16 chapters during the Society’s annual “Town Hall Meeting” tour that he finished earlier this year.

‘Check Your Facts’

In response to the assumption that Connecticut and Massachusetts would keep New York CPAs out of their states, Grumet said the letter writers may want to check their facts more closely.

“It would be more likely that New York CPAs could be excluded because of New York’s lack of 150 hours of education … and mandated peer review,” he wrote. New York will require 150 hours of education in 2009.

New York has stood alone before, Grumet said. He added that CPAs with heavy workloads, perhaps too heavy to pay attention to laws that may change the parameters of their profession, should never be mistook for CPAs who are supporting that change.

“Those who do focus on the mobility issue quickly realize that your concerns and solution are purely large-firm driven,” he stated.

Grumet also responded to firm representatives stating that Grumet supports an interstate compact to deal with mobility. They wrote that such an effort would produce an even higher hurdle than a notification mandate that they said Grumet also supports.

In his response, Grumet said he has had discussions with the state board and the state legislature on a state compact. He also referred to a CPA Journal interview with then U.S. Comptroller General David M. Walker (published in April 2008) in which Walker said a compact would “be very desirable if it were a voluntary agreement among the states to address a broader national need while ensuring that they are protecting their citizens.”

Congress making the CPA license national under the interstate commerce clause would also be a good option, Grumet added.

“However good any of these or other proposals are, they are unlikely to happen in the near future,” Grumet wrote. “We want updated laws in New York now and we regard the goal of mobility to be more important than the mechanism by which it is achieved. Even some mobility is better than the patchwork of uncertainty we live with now.”

Further Discussion

Grumet ended his response to the firm partners and CEOs by asking them to reaffirm the support that some of the letter writers gave to legislative agreements made last spring.

“In New York’s political environment, it is vital that we not send a confusing and divisive message to the legislature,” he wrote.

He closed his letter by inviting the writers to meet to discuss the issue further.

The new accountancy reform bill is expected to be introduced in the legislature during the 2008 session.

Colleen Lutolf, Editor, can be reached at clutolf@nysscpa.org.