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Assembly
Reform Bill Passes By
Simon Eskow The Assembly approved the bill, A-8358, on June 23, a day after the Senate approved its own accounting reform bill for the third time in as many years. While passage of the Assembly bill sponsored by Higher Education Committee Chairman Ron Canestrari (D-Cohoes) marked progress in the pursuit of accounting reform in New York state, the Assembly and Senate did not come together to produce legislation that could be referred to the Governor and signed into law. The Assembly’s bill corresponds with the Senate Bill, S-4642, sponsored by Senator Kenneth LaValle (see page 3), on issues such as expanding the scope of practice, requiring CPE for all CPAs, and enhancement of due process. There remained significant differences, however, on other important issues, especially the Assembly bill’s duplication of Sarbanes-Oxley language on conflicts of interest and mandatory audit partner rotation. And both bills provide for peer review, although the Senate bill makes it mandatory. (A similar Assembly bill passed last year contained no peer review provisions.) The New York State Society of CPAs supported the Senate bill, and called for a resolution in the language, but discussions did not result in compromise. “There are differences in the language used in (both bills) and we hope that the language will be resolved through negotiations,” the Society stated in a letter to bill sponsors and majority leaders in both houses. But no resolution came about before the legislature went into summer recess near the end of June. Major differences remained, rankling some observers who oppose the duplication of Sarbanes-Oxley Act (SOA)–style language that would apply to “publicly traded companies” without clearly defining the term, while creating potential jurisdictional redundancies and conflicts. “Our take on the SOA language is that there’s no reason to include the specific references,” said Kevin McCoy, chair of the NYSSCPA Legislative Task Force and a former member of the Society’s Political Action Committee, who has followed the recent legislation developments closely. “Federal laws change and are amended, and if a specific law is put in New York statute, how do (such changes to federal law) impact New York law?” Others saw possible complications for firms that do business in more than one state. “My overall reaction is we had hoped that no legislation would include SOA language, because if 50 states passed their own SOA regulations, we’d have a real compliance nightmare,” said Michael Borsuk, president of the Political Action Committee. Similar to SOA, the bill’s conflict-of-interest provisions would create a “cooling-off” period. According to a summary of the legislation, the bill would prevent a firm from providing attest services to any publicly traded company whose executives had been employed by the firm within the previous year. It also would bar an auditor from accepting employment with a publicly traded corporation if he or she performed attestation services for the corporation within the prior year and held responsibility which would have required the licensee to exercise significant judgment and the employment would permit the licensee to exercise significant authority over the corporation’s accounting or financial reporting. “We don’t feel it’s necessary to have that in there,” McCoy said. “Legislators see the Society’s point, but they’re looking at the public-protection issues, and if they can protect the taxpayers, with the regulations, what does it hurt? If it’s a duplication of responsibilities (under federal and state regulations), that’s not their problem either. Our concern is whenever duplication happens, there’s uncertainty as to what is the regulation that will apply.” Other conflict-of-interest provisions would apply SOA-style regulation to auditors of governmental entities as well. Members of the Society opposed the idea, considering those auditors are already governed under Governmental Accountability Office (GAO) regulations. An auditor rotation provision would prohibit firms from “performing attestation services for a publicly traded corporation or governmental entity if the lead attestation partner has performed attestation services for that corporation or governmental entity in each of the five previous fiscal years.” “We feel that the rotation requirement, based on an arbitrary timeframe, is really not useful to the public or a client,” said Michael Borusk, president of the Political Action Committee. “The time to make a change is when the auditor isn’t challenging you, not five years or 10 years. You shouldn’t have to prescribe it.” The rotation requirement was similar to one that was eliminated from an education bill in the Assembly aimed at improving school district auditing (see right-hand story on page 1). Opponents to the rotation provision said it would create an onerous burden for government entities in areas where there are not enough nearby firms to make rotation viable. The Society in the final days of the session recommended that the bill use an “incorporation by reference” alternative to the SOA language, rather than attempting to duplicate SOA provisions which would be then interpreted and enforced by a state regulator, potentially inconsistently with the federal agency. But discussions with lawmakers did not bring about the desired changes. Observers said the SOA language would have affected firms of all sizes, though a far larger number of small firms would have been impacted by such provisions applied to auditors of government entities. It was unclear which, if any, firms supported the Assembly bill. “There may be elements of the profession that are happier with the Assembly bill,” Borsuk said. “I just don’t know.” In one other distinction between the bills, while both would raise the fines for professional misconduct, the Assembly bill would impose fines up to $750,000 per specification of charge involving fraud, deceit or manipulation by firms with annual gross domestic income of over a billion dollars. The Senate bill limits its fines to $250,000 for firms. |
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