By Dennis O’Leary

At a Feb. 18 special meeting, the New York State Board for Public Accountancy discussed legislative proposals pending before the state legislature.

The state board’s discussion revealed a member consensus in favor of proposals to expand the regulated scope of practice of CPAs, the registration of all CPA firms, and the registration of all individual CPAs, including those who are not engaged in public practice. However, the meeting failed to yield a member consensus on New York State Sen. Kenneth LaValle’s proposals to prohibit auditors of state and local retirement systems and state agencies, departments, bureaus, authorities and instrumentalities from:

• Providing non-audit services to the audited entity;
  
• Auditing such entity for more than seven years (the “auditor rotation” provision); and
  
• Accepting employment with the audited entity within two years of the auditor’s most recent audit (the “revolving door” provision).

Kevin J. McCoy, the Society’s vice president of legislation, attended the meeting and commented on the Society’s agreement with the registration of firms and individuals, and stressed the importance of continuing discussion with the state board and the New York State Education Department (SED) regarding the scope of practice issue. McCoy also noted that the lack of consensus among the members of the state board regarding the provisions related to non-audit services, auditor rotation and the revolving door shows that the Society needs to work diligently with the state board, the SED and the legislature to develop provisions acceptable to all of the parties.

Despite their lack of consensus at the Feb. 18 meeting, members of the state board, along with representatives of the SED, appeared to endorse Sen. LaValle’s proposals during a Feb. 26 New York State Senate Higher Education Committee hearing to examine the independence of certified public accountants in the post-Enron era. In joint written testimony regarding consulting services, the SED and the state board stated, “We encourage the legislature to amend the education law to limit the amount and types of consulting services CPAs and their firms provide to publicly traded audit clients.”

In addition, during his oral testimony before the committee, Daniel J. Dustin, executive secretary to the state board, stated, “Again, we believe that with minor revisions most of the proposals currently introduced into the legislature related to non-audit services will positively enhance financial information and ultimately public protection.” He also voiced support for a two-year ban on employment of senior audit team personnel with the publicly traded audit client and a seven-year rotation for auditors of publicly traded firms and public pension plans. However, in the joint written testimony presented to the committee, the SED and the state board said the concept of mandatory rotation of auditors deserves further discussion.

Louis Grumet, executive director of the New York State Society of CPAs, questioned whether the views of the state board are being accurately represented by the SED.
“This testimony by the SED serves as an example of the confusion regarding the status and position of the state board. Our (the Society’s) recommendation is that the state board be reconstituted with more power, more independence and more resources to do its job,” Grumet said. “We know that a number of state board members are very concerned about the ‘trickle-down’ effect of the proposed auditor restrictions to local CPA firms and their clients, many of whom are small businesses, nonprofits and local governments.”