The Right Steps to Regulate CPAs

New York legislators want to do something about the Enron mess, and they should—by overhauling state regulation of the accounting profession to raise standards. Consider this: Only one of the 50,000 accountants in the state last year lost his license for professional misconduct.

Unfortunately, as is all too often the case, legislators are planning to do the wrong thing.

The wrong steps are embodied in bills that would variously prohibit either New York companies or local governments from hiring auditors for any other task.

While there is a growing consensus that the other work done by auditors should be limited, the issues are complex. Small companies and single proprietors rely on their accountants as business advisers. The power of such state laws to affect bigger companies is problematic at best, since most are multistate operations, and many are incorporated elsewhere.

In the end, accounting is a national business, and the rules must be set at a national level by Congress or the Securities and Exchange Commission. What the New York Legislature should do is strengthen oversight of the accounting profession here. Accounting is currently within the purview of the Board of Regents, which has other things to watch over, such as the state’s entire educational system.

The New York State Society of CPAs is pushing a series of changes. They include a new, strong regulator for the profession, a requirement that all accountants submit to peer reviews that would be made publicly available, and a rule that accountants, whether working independently or inside corporations, register and be subject to state regulation.

Here’s the rub. Gov. George Pataki early in his first administration proposed changes like these for the accounting profession. The proposals went nowhere because the regents are appointed by both the Senate and Assembly Speaker Shelly Silver controls the regents, and he has been unwilling to let go of his power.

With Enron illustrating the dangers of inaction, maybe this time politics will take a backseat to needed policy changes.