State Senate Passes Accounting Legislation
Bill Clears First Hurdle to Becoming Law

By Simon Eskow

NEW YORK—The New York State Senate approved the first comprehensive update of accountancy laws in 56 years when legislators passed an accounting reform bill last month.

The Senate on its last day before summer recess unanimously approved the bill (S302-D), which generally expands the scope of practice and makes CPAs “accountable” for all the functions services they perform in addition to audit and attest.

A companion bill (A18555-A) introduced by Assemblyman Ron Canestrari remained in the Assembly Higher Education Committee.

Passage of the bill by the Senate marks the closest any accounting reform legislation has come to becoming state law since the prominent accounting scandals of 2001. The bill, sponsored by Senate Higher Education Committee Chairman Sen. Kenneth LaValle, emerged from a year of public hearings in 2002 and continued scrutiny of the 100-year-old statute governing the profession. Members of the New York State Society of CPAs testified at the hearings and drafted a legislative proposal, much of which was incorporated into LaValle’s bill.

“We believe that your legislation will protect the public interest…without imposing an adverse economic consequence on the many small businesses and not-for-profit organizations served by CPA firms across this state,” Society President Jeff Hoops stated in a letter to LaValle. “We are confident that your legislation will help restore public confidence in the public accountancy profession in New York.”

LaValle said the “accounting improprieties” forced the state to reconsider the role of the profession and the New York statute that regulates it, which hasn’t been updated since 1947.

“We worked hard to develop an initiative that ensures the future integrity of public accountancy and restores public confidence that has been damaged by the actions of a few,” LaValle said in a statement.

Although there is hope the legislation will be taken up by the Assembly in the fall, a limited agenda may delay passage and enactment of the bill into law until the 2004 ssession of the state legislature.

Up Scope

In his letter to LaValle prior to the Senate vote, Hoops underscored areas of the bill that the Society supported, including practitioner and firm registration, mandatory CPE for all CPAs, mandatory peer review and other items.

A central issue in the bill is a redefinition of scope of practice that will bring all the functions performed by the modern CPA under a wider umbrella. Hoops said the Society supports “including all professional services, including tax return preparation and tax advisory services” within that scope, in addition to the core practice of attest and audit. Partly as a result of this, all CPAs, regardless of whether they are in public or private practice, will be subject to registration with the state, regulation and professional discipline.

The widened scope affects other issues, such as qualifying experience for licensure, which under the bill is expanded to include accounting, attest, auditing, tax return preparation and tax advisory service.

Mandatory CPE expands to cover all practitioners, including CPAs in private industry. According to the bill, CPAs will have to complete at least 120 hours in a triennial registration period, earning a minimum of 20 hours in any year. While the bill cuts minimum annual hour requirements by half, it also ends special consideration currently applied to 24-hour concentrations in auditing, accounting and taxation in each year of the triennial registration period. All CPAs will would be subject to the new hour requirements.

The bill also clarifies the accounting statute to allow CPAs to accept commissions and referral fees from nonattest clients, with a required written disclosure to the client.

Hoops also praised the LaValle bill for requiring all CPAs and CPA firms (not just partnerships) to register with the New York State Education Department, while ratcheting up due process in disciplinary proceedings. The state would also mandate peer review for firms conducting attest or compilation services.

(To read the entire text of the bill, visit www.nysscpa.org and look for the link to S0302-D under “Gov’t Center.”)

Power of the State

The legislation doesn’t address the composition or power of the New York State Board for Public Accountancy. The Society has advocated an expanded board, with more resources to undertake greater responsibilities. A separate bill by Senator LaValle, S3405-B, was passed by the State Senate to grant independence for all the state professional boards, including the accountancy board. That bill would also change the composition and appointment process for the state boards.

But both houses of the legislature approved other legislation (S4960-A) providing the State Education Department authority to issue cease-and-desist orders and seek civil restitution from individuals engaged in illegal practice of any of the nearly 40 professions under its jurisdiction.