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August 2000
State Legislature Fails to Act on Accountancy
Reform Bills
By Fong Chan
On June 24, the New York State Legislature adjourned for the year without
taking action on S. 4402 and A. 8600, two NYSSCPA-supported bills that
would update the state's accountancy laws. Both bills were "held" in their
respective committees.
In 1999, two separate legislative approaches were introduced in the Legislature
to amend state accountancy laws that have not changed substantially for
more than 50 years. The Society-supported proposal sought certain changes
consistent with the Uniform Accountancy Act, a model legislation proposed
by the AICPA and the National Association of State Boards of Accountancy
(NASBA). Among other things, the resulting bills, S. 4402 and A. 8600,
clarified the definition of public accountancy, changed the two-year auditing
and accounting experience requirement to one year of experience in any
professional services supervised by a CPA, provided express statutory
authority for the acceptance of commissions and fees from nonattest clients,
and allowed up to 49 percent of a CPA firm to be owned by non-CPAs.
The other proposal, bills S. 4133 and A. 8789, supported by the State
Education Department, amended only the definition of the scope of practice
and did not address the other issues contained in S. 4402 and A. 8600.
The department has argued and continues to maintain the position that
under the current law, the department does not have jurisdiction over
nonattest services such as compilation services and tax preparation. These
bills were also held in committee.
When the bills were first introduced in spring 1999, the sponsors in
both houses indicated a desire to learn more about the profession and
stated their intent to conduct hearings in the fall to gather information
and explore more fully the proposed changes. The Assembly's public hearing,
held on November 16, lasted almost nine hours and consisted of more than
50 witnesses. In February and March 2000, the Senate conducted two roundtable
discussions: one on the definition of the scope of practice and another
on commissions and non-CPA ownership. NYSSCPA members who participated
in the public hearings and roundtables represented a cross section of
the profession, including prominent and notable CPAs such as eight past
presidents of the Society.
After numerous discussions and negotiation sessions with legislative
staff, the SED, and the coalition that represents nonlicensed practitioners,
a proposal was made to amend the bills supported by the Society to provide
the following:
1. Definition of Practice of Public
Accountancy.
- Amends the current definition with
a definition that encompasses all of the services performed by CPAs:
audits, reviews, compilations and attest engagements in accordance
with standards, and other professional services based on the CPA's
knowledge, expertise, and skills, such as tax preparation, advisory,
and consulting services.
- Specifies that CPAs can perform audits,
reviews, and attestation engagements only through an SED-registered
CPA firm.
- Allows CPAs to perform compilations
outside of a CPA firm. Allows
nonlicensees to prepare financial statements provided they use the
disclaimer language contained in the statute and do not issue a report.
2. Licensure Requirements. Amends current
requirements to replace the two-year experience requirement with one
year of experience in any type of service typically performed by CPAs,
verified by a licensed CPA. Experience can be based on employment in
industry, government, or academia.
3. Registration of CPAs. Expands the
registration process to include all licensees who use the title of certified
public accountant or the CPA designation.
4. Substantial Equivalency. Authorizes
the New York State Board of Regents to determine whether licensure requirements
of another state or of an individual CPA are substantially equivalent
to the uniform requirements established by the AICPA and NASBA. Also
adds a provision relating to the discipline of CPAs practicing in New
York as a result of substantial equivalency.
5. Ownership and Registration of CPA
Firm. Allows for 49 percent ownership of a CPA firm by non-CPAs, provided
that the non-CPA owners actively participate in the firm. The firm must
be registered with the department and undergo peer review once every
three years.
6. Commissions and Contingent Fees.
Provides express statutory authority to allow CPAs to accept commissions
and fees from nonattest clients, provided that such acceptance is disclosed
in writing to the client.
7. Peer Review. Establishes a state
peer review program under which CPA firms would be required to undergo
peer review every three years as a condition for re-registration pursuant
to standards approved by SED. The department will be required to approve
procedures for the program (i.e., selecting and assigning reviewers,
evaluating the findings). Also authorizes the department to establish
a similar program for CPAs who only perform compilations.
8. Public Accountancy Supervision Account.
Establishes a dedicated fund to receive all fees generated under Article
149 to fund the supervision and regulation of the profession.
During the lawmakers' information-gathering
activities, the Society immediately learned that leaders in both houses
had concerns about only two issues: receipt of commissions and fees by
CPAs and non-CPA ownership. Legislators' discomfort on the commissions
issue seemed to dissipate when they found out that the overwhelming majority
of licensing jurisdictions (42 out of 54, including all of New York's
neighboring states) allowed CPAs to receive commissions and fees and that
the acceptance of commissions and fees was limited to nonattest clients.
The lawmakers realized that to prohibit commissions in the face of the
number of jurisdictions that currently allow this compensation method
could hurt the state's image as the world's financial capital and could
potentially violate interstate commerce laws. Moreover, SED failed to
show that the public has been in any way harmed in those jurisdictions
that allow CPAs to accept commissions and fees.
The proposal to allow non-CPA ownership
became the pivotal issue. Both Senate and Assembly leadership expressed
the same concern: How would this affect the other licensed professions?
While both houses agreed with the principle of non-CPA ownership-particularly
as it applied to technology experts and other consultants-they believed
that CPA firms should not infringe into the practice of other professions.
Unfortunately, the legislative session
adjourned before the parties could agree on the final language. In addition,
last-minute leadership changes in the Assembly (which affected the main
sponsors of A. 8600) caused the bill to lose momentum in that house.
"While I am of course disappointed that
S. 4402 and A. 8600 were not enacted into law this session, I believe
we achieved something almost as significant," NYSSCPA Executive Director
Louis Grumet said. "For the first time in several generations, accountancy
issues were discussed and debated at the highest levels of both house
of the Legislature. At my meetings with Senate Majority Leader Joseph
Bruno and Assembly Speaker Sheldon Silver, they both displayed an impressive
knowledge of the profession and asked direct and pointed questions." The
Society expects that in all likelihood, lawmakers will reintroduce the
bills after the November elections.
"Since all of the issues have already
been discussed and debated at length, there is reason to believe that
the Legislature may be ready to take action on the bills when they return
in January 2001," Grumet said.
For more information on the accountancy
reform legislation, see the Center for New York State Accountancy Legislation
click here.
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