December 1999

Society President Calls for Reform

Highlights Bill's Key Provisions

By James A. Woehlke, CPA

In his testimony before New York State Assembly Majority Leader Michael J. Bragman (Syracuse) and Assembly Standing Committee on Higher Education Chair Edward C. Sullivan (Manhattan), NYSSCPA President Alan E. Weiner called for reform of New York's accountancy law. Weiner highlighted the major provisions of A. 8600, a Society-supported bill sponsored by Assemblymen Bragman and Sullivan.

Assembly bill 8600 incorporates many of the provisions of the Uniform Accountancy Act proposed jointly by the AICPA and the National Association of State Boards of Accountancy. Weiner testified on reforms proposed in A. 8600 that address substantial equivalency, requirements for entering the profession, scope of practice, registration and regulation of CPA firms, non-CPA ownership of CPA firms, commissions and contingent fees, continuing professional education, and other issues.

Need for Change

Weiner opened his testimony with comments on how the accounting profession has changed since the statute was last revised in 1947. He pointed out that at that time the AICPA had approximately 10,000 members as opposed to more than 330,000 today, and the Society had about 5,200 members compared to more than 32,000 today. CPAs' body of knowledge was more limited, and the Financial Accounting Standards Board, Government Accounting Standards Board, and Auditing Standards Board did not exist.

He went on to discuss the NYSSCPA's support for A. 8600, outlining specific provisions. Below are excerpts from Weiner's testimony.

Substantial Equivalency

Assembly Bill 8600 introduces the concept of 'substantial equivalency,' which will promote the free movement of CPAs among the states that set their accountancy requirements to a uniform, high standard.... [I]t addresses the three basic elements for entry into the profession--education, experience, and examination. Substantially equivalent states will be those whose requirements for entry into the profession are substantially equivalent to those set forth in the UAA.

Requirements for Entering the Profession

Assembly Bill 8600 modernizes and contemporizes the entrance requirements to be a CPA in two significant ways. First, by mandating the 150-credit hour requirement to enter the profession into law, it recognizes that in the information age the CPA needs a stronger educational foundation upon which to build a program of lifelong learning.

Second, it changes the experience requirement to eliminate barriers that discourage some of the brightest and most talented people from entering the CPA profession. The fundamental change is to no longer require auditing experience while working for a CPA firm. The experience, to be verified by a CPA, can be obtained in any environment so long as it involves using accounting, attest, management advisory, tax, or consulting skills.

It is important to note that while the bill would no longer require experience working in a CPA firm to obtain the CPA credential, CPAs who do audits and other services included in the scope of practice would be required to meet experience and competency requirements as set forth in professional standards.

Scope of Practice

The bill makes very clear which services CPAs perform are subject to state regulation.... The scope of practice in A. 8600 refers specifically to services that CPAs perform that benefit third parties, such as audits, reviews, and compilations of financial statements and engagements that give opinions on internal controls and on forecast financial information.

Since protection of the public welfare is the main rationale for virtually all legislation, the regulated "scope of practice" should involve only those services where there is a strong public interest, such as services that are used by third parties.

However, as under the existing legislation and supporting regulations of the commissioner of education and the rules of the Board of Regents, CPAs would continue to be subject to penalties for professional misconduct, including 'practicing the profession fraudulently, beyond its authorized scope, with gross incompetence on a particular occasion, or negligence or incompetence on more than one occasion.'

Registration and Regulation of CPA Firms

An extremely important aspect of A. 8600 is its requirement in law that all entities that engage in the practice of public accountancy as defined in the bill or that use the title 'CPA firm' register with the State Education Department. While there are presently a number of registration requirements in the existing law and regulations, as part of this new registration process firms must agree to participate in a peer review program approved by the State Education Department.

Making participation in a peer review program a state regulatory issue with penalties is a major enhancement of regulation of the profession in the state. It focuses on the CPA firms that do services upon which the public relies. It allows SED to regulate not only the licensee but also the firm itself.

Non-CPAs as CPA Firm Owners

Assembly Bill 8600 would require that only a simple majority of owners of CPA firms are licensed CPAs. The remainder must be actively engaged in the firm or an affiliated organization as their principal occupation. This change recognizes the need for CPA firms to attract and retain professionals from other disciplines to provide needed services to clients.

Commissions and Contingent Fees

Provided that the client is informed, A. 8600 would permit CPAs to accept commissions and referral and contingent fees as payment for services provided to clients for whom no services included in the scope of practice section are performed. There would, however, be an exception (allowing commissions and referral fees to be paid) for compilations that disclose that the CPA is not independent of the client. This provision allows the CPA to be compensated for services performed on behalf of clients in the same manner as nonlicensed providers of those same services.... The integrity of the practice of public accounting is preserved because these types of fee arrangements cannot be entered into on behalf of clients for whom the CPA provides audit and other scope of practice services, such as reviews and compilations.

Continuing Professional Education

Assembly Bill 8600 also makes a conforming change to the continuing professional education requirements for licensed New York CPAs. It would require CPAs seeking to renew their registration to complete 120 hours of acceptable continuing education in a three-year period with a minimum of 20 in each year.

The bill also removes the exemption from taking CPE for those CPAs wishing to keep an active license who work in industry and government. They would be required to complete the same amount of CPE as CPAs in public practice.

The New York State Society of CPAs supports the legislation. Most importantly, the legislation clarifies the services that are subject to regulation and introduces quality control measures that have proven effective as part of the profession's self-regulatory efforts. *

Editor's Note: See http://www.nysscpa.org for complete transcripts of Weiner and other individuals' testimonies before Assemblymen Bragman and Sullivan. Related articles in this issue of The Trusted Professional address various issues raised at the hearing.