The National Society of Accountants (NSA) is pleased to testify today before members of the New York State Assembly, Committee on Higher Education. As the Committee takes up consideration of New York's public accountancy law, Article 149, the National Society of Accountants urges the members to carefully consider the impact of their decisions on the thousands of non-CPA practitioners and their small business clients.
I. NSA Supports the Practice Rights of non-Certified Accountants.
Through our national organization, and affiliates in 54 Jurisdictions, the National Society of Accountants (NSA) represents the interests of approximately 30,000 accounting and tax practitioners. Generally, our members are sole practitioners or partners in small to medium-sized accounting firms. They provide accounting, tax preparations, representation before the Internal Revenue Service, tax planning, financial planning, and managerial advisory services to approximately 19 million individuals and small businesses nation wide. NSA was founded in 1945 to promote professionalism, education, and ethical standards for the accounting profession. Approximately 25 percent of NSA's members are Certified Public Accountants.
My name is Michael Connors, ABA, EA, President of The Tax Store of Poughkeepsie, NY, and Officer of ADT Enterprises, Inc., a heavy construction union contracting company. I am the immediate past president of the New York Society of Independent Accountants. I am a member of the National Society of Accountants' State Regulatory and Oversight Committee, and NSA's State Director for New York. I hold two professional credentials, ABA, Accredited Business Accountant, and EA, Enrolled Agent. I offer this testimony as an NSA member.
II. NSA is a Member of the Coalition for Affordable Accounting.
The National Society of Accountants is a member of the Coalition for Affordable Accounting (CAA). The CAA has identified three fundamental practice rights of the non-CPA practitioner. CAA believes that each of these fundamentals should be reflected in the body of any accountancy law. They are:
(1) The ability of non-CPA practitioners to perform compilations and reviews,
(2) The explicit statutory availability of safe harbor language, and
(3) The right of all accountants, certified and non-certified, to use earned credentials.
NSA applauds the efforts of this Committee to enact legislation that balances the need to protect the public with these legitimate practice right issues of non-CPA practitioners and their thousands of small business clients across our great State of New York.
III. The Accounting Profession Functions Best as Largely Self-Regulating.
The National Society of Accountants strives to ensure the qualifications and competence of its certified and non-CPA members in the performance of small business accounting functions. NSA strongly believes the public interest is best served by a self-regulating accounting profession, and that legislative and regulatory restrictions on the ability of the non-CPA practitioner to perform certain accounting functions should be limited.
1) Excessive state accountancy regulation impedes small business growth.
NSA believes that the public benefits from diversity and choice in the accounting marketplace. The public interest is served where the market place is allowed to be its own form of regulation. The practical effect of allowing the public to choose who best serves their accounting needs is that the cost of services is held down. This benefits the entire economy of the State of New York. Small businesses are the driving force in the economy of New York. It is Just these businesses that are most likely to seek the services of a fully qualified non-CPA practitioner. Excessive state regulation limits access to qualified professionals, drives up the costs of small business accounting services, and thereby dampens economic growth through out our State.
2) Anti-competitive forces disguised as public protection.
The need to protect the public from unqualified practitioners is not unique to the accounting industry. NSA has great respect for the efforts of this Committee and the New York State Assembly to enact accountancy law that protects the public from deceptive practices.
In the spirit of fully examining the need for public protection in the matters before the Committee, we would begin asking, where is the public outcry? Where is the demonstration of public out cry for protection against the thousands of dedicated professional non-CPA practitioners from across the great State of New York? Is the call for public protection coming more from the public or more from the certified community?
If it is more from the certified community, is this consistent with other recently expressed legislative and regulatory interests of the certified community? For instance, the certified community is involved in an ongoing initiative to amend or eliminate rules to allow for multi-disciplinary practices. More specifically, the certified community has advocated for the elimination of prohibitions against fee sharing with lawyers. This advocacy is forwarded on the grounds that the current prohibitions against fee sharing with lawyers are anti- competitive and unnecessary to protect the public. Yet, with respect to the issues that most directly affect the interests of non-CPAs the same arguments are turned on their ear.
The National Society of Accountants appreciates the Committee's duty to protect the public from unscrupulous individuals in all fields. It is simply our position that the current statute governing the accounting profession in the State of New York is equal to this foremost duty of the Assembly.
3) A.8600 and A.8789 threaten the ability of non-CPAs to work in their field.
Imposing further restrictions on the ability of non-CPA practitioners to perform accounting functions that are less involved than the audit function is fundamentally unfair to these dedicated professionals, their clients, and families. In particular, the current forms of Assembly Bills 8600 and 8789 are examples of extremely restrictive accountancy laws that would deprive thousands of fully qualified non-CPA practitioners of the ability to continue in their chosen field.
The great majority of non-CPA practitioners have developed excellent professional reputations over many years. Thousands of accountants in the State of New York have based their decision to enter and continue in the profession on their present ability to per-form services such as compilation and review of financial statements. Non-CPA practitioners want the same basic things as CPAs, the right to offer professional services within their qualifications that benefit the public and enable them to support their families and contribute in their communities. To deprive them of this right, without demonstrating a compelling state interest, would be grossly unfair.
IV. NSA functions as a Self-Regulating Organization that provides educational programs, administers credentials through affiliation with ACAT, and enforces an Ethical Code.
NSA stands firm for the proposition that the public needs to be protected from sub-standard accounting services. However, the CPA designation does not practically encompass all of the diverse accounting functions that raise the issue of public protection. Accreditation Council for Accounting and Taxation (ACAT), an NSA affiliated organization, offers and administers credentials that demonstrate competency and the qualifications to perform compilations and reviews for the benefit of small businesses, individuals, and sole proprietors.
NSA urges this Committee to consider amending Article 149, as it strictly pertains to compilation and review functions, to explicitly recognize the use of earned credentials such as ABA, ATA, ATP, and EA as a viable substitute for the initials CPA. NSA is engaged in several measures to promote professionalism among its members, including:
1. Requiring members' adherence to NSA's strict Code of Ethics;
2. Administering ethics complaints and taking appropriate disciplinary measures;
3. Requiring Continuing Professional Education (CPE);
4. Providing expert tax assistance to its members;
5. Promoting the use of highly- developed accounting standards (including, NSA's own Generally Accepted Tax Accounting Principles (GATAP));
6. Providing Peer Review and Quality Assurance Review services for its membership;
7. Conducting several highly-regarded tax, accounting, financial planning, and other training seminars throughout the year, and;
8. Producing, The National Public Accountant, a nationally circulated monthly trade publication concerning accounting, tax and other small business issues.
The National Society of Accountants is vigilantly working to ensure that our members in New York are fully qualified to perform those services they currently perform under Article 149,
V. NSA has historically looked to New York as a national leader in the field of accountancy law. Article 149 protects the public and promotes a diverse and competitive profession, which lowers small business accounting costs.
The cornerstone of the accounting profession is the financial statement. The audit function is reserved for certified practitioners who have demonstrated the skills necessary to report on publicly held corporations. The needs of small businesses do not generally extend to the audited financial statement. Indeed, the vast majority of compiled financial statements are computer--generated incidental to record keeping for federal income tax purposes. Compiled and reviewed financial statements are, therefore, less costly and less critical than audited statements.
In the State of New York, as in most jurisdictions, compilation and review of financial statements have historically been accounting functions open to CPA and non-CPA practitioners. A small business owner who needs assistance complying with income tax filing requirements, which will likely be prefaced by a compilation and review of the business' financials, should not have to pay the same rate for services as a corporation in need of an audit. An accountancy law that mandates the use of luxury yacht when the job calls for a landing craft only serves to misallocate resources and raise the cost of accounting services for everyone, especially small businesses.
Article 149, by allowing the market place to set practitioner fees relative to the different accounting functions offered by CPAs and non-CPAs, has historically served to lower the cost of services most often sought by sole proprietors and other small businesses. In practice, to abandon the long history of progressive accountancy law in New York would serve to upset thousands of established working relationships between successful small businesses and non-CPA practitioners.
VI. NSA'S Specific Objections to the Current Forms of Assembly Bills 8600 and 8789.
1) The Current Form of A.8600 would end New York's progressive history in accountancy law and usher in a new era of restrictions and higher small business costs.
Under Assembly Bill 8600, §7401, "Definition of practice of public accountancy," is completely rewritten. Assembly Bill 8600 throws the existing version of this central section of Article 149 completely over board and its enactment would represent a complete about face. This dramatic 180 degree turn would end the State of New York's progressive history in accountancy law and usher in a new era of restriction on non-CPA practice rights.
Assembly Bill 8600, §7401(2), states that:
"review ... or compilation of a financial statement to be performed in accordance with standards developed by a recognized international or national accountancy organization, approved by the Department that establishes such accounting principles;" (emphasis added),
are functions reserved to certified practitioners. Whether intended to be or not, this is an extreme statement. In terms of restricting the practice rights of the non-CPA practitioners this language surpasses the positions of the American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accounting (NASBA), as represented by the definitional sections contained in most recent version of the Uniform Accountancy Act (UAA). (*1)
NSA representatives, along with other members of the Coalition for Affordable Accounting (CAA), have been involved in a recent dialogue concerning substantive amendment of the UAA with representatives of AICPA, and NASBA. Out of this dialogue, a distinction has been made between the use of a method and the reporting of such use. This is a distinction between using an accounting standard, e.g. SSARS, and claiming such use in report language appearing on a financial statement.
On balance, the aforementioned par-ties to the dialogue have agreed that non-CPA practitioners are free to use whatever accounting standard they like, as long as such use is not affirmed in report language. The use of the phrase "performed in accordance with," serves to prohibit any use of an accounting standard. That prohibition goes far beyond prohibiting the reporting of such use on the face of a compiled or reviewed financial statement.
The current §7401(2), of Assembly Bill 8600, would place the whole of Article 149 far to the right of the ongoing dialogue between the CAA and the authors of the UAA. Section 7401(2) threatens the existence of the non-CPA practice not by barring a non-CPA practitioner from reporting the use of compilation and review accounting standards, but by barring all unreported use.
2. NSA brings the Committee's attention to the extremely broad scope of Assembly Bill 8789, §7401(l)(a) and (b). This new definition of the "practice of public accountancy" would reserve all small business accounting services to CPAs.
The accounting services and functions reserved for CPAs under §7401(l)((b) include:
"preparation or presentation of reports for clients on audits, examinations, verifications, investigations, certifications, presentations, compilations, or reviews of books or records of account, balance sheets, or other financial, accounting or related schedules, exhibits, statements, or reports, which are to be used for publication or for the purpose of obtaining credit or for filing with a court of law or with any governmental agency, or for any other purpose where it is foreseeable that they will be relied upon by third parties;"
This provision could be interpreted to include just about every type of financial statement our members currently provide. It may even, arguably, prohibits the preparation of tax returns by non-CPAs for use by the Internal Revenue Service - a third party. The restrictions, contained in §7401(l)(b) on the preparation and use of financial statements by non-CPAs would raise the stakes of civil liability so dramatically as to effectively put our members out of business.
This provision would reshape the entire accounting profession in New York, something NSA is not sure even the proponents of this bill intended. There is absolutely no reasonable justification for restricting the practice rights of non-CPAs to this extent --- even the AICPA and NASBA both recognize the unrestricted right of non-CPAs to prepare a compiled financial statement.
In their current forms, if either Assembly Bills 8600 and 8789 were enacted, they would deal a dramatic blow to the thousands of New Yorkers who depend on affordable accounting services provided by the qualified non-CPA practitioner. Qualified non-CPAs, including ACAT credential holders, would be forced to abandon their chosen field of work and their clients wold be forced into a much less competitive accounting services environment.
The current Article 149 the State of New York exceptionally well for a very long time, NSA urges this Committee to move judiciously. (*2) We therefore strongly urge the New York State Legislature to reject the current forms of Assembly Bills 8600 and 8789.
VII. CONCLUSION
NSA urges this Committee and the New York State Assembly to carefully consider the wide--ranging repercussions of Assembly Bills 8600 and 8789, both intended and unintended. If either is passed in their current form, NSA believes the public will pay the price, in the form of higher prices for accounting services, within a much smaller accounting marketplace.
(*2) NSA would farther suggest that the cost of Assembly Bills 8600 and 8789 are not limited to non-CPA practitioners, their clients, and their families. NSA believes that the State of New York will suffer from small business compliance issues, family courts will suffer from the inability of individuals to comply with reporting mandates,, and lending institutions will suffer from an inability to obtain quality financial statements on a timely basis from smaller taxpayers.