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Is It Time for New York Firms to Embrace Non-CPA Partners?

Joanne S. Barry

New York is one of the few states that does not allow non-CPAs to be partners, or part owners, of CPA firms. Years ago, this was the norm—the first state to allow non-CPAs to become CPA firm owners was Nebraska, in 1994, and the idea was slow to catch on. Attitudes about non-CPA firm ownership began to change after an AICPA and National Association of State Boards of Accountancy (NASBA) joint committee explored the issue and recommended in a 1997 report that firms be allowed to make non-CPAs owners as long as at least a simple majority—51%—of a firm's owners were CPAs. The recommendation then became a provision in the Uniform Accountancy Act (UAA) model legislation drafted by the AICPA and NASBA. This particular UAA provision, section 7(c), has since been adopted, in some form, by 47 U.S. jurisdictions, according to the AICPA. (Another jurisdiction, South Carolina, is the only state that requires a supermajority of CPA ownership—662/3% of CPA firm owners must be CPAs.) Should New York State become the 49th jurisdiction to allow for non-CPA firm ownership? That's a question the NYSSCPA has deliberated before.

Should New M State become the 49th jurisdiction to allow for non-CPA firm ownership?

In 1996, an NYSSCPA task force produced a discussion paper on the topic that included the pros and cons associated with non-CPA firm ownership in New York State. Since that time, most states have adopted legislation that would allow for a simple majority of CPA firm ownership, as outlined in the UAA. But the arguments for and against non-CPA firm ownership remain largely the same as they were then.

In addition to the attest services that only CPAs are licensed to provide,

CPA firms offer clients other professional services, such as expertise in litigation services, forensic accounting, or information technology. CPA owners who embrace the idea of non-CPA firm ownership believe they will be better able to hire and retain the top non-CPA talent needed to provide these services by offering such individuals partnership in the firm. These CPAs may have non-CPA firm principals who contribute as much, if not more, to the strategic planning and business relationships of the firm as do the CPA firm partners. Compensation for these valuable contributions goes only so far for those professionals on the outside looking in, prohibited from making partner. Plus, other states allow non-CPA firm ownership, so there is nothing preventing these IT, legal, and marketing professionals from providing their expertise and capital to a CPA firm across the river in New Jersey or Pennsylvania—where they can be made partner. Opponents of non-CPA firm ownership argue that a principal can offer the same services to a CPA firm as a partner, regardless of title, and be more than well compensated for that talent without diluting the prestige of the firm or the profession.

Issues to Consider

CPA partners are responsible for the actions of non-CPA partners and employees under a non-CPA's supervision, but can CPAs lose control of the firm to non-CPA partners? The UAA provision requires licensed CPAs to own at least 51% of the firm and mandates that the partner/owner in charge must be a licensed CPA. The UAA also requires that a licensed CPA or a CPA with practice privileges must be responsible for the firm's registration. Passive ownership is not permitted, and all non-CPA owners must be actively engaged in working for the firm or an affiliated entity. Although the requirement for a simple majority of CPA firm owners would be written into the law, which would prevent non-CPAs from holding a majority stake in a firm, opponents believe that allowing non-CPAs to become firm owners could lead to a non-CPA making decisions that would prioritize the firm's profitability at the expense of independence in the attest function. These individuals are also concerned that a firm issue could potentially be controlled by non-CPAs if a few CPA partners vote with the non-CPA partners. In addition, unlike CPAs, non-CPA partners are not regulated by the New York State Education Department.

Now that almost every U.S. jurisdiction allows for non-CPA firm ownership, the NYSSCPA has to determine whether we should embrace this change as well. I would like to know what you, our members, think. Would New York CPA firms and, ultimately, the profession, benefit from allowing non-CPAs to own minority stakes in CPA firms? Do the benefits outweigh the costs? Please let me know what your position is on this important topic.

Joanne S. Barry. Executive Director. The CPA Journal.

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