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CPA Firm Ownership: Next Steps

Joanne S. Barry, CAE

For the past three decades, the concept of non-CPA firm ownership has been hotly debated across the country and in New York State. In this journal alone, dozens of articles have been written on the topic. As far back as 20 years ago, one author observed that, “The subject [of non-n 1993. Today, 47 states allow non-CPAs to own a minority stake in CPA firms. But in New York, non-CPA firm CPA ownership] has led to numerous committee and task force activities, both at the AICPA and state society levels.” That was in 1993. Today, 47 states allow nonCPAs to own a minority stake in CPA firms. But in New York, non-CPA firm ownership is still only a topic of discussion—although that might soon change.

A Critical Conversation

As the call for needed changes to firm ownership intensifies, the issue will wind its way through Albany, given that any such change requires legislative approval. It is critical that the NYSSCPA positions itself as part of that discussion. To that end, the Society's Board of Directors, at its December 4, 2012, meeting, voted to support non-CPA firm ownership in New York State. After thoughtful and reasoned discussion on many aspects of the issue, the board decided it was important to take part in the dialogue about how lawmakers approach this type of firm structure, what percentage of ownership non-CPAs should have in a firm, and whether a minority stake in a firm should be based on the number of non-CPA owners or the amount of equity an individual has in the firm.

Most states have approached the concept of non-CPA firm ownership using model legislation known as the Uniform Accountancy Act (UAA) as a starting point. Developed jointly by the AICPA and the National Association of the State Boards of Accountancy (NASBA), the UAA requires CPAs to retain a majority stake of at least 51% in a firm. There are other provisions of the UAA: Licensed CPAs must hold a simple majority of the ownership; a licensed CPA or a CPA with practice privileges must be responsible for registration of the firm; passive ownership is not permitted; the partner or owner in charge of attest services must be a licensed CPA or a CPA with practice privileges; and all non-CPA owners must be actively engaged in working for the firm or for an affiliated entity.

The board's discussion touched upon these issues, but the conversation pivoted on the business case for non-CPA firm ownership. Those in favor of the initiative argued that although the attest function must be the cornerstone of the services that a firm provides, retaining non-CPAs with specialized knowledge becomes more important as firms become more specialized and offer more diverse financial services. New York firms are already using alternative firm structures to accomplish what non-CPA firm ownership would provide for—equity in the business lines that many non-CPAs are already building. In this regard, allowing non-CPAs to be minority owners of CPA firms gives managing partners another tool to aid in recruiting and retaining talent in the firm. Firm managing partners who oppose this type of structure or who have no need for it can remain 100% CPA owned and can market themselves in that way.

Continued Involvement

The vote that the NYSSCPA Board of Directors cast last month did not go so far as to support the UAA in concept; it simply supported the concept of non-CPA firm ownership for New York. In fact, New York's draft legislation might differ from what the UAA proposes. First and foremost, the bill needs to ensure that the public, the CPA license, and the CPA's independence are protected, no matter what firm structure the state allows. This model legislation has acted as a starting point for states that have this type of firm structure on their books, but not every state has adopted the UAA's language verbatim.

The resolution passed by the NYSSCPA Board of Directors gave its preliminary support to the concept of non-CPA firm ownership and expressed the Society's desire to be involved with the legislative process as any relevant legislation is developed. During the past two years, Society leadership has been discussing the issue with members throughout the state at numerous town hall and governance meetings, as well as through polls and panel discussions. These conversations will continue as Society leadership continues to work through this issue. How this legislation is shaped in New York is still on the table—and the board's leadership on firm ownership goes a long way toward securing our seat at that table as any potential legislation evolves.

Joanne S. Barry, CAE. Publisher. The CPA Journal, Executive Director, NYSSCPA, jbarry@nysscpa.org.

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