|EXECUTIVE SUMMARY |
| Work and people now move easily across geographic lines, and qualified, licensed CPAs in good standing should be able to practice in more than one state or jurisdiction without undergoing a time-consuming, redundant licensing process in each.
To allow CPAs a wider range of professional mobility and opportunity the Uniform Accountancy Act (UAA) introduced “substantial equivalency” to ensure that all CPAs are licensed and regulated equally regardless of where they practice or who employs them.
Substantial equivalency is a determination by a board of accountancy or its designee that the education, examination and experience requirements contained in another jurisdiction’s statutes and administrative rules are comparable to or exceed the requirements specified in the act or that an individual CPA’s education, examination and experience qualifications are comparable to or exceed the requirements contained in the UAA.
Implementing substantial equivalency can be tricky, however. Each jurisdiction is independent, and requirements vary on a range of issues. It is the responsibility of the CPA to contact the board of accountancy in the jurisdiction in which he or she intends to practice.
Under the joint model UAA, a CPA has the privileges of licensees of the new jurisdiction if he or she consents to its board’s disciplinary authority, which can be enforced in either the new location or the CPA’s home state if he or she violates any laws while performing services.
James H. Thompson, CPA, PhD, is professor of accounting and chair of the department of accounting and information technology at Oklahoma City University. His e-mail address is firstname.lastname@example.org . Andreas Rydholm is a staff accountant for a national firm in Oklahoma City. His e-mail address is email@example.com .
n the age of electronics work moves nimbly across geographic lines, and licensed CPAs in good standing want to be able to practice just as easily. To give CPAs the professional mobility to work in more than one jurisdiction without having to undergo a time-consuming, redundant licensing process, the Uniform Accountancy Act (UAA) introduced the concept of “substantial equivalency.” This article will clarify substantial equivalency and identify recent changes in the UAA that are affecting its implementation in the 55 U.S. jurisdictions (the 50 states, Puerto Rico, the District of Columbia, the U.S. Virgin Islands, Guam and the Commonwealth of the Northern Mariana Islands).
How best to streamline the regulatory process and its costs to ensure that all CPAs are licensed and regulated equally regardless of where they practice or who employs them has been a work in progress for more than a decade. The AICPA and the National Association of State Boards of Accountancy (NASBA) began collaborating on substantial equivalency in the mid-’90s, issuing a revised joint model in the third edition of the UAA in 1998 (see “ New Regulations for a New World, ” JofA , Nov.98, page 65). Subsequently, the AICPA/NASBA UAA committee made further revisions and released a fourth edition in December 2005.
The fourth, post-Sarbanes-Oxley version of the UAA acknowledged the PCAOB as a standard-setting body, redefined “principal place of business,” clarified the definition of substantial equivalency, categorized bodies a board of accountancy may cooperate with in investigations, clarified confidential treatment of materials and defined “good moral character.” It contains provisions related to transparency in the peer review process and notice of a board’s disciplinary actions to other regulatory authorities. It also made substantial equivalency available for all professional staff at firms that comply with the act’s enforcement requirements. The last of those changes adds new options for firms and their substantially equivalent personnel.
|Cut-Off Is Coming|
CPAs who pass the exam after
January 1, 2012, must complete
the 150-hour education requirement
to be eligible for substantial equivalency.
The UAA, in section 3, defines substantial equivalency as a determination by a board of accountancy or its designee “that the education, examination and experience requirements contained in the statutes and administrative rules of another jurisdiction are comparable to or exceed the education, examination and experience requirements contained in the Uniform Accountancy Act or that an individual CPA’s education, examination and experience qualifications are comparable to or exceed the education, examination and experience requirements contained in the Uniform Accountancy Act.”
In other words, licensed CPAs may practice across state or jurisdictional lines—personally or electronically—as long as
They are in good standing in their jurisdiction of principal residence and meet the education, examination and experience (known as “the three Es”) criteria.
They notify the new state board of their intent to practice in the jurisdiction and agree to follow its laws and rules.
The originating state’s licensing qualifications are deemed substantially equivalent.
Implementing substantial equivalency remains tricky, however. Under the joint model UAA, a CPA has the privileges of licensees of the new jurisdiction if he or she consents to its board’s disciplinary authority, which can be enforced in either the new location or the CPA’s home state if he or she violates any laws while performing services. NASBA’s National Qualifications Appraisal Service (NQAS) can evaluate whether a jurisdiction is “substantially equivalent,” but jurisdictional requirements vary on issues ranging from licensing to codes of professional conduct.
Substantial equivalency practice privileges do not apply to a CPA who moves or relocates to another state and establishes a practice or principal place of employment there. In that situation the CPA must obtain a reciprocal license in the new state. (For more information, go to www.aicpa.org/states/uaa/briefs/substan.htm .) However, for years a CPA’s only path to cross-jurisdictional practice was to obtain certification in another jurisdiction through reciprocity, a slow, costly process.
Today some states issue temporary licenses or permits, and others allow incidental practice without a permit. Such practices get to the result (being able to work) faster than reciprocity does, but not as quickly as fully enacted substantial equivalency can.
To achieve that aim jurisdictions must define and enact enabling language in their accountancy laws or statutes. The UAA provides an enabling language model in section 23. Jurisdictions that adopt this language permit licensed CPAs who notify the state boards of their intent to lawfully practice in such jurisdictions. CPAs from jurisdictions that NQAS considers substantially equivalent are presumed to have appropriate qualifications.
So far NQAS deems 48 jurisdictions to have CPA licensure requirements substantially equivalent to the UAA’s. Exceptions are Colorado, Delaware, Florida, New Hampshire, Puerto Rico, Vermont and the Virgin Islands. CPAs from those seven jurisdictions may qualify individually, however. CPAs who want an individual equivalency evaluation from NASBA should submit a CredentialNet application, available at the organization’s Web site ( www.nasba.org ).
To shoulder some of the work involved, NASBA provides interstate practice services in Arkansas, California, Kansas, New Mexico, New York, North Dakota and Tennessee. These states accept documentation from NASBA for the reciprocal licensing and/or notification process. CPAs seeking practice rights in those states must apply through NASBA, and they may need to satisfy other jurisdictional requirements besides the UAA’s. For example, Tennessee requires an ethics exam.
It is the CPA’s responsibility to contact the board of accountancy in the jurisdiction in which he or she intends to practice to determine whether it has adopted section 23 and accepts notifications, as well as whether it has requirements in addition to those specified by the UAA.
The December 2005 UAA adds new options for firms and for the CPAs they employ. For example, under section 7(i), a CPA firm may offer services through substantially equivalent personnel licensed in other states without individually notifying the board of accountancy. The firm holding a permit in the jurisdiction is required to keep records of those CPAs who practice across state lines and to provide information to the board upon request.
Under section 7(j) of the UAA, a CPA firm that does not have a permit in the jurisdiction may file a master notice with the NQAS or another comparable service designated by a state board of accountancy. That firm’s CPAs are exempt from an individual jurisdiction-by-jurisdiction notification requirement.
The fourth edition of the UAA also extends the grandfathering provision: All CPAs licensed as of the date a jurisdiction receives its notice of substantial equivalency from NQAS are eligible to use the substantial equivalency provision for interstate practice. Individual NQAS applicants who pass the CPA examination before January 1, 2012, are eligible to obtain substantial equivalency for the purpose of interstate practice even if they have not completed 150 hours of education. But those who pass the exam after January 1, 2012, must complete the 150-hour education requirement to be eligible.
Additionally, the UAA, for consistency, defines “principal place of business” as the office location designated by the licensee for purposes of substantial equivalency and reciprocity. The licensee must obtain a permit to practice from the board in the jurisdiction where it has an office that is its principal place of business. Since jurisdictions have adopted more than one statutory definition of “principal place of business,” the AICPA and NASBA agreed that the UAA definition enhances mobility and is easier to implement and enforce. To download the fourth edition of the UAA, go to www.aicpa.org/download/states/UAA_2005_Fourth_Edition.doc .
Because jurisdictions have cherry-picked UAA guidelines, we found much variation in the adoption status of UAA sections 3 and 23, which respectively define substantial equivalency and provide enabling language. (For licensure requirements by state, go to www.nasba.org/nasbaweb.nsf/lp .)
Of 25 jurisdictions that define substantial equivalency, some use definitions parallel to the UAA’s while others have only partly adopted section 3. For example, New Mexico defines substantial equivalency for the jurisdiction but not for the individual: “Substantial equivalency means a determination by the board that the education, examination and experience requirements for certification of another jurisdiction are comparable to or exceed the corresponding requirements of the 1999 Public Accountancy Act.”
Some of the jurisdictions that have not adopted section 3 but have adopted section 23 provisions allow for the practice of substantial equivalency without defining it. According to the available information from the AICPA, 33 jurisdictions (including three in which legislation is pending) have adopted language that fully or partly complies with section 23.
Some jurisdictions that have not adopted section 23 enabling language allow for cross-jurisdictional practice rights through certificates or permits. For example, Hawaii’s statutes enable CPAs from other jurisdictions to obtain a temporary permit to practice public accounting, thus: “….The board may grant a temporary permit to actively engage in the practice of public accountancy to any person who….”
Yet other jurisdictions have adopted incidental practice provisions that do not require a permit. For example, Arizona statutes contain the following: “Persons who hold valid certificates or licenses as certified public accountants issued by other states or foreign countries, whose principal places of business are not in this state, may practice and hold themselves out as certified public accountants in this state for a period not more than sixty calendar days in a calendar year without complying with the limited reciprocity requirements of this section….”
| CPAs seeking practice rights in a particular jurisdiction should contact that accountancy board for specific guidance.
To obtain an individual equivalency evaluation from NASBA, CPAs can complete the CredentialNet application at www.nasba.org .
CPAs who pass the exam prior to January 1, 2012, may obtain substantial equivalency for the purpose of interstate practice even if they have not completed 150 hours of education.
The UAA is so far just a model—alas, the fact that there are 55 independent jurisdictions keeps the substantial equivalency concept from being fully realized. While 48 jurisdictions have licensure requirements deemed substantially equivalent to the UAA, that number suggests greater uniformity than actually exists. Many of the states that have enacted substantial equivalency have modified provisions to fit their own unique policies, diluting the impact of the UAA.
More cooperation among the 55 jurisdictions and additional efforts by NASBA and the AICPA are needed before substantial equivalency can become reality. To address this, the AICPA created a new volunteer Committee on Mobility to identify and eliminate unnecessary burdens and requirements blocking CPAs from easily practicing across state lines. But for now, CPAs seeking practice rights in a particular jurisdiction should contact that accountancy board for specific guidance.
For more on individual state regulations, go to www.aicpa.org/statelicensing or link to state society information at www.aicpa.org/states/stmap.htm .
The CPA Profession: Opportunities, Responsibilities, and Services by Stephen Moehrle, Gary John Previts and Jennifer Reynolds-Moehrle (# 090489JA)
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