Arthur Siegel, former partner and vice-chairman of auditing and business advisory services at Price Waterhouse, is the full-time executive director of the recently formed Independence Standards Board. In addition to having served as chairman of the American Institute of CPAs SEC practice section executive committee, he was chairman of the accounting standards executive committees task force on risks and uncertainties and a member of the Financial Accounting Standards Board emerging issues task force.
In his new position, Siegel will be working closely with the Securities and Exchange Commission. The SEC is effectively delegating to the ISB the responsibility for setting independence standards for auditors of public companies, Siegel said. The commission retains oversight authority over the ISB and has a seat at the table at meetings of the board and its independence issues committee, a nine-member group designed to help the ISB address emerging issues in auditor independence.
According to Siegel, the ISB has adopted the current SEC published independence rules, which remain in effect until the board modifies or changes them. The ISB staff also will provide guidance on the application of the independence rules. Practitioners and others can contact the board at the ISB, 1211 Avenue of the Americas, 6th Floor, New York, New York 10036; phone: 212-596-6133; fax: 212-596-6137. A Web site, http://www.cpaindependence.org , is planned.Sutton Steps Down
Chief Accountant Michael H. Sutton left his post at the Securities and Exchange Commission in January to pursue personal business interests. Sutton, who had held the position since June 1995, was the senior adviser to the SEC and staff on accounting issues.
Suttons office was directly involved in many of the more controversial accounting issues in the past two-and-a-half years. He worked closely with SEC Chairman Arthur Levitt, Jr., and senior members of the accounting profession in establishing the Independence Standards Board, a private-sector body charged to create, codify, amend and preserve independence standards for auditors of public companies. Sutton publicly supported the Financial Accounting Standards Boards controversial financial instruments project, which would require companies to report the fair-market value of derivatives on their balance sheets. He also urged the International Accounting Standards Committee to pursue more robust international standards for cross-border listings.
Levitt said in a release that Suttons work with the SEC would be long-lasting. Sound markets are the result of fair and rigorous accounting standards, which Mike has espoused and fought for throughout his career, said Levitt.
Before joining the SEC, Sutton was national director of accounting and auditing professional practice for Deloitte & Touche in Wilton, Connecticut. He was with the accounting firm for 32 years.
Regulatory Reform at NASBA Meeting
How can states effectively regulate professional practice that, thanks to the Internet, takes place in their jurisdictions in a matter of only nanoseconds? That is the challenge Sarah G. Blake, 1997-98 chairwoman of the National Association of the State Boards of Accountancy, presented to her colleagues at the 90th Annual NASBA meeting in Maui, Hawaii, last fall. The third edition of the Uniform Accountancy Actrecently issued jointly by NASBA and the American Institute of CPAscontains the answer, but the documents break with the status quo has caused many regulators to reconsider what regulation is supposed to achieve.
Milton Brown, a member and former chairman of NASBAs UAA committee, explained that the new UAA seeks to codify the concept of a CPA is a CPA. Anything a CPA does, within any practice, comes within the purview of a state board of accountancy. In addition, as the UAAs substantial equivalency provisions come into play, licensees also would agree to be under the jurisdiction of the boards where they are practicing temporarily. Although a licensee would be required to hold a license only where his or her principal place of business is located, the remote state would be given the power to discipline as well.
Brown said, We have proposed that NASBA serve as a clearinghouse for substantial equivalency, notifying a jurisdiction of the licensees who anticipate working within its borders. He said some states fear the single-license concept would drain revenues and their own licensees would have to bear all the costs of disciplining out-of-state practitioners. However, he pointed out, The UAA does not say anything about fees that a board may charge upon notification of a persons practicing in its borders.
The message that Brown and other speakers delivered was that the UAA is a model from which the states can select what suits their own needs. NASBA 1996-97 chairman John M. Greene called the UAA a suggestion and advised the states to take only what they need from the new UAA.
Panelists from four accountancy boards were asked to give their opinions about the new UAA. Their views differed dramatically. Patrick D. McCarthy from Louisianas board asked, How do I improve the regulation of the profession by weakening the standards?
Ohios Sheila M. Birch said she had been troubled by issues of substantial equivalency and nonlicensee ownership of CPA firms. However, she said, there is no way back. The world marketplace will simply run over us. Does she agree with every word of the UAA? Maybe not. But it is a defensible, coherent document.
The Texas State Board of Public Accountancy had voted to support the changes, reported Texas board chairman K. Michael Conaway, with reservations about nonlicensee ownership and regulation of assurance services. Because there have been no reports that nonlicensee ownership has hurt the public, he admitted the time for opposing nonlicensee ownership may well be past. Some CPAs have said that assurance services separate from the attest function need not be regulated. Conaway responded, If CPAs are going to trade on the title of CPA, then they have to accept regulation. Conaway advised the regulators to work with change in the profession much as cowboys do with a stampede: Turn it in the direction that makes sense.
The UAAs strongest support came from Denise Devine, chairwoman of the Pennsylvania board, who had served on the AICPA special committee on regulation and structure of the profession (the Mingle committee). She said, This is a moving train. Change is happening. In particular, she supports the substantial equivalency concept because she believes the process will free up the boards resources to pursue positive enforcement, which is where the public interest lies.
Several speakers reported on changes that bolster the more innovative sections of the UAA. For example, nonlicensee ownership of CPA firms had been discussed for years by the state accountancy boards, but few jurisdictions have set down any regulatory rules. Now the boards need to consider new organizational formats. James T. Martin, chairman of Ohios board, and Timothy D. Haas, the Ohio boards executive director, described 10 conditions the board had determined were needed for a firm that is associated with a nonlicensee-owned corporation to be in compliance with the states current laws:
- Maintaining separate business identities.
- Maintaining distinct operations.
- Establishing different names.
- Notification of the relationship and identities to clients.
- Preparing separate engagement letters for all clients.
- Distributing proportionate income/profit payments.
- Prohibiting the business services firm from becoming an accounting client of the CPA firm.
- Observing limitations on the acceptance of contingent fees.
- Observing limitations on the acceptance of commissions/referral fees.
- Adhering to appropriate quality review protocols.
NASBAs legal counsel, Noel Allen, summarized some recent court decisions. While cautioning the boards to reassess their core statutes to accurately express how they relate to the public interest, he also advised them not to overreact to the 11th Circuit Court of Appeals decision in Stephen M. Miller and American Express Tax and Business Services, Inc. v. George Stuart, et al . (See Florida First Amendment Case Settles Little , JofA, Nov.97.) Although the court had held that Miller involved commercial free speech, Allen said, evidence could be presented that would convince the court the basic issue is the boards authority to regulate its licensees, which would result in a reversal of the decision. He pointed out that, in a similar situation, the 9th Circuit Court had held in Johnson v. California Board of Accountancy that when a board prevented someone from calling himself a CPA when accepting commissions, the board was regulating conduct, and it was not a free speech issue.
However, when Stuart Kessler, incoming chairman of the AICPA board of directors, took the podium, he mentioned the Miller cases litigants, changes in scope of practices and practice across state lines as factors working to alter the profession. He discussed how NASBA and AICPA leaders had cooperated in the joint committee on regulation of the profession to keep control of the professions future.
NASBA does not control the state boards, and the AICPA does not control the state CPA societies, Kessler said. It is the proper role of our organizations to provide leadership, especially as technology continues to change practice.
New chairwoman, technology focus
Agreeing that technologyespecially the Internetwas altering the practice and regulation of accounting, Blake questioned how you regulate in a system that doesnt represent time and place.
She encouraged the boards to simplify license renewal and application processes without lowering their standards. Increased use of the Internet and e-mail can help in this process, and she noted that recent graduates are accustomed to communicating electronically. We are very fortunate to be overseeing a profession that likes to follow rules, a profession that has a long history of disciplining itself.
Also, she said, we are a profession that prides itself on its independence. The recent formation of the Independence Standards Board (ISB) by the Securities and Exchange Commission and the AICPA has drawn the attention of regulators. Blake said NASBAs ethics committee would be prepared to comment on the ISBs efforts.
SEC Commissioner Isaac C. Hunt, Jr., also discussed the ISBs formation and purpose. He explained that while it had been suggested that the accounting profession take the lead in establishing and improving auditor independence, these arguments did not convince us that we should turn over primary responsibility on these issues to the exclusive control of the profession.
Although he has high hopes for the ISB, Hunt said, the ISBs existence will not impair the SECs ability to exercise its authority. According to Hunt, if the ISB cant meet its mission, the commission may consider other alternatives.
Looking at competencies
State boards are looking at competency issues related to entry-level experience and continuing professional education. NASBAs Pacific Regional Director, Gerald Burns, described the new experience qualification implemented by the Oregon state board. After hearing from the state society that the CPA candidates opportunities for obtaining audit experience were dwindling, the state board developed a way to consistently apply their current standards. They identified seven core competencies CPAs demonstrate in all their responsibilitiesnot just those related to attest services:
- An understanding of the Code of Professional Conduct.
- The ability to assess the achievement of an entitys objectives.
- Experience in preparing working papers that contain sufficient relevant data to support analysis and conclusions.
- Understanding transaction streams and information systems.
- Risk assessment and verification skills.
- Decision making, problem solving and critical thinking in the context of analysis.
- The ability to communicate scope of work, findings and conclusions.
Under the Oregon plan, a CPA, acting as a mentor for the applicant, fills out a one-page form for each of the competencies acquired, Burns explained. Although the applicant is responsible for developing an appropriate experience portfolio demonstrating his or her attainment of the seven core competencies, the mentor owes due diligence to the board of accountancy.
Nita Clyde, who chaired the NASBA CPE advisory panel, discussed how attaining competencies is the standard being considered by the educational community as well. Clyde identified three characteristics of meaningful CPE: (1) It is part of a lifelong program of learning, (2) it is relevant to what CPAs do at work, (3) it is a way of assuring that CPAs are constantly competent.
She described a pilot project, being conducted at the request of the AICPA subcommittee on CPE standards, aimed at determining whether it is possible for CPAs to set goals for themselves and then use self-assessment tools to determine where they are in terms of the competencies they need to develop. According to Clyde, the development of CPE standards is an ongoing process in which NASBA and the AICPA are jointly engaged.
Recognizing outstanding leadership in the regulation of the profession, NASBA presented its 1997 William H. Van Rensselaer Public Service Award to Jerome A. Schine, CPA, 1989-90 NASBA president, for his leadership of NASBA, the Florida Board of Accountancy, and the CPA Examination Services Corporation. Among his many services to the regulatory community, Schine chaired a task force of the Florida board that recommended permitting nonlicensee ownership of CPA firms a decade ago.
Louise Dratler Haberman, editor-in-chief of NASBAs State Board Report and manager of member services.
SEC Fills All Commissioner Positions
The Securities and Exchange Commission added two new commissionersLaura Simone Unger and Paul R. Carey, who were sworn in last November. Ungers position on the SEC had been vacant for three years and Carey replaces Steven M. H. Wallman, who left the commission last September. Five commissioners, including SEC Chairman Arthur J. Levitt, Jr., sit on the SEC. The remaining members are Norman S. Johnson and Isaac C. Hunt.
All commission members are appointed by the U.S. president, with the approval of the Senate. Terms are staggered and no more than three members may be from the same political party.
Unger occupies one of the Republican seats. Preceding her SEC appointment, she was counsel to the Senate Committee on Banking, Housing and Urban Affairs, advising the committee chairman, Senator Alfonse M. DAmato (R-N.Y.), on legislative issues related to banking and securities. Earlier, Unger had been an attorney in the SEC Enforcement Division. Her term expires in June 2001.
Before joining the SEC, Carey, a Democratic commissioner, was White House special assistant to the president for legislative affairs. He served as the presidents liaison to the Senate for banking, financial services, housing and securities-related issues. His term expires June 2002.