New Regulations for a New World

It is no longer a question of whether changes to the regulation of the accounting profession will occur; it is a question of when , how and who will control these changes. NASBA and the AICPA are not shrinking from the challenge, but they are seeking to lead the debate on the proper regulatory model for the profession.

The leaders of each organization, representing both the regulatory bodies and individual CPAs, have been working together to create a single model for adoption by the states. These regulations affect every CPA, and every CPA needs to be aware of exactly what changes the model proposes, and why. The Uniform Accountancy Act (UAA) proposes a regulatory structure for the real world.

WHY CHANGE IS NEEDED
Earlier this year, the AICPA and NASBA jointly published a third edition of the UAA, which reflects the changes each organization deemed necessary.

As groups from NASBA and the AICPA modified the Uniform Accountancy Act, they focused on a number of issues affecting the profession:

• The globalization of business.
• The impact of information technology.
• The expansion of services offered by licensees.
• The legal challenges to the current regulatory system.
• The demographic changes in the profession.

The NASBAAICPA examination of those issues made it clear the world in which licensees operate today is vastly different from the one existing more than a century ago, when the basic structure for regulation was established. It was clear changes were needed to effectively regulate the profession in the next century.

THE FOUNDATION
The new model bill promotes the following key concepts:

• Protection of the public interest by bolstering provisions relating to the most critical service area, attest, and ensuring that all who use the CPA title adhere to an appropriate level of professionalism. It also underscores the enforcement authority of state boards of accountancy over licensees with interstate practices.
• Promotion of equality among licensees by ensuring that all who wish to use the CPA or PA title are licensed and subject to state board regulations regardless of their field of employment. The model also promotes more uniform rules for licensing and practice and removes restrictions on licensees use of their titles.
• Ease of mobility across state lines so CPAs can more easily serve their clients and employers outside the states where they are licensed.
• Response to the marketplace by removing barriers that unnecessarily impede licensees and their firms from competing effectively to provide a broad range of professional services. The UAA strikes a balance between public protection and free market competition.

THE NITTY-GRITTY
The following is a brief summary of core provisions in the new UAA.

Substantial equivalency. A cornerstone is the concept of substantial equivalency. A CPA licensed in one state with certification criteria based on UAA provisions could perform an engagement in another state that also has UAA-based requirements. An additional license would not be required of an individual CPA who practices across state lines in person or via electronic technology, but the CPA would have to notify the board of accountancy in the state in which the service is to be performed. NASBA says it will evaluate substantial equivalency for state boards on request. To assure public protection, state boards of accountancy could discipline licensees from other states practicing under substantial equivalency; in addition, a licensee’s home state board could discipline the licensee for violating the law in another state when performing services there.

CPA=CPA. All individuals wishing to use the CPA title must hold a valid license, regardless of their particular field or place of employment. As long as individuals hold the CPA license, they are subject to the state board’s authority, regardless of what they do for a living or whether they use the CPA title.

CPAs working in non-CPA firms. With the exception of traditional attest services, CPAs may offer services to the public while working in non-CPA firms or other business entities. CPAs may offer nonattest services through entities that are exempt from state board regulation, provided those entities do not call themselves CPA firms or use the term CPAs in association with the entities names. It is important to remember that regardless of whether an entity is subject to regulation, CPAs in the entity are always individually subject to the authority of the state board.

Regulation of CPA firms. A CPA wishing to offer traditional attest services must do so in a duly licensed CPA firm that undergoes peer review every three years and assures that the CPAs in the firm supervising such services and signing off on financial statements meet the experience requirements defined in professional standards. In addition, a majority ownership of the firm, both in terms of financial interests and voting rights, must reside with individuals licensed as CPAs in the state of their principal place of business. All non-CPA owners must be active participants in the firm or its affiliates.

Attest services. The new model defines attest services to include audits, reviews, compilations and examinations of prospective financial information performed in accordance with applicable professional standards. Performance of those attest services, on which third parties rely, is restricted to licensed individuals and firms. In addition, licensees or firms cannot accept commissions or contingent fees for products or services provided to clients for whom they also provide attest services.

Safe-harbor language. As in prior editions, the UAA’s third edition restricts the performance of attest services to licensees, as described above. However, nonlicensees may perform basic accounting services and issue financial statements without addressing whether professional standards have been satisfied. A new feature is the safe-harbor language nonlicensees may use with financial statements that would not violate the law or professional rules. About 20 states already have some type of safe-harbor language for this purpose.

Experience. Because the UAA encompasses CPAs in all professional activities, the public accounting experience requirement for licensing was deemed too restrictive in light of today’s environment for CPA services. A new, broad requirement calls for one year of professional experience using accounting, attest, management advisory, financial advisory, tax or consulting skills in government, industry, academia or public practice, all of which must be verified by a licensee. While the new UAA broadens the experience requirement for initial licensing, it requires additional specific experience for individuals charged with supervising performance of attest services and signing or authorizing someone to sign the accountants report on financial statements, thus further protecting the public interest.

Continuing professional education. The new UAA model requires that CPE courses used to satisfy license renewal requirements (120 hours in the preceding three years) meet the requirements of the statement on standards for CPE programs jointly approved by NASBA and the AICPA. CPAs who are retired, inactive or do not render services to the public may seek exemptions from the CPE requirement; however, if exempted by the state board, they must include the word inactive adjacent to the CPA designation on business cards and letterheads.

Regulation of fees (commissions/contingent fees). The new UAA allows commissions and contingent fees in certain situations. CPAs can accept disclosed commissions and contingent fees, except from attest clients. Contingent fees cannot be accepted for preparing original tax returns but are permitted for amended returns or refund claims as long as the licensee has a reasonable expectation the claims will be subject to substantive review by the taxing authority.

THE JOURNEY BEGINS
Although the process has just started, over half of the states already have formed joint state CPA society and state board of accountancy task forces to study the new Uniform Accountancy Act and its implementation. The next step is for each state legislature, with encouragement from the state societies, NASBA, the AICPA and the profession in general, to make the UAA the law in each state. Already, some states enacted many aspects of it during 1998 state legislative sessions. In April 1998, Tennessee became the first state to enact the UAA’s major provisions. That new law now includes a section on substantial equivalency, simple majority ownership language and conversion to a one-tier licensing structure. According to Will Pugh, chairman of the Tennessee State Board of Accountancy and cochairman of the joint AICPANASBA committee charged with implementation of the Uniform Accountancy Act, the effort to get this legislation enacted was a cooperative effort between Tennessee state CPA society and its state board of accountancy. Before the introduction of the legislation, these two groups worked together to draft the bills language and then to ensure passage.

Also during 1998, the state CPA society and state board of West Virginia combined efforts to successfully pursue changes to its accountancy law, which now provides for non-CPA ownership of firms and accepts commissions and contingent fees.

We anticipate that many other states will seek to implement the UAA’s key provisions in their accountancy statutes during the 1999 legislative sessions.

A COOPERATIVE PROCESS
To make the UAA a reality, state legislatures will need to consider these changes and then vote the UAA into law. The transition will require the cooperative leadership of the state CPA societies and the state boards. We applaud the states that already have achieved success and we encourage similar activity in the other jurisdictions. To assist states, the AICPANASBA national steering committee on regulation of the profession, a joint committee including representatives from the AICPA, NASBA, state boards and state societies, is dedicated to enacting the UAA and providing information and assistance to states as they deal with implementation issues.

All licensees need to become more familiar with the concepts contained in the UAA. We know that accomplishing the UAA’s goals will be no small task, and the cooperation of all parties involved will be imperative. To that end, individual CPAs are encouraged to urge the leaders of their state CPA societies and state boards of accountancy to strive for greater regulatory uniformity. The new UAA is a blueprint for shaping the future regulation of the accounting profession.