NASBA Speakers Focus on Ethics
P rofessional ethics issues were the focus of the 91st annual meeting of the National Association of State Boards of Accountancy (NASBA). Forces in the current business environment are prompting accounting professionals and regulators to rethink some of the well-established ethics rules.
Speaking before more than 200 state board representatives from 51 of the 54 jurisdictions, Dennis Spackman, chairman of the NASBA ethics committee, gave an update on the AICPA/NASBA task force that is studying the revision of the Code of Professional Conduct. The NASBA committee has established a network of state boards to comment on ethics-related exposure drafts from the AICPA, the SEC, the Independence Standards Board and other professional and regulatory bodies. Can the profession find the appropriate balance between providing services and preserving the public interest and the capital market confidence that has brought it the respect that it now enjoys? Spackman asked.
Auditors must be independent in fact and appearance, said SEC Associate Chief Accountant Scott Bayless. The SEC staff finds auditors increasingly are entering into business consulting engagements with audit clients. Most troubling are instances in which the CPA firms are engaging in services previously thought to be management responsibilities, such as sales or marketing.
Bayless noted that as revenues from consulting increase (and as audit engagements become loss leaders), firms are more likely to draw their management from outside the profession. These non-CPA managers are not bound by the profession's code of ethics. This trend has heightened the SEC's concerns about auditor independence. As a result, said Bayless, the SEC intends to provide timely oversight of the ISB.
Sarah Blake, 1997-1998 chairwoman of NASBA, reported that the state boards had been paying special attention to the work of the ISB and that NASBA is pleased that board representatives had been appointed to serve on ISB committees. During the past year, NASBA began several programs including CredentialNet (to facilitate interstate reciprocity) and the Quality Assurance Service (for recognizing self-study CPE sponsors) to help boards administratively. Blake encouraged the boards to use technology to respond to ISB proposals and to improve their communications with both the public and NASBA.
Calls for the UAA
Don't believe old ideas will succeed under new market conditions, warned incoming NASBA chairman Milton Brown. Brown, the first licensed public accountant to lead NASBA, urged the board members to be innovators lest they be passed over. Let us conduct our own internal revolution to parallel the technical revolution going on around us.
Challenges in the business worldglobalization, technology-based innovations, expanded professional services, legal tests of the current regulatory system, training for new practice areas and the arrival of new service providersare fueling the adoption and implementation of the Uniform Accountancy Act, Brown said. He called for education to dispel the misconceptions that have created opposition to the UAA.
Although 100% uniformity may be difficult to accomplish, Brown said, If we can follow through on a plan to encourage substantial adoption of the UAA, then we will have made a major contribution to the public and the profession.
Alternative practice structures
A panel discussion included representatives from American Express Tax and Business Services (TBS), Century Business Services and HRB Business Services (a subsidiary of H&R Block). Panelists agreed they did not like the term consolidators , and made it clear their companies were not trying to be traditional CPA firms, but are publicly held corporations that have merged with accounting firms. In each company the audit practice has been left under the control of CPAs, they said.
Jeffrey Yabuki, a member of the Minnesota State Board of Accountancy and CEO of TBS, said TBS has a 29-page code of professional conduct and limits what its CPAs can and cannot do. Relationships with attest clients are restricted to ensure the independence of the entities, he said.
Michael Gleespen, accountancy law compliance officer of Century Business Services and former legal counsel to the Ohio State Board of Accountancy, said Century would meet with state board representatives to review and, if necessary, revise its organization plan to comply with state laws.
Terrence Putney, president of HRB Business Services, said that parent H&R Block had decided to buy 150- to 200-person CPA firms in order to
- Diversify its customer base and client mix (to include
higher income individuals and businesses).
- Reduce the seasonality of its business.
- Increase its resource utilization.
- Improve its opportunity for investment return.
Asked if there was potential conflict for a CPA whose employer's interests differed from those of his or her client, Putney pointed out that most large firms have long operated side businesses with minimal problems. Potential conflicts already exist and are being resolved in favor of the client and the public interest, he said.
At breakout sessions, questions continued about what a CPA firm in an alternative practice should do about using multiple business cards, receiving compensation for performing no services other than supplying a client list and using the CPA designation after a professional's signature.
A trend in the courts' view of regulation was noted by Noel Allen, counsel to the North Carolina State Board of CPA Examiners and to NASBA. We are at a regulatory crossroads for accounting, he observed. The old way of regulating was nip-it-in-the-bud regulation. We had blanket prohibitions rather than dealing with core issues.
Allen advised that the boards need to explain why their regulations are necessary. In particular, he referred to the Miller decision, which held that the Florida state board could not put forward a rule or statute limiting free speech unless it could say why it was needed.
In the American Express TBS case in Florida, a consent decree stipulation allowed CPAs in non-CPA firms to associate with some form of financial statement. As Florida did not want to downgrade compilations to a point where they would provide no level of assurance, a fourth level of reporting, the assembled financial statement, was created to meet the court's decree, according to Lloyd Turman, executive director of the Florida Institute of CPAs.
Initially the fourth level was envisioned as being restricted to those not employed by CPA firms; however, Florida state society members said they did not want to be prevented from offering clients similar services.
Turman said the assembled statement should not look like a compilation. The statement must be free from obvious material errors and include a transmittal letter containing the name and license number of the CPA who prepared the report so the state board could take action if necessary.
A segment of the meeting was devoted to examination issues, focusing particularly on the ideal relationship between a licensing examination developer and its client board.
C. Hunter Jones, the recipient of this year's William H. Van Rensselaer Public Service Award said, It is absolutely essential that there be cooperation between the CPAs and the state boards that regulate them. The professional organizations have the legislative clout and we regulators must accept that fact.
CPAs must recognize that state boards are going to do what is best for the public interest and, in the long run, that is what is going to be best for the CPAs, said Jones.
Louise Dratler Haberman, editor-in-chief of NASBA's
State Board Report and manager of member services.