Regulatory Reform Tops Agenda at Opening of AICPA Council Meeting

Talk of financial regulatory reform took center-stage as CPAs from across the country gathered Sunday in Washington to open the AICPA’s 2009 Spring Meeting of Council. The agenda for the three-day meeting includes speeches by AICPA leadership, Congressional lawmakers and political pundits. The meeting concludes Tuesday with visits by CPAs to legislators on Capitol Hill.

“I firmly believe that any sound solution to the severe economic challenges facing our country will require the insights and contributions of the CPAs in this room… and in every corner of our great nation,” AICPA Chairman Ernie Almonte said at the opening of the meeting.

In a wide-ranging speech later in the day that included observations on American politics, the history of the presidency and the current financial crisis, political commentator and U.S. News and World Report editor-at-large David Gergen told CPAs gathered at the meeting that economic recovery is not a spectator sport. Gergen urged the business community to show leadership and find its voice in order to rebuild the country’s trust in business and financial institutions and stressed the importance of playing a role in helping the country dig out of the economic crisis. Gergen said one key issue will be whether the nation has a system of light regulation that encourages entrepreneurship or a heavy-handed one.

Regulation and the AICPA’s key recommendations on several financial regulatory reform proposals were the focus of a roundtable Sunday afternoon featuring members of AICPA’s senior management team. The recommendations were based on feedback from the AICPA membership, including comments gathered at four regional Council meetings and from panels of different sized firms and a diverse cross-section of the membership.

Mark Peterson, AICPA vice president, governmental and public affairs, said he expects Congress to begin to work through numerous proposals aimed at closing gaps in financial regulation. The various proposals may be pulled together into a larger reform bill, Peterson said. He predicted Congress would then address the idea of a systemic regulator—an entity that could oversee the financial market as a whole.

Regulatory areas the AICPA is focusing on include broker-dealers, hedge funds and investment and hedge fund advisers. For broker-dealers, the AICPA supports continued registration and regulation by the SEC and Self-Regulatory Organizations (SROs). The Institute also believes that auditors of public broker-dealers and non-public broker-dealers that perform either clearing or custodial functions should be subject to registration, inspection and enforcement by the PCAOB.

The AICPA also supports enhanced regulation and registration of hedge funds by the SEC, with the establishment of a “de minimus” threshold that exempts smaller investment vehicles such as investment clubs. Regulation, the Institute is recommending, should be carefully crafted not to impede beneficial, private capital-raising activities. The Institute also supports a requirement that registered hedge funds obtain annual audits by independent public accountants.

For investment advisers/hedge fund advisers, the AICPA believes all investment advisers currently subjected to registration with the SEC should continue to be regulated under the Investment Advisers Act of 1940. The Institute supports the repeal of the current “private adviser exemption,” which would subject hedge fund advisers to SEC regulation. The Institute supports a proposal by SEC Chairman Mary Schapiro to require all investment advisers with custody of client assets to undergo an annual “surprise” third-party examination to confirm the safekeeping of those assets. And the AICPA also favors the performance of procedures to evaluate the effectiveness of the controls the adviser has in place over its custodial functions.

In addition, the AICPA is recommending that in order to provide evidence that a custodian has controls in place to identify each client’s assets, every custodian should be required to retain an independent public accountant to review and report on the effectiveness of the custodian’s internal controls related to its custodial functions, which would be made available to the custodian’s clients.

Also during the meeting, the 2008 AICPA individual Public Service Award was presented to Beverly Nichols, CPA, tax director and director of employee benefit services at Bourgeois, Bennett L.L.C. Nichols has been a volunteer with Junior Achievement of Greater New Orleans for 25 years. She serves as president of the New Orleans Institute of Mental Hygiene and was instrumental in re-opening child-care facilities in New Orleans after Hurricane Katrina and helping children with mental health issues. Nichols is a founding member of the Priestley School of Architecture and Construction, which opened one year after Hurricane Katrina to prepare students to help rebuild and revitalize New Orleans and the Gulf Coast.

The Arkansas firm JPMS Cox PLLC won the 2008 Public Service Award for firms in recognition of its dedication to corporate citizenship. Since the firm’s founding in 1987, its partners and employees have served in pivotal roles in nonprofits including City Year, the American Red Cross of Greater Arkansas and the American Red Cross Blood Services.

Ira Solomon, CPA, won the 2009 AICPA Distinguished Achievement in Accounting Education Award. The award is given each year to a full-time college accounting educator for distinguished excellence in teaching and national prominence in the accounting profession. Solomon is the R.C. Evans Endowed Chair in Business and Head of the Department of Accountancy at the University of Illinois at Urbana-Champaign. He directed Project Discovery, an undergraduate accountancy curriculum that requires students to apply accounting principles to real-world problems through discovery learning, role-playing, case studies and other activities.