Federal reform 'cascading' to state levels

Maryland avoids local proposals ... for now

The "cascade effect" — the possibility that state lawmakers will use the Sarbanes-Oxley Act as a blueprint for their own reform initiatives — has sidestepped Maryland for the time being. Thus far, no accounting reform proposals have surfaced in Annapolis.

But who knows what the 2003 legislative session will bring?

As other states have proved, the cascade often strikes quickly. Lawmakers in more than a dozen states have enacted or are considering various reform proposals. This poses a major threat to the uniformity of state accounting regulations and introduces the possibility that individual states might specify their own unique independence standards.

It also makes your participation in CPA Day in Annapolis on Jan. 29 more important than ever.

Here's a look at some of the "cascade" proposals that have surfaced in other states.

Arizona

The State Board of Public Accountancy is focusing on independence and retention records. Board members have asked representatives of the Arizona Society of CPAs to work with them in providing the Law Review Committee with suggestions for changes to accounting statutes and rules.

California

New legislation has resulted in a series of radical reforms. These include the following:

a seven-year retention of audit records;
prohibiting the intentional destruction of documents;
a non-accountant majority on the State Board of Public Accountancy;
prohibiting accountants from taking jobs at companies they have audited within the last year;
a mandatory six-year rotation of audit partners in school district audits;
requiring firms with non-CPA owners to advise clients that non-CPA owners may perform services for the clients now or in the future;
requiring that CPAs report any restatement; any settlement or award related to the practice of accounting of $30,000 or more; any notice of investigations by either the SEC or the Public Company Accounting Oversight Board; and any civil judgment alleging dishonesty, fraud, negligence, and the publication of false, fraudulent or materially misleading financial statements, embezzlement or theft.

Colorado

According to an Aug. 29 article in the Denver Post, Gov. Bill Owens has urged legislators to strengthen state laws dealing with corporate criminals. Owens has called for legislation to be introduced in 2003 to give the State Board of Public Accountancy subpoena powers and make accounting fraud a felony punishable by up to 12 years in prison. In addition, Owens' proposal would force investment firms that do business with state or local governments to disclose any conflicts of interest. It also would prohibit companies from giving loans to executives or board members.

Connecticut

Gov. John Rowland has said he will seek wide-ranging legislation to expand and create penalties to address corporate fraud. His proposal requires that a majority of the State Board of Public Accountancy be public members, allows the State Board to levy penalties and fines up to $100,000 per violation, prohibits CPAs from consulting with corporations they audit, provides whistleblower protection, and creates a new Class C felony for destroying corporate audit records.

Florida

In 2002, a bill was introduced in the state Senate to institute a mandatory peer review program. Similar legislation may surface in 2003.

Iowa

The Iowa Society of CPAs has been alerted to the possibility that reform legislation will be introduced during the 2003 session.

Indiana

Gov. Frank O'Bannon has announced the state will adopt a new standard for state contractors that is designed to promote corporate responsibility.

Kentucky

Some state agencies are considering mandatory auditor rotation.

New Jersey

In September, Assembly Bills 2683 and 2684 were introduced. AB 2683 would increase the number of State Board of Public Accountancy members from 12 to 15. AB 2684 goes beyond Sarbanes-Oxley to prohibit CPAs from providing non-audit services to privately held companies. Both bills will be carried over to the 2003 legislative session.

In addition, AB 2669 has been introduced. This bill would make falsifying or tampering with records a third-degree crime when a director or officer of a corporation falsifies, destroys or conceals any writing or record knowing that it contains a false statement or information.

New Mexico

The legislature is closely monitoring the activity of California's legislature. Potential legislative activity might surface in 2003.

New York

Auditors of the activities or operations of any state or local retirement system or arm of the state government may not:

provide non-audit services to the entity they audit;
serve as auditor for more than seven years;
accept employment from the audited entity within two years after the auditor's most recent audit.

In addition, New York legislators have written into law the Sarbanes-Oxley prohibitions on non-audit services for publicly traded clients. And a recent hearing was held to discuss extending the separation of accounting services to New York businesses of all types and sizes.

Ohio

Gov. Bob Taft and the state auditor have announced plans to introduce legislation that focuses on corporate accountability. There also are plans to form a task force that will consider what aspects of the Sarbanes-Oxley Act should be codified into Ohio law.

Pennsylvania

Lawmakers have introduced several bills with provisions similar to Sarbanes-Oxley's provisions for publicly held companies. In addition, a committee has been formed to look at pension reform and corporate governance.

Washington

The House Commerce and Labor Committee held an exploratory hearing to determine if any new legislation is necessary to help prevent an Enron-like event from occurring in Washington.

This content has not yet been Rated.

To Rate content, please Login.