CPAs take a seat at reform table

MACPA members, clients make voices heard as State Board considers possible regulation

By Bill Sheridan
MACPA E-Communications Manager

BALTIMORE, May 6, 2003 — State regulators have said they want the public's input as they debate what (if any) accounting reforms to enact in Maryland.

On May 1, they got all the input they could handle.

Nearly 40 MACPA members and their clients joined nationally prominent leaders of the profession to testify at a public hearing held by the State Board of Public Accountancy. With the Sarbanes-Oxley Act in effect at the federal level, the regulatory body is debating the need for additional reforms at the state level, and the MACPA has urged its members to "have a seat at the table" as that debate continues.

The May 1 turnout ensured that would be the case.

"(The hearing) proved the value of an association in providing a representative voice," said MACPA CEO Tom Hood. "The turnout from members of all segments of our profession proves we support reforms that will rebuild our trust and want to be active participants in the process."

The CPAs' testimony ran the gamut of accounting reform topics, including:

Uniformity: With business crossing state lines and international borders (and with the Internet blurring those borders even further), CPAs believe a uniform approach to regulation is the best way to protect the public interest. If adopted in Maryland, the Uniform Accountancy Act would provide that protection through interstate uniformity of professional standards.
Auditor rotation: The Sarbanes-Oxley Act requires that publicly traded companies rotate their auditors every five years, an important factor in regaining the trust of investors. But CPAs believe imposing mandatory auditor rotation on non-public companies — most of whom depend on their auditors for a variety of other services — would decrease the quality of the companies' audits, limit their choices and drive up their costs.
Peer review: Rotating auditors would not guarantee better audits. The solution isn't changing auditors, CPAs believe, but rather improving the quality of the audit and ensuring the auditors' independence. Implementing mandatory peer review in Maryland would provide the fresh look that audits need without the need for auditor rotation.
Restrictions on scope of services: The scope-of-service restrictions placed on SEC registrants have long exceeded those of private companies. That's only logical, since private companies rely on their CPAs to provide other critical services outside the audit, including tax compliance and planning, consulting and hiring assistance. Restricting CPAs from providing these services to private companies likely would result in greater complexities and higher costs for Maryland's small businesses — and hurt the state's economy in the process.
Document retention: While recognizing the need for guidance in this area, Maryland's CPAs believe all such guidance should be uniform. Many CPA firms have clients in more than one state, and costs would increase if they were forced to comply with multiple sets of rules regarding documentation. The guidance in the proposed auditing standards is the logical solution.
The State Board's structure: The board's many duties include the certification and continuing education of public accountants, investigating complaints and violations involving licensees, and taking appropriate disciplinary action, when necessary. To do so, the board should have adequate staffing and funding and be comprised of a majority of CPAs who understand the profession's technical issues.
Ethical behavior: Recognizing that the recent accounting scandals were more a violation of ethics and integrity than of technical standards, MACPA members testified about the need for including ethics-related content in almost every educational program offered to CPAs. The association also has developed ethics-related recommendations for CPAs in industry, government and education.

Those testifying included CPAs from every segment of the profession — sole practitioners, mid-size and large firms, industry, education and government.

But CPAs weren't the only people making these points. Similar testimony was offered by representatives of the Maryland Chamber of Commerce and the Maryland Retailers Association. In addition, a handful of MACPA members brought with them clients who testified about the hardships they would endure if they were limited in the scope of services they could request of their CPAs.

"I don't know when I have been more proud to be a member of this profession," said Carol Kirwan, the MACPA's director of technical services and regulatory affairs. "Our dedicated CPAs spent the better part of a day sitting patiently waiting for an opportunity to speak for only three minutes about how important this profession is to them and, mostly, the importance of the services they provide to their clients. It was clear that our core values of integrity and objectivity were highly valued by everyone. But what struck me most was that they really cared. They cared about the future of their profession and they cared about their clients. Most of all, CPAs care about the public interest."

A 'reasoned approach' to reform

Regardless of their background, those who testified had one thing in common: Each urged the State Board to take a "reasoned approach" to reform that considers the long-term best interests of all Marylanders, businesses and CPAs. A recent MACPA white paper entitled The Road to Reform: Protecting the Public Interest, Strengthening the CPA Profession is the association's attempt at reasoned reform, and CPAs urged board members to take an equally thoughtful approach when deciding whether to introduce state-level regulation.

"The MACPA is already working on reinvigorating the culture of the CPA profession and supporting the necessary regulatory changes that will ensure we serve the public interest," testified MACPA Chair Graylin Smith. "We encourage the board to take a reasoned approach to reform that protects the public without putting an undue burden on our small businesses."

"I think we need to ask not, 'What are we going to do?' but, 'Why are we going to do it?'" added Chad Gillenwater, president and CEO of Signal Perfection in Columbia.

The call for reasoned reform impressed the profession's national dignitaries who attended the hearing. Among them was David Costello, president and CEO of the National Association of State Boards of Accountancy, who praised the Maryland board for acting "responsibly through thoughtful and deliberate action and discussion." Costello was one of many people who pointed to the MACPA's white paper as proof that Maryland CPAs are taking the concept of reform seriously.

"Maryland is way ahead of many states in considering these issues," Costello said.

Former AICPA Chair Kathy Eddy agreed. Now chair of the AICPA's Special Committee on State Regulation, Eddy said the number of "cascade" bills (those that would apply federal-like reforms on a state level) proposed in 2003 already has surpassed the number proposed in all of 2002. The rush by states to regulate the profession underscores how important it is that CPAs make their voices heard, Eddy said.

"We want CPAs to have a seat at the table and talk about things that perhaps legislators and regulators don't always think about — the unintended consequences of legislation, the rush to regulate, uniformity, the marketplace and economic issues involved," said Eddy, who testified with Sheri Bango, the AICPA's director of state society and regulatory affairs. "You folks (in Maryland) have organized a thoughtful approach, and as a result, state legislators here felt there wasn't a need to jump right in and legislate. That's what we're hoping for."

Time will tell how effective the approach has been. To meet the deadline for Maryland's 2004 legislative session, State Board Chair Jacob Cohen said the board must submit any proposals for new regulation by early August. Thanks to the May 1 hearing, he and the rest of the board have plenty of testimony to consider.

"I think we set the tone for reform," the MACPA's Kirwan said. "If this does come up in the legislature next year, it will be very clear to legislators where the profession and their clients stand. It also will be very obvious that there is not any public outcry for radical changes."

Contact this Author: < William Sheridan > bill@macpa.org

This content has not yet been Rated.

To Rate content, please Login.