Maryland legislators OK mandatory peer review, 'authority to practice'

By Bill Sheridan
MACPA Editor

ANNAPOLIS, April 12, 2005 — Chalk up another pair of victories for Maryland CPAs.

In one of its most effective legislative sessions in recent memory, the MACPA and its members saw two key CPA-related bills pass successfully through both houses of the state General Assembly. The bills in question are:

House Bill 1223, which requires peer review for CPAs who perform compilations, audits or reviews. | Summary
Senate Bill 704 (cross-filed with House Bill 977), an "authority to practice" bill designed to make it easier for Maryland CPAs to practice across state lines. | SummaryMandatory peer review was signed into law by Gov. Robert Ehrlich on April 12. The "authority to practice" bill was signed into law on April 26.

Leaders in the profession have spent years trying to enact such legislation in Maryland, saying the bills offer proactive protection for the profession and the publics it serves. Now, it appears their efforts are about to pay off.

"After all those years of hard work, it's finally happened," said Terry Hancock, managing partner of Clifton Gunderson's Mid-Atlantic Client Service Center and chair of the MACPA's Legislative Executive Committee. "These are important bills that bring us closer to uniformity with other states."

Peer review: A summary

Indeed. Forty-one of the 54 U.S. states and territories that regulate accountancy require peer review and five are moving toward that end, so Maryland is now in step with most of the rest of the country.

Beyond uniformity, though, advocates say peer review teaches CPAs how they can more effectively comply with professional standards and, in turn, helps restore faith in the free-market system.

"Any CPA who goes through a peer review will learn and their work will improve," Hancock said. "It's good for the public because it provides additional assurance that CPAs are maintaining quality and complying with professional standards."

It appears to be working. Under the voluntary program, 20 percent of Maryland firms showed signs of significant deficiencies in their initial peer reviews. That number dropped to 11 percent in subsequent peer reviews. The number of firms with no deficiencies of any kind jumped from 23 percent in the initial review to 45 percent in subsequent reviews.

Peer review also has the general support of MACPA members, who voted overwhelmingly in favor of it in a recent survey.

"Experience over the last 15 years has shown peer review to be an educational benefit, especially to members in small firms — more so, many members say, than any CPE program because of the one-on-one nature of peer review and because of the focus on their specific practice issues," said Carol Kirwan, the MACPA's director of Technical Services and Regulatory Affairs. "I have been witness to firms that have made significant improvements and gain value from the process every time."

Authority to practice: A summary

While peer review focuses on the "how" of a firm's practice, authority to practice centers on the "where." S.B. 704 eases the requirements for out-of-state CPAs practicing in Maryland. More important, it will open the door for Maryland CPAs who perform services in other states — quid pro quo, so to speak.

"Maryland was considered substantially equivalent to the Uniform Accountancy Act when we passed the one-year experience requirement a couple of years ago," Kirwan said. "However, our CPAs did not have the benefit of being able to cross state lines easily because we did not have a law granting out-of-state CPAs the 'authority to practice' in Maryland. With the passage of this legislation, our members will realize more portability of practice privileges."

Advocates say authority to practice is a crucial contribution to the profession and the public it serves, given the globalization of business and the effect technology has had on the ability of CPAs to serve clients everywhere.

Large firms that do business in multiple locations are helped immediately by the bill's passage, but they are not the only beneficiaries.

"Take a small firm in western Maryland near the border of Pennsylvania, for example, or a firm in the D.C. area just this side of northern Virginia," Hancock said. "They could have clients in three different jurisdictions, all within a 10-minute drive of each other. This helps them, too."

One setback

Not all of the profession's key bills passed. House Bill 1095 called for the creation of a fund for the Board of Public Accountancy (separate from the general fund) to increase the productivity and effectiveness of the board. The separate-fund status would have allowed the board to improve services to CPAs with a limited increase in CPA licensing fees.

According to Hancock, that bill failed to move forward not because it wasn't worthy, but because — as is the case with so many other similar bills that call for a fee increase — there were other political forces at work.

Still, the idea of a special fund for the State Board is one that may be revisited in the future.

"Maryland's Board of Public Accountancy has precious little resources," Kirwan said. "Our license renewal fee is one of the lowest in the nation, and our board has fewer staff than most states our size. Almost anyone who has tried to contact the Board of Accountancy has experienced first-hand the need for additional funding for the board. The MACPA continue to work with the board to try and alleviate this problem by supporting similar legislation again next session."

A team effort

Hancock credited "a team effort" with the MACPA's success in Annapolis. That team included MACPA Chair Ed Rommel, the association's Executive Committee, legislative consultants Nick and George Manis, members who took time out of their busy schedules to travel to Annapolis and testify, and especially the efforts of Kirwan and Executive Director Tom Hood, who spearhead the MACPA's annual legislative efforts with Hancock.

"The process works," Hancock said. "It's complicated, it's burdensome, it's frustrating, but it probably should be. Otherwise, there would be a zillion different laws passed every day. The system isn't perfect, but it certainly works."

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

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