2003 state legislative overview.

The enactment of federal accounting oversight legislation in July 2002, the Sarbanes-Oxley bill, sent out a shock wave that will reverberate around the country for years to come. While some states are expected to consider adoption of the Uniform Accountancy Act (UAA) in 2003, these efforts may be overshadowed as many more states grapple with how the new federal legislation affects their accountancy statutes and related regulatory framework.

The federal legislation imposes new rules to regulate accounting firms (referred to as registered firms) that audit companies that are subject to federal securities laws. The Sarbanes-Oxley bill does not usurp state boards of accountancy. State boards still retain responsibility for initial and on-going licensing requirements of individuals and firms (both registered and non-registered) and all that entails. State boards still have the sole authority to revoke a firm or individual's license to practice. The federal board cannot pull a firm's license to practice, but it can revoke the registration that allows a firm to audit a publicly traded company and impose other sanctions. In effect, an accounting firm with public company clients now serves two regulatory masters.

The new act specifically states: "The standards applied by the board under this Act should not be presumed to be applicable for purposes of this section for small and medium sized non-registered public accounting firms." The million-dollar question is how will the state boards and state legislatures mesh the regulatory requirements of "registered firms" with those of non-registered firms, and what will the trickle down effects be on those accountants not currently subject to direct supervision by a state board?

The short, but not very comforting, answer is that nobody knows for certain. What is certain, as the old saying goes, is that the "times they are a-changing." Milton Brown, a past president of both NSA and the National Association of State Boards of Accountancy (NASBA), remarked, "It is not going to be business as usual at NASBA, at the state boards of accountancy; at the AICPA or even at NSA." This sentiment was echoed by David A. Costello, NASBA President and CEO, who stated in a recent newsletter, "It is a new day for accountancy regulators, an opportune time for us to take the lead role in instilling confidence and trust in the accounting and auditing process and the resulting reports. Now is the time for us to be proactive and initiate the reassessment required:'

The reassessment is under way and states have begun to react to the federal legislation. The ink was barely dry on the new federal statute when California enacted three bills to strengthen its accountancy laws. The first bill, AB 2873, requires auditors to retain audit documentation for a minimum of seven years. The second bill, AB 270, gives the public members a majority on the state board of accountancy. The third bill places employment restrictions on certain CPAs seeking employment with clients who are publicly traded corporations.

The Governor of Colorado, Bill Owens (R), has proposed new measures to toughen penalties for accounting fraud and to improve the state's oversight of the accounting profession. Owens has called on Colorado lawmakers to pass legislation to give the state board of accountancy the power to subpoena accounting documents and increase the penalty for fraudulent accounting from a misdemeanor to a felony. He also called for a ban on loans to corporate officers and directors.

The California bill giving the public a majority representation on the board is a first in the country and could set a precedent for other states to follow. Other areas ripe for reconsideration by states include peer review, non-CPA firm ownership, restriction on types of services rendered to audit clients, independence standards and other rules of professional conduct.

NSA encourages state societies to become proactive, be vigilant and carefully monitor their respective state accountancy boards and legislatures. As the states rush to "do something," we must be on our guard against over-zealous legislators and regulators to ensure that practice rights of independent accountants are not diminished in the process. To learn how the NSA State Regulation and Oversight Committee has structured itself to help your society in this important work, please see the article on page 32.

Here is a short synopsis of some of the potential UAA battleground states in 2003:

Alabama. Accountancy legislation was introduced in 2002 that included an amendment to add statutory safe-harbor language, but the legislature ran out of time to act on the bill. A similar bill is expected in 2003.

Nebraska. The State Board of Accountancy is working on a draft UAA bill for introduction in 2003. The Nebraska Society of Independent Accountants is negotiating with the board to seek inclusion of safe-harbor language, use of ACAT credentials and to change language that would restrict the use of the word "accountant."

New York. New York continues to be a battle ground. More than 20 bills have been introduced in both the Assembly and Senate to enhance oversight of the accounting profession. The New York State Society of CPAs has been very active in trying to divert attention from recent auditing scandals by calling into question the skills of the non-CPA segment of the industry. The Coalition for Affordable Accounting, of which NSA and ACAT are members, has been heavily involved and has been successful in countering this influence. A key Coalition issue is to obtain, over NYSCPA opposition, favorable statutory safe-harbor language. All in all, the Coalition and NSA have the support of several key legislators and are well positioned in the upcoming legislative fight.

North Dakota. The North Dakota Society of Public Accountants continues to work with the North Dakota Society of CPAs to bring a compromise draft bill to the legislature for the 2003 session. Issues on the table include use of ACAT credentials, performance of compilations and establishment of a new class of licensure.

South Carolina. A committee of the Board of Accountancy continues to try to rewrite the South Carolina statute. Battles are brewing over the composition of the board and a suggestion that executive committee positions be filled only by board members who are CPAs.

Wyoming. Four "concepts" for accounting law changes were discussed at a September meeting of the Wyoming Board of CPAs. Each "concept" would diminish practice rights of non-CPAs. The Wyoming legislature may act on accounting law reform in 2003, but only if all affected parties agree to a compromise bill.

Mike Chakarun is NSA's Director of Federal and Legislative Affairs.