License, please: why Ohio is the model for interstate practice.

Imagine taking a family trip to Florida. Instead of simply driving off, you sit down to a stack of forms. Before you can drive into Florida, or any of the states in between, you have to register with each state's Department of Motor Vehicles and pay a different registration fee.

Sound crazy? Well, CPAs are increasingly being required to meet a wide range of requirements when they practice in different states--sometimes even if they don't physically visit those states.

The Ohio Model

The Accountancy Board of Ohio views a CPA license as similar to a driver's license. Just as an out-of-state driver can drive in Ohio, an out-of-state CPA or accounting firm may perform public accounting work in Ohio on an incidental or temporary basis without notification if that CPA holds a license to practice public accounting in his or her home state.

The Ohio model has been in place since 1961. The accountancy law enacted Oct. 23, 1960, contained no provision for temporary or incidental practice. At the Feb 5, 1960, meeting, the Ohio board noted that an in-state license would be required of all out-of-state CPA partners who practiced in Ohio. Realizing the problem, legislation was introduced to correct the issue.

Section 4701.15 of the Ohio Revised Code became effective Jan 10, 1961. Though somewhat duplicative, a no-notification provision was added to the Ohio accountancy law in 1998--along with numerous other Uniform Accountancy Act provisions--to make identification of Ohio's longstanding practice clearer to out-of-state CPAs.

The concept of "substantial equivalency" with respect to the "Three Es" of education, examination and experience has been part of the accountancy law since the board was created in 1908. The 1998 statutory changes granted broader practice privileges to licensees from other substantially equivalent states.

Why Other States Are Different

Sec. 23 of the UAA was written in the mid-1990s and ratified over time by 33 states to facilitative interstate mobility of CPAs. However, not all states have the same interpretation of Sec. 23. In some circumstances, this has led to requirements that inhibit practice by out-of-state CPAs, counter to the intent of Sec. 23.

There are four main reasons for this:

1. A state may have CPAs with strong protectionist views and define "substantial equivalency" as being almost exactly equivalent to its accountancy law rather than good enough for a temporary practice authorization.

2. A state may refuse to grant any practice privileges to CPAs from states that do not grant exact reciprocal privileges to their CPAs.

3. A state may believe that laws and regulations should prevent bad behavior instead of merely punishing it, so they favor increasingly detailed and complex regulations to address all potentially bad outcomes instead of focusing on effective enforcement when the bad outcomes eventually occur.

4. A state may derive a significant portion of its income from the fees paid by out-of-state CPAs and therefore become dependent upon this income.

In the most restrictive cases, a state requires notification and charges a fee. Some states claim that out-of-state CPAs working with in-state clients, even if the CPA never visits the state, are still required to notify the state and pay a fee. For example, simply filing a tax return could trigger another state's registration and fee requirements.

A common concern is that allowing an out-of-state CPA to practice puts a state's citizens and businesses at risk because the state's accountancy board has little recourse in disciplining a rogue CPA.

Ohio's accountancy law states that the board may file a complaint with the accountancy board that regulates the license held by the out-of-state CPA. The board may also revoke an out-of-state CPA's Ohio practice privileges.

Ohio's accountancy law also has not limited the state board's ability to take disciplinary action against Ohio-based licensees or those from other states who work with Ohio clients. Statistics show that Ohio is among the nation's leaders in enforcement, including criminal cases, peer review, continuing education and unlicensed practice sanctions.

Recent statistics compiled by the board show Ohio, Texas and North Carolina as the top accountancy boards in enforcement. All three boards are independent and not consolidated with a central licensing agency.

Problems and Solutions

The National Association of State Boards of Accountancy and the AICPA are promoting simplification because uniformity is not achieved if each state has its own regulations governing out-of-state CPA practice.

Hopefully, the trend will be toward streamlined regulations nationwide, which would benefit many practitioners across the nation.

Ronald Rotaru is executive director of the Accountancy Board of Ohio. You can reach him at [e-mail]. Reprinted with permission from the January/February 2007 issue of Catalyst: The Leading Edge of Ohio Business, published by the Ohio Society of CPAs. For more information, visit www.ohioscpa.com.

RELATED ARTICLE: California's Take

Since this article was published, several states have revised their laws to allow out-of-state CPAs to provide services across state lines without notice or fee in conformity with the newly revised Sec. 23 of the Uniform Accountancy Act.

In November 2007, CalCPA's Council voted to support modification of California's laws to also conform. Only those out-of-state firms providing specific services (audit and forecasts) to entities headquartered in California would be required to register with the California Board of Accountancy.

The CBA is also supporting the concept.

Legislation is necessary to implement the proposal. In the interim, out-of-state CPAs providing other than temporary and incidental services to California clients are required to file for a practice privilege and pay a fee to the CBA.