The case for non-CPA ownership: a roundup of practitioners' opinions on why change is needed.

How can CPAs keep pace in a rapidly changing business environment? For many, the answer lies in expanding the array of services that firms offer. "If you look at the Jenkins and Elliott committees and the thrusts they're taking (see THE JENKINS AND ELLIOTT COMMITTEES), at what's happening technologically, at the reengineering that's taking place in corporations; if you believe what you read about traditional, historical financial information losing its relevancy; if you look at what clients are demanding from us in the marketplace, it's clear that a lot of what we'll be doing in the future really is tangential to our attest services," says Ronald Cohen, partner in charge of Crowe, Chizek & Co.'s South Bend, Indiana, office and vice-chair of the board of the American Institute of CPAs.

For Cohen, branching out into other fields is "not so much an economic issue in terms of the viability of firms but a matter of listening to clients and giving them what they really want. If we can serve clients better, we're serving the public better. And what clients really want--in addition to the attest services--are a lot of other services that can be provided by people other than CPAs."

In numerous cases, to offer better service CPA firms have employed professionals from other disciplines. But how can the profession attract and keep these skilled outsiders if they are not allowed to be full owners of CPA firms? How can it ensure their services will meet the same standards of quality that CPAs do? After lengthy study and debate, the AICPA governing council last May overwhelmingly approved a measure permitting those who are not CPAs to be equity owners of CPA firms in some cases (see highlights of the resolution in the THE RESOLUTION: KEY POINTS). In this article, members of the profession speak out on why they favor non-CPA ownership.

CHANGING TIMES

"There has been a change away from the traditional approach for CPAs firms," says Jerry Sestak, immediate past president of the Nebraska Society of CPAs. Nebraska earlier this year became the first state to allow partial non-CPA ownership of accounting firms. "The profession is going to have to move into the 21st century," says Sestak, who is a partner of Seim, Johnson, Sestak & Quist, an 8-partner Omaha-based firm.

"We're going away from a pure product environment and more into management services. I think allowing non-CPA ownership will help facilitate that."

Sestak reports no radical changes in his state so far. "I don't think there's been a big rush to hire non-CPAs, but I think it will become more and more prevalent in the tax, computer and actuarial science areas." Sestak has non-CPAs on his own staff, including a nurse who's part of the firm's health care practice. "We'd certainly like the opportunity and flexibility to offer ownership to a non-CPA in the future."

Keeping options open also was on the mind of Crowe, Chizek's Cohen, who led an AICPA task force charged with resolving the issue of non-CPA ownership. "Years ago, before computers, CPAs did all kinds of systems work," he says. "Now, as computers become more and more sophisticated, we're still working on accounting systems, but data processing work doesn't require a CPA. Do we give up that area or do we go out and find the resources to offer the same kinds of services in a more sophisticated environment?"

Finding those resources sometimes means looking outside of the profession. "In much of the business we do outside the attest function, the person needs expertise that requires education and experience, but he or she doesn't necessarily need audit experience," says Marilyn Pendergast, shareholder and chief operating officer of Urbach Kahn & Werlin, Albany, New York, and president of the New York State Society of CPAs. "For example, tax, computers and employee benefits are highly specialized and have their own body of knowledge. I don't think specialists in those areas have to become CPAs and know about the attest function to qualify to become owners."

Firms that offer specialized services already face the problem of how to retain good people who aren't CPAs. "It's very much an issue for us," reports Edward Dupke, an equity principal of Rehmann, Robson & Co. in Grand Rapids, Michigan. "We have a lot of associates in the computer area and in other nontraditional service areas and they'd like to know that they can be equity principals."

Dupke's 200-person regional firm has just merged with Professional Management of West Michigan, a firm of non-CPA business consultants that specializes in physicians' and dentists' practices. "The merger gives us a wonderful foothold in that niche in our area of the state," he says. "I'd like to think it's possible some of their people who came in as non-equity principals eventually will become equity principals."

RETAINING CONTROLS

The council resolution was crafted to ensure that oversight of CPA firms and the attest function remained in the profession's hands (see the sidebar on resolution highlights). According to Cohen, it should serve to "assure the quality will stay where it is, the business purpose of whatever we do will be strong and CPA owners will control their firms and the profession."

Cohen believes the changes actually will give CPAs more control. "The task force was unanimous in rejecting outside ownership of CPA firms by nonemployees," he reports. "We thought setting forth realistic restrictions on who could an owner actually would strengthen hands of state boards and regulators to ensure outsiders stay out of the attest business. We're bringing potential non-CPA owners under the umbrella of our Code of Professional Conduct. They must meet the same accountability standards."

In answer to those who fear the change will dilute the value of a CPA certificate, Cohen notes this argument has been raised against many of the big changes the profession has faced in the past. "The profession is much too strong to let an issue of this magnitude have that kind of an impact," he says. "Although important, this isn't a make-or-break issue for the attest function or for CPAs."

Dupke points out that a firm's standards reflect those at the top. "Quality is a function of the firm's leadership and their dedication to it," he says. "Just being a CPA doesn't make one infallible. Quality requires maintenance, dedication and consistent practice. The Institute's quality-monitoring programs and individual firm practices will go a long way toward ensuring quality. Firm members who don't happen to be CPAs can be just as dedicated to quality as anyone else."

Pendergast concurs. "The quality of firms providing these different services won't change," she says. "The opportunity to offer possible ownership to attorneys, computer specialists and others will enable us to retain higher quality people, thereby improving service quality."

According to Cohen, the new expertise in CPA firms "will make us better auditors because it will broaden our knowledge base and enhance our ability to serve specific industries."

A BOON FOR SMALL FIRMS?

Although non-CPA ownership is sometimes seen as a large-firm issue, many practitioners believe the AICPA resolution will give a boost to smaller firms. "The very large firms already have found other ways to address this issue, through principal status, for example," Pendergast says.

"The benefits could be greatest for small firms because the change puts them on the same playing field as larger firms," Cohen asserts. "A 10-person firm can hire an expert and compete with a large firm because it has the same expertise." He believes clients increasingly are examining depth of resources rather than size when selecting a CPA firm.

The Nebraska society's Sestak thinks small firms will want to take advantage of the opportunity to bring in tax attorneys and computer specialists. Such people are highly sought after, which puts firms today at a disadvantage "because these experts want a piece of the action," he says.

FACING THE FUTURE

For Cohen, finally, allowing non-CPA ownership means accepting the realities of the business environment. "Everything we're doing today is going to change dramatically in the next 5 or 10 years whether we want it to or not," he says. "The greater the firm's knowledge base about things that affect not only the audit but everything else as well, the better CPAs will be able to perform their jobs. If we try to hold on to the past too long in this changing environment, the world's going to pass us by."

THE JENKINS AND ELLIOTT COMMITTEES

The Jenkins committee is the American Institute of CPAs special committee on financial reporting, chaired by Arthur Andersen Partner Edmund L. Jenkins. The committee, charged with addressing concerns about the relevance and usefulness of business reporting, has produced a brochure, Improving Business Reporting--A Customer Focus, and a comprehensive report on its conclusions. The Elliott committee is the Institute's new special committee on audit assurance formed to review the current state of auditing and attestation. It is chaired by KPMG Peat Marwick Partner Robert K. Elliott.

THE RESOLUTION: KEY POINTS

The full text of the revised council resolution on non-CPA ownership adopted at the spring 1994 meeting of the American Institute of CPAs council appears in the October 1994 Journal on page 135. Here are the highlights: * CPAs must retain a supermajority (66%%) of firm ownership. * Non-CPA owners must be actively engaged in providing client service as their principal occupations. Ownership by investors or commercial enterprises that don't provide client service as their principal occupations remains prohibited. * A CPA ultimately must be responsible for all firm services and for all business units performing attest functions. * Non-CPA owners are not eligible for AICPA membership. * Non-CPA owners are subject to the AICPA Code of Professional Conduct. AICPA members may be responsible under the code for the acts of co-owners. * Non-CPA owners must possess a baccalaureate and, beginning in 2010, meet the 150-hour requirement. They must meet the same continuing professional education requirements as AICPA members.

ANITA DENNIS is a Journal senior editor.

Ms. Dennis is an employee of the American Institute of CPAs and her views, as expressed in this article, do not necessarily reflect the views of the ATCPA. Official positions are determined through certain specific committee procedures, due process and deliberation.