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Should non-CPAs be allowed to co-own CPA firms?

Pop quiz: What percent of a CPA firm must be owned by CPAs? As with many CPA-practice issues, the answer depends on where you live. In New York State, 100% of a CPA firm must be owned by CPAs, but New York is an exception to the general rule. Most states have enacted a version of the Uniform Accountancy Act (UAA), which requires that a simple majority interest in a CPA firm be held by CPAs. In those states, non-CPAs can own up to 49% of a CPA firm.

While New York's stringent CPA firm-ownership requirement is different from other states', it is similar to the firm-ownership requirements that New York imposes on many other professions. With limited exceptions, New York requires that professional firms be comprised only of individuals licensed or authorized to render their firms' services. There is, however, legislation pending in the New York State Legislature (Senate bill S.930, sponsored by Senator Ken LaValle, and Assembly bill A.2060, sponsored by Assemblyman Ron Canestrari) that would allow professional design corporations (including engineering, architecture, landscape architecture, and land surveying firms) to offer nonlicensees an ownership interest of up to 25%.

Many CPAs believe the accounting profession should also seek to relax New York's CPA firm-ownership requirement to conform to CPA firm-ownership requirements in most other states. Indeed, New York responded to a legal challenge to its CPA firm-ownership requirements in 1987, when the New York State Board of Regents promulgated Rule 29.10(b), which permits a CPA firm to compensate its non-CPA employees by giving them up to a 35% share in the firm's annual net income. But should New York State allow non-CPAs to have an ownership stake in CPA firms? And if so, what percentage of a CPA firm should non-CPAs be allowed to own? Below is a list of some pros and cons of allowing non-CPAs to have an ownership stake in New York CPA firms.


Increased CPA firm mobility. New York is currently one of only five U.S. states that require 100% ownership of CPA firms by CPAs. As a result, multistate, national, and international firms must negotiate a bureaucratic morass whenever they move personnel to an office in another state. Varying practice requirements among the states make this movement of personnel exceedingly complicated.


Improved retention. Competition for talented employees is more intense than ever, especially in the accounting profession. But non-CPA professionals working in New York CPA firms (lawyers, computer information specialists, or consultants, for example) know they can never make partner. As a result, New York CPA firms have a tougher time hiring and retaining these non-CPAs, who often have little incentive to make a long-term commitment to CPA firms.

Comprehensive services. The composition of today's typical CPA firm is very different than it was 50 years ago, and New York needs to keep up with the times. Whether the practice involves audit, consulting, tax, or a new and emerging field, businesses and individuals are looking to CPA firms for more services than ever before. The fact is, today's CPA firm needs to hire and retain a wide variety of non-CPA personnel--not only to thrive, but to survive.

Higher-quality audits. Modem audits require input from and participation by many different types of professionals in addition to CPA auditors. To maintain an experienced multidisciplinary audit force, firms need to be able to offer ownership to different types of professionals.

Keeping a CPA firm in the family. Is it really fair for the New York State Legislature to tell the owners of CPA firms in New York that they cannot legally pass a minority interest in their business on to members of their family who are not CPAs?


Potential conflicts of interest. Conflicts of interest may be inevitable when non-CPAs co-own CPA firms. For example, assume that a marketing expert with an MBA co-owns a CPA firm with a CPA auditor. The marketer's main objective is to improve the firm's market share, but the auditor's main objective is to protect the public interest. Can these competing objectives be reconciled?

Limited regulation. Many non-CPA owners of CPA firms are regulated only by the marketplace. The CPA profession and the financial environment it protects are integrally intertwined with government regulation. New York and the United States have effectively made the policy decision that investors and the financial markets they rely on must be protected through governmental oversight. Permitting unregulated owners of CPA firms erodes this policy decision and perhaps the public trust that undergirds the CPA profession.

Subpar work by a non-CPA at a CPA firm will give the entire CPA profession a black eye. Should the accounting profession be held accountable for the work of a non-CPA owner who has not passed the CPA exam, is not subject to CPE requirements, and is working outside the CPA's Code of Professional Conduct? Perhaps more important, should the public be exposed to this work?

Who is in control? CPAs may not be in control of their own firms in a state that permits up to 50% of a CPA firm to be owned by non-CPAs. What if, for example, a CPA-owner--working in a CPA firm with 49 non-CPA and 50 CPA equal owners--decides to vote with the non-CPAs on important business decisions? Few would suggest that non-CPAs should ever have effective control of a CPA firm.

Non-CPA owners create a public "expectation gap." The public is generally unaware that most states allow non-CPAs to co-own CPA firms. As a result, most people expect that: 1) every owner of a CPA firm has passed the CPA exam and must meet ongoing CPE requirements; and 2) all the work being done by a CPA firm's owners is being conducted under the CPA profession's high standards and rigorous Code of Professional Conduct. Anything less creates a gap between what the public expects from a CPA firm and what that CPA firm actually delivers.

Where Do You Stand?

As these differing perspectives show, this is a complicated issue, and reasonable people can disagree. It is essential, however, that the Society learns where its members stand, so it knows which direction to go and where to put its resources.

So what do you think? Should the New York State Legislature continue to require that CPA firms be owned only by CPAs? If not, what percentage of a CPA firm should New York allow to be owned by non-CPAs? Please let me know what you think about these questions, or suggest other pros and cons in the debate.

Louis Grumet

Publisher, The CPA Journal

Executive Director, NYSSCPA
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Title Annotation:certified public accountants; Uniform Accountancy Act
Author:Grumet, Louis
Publication:The CPA Journal
Article Type:Column
Geographic Code:1USA
Date:May 1, 2007
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