November 2003

A Unified Approach to the profession’s problems

The massive changes to the landscape of accounting standards setting and regulation are both disheartening and inspiring. These changes have been a response to serious problems that have evolved over time, some directly connected to the accounting profession’s history of self-regulation. Other problems came seemingly out of left field, but some have made a plausible case for the profession’s regulators being asleep at the switch while a crisis was approaching (much as many corporate boards are said to have been during the last 10 years). When the current crisis began, people recognized that the many systems—regulatory and otherwise—that directly or indirectly protect the public might need to be modified or replaced. Seen in another light, dealing with the immediate crisis presents an opportunity to make significant long-term changes to complex problems with deep-rooted causes.

In an editorial for another publication (Accounting Today, Sept. 22–Oct. 5), I presented for discussion the concept of an interstate compact as a way to set multistate or nationwide accounting standards for areas outside the purview of the Public Company Accounting Oversight Board (PCAOB). In the area of peer review, ethics, and other quality-control programs and systems, a blue-ribbon task force appointed by 2002/03 NYSSCPA president Jo Ann Golden focused on the problem of multistate regulation.

Because public accountancy is practiced as a unified profession throughout the United States, the task force concluded that there should be greater standardization across licensing authorities for ethics, peer review, and continuing professional education. To accomplish this, the task force asked the NYSSCPA to consider pursuing an interstate compact. The NYSSCPA Executive Committee reviewed the task force’s recommendations last month. Its recommendations are being put before the entire membership for comment and will be included on the Board of Directors’ agenda for December.

When the integrity of financial reporting is at issue, the public and the federal government will expect—with some justification—the entire profession to follow the highest standards and regulations. The public and the courts may question the validity of lesser standards, and will probably be unsympathetic about the public good being neglected because various jurisdictions and entities were debating whose authority was correct. The investing public pays the price when the ostensible watchdogs are busy infighting or playing with red tape. An interstate compact for accounting regulation would focus on commonalities, not differences.

Historically, compacts have been enacted for reasons ranging from implementing common laws to exchanging information about common problems. One state, usually by statute, adopts the terms of a compact that then is offered to other states. Other states accept the offer by adopting identical compact language into their own statutes. Once a specified number of states have adopted the pact, the compact among them is activated. Some compacts authorize the establishment of multistate regulatory bodies, one famous example being the New York–New Jersey Port Authority, the result of a 1921 compact between the two states.

As the task force envisions it, an interstate compact for CPA regulation would enable us to establish a formal, legal relationship among states to address our common problems. We would be able to craft uniform regulations and address multistate licensing, disciplinary, and other issues. The statutory basis of the compact would help reestablish credibility for regulation of the profession.

Among the various compacts that exist, the one that most closely resembles how we currently envision this taking shape for the CPA profession is the Nurse Multi-state Licensure Mutual Recognition Model, which the National Council of State Boards of Nursing adopted in 1997. It addressed multistate licensure and allowed nurses to practice across state lines when licensed in a state that had adopted the compact. It also addressed disciplinary issues and the use of electronic media for delivering multistate healthcare services.

If the interstate compact concept has basic merit, fleshing it out will require considerable thought and discussion about its structure and long-term viability. The concept and discussion should involve as many states as possible. The task force thinks it deserves consideration, recognizing that the potential benefits are too important not to pursue.

If you have a response, for or against, or a question about the form such a compact could take, let me know. At this juncture, we recognize that we cannot possibly have thought out every aspect of this proposal, and we welcome as much input as possible.

Louis Grumet
Publisher, The CPA Journal
Executive Director, NYSSCPA

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