Accounting Ethics (and fraud)

Postings by Art Berkowitz on ethics and fraud. Most of them are serious, but sometimes we also need to have a little fun.

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Location: Orange County, California, United States

Art Berkowitz, C.P.A. is an author, speaker, and consultant from Orange County, California. He writes ethics, fraud, and accounting courses (CPE) for accountants and other financial professionals. Art has also written a weekly online column for The Wall Street Journal and a book on the Enron debacle. To order any of his self-study courses go to

Thursday, August 11, 2005

Have State Boards of Accountancy or NASBA Outlived Their Usefulness?

Purpose of State Boards of Accountancy and NASBA

State Boards of Accountancy were designed to protect the public from unscrupulous actions through licensing of CPAs and regulatory controls. The National Association of State Boards of Accountancy (NASBA) works to foster cooperation among the state boards. One of their chief showpieces has been the Uniform Accountancy Act (UAA). Much of the direction and purpose of the UAA is to minimize the differences between state laws and regulations permitting accountants to practice across state borders in the best interest of their clients.

Are the two compatible?

NASBA recently released a draft of proposed changes to the UAA. According to the release, these changes were the work of three committees of the AICPA and NASBA and have been ongoing since October 2004.

Licensing and Temporary Practice

The proposed changes to the UAA call for removing several of the restrictions that some states now impose to practice accounting in their state. The revisions would recognize CPA firms and individual CPAs who are licensed in a “substantially equivalent” state and provide for one master notice with the NASBA.

Meanwhile what has been taking place at the individual state level? State after state has been imposing new restrictions.

On July 1, 2005, Colorado passed emergency rules increasing the restrictions in their state. On August 1, 2005, the very same day that NASBA’s proposed changes were released, Illinois enacted onerous new restrictions that require out-of-state CPAs to have a temporary (or full) license if they do any accounting work for an Illinois company or prepare any Illinois tax return. This includes nonresident individual tax returns or partnership returns with multi-state requirements.

In fact, during the past two years, dozens of states have expanded their rules on temporary practice in their state, most in the name of protecting the public.

Peer Review

The proposed changes to the UAA call for mandatory peer review every three years. While the manner of peer review is to be determined by State Boards of Accountancy, the condition of peer review will be required for license renewal. In addition, State Boards of Accountancy will gain access to the peer review information in order to adequately discipline errant licensees.

The reality.

State rules regarding peer review are a hodgepodge of voluntary and mandated state and AICPA programs, many that maintain total confidentiality. Within the last month, my home state of California postponed mandatory peer review for the third time. The AICPA refused to sign on to the transparency of the peer review program because it was originally established with the promise of confidentiality.

More Conflicts between NASBA and State Boards of Accountancy


NASBA also proposed rules to change the educational requirements for accountants wishing to sit for the CPA exam. These rules consisted of specific course requirements that would be necessary to meet minimum educational requirements. Numerous states and educational institutions have expressed serious reservations about limiting the flexibility of educational institutions in their course selection and dictating specific course requirements for CPA licensure.

Uniform CPA Examination

NASBA was one of the driving forces in changing the Uniform CPA exam and contracting with a third-party to write, market, and monitor the exam. There have been numerous problems with the new exam and several states have threatened to withdraw their participation from the program.

Where Do We Go From Here?

CPAs, their clients, and the public are caught in a cross current of misdirection, misunderstanding, and power politics. No one is being served. Perhaps it is time for the whole system to be revised.

In today’s world of multi-state and international companies, do the haphazard rules of 54 jurisdictions provide the best protection for the public? Has the time arrived for national licensing of CPAs with a Federal regulatory agency along the lines of the PCAOB for nonpublic entities? Or should we just admit that state’s rights should prevail and that NASBA and the Uniform Accountancy Act is just a practical impossibility. Perhaps CPAs in your state are superior to CPAs in mine.


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