Testimony

Testimony Before the Pennsylvania House of Representatives House Professional Licensure Committee

Presented by Susan Jarvis, CPA CVA, and  
Steve Geisenberger, CPA

September 12, 2007

Good morning, Chairman Sturla, Chairman Adolph, and members of the House Professional Licensure Committee. Thank you for the opportunity to present testimony on behalf of the Pennsylvania Institute of Certified Public Accountants. My name is Susan Jarvis, and I am vice president of PICPA. I am also a CPA sole practitioner from Nazareth, Pennsylvania.

I am joined this morning by Steve Geisenberger, CPA, who is also a PICPA member, and Bill Clark, an attorney with Drinker Biddle and Reath here in Philadelphia, who is here to answer any technical questions you may have.

PICPA represents more than 19,000 Pennsylvania CPAs in business and industry, public practice, government, and education, including more than 1,700 sole proprietors and 3,500 small accounting firms. Our members provide services to individuals, not-for-profit organizations, small and medium-sized companies, as well as Pennsylvania's largest employers. From this broad perspective, we offer our thoughts today on House Bill 1765, legislation amending the CPA Law.

House Bill 1765 is similar to last session’s Senate Bill 251, which was unanimously approved by the state Senate in June 2005, but was not considered by this committee. Members of the committee may be aware that PICPA and last year’s committee staff—both Democrat and Republican—met several times throughout the summer and fall of 2006 to refine and enhance the legislation. Unfortunately, time ran out last session before important amendments could be adopted. Senator Jake Corman has since reintroduced these changes to the CPA statute in the form of Senate Bill 838, which is now pending in the Senate Appropriations Committee.

House Bill 1765 is a good starting point for an open and constructive legislative discussion, but PICPA cannot support the legislation as presently drafted. The bill contains many positive changes, including mandating 150-hours of education before candidates can receive a CPA certificate. It also provides CPA firms with greater flexibility to structure their business and retain their most valued employees through enhanced ownership interest.

PICPA’s testimony, however, will focus on what we believe are critical components that must be included—and some that should be excluded—in any legislation amending the CPA Law.

Enhancing the Mobility of the CPA License

There is a critical need for states to adopt and implement a uniform mobility system that allows licensed CPAs to provide services across state lines without unnecessary burdens. The current system for gaining practice privileges in another state is time consuming, costly, and inefficient. It simply is not working. The implementation of a truly seamless system of mobility, particularly one that does not require notification, would benefit the profession while maintaining our stringent commitment to protect the public interest.

Under the present system, each licensing jurisdiction—there are now 55—has its own rules, regulations, and requirements to allow out-of-state CPAs to provide services in that state, resulting in a patchwork system that is inefficient and increasing untenable. Our national affiliate, the American Institute of CPAs, has long been trying to standardize the states’ policies regarding mobility. This movement toward substantial equivalency is gaining momentum across the country.

Compliance with the existing system is difficult at best, as it entails multiple, cumbersome processes, and contains disparate requirements and fees. Business realities—such as increasing interstate commerce and virtual technologies—require a uniform system that allows for fluid practice across state lines. Lack of a uniform system adversely affects businesses, consumers, and firms of all sizes. It is a significant barrier to consumer choice. Anyone who suggests this is solely a “large firm” issue is not basing their assertion in fact.

Take my practice as an example. I am a sole practitioner, yet I still do tax returns for Pennsylvania residents with business interests in 14 other states. Steve’s firm provides tax and other services for clients in more than 25 jurisdictions. We are not the exception; we simply reflect today’s accounting world.

Uniform adoption of a “no notification” provision will create a process similar to the nation’s driver license system—which, like the CPA license system, is complaint-driven—and will provide Pennsylvania CPAs with mobility while strengthening the Pennsylvania State Board of Accountancy’s ability to protect the public interest. With that in mind, we would like to see you replace the provision for written notification prior to providing CPA services, which currently is contained in House Bill 1765, with a provision of “no notification.”

It is extremely important that the committee understand that, under a “no notification” provision, the Pennsylvania State Board of Accountancy will retain full disciplinary powers over the CPA profession. In fact, the State Board gains automatic jurisdiction over all CPAs practicing in Pennsylvania, including those coming in from out of state. Therefore, incorporating “no notification” simply means that a licensed CPA would not be required to meet unnecessary, bureaucratic requirements that would otherwise impede his or her ability to meet the demands of conducting business in the Commonwealth. To attest to this, please see the attached legal opinion from the law firm of Drinker Biddle & Reath.

So far in 2007, several states have adopted the “no notification” provision to their CPA statutes, including Illinois, Missouri, Indiana, Maine, Rhode Island, Tennessee, Texas, and Wisconsin. These states join Ohio and Virginia, which have had “no notification” for many years. As I mentioned earlier in my testimony, the movement toward a nationwide “no notification” system is gaining momentum. Pennsylvania simply cannot afford to be left behind.

Now, I would like to turn our testimony over to Steve Geisenberger, who will discuss the importance of enacting the 150-hour rule.

Thank you, Susan. As previously mentioned, my name is Steve Geisenberger. I am a CPA partner with the firm Walz Deihm Geisenberger Bucklen and Tennis in Lancaster, Pennsylvania, and past chairman of PICPA’s Committee on Legislation.

I must admit, when the national trend in mandated 150-hours of education first took hold, I was not a supporter. Over the past few years, however, my thinking on the subject has changed 180 degrees.

Improving the CPA Candidate

Currently, 48 of 55 CPA licensing jurisdictions mandate that candidates for certification must have 150-hours of education to receive a CPA certificate and license. Among them are New York, Ohio, West Virginia, Maryland, and New Jersey—all states surrounding Pennsylvania. This issue has become one concerning our competitiveness with practitioners in other states. Why should Pennsylvania CPAs be held to a lesser standard than our colleagues in other states and jurisdictions? We cannot afford to be deemed as less competent than our peers in the states around us, or nationally for that matter.

Some argue that mandating 150-hours of education is another “large firm” issue. It is not. The profession has changed significantly in just the past 10 years. We have seen the enactment of the federal Sarbanes-Oxley Act in 2001, which is the most important legislation impacting the accounting profession and public companies since the early 1930s.

More importantly, the increased complexities in accounting standards, advances in information technology, the globalization of business—and with that, the continued rise of international educational standards—have all dramatically and unalterably affected today’s business world. These trends in the CPA profession are only likely to continue to escalate. Education is the cornerstone to maintaining our competitiveness in an increasingly internationalized profession. How can more education be a bad thing?

Others say the 150-hour rule will have a negative effect on the number of accounting students. I disagree. Periods of lower enrollment—such as the 1990s—were driven by the fact that many on college campuses wanted to capitalize on hot business trends such as the“dot.com craze” and leveraged buyouts on Wall Street. Education mandates had little or nothing to do with the number of accounting majors, which continues to improve.

In fact, nationally most of our colleges today are at, or near, their maximum enrollment of accounting students. Our candidate pipeline is stronger than it has been in years. The profession’s challenge now is to get these well-educated candidates to sit for the CPA Exam.

If I were an accounting student today, I would seriously have to weigh whether attending a Pennsylvania college or university would be in my personal best interest in terms of my long-term career goals. This is no reflection of the quality of education in the state—it is simply a matter of the limits that would then be placed upon the mobility of my license and professional opportunities. I do not think I would be alone in this way of thinking, and the last thing that we want is to drive away quality students from our state campuses.

From a competitive standpoint, Pennsylvania licensees who are without the 150-hours of education could find themselves restricted from providing their clients with attest services in other states.

Some 150-hour opponents will argue that this requirement will hurt small CPA firms because of the higher costs associated with hiring those with additional education. This is simply a factually incorrect claim. In fact, Florida is one of the first states to enact the 150-hour rule, and there is absolutely no evidence to suggest that small firms have been harmed or run out of the marketplace.

Enhancing CPA Firm Competitiveness

One additional provision I would like to address in House Bill 1765 that PICPA supports is the change to simple majority ownership of any CPA firm. Current law requires that two-thirds, or 66.6 percent, of a CPA firm must be owned by CPAs in terms of financial interests and voting rights of all partners, officers, or shareholders. The change to a simple majority ownership promotes a realistic standard for today's practice environment. There are legitimate professional reasons that CPA firms have non-CPA owners, including the need to have non-CPAs provide expertise in complex services such as information technology. Moreover, this is an optional provision and allows CPA firms to have flexibility to structure their business model to meet their clients' needs. All non-CPA owners of the firm must be active participants in the firm and are bound by the ethical standards contained in the CPA Law.

The current 66 2/3 percent ownership requirement is difficult for smaller CPA firms to meet. And since CPA firms compete for non-attest services against non-CPAs who have no ownership restrictions, the change in the ownership provision seems reasonable, allowing for fair competition while continuing to protect the public since the statute provides that "each individual in charge of an office that performs any attest activity or business unit of the firm in this Commonwealth shall …" be a licensed CPA.

The law also provides that "the principal executive officer of the firm shall be" a CPA who holds a current license to practice public accounting in Pennsylvania.

I will now hand back our testimony to Susan who has some concluding comments.

Other Issues

One legislative proposal PICPA absolutely opposes is the idea of exempting certain CPA firms and individuals from the law’s current peer review requirements. For the reasons that I articulated in a letter to Rep. Dally, which is attached to our testimony, I strongly and unequivocally urge you to reject such an amendment to this or any CPA Law bill. This is bad, counter-intuitive public policy that is not in the interest of the CPA profession or, most importantly, in the public’s interest. It is simply special interest legislation that would be more damaging than productive.

In closing, thank you Chairman Sturla and Chairman Adolph for inviting PICPA to be a part of this legislative dialogue on House Bill 1765. We stand ready to work with this committee on this legislation, and are happy to answer your question.