Testimony

Testimony Before the Pennsylvania House Professional Licensure Committee on Amending the CPA Law

Presented by J. Andrew Weidman, CPA
Representing the Pennsylvania Institute of
Certified Public Accountants

Feburary 28, 2006

Good morning, Chairman Gannon, Chairman Reiger, and members of the House Professional Licensure Committee. Thank you for the opportunity to present testimony on behalf of the 19,000 members of the Pennsylvania Institute of Certified Public Accountants. My name is Andy Weidman, and I am the president-elect of the PICPA and managing partner of Reinsel Kuntz Lesher, a CPA firm with offices in Harrisburg, Lancaster, and Wyomissing. Our firm employs over 150 accounting professionals.

Joining me this morning is Bert Trexler, executive director and CEO of the PICPA.

The PICPA represents CPAs in business and industry, public practice, government, and education. Our members provide services to individuals, not-for-profit organizations, small and medium-sized employers, as well as Pennsylvania's largest employers. It is from this broad perspective that we offer our thoughts today.

Senate Bill 251, Printer's No. 899, amends the CPA Law, which governs the practice of public accounting in Pennsylvania. The Senate unanimously passed this bill on June 20, 2005, which represents the first significant changes to the CPA Law since 1996. The PICPA strongly supports the provisions of Senate Bill 251 and asks for your support of the legislation.

Senate Bill 251 is designed to increase uniformity with the other 54 CPA licensing jurisdictions, strengthen the State Board of Accountancy, and protect the public interest. Allow me a few minutes to explore these concepts.

Increasing Uniformity
Currently, 47 CPA licensing jurisdictions mandate that a candidate for certification have 150-hours of education to receive a CPA certificate and license. These include New York, Ohio, West Virginia, Maryland, and New Jersey-states all surrounding Pennsylvania. Senate Bill 251 will require the 150 hours of education, and comply with the profession's substantially equivalent requirement. The National Association of State Boards of Accountancy and the American Institute of CPAs established the substantial equivalency guidelines to increase the portability of the CPA designation across state lines. Substantial equivalency provides that if a CPA has a valid license from a state with CPA "substantially equivalent" licensing criteria - education, examination, and experience - then the CPA can cross state lines to practice in another substantially equivalent state without obtaining a license in that state. This system has the potential to work with efficiency and effectiveness. So far, 23 states have already adopted this substantial equivalency language.

Strengthening the State Board of Accountancy
Once a state meets the substantial equivalency requirements, licensees can be disciplined in their home state for acts committed in another state. If adopted, Senate Bill 251 provides full disciplinary authority for any state in which the licensee practices. It also ensures that the Pennsylvania State Board of Accountancy, which has the power to revoke the license, has the authority to discipline its licensees if they violate the law when performing services in other states.

The concept of substantial equivalency will produce significant benefits for all parties involved-the licensee, the state board, the public. Licensees can move easily across state borders, while assuring the public of an efficient, effective, and protective regulatory environment.

Protecting the Public Interest
In today's environment, business leaders demand knowledgeable professionals. The 150-hour education requirement, which is mandatory in most states, reflects the increased education needed to serve our clients and protect the public interest. The proposed legislation provides the candidates the opportunity to identify and develop the areas of expertise that will best serve the consumer.

Further, peer review has been the cornerstone of the accounting profession's self-regulatory program. Designed to assure the public that CPAs practice in firms that provide services of the highest quality, peer review is a periodic outside review of a firm's quality control system in accounting and auditing. This comprehensive process evaluates the adherence to, and implementation of, national quality control standards. Senate Bill 251 reflects national changes to ensure that the peer review requirements in Pennsylvania are consistent with revised national professional standards and expands the scope of peer reviews to working paper documentation on review engagements.

One additional provision I would like to address in Senate Bill 251 is regarding the simple majority ownership of any CPA firm. The current law is a 2/3 CPA majority in terms of financial interests and voting rights of all partners, officers, or shareholders. This change promotes a realistic standard for today's practice environment. There are legitimate professional reasons CPA firms have non-CPA owners, including the need to have non-CPAs provide specialized 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.

While some argue that the current 66 2/3% ownership requirement is pushing the envelope, it is often more difficult for smaller CPA firms to meet such a requirement. Since CPA firms compete for non-attest services against non-CPAs who generally have no ownership restrictions, Senate Bill 251's change in ownership seems reasonable to put them on as equal a footing as possible so they can compete effectively, as long as the public is protected. Moreover, the current 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.

In closing, thank you again for the opportunity to discuss Senate Bill 251. We look forward to working with the committee on the bill and once again ask for your support. I will be happy to answer your questions.