Commentators suggest the advent and spread of IFRS could make accountancy one of the first truly global professions. However, it has only been in the past two years that momentum has been gathering to form a national profession in the world’s largest economy. The move is being welcomed by the profession as common sense and is likely to have a significantly positive impact.
Each of the 55 licensing jurisdictions in the US has the ability to set its own standards for CPA licensure and practice, meaning CPAs and firms traditionally must be licensed separately in every state where they serve client interests. According to the American Institute of Certified Public Accountants (AICPA), gaining a practice privilege differs so much from state to state it is almost impossible for CPAs to navigate.
Gaylen Hansen is the director of quality assurance for Ehrhardt Keefe Steiner & Hottman (EKSH). The Leading Edge Alliance member has about 400 staff and 40 partners. It has three offices, all of which are in Colorado, and Hansen said the firm is the second largest in Colorado behind KPMG.
Despite being based only in Colorado, EKSH operates in about 20 to 25 other states and does some work internationally. Having to be registered in more than 20 states has a “big time negative impact” Hansen said.
One of Hansen’s responsibilities at EKSH is taking care of licensing requirements. He said this consumes about a quarter of his time and about half the time of an assistant. “It’s significant in terms of just our internal costs,” he said. “I wouldn’t hazard a guess as to how much we pay for inter-state licensing.”
Hansen, who is also a member of the Colorado State Board of Accountancy and a member of the board of directors of US National Association of State Boards of Accountancy (NASBA), said the time-consuming process includes “finding out what the regulations are in the other states, which often means calling them or searching on the website, [and] finding the right form. Sometimes the other state requires confirmation of experience, exam grades and education.
“Some of the states require a certificate of good standing indicating you don’t have any discipline that has been filed against you. So there are quite a few hoops that you can actually end up having to go through… it’s pretty frustrating for our people.”
The timeframe for acquiring a licence varies from being instantaneous to two to three months. Typically, it is a matter of weeks.
Hansen names Florida, Texas, California and New York as states that have always been difficult. “Some of these states require that you not only meet all of their requirements, but they will have [continuing professional education] requirements that are unique to their states. Ethics is the prime example – [some states] won’t accept the ethics continuing education that we have here in Colorado,” Hansen said.
In addition to making sure individual CPAs are licensed, some states also require a firm licence. “Sometimes that can take just as long because they want even more information. For example, some want a list of all the partners and they want you to have a registered agent so if there is ever any complaint, they can file that complaint with the registered agent,” Hansen explained.
However, the battle to break down the state barriers is gaining pace. For about ten years the AICPA and the NASBA have been advocating a single criterion called substantial equivalency.
AICPA vice-president for practice mobility and state regulatory and legislative affairs Sheri Bango said that until two years ago there had been little progress.
“Substantial equivalency had existed in the Uniform Accountancy Act since 1997, but every state had their own take on what that meant and they did not pass it in a uniform manner,” Bango said, explaining that this led to a patchwork of regulations where each state agreed that moving to a single requirement was in the best interest of the profession and the public, but they all believed it should be based on their own law.
Two years ago the situation came to what Bango called “the critical point of realising that we had a true problem”. At this point the AICPA, the NASBA and the state accounting boards and societies agreed that something needed to be done.
In December 2006, the AICPA and NASBA approved an exposure draft of legislation that simultaneously removed the notification requirement for CPAs entering a jurisdiction and gave states regulatory authority over any CPA or firm practicing in their jurisdiction.
The exposure draft was so well received that despite it being open for comment until May 2007, many states introduced the legislation in draft form when the 2007 legislative sessions opened in January.
“By the end of 2007, we had 11 states that had removed their notification requirement,” Bango said. That number now stands at 23, with about ten states still pending in the 2008 legislative session. We were trying to provide a uniform system, a state-based system but with national mobility… we’re a little bit less than halfway there, but we hope that towards the end of the 2008 legislating sessions we will be able to say that we’re at least half-way there,” Bango said.
Bango emphasised that by simultaneously removing the notification requirement and giving the state regulators greater power over CPAs practicing in their states, public protection has been increased.
Hansen agreed: “Interstate licensing really does not add a whole lot to the protection of the public. It’s pretty easy to find CPAs as they are not typically the types of people that don’t have websites and letterheads… I’m not sure how you’re really helping the public by going through all of this paper shuffling and permitting process.”
The first step
The removal of notification requirement is only one layer towards opening up state boundaries. When a jurisdiction has dropped the notification requirement, any CPA that is licensed in a jurisdiction that is considered substantially equivalent can automatically practice in the former jurisdiction.
For a jurisdiction to be considered substantially equivalent, it must offer the uniform CPA exam and require its licensees to complete 150 hours of education and at least one year of experience.
The only jurisdictions that are not considered substantially equivalent are California, Colorado, Delaware, New Hampshire, Vermont and the Virgin Islands, which have not passed the 150 hour education requirement. Florida and Puerto Rico do not have the experience requirement although Florida has recently passed legislation that will bring it up to speed. When a jurisdiction is not considered substantially equivalent, individuals can meet those requirements and then be considered substantially equivalent through a process NASBA has in place.
Philip Politziner, the president and chief executive of Baker Tilly International member Amper, Politziner & Mattia has welcomed the move towards uniform practicing requirements: “We believe that it makes sense to have commonality. It is a logical way of the profession doing business so we are in support of that.”