INSIDE OUT

As the profession evolves at a staggering pace, the National Association of State Boards of Accountancy has been busier than ever tackling

Two exposure drafts released by NASBA this year look to affect significant changes in these areas.

PROPOSED UAA CHANGES

Released Aug. 1, the Uniform Accountancy Act exposure draft is a joint effort of the AICPA's Uniform Accountancy Act Committee and the NASBA Uniform Accountancy Act Committee. The changes in the exposure draft (the exposure period ends Oct. 3) focus on three areas: mobility, enforcement and professional standards and ethics.

MOBILITY

The UAA has defined "principal place of business" as "... the office location designated by the licensee for purposes of substantial equivalency and reciprocity." This proposal effectively allows licensees to name their principal place of business. The UAA's proposal also provides for notification for practice privilege purposes through firms, rather than each individual licensee within a firm.

Regarding "substantial equivalency," the draft makes it clear that a CPA is substantially equivalent regardless of the order in which the CPA attained the required education, examination and experience. So, while some states in the past required a sequence of events to unfold before allowing a candidate to sit for the exam-for example, having to meet the 150-hour rule before sitting for the exam-the UAA will allow for differences in timing.

ENFORCEMENT

Documents related to a board investigation, complaint or self-reporting requirement would not be considered public records within the meaning of the state's public record log. In the past, states varied in their approach to these documents, but the proposed draft would state that these are confidential documents.

The UAA proposal also would allow state boards to cooperate in investigations with additional state and federal regulatory authorities, besides boards of accountancy, as well as appropriate foreign regulatory authorities.

PROFESSIONAL STANDARDS

Another significant change is the definition of "good moral character," a trait required in a number of states to qualify as a CPA. In the past, the UAA defined this trait as "the lack of a history of dishonest, felonious acts."

Rather than describe what is not good moral character, the proposal has been changed to describe what is good moral character: "The propensity to provide professional services in a fair, honest and open manner."

PEER REVIEW

The accounting profession developed, administered and monitored the first peer review programs in the 1970s and '80s and several state boards instituted mandatory peer review programs during the 1980s. In 1988, the AICPA approved a Quality Review Program and implemented a practice-monitoring membership requirement for firms performing accounting and auditing.

More and more states implemented mandatory peer review over the years, and today, more than half of the 54 jurisdictions mandate it. California does not have a mandatory peer review program, but many firms voluntarily undergo peer review or as a requirement of their AICPA membership.

The California Board of Accountancy's Peer Review Task Force has been focusing on the implementation of a peer review program. At its July 21 meeting, task force members continued to voice concern regarding the transparency and scope of the AICPA peer review program. For that reason, the task force was unwilling to support the AICPA's program as a regulatory requirement.

The CBA adopted the task force's recommendations to not support the AICPA's program as a regulatory requirement at its July 22 meeting and voted to make a further report to the California Legislature as part of its 2009 Sunset Review. The decision to not support the AICPA's program as a regulatory requirement was a result of three fundamental issues:

* The board believes there is insufficient transparency in the AICPA's peer review process;

* The board has unresolved concerns about the scope of the AICPA's peer review program; and

* The board believes that California consumers would be disserved if small firms and sole practitioners were exempted from mandatory peer review as provided by current state statute. The CBA also noted that the Legislature will determine the date for implementation of any program.

NEW UAA PEER REVIEW LANGUAGE

NASBA strongly supports peer review that provides assurance to the public that a firm providing auditing and accounting services is complying with professional standards. NASBA appreciates that many state boards do not have direct access to peer review materials in a timely manner and thus are unaware that a firm has received an adverse or modified report until the firm's renewal comes due.

For that reason, NASBA encourages transparency in the peer review process to facilitate timely recognition of potential problems and recommends the creation of an independent oversight body to oversee and appraise peer review programs on behalf of the public.

We've heard the cry in the past decade: "Where were the auditors?" NASBA wants to prevent an outcry during the next decade: "Where were the peer reviewers?"

At its July 22 meeting, the NASBA board of directors approved for exposure new UAA language regarding peer review. The proposed revisions primarily address the desire by state boards of accountancy to gain direct access to peer review materials.

The two proposed provisions [Sec. 7(h)(4) and (5)] will:

* Give state boards the authority to require that entities administering peer review programs (e.g. state societies) provide the board with certain information;

* Require that licensees remit peer review documents to the board; and

* Require that these documents be maintained subject to certain confidentiality provisions.

Additionally, newly proposed Sec. 7(h)(3) would require that board-recognized peer review programs be evaluated by the board or its designee to assess their effectiveness.

POSSIBLE CHANGES TO EDUCATION

Proposed revisions to UAA rules 5-1 and 5-2 were released for comment earlier this year, the product of the 2003-04 NASBA Education Committee's 150-Hour Task Force.

The proposed rules were an effort to:

* Provide greater detail on accreditation;

* Increase the number of semester hours required in accounting and business; and

* Provide specific hourly requirements for both accounting and business, including three hours of ethics in accounting and three hours of ethics in business.

The proposed rules increase the number of semester hours required in accounting from 24 to 30, and increase the number of semester hours required in business from 30 to 36. The proposed rules also would insert required ethics courses into the 150-hour rule for the first time.

NASBA received more than 100 comment letters by early August. Some indicated that the increased course content specificity is too inflexible, while others applauded the proposal and felt that it will better prepare accounting students for the real world.

CPA EXAM

The computerized CPA Exam debuted in April 2004 with 23,000 sections taken, and NASBA expects more than 50,000 sections to be taken in the current testing window.

According to a post-exam survey conducted at the testing centers, 97 percent of the responding candidates were satisfied with the testing experience.

A recent improvement is a shortened score-reporting period, so candidates won't have to wait as long to receive their exam scores. Now, if a candidate sits for an exam in the first month of a testing window, the AICPA will send those scores to NASBA toward the end of the second month of testing, speeding up the process by two or three weeks.

UPHOLDING THE PROFESSION'S VALUES

As the profession continues to evolve, so are the rules that govern peer review, educational requirements and the CPA Exam.

A new level of transparency in peer review, as well as improvements relating to mobility, enforcement, standards and education look to update and uphold those traits for which CPAs are well-known: professionalism, honesty and integrity.