State Board Report
In late April, the NASBA Nominating Committee met in Dallas to select a nominee for Vice Chair 2015-2016 of NASBA. The Committee, whose members are elected by each of the NASBA Regions, instituted a new process this year wherein the candidates were interviewed using predetermined questions. When asked to name the three biggest challenges facing Boards of Accountancy, all three candidates listed "audit quality" as a significant challenge. This was not particularly surprising as there has been growing criticism from financial information users and investors, federal agencies such as the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and other regulators who rely on audit quality. For NASBA this raises the question that was on the minds of the Vice Chair candidates: Are the issues raised with audit quality a pressing State Board matter? I believe the answer is clearly "yes", and NASBA must stand ready to help the Boards in that regard.
NASBA has already begun to take action. With the Department of Labor’s (DOL) discovery and announcement that a significant number of CPA firms from around the country had performed substandard audits of employee benefit plans (audits required by the Employee Retirement Income Security Act) and had not been peer reviewed for performing these types of audits, NASBA immediately stepped in to ensure that State Boards were being notified and provided referrals of the failures. Many questions were raised: How and why did firms fail to report they were performing these engagements and therefore avoid peer review? Why had the State Boards not received complaints from the DOL? How should Boards handle firms that failed to undergo the mandated reviews and/or those who were the subject of the DOL’s referrals? And how quickly can these failures be remedied? When NASBA heard that an attempt might be made to blame the State Board system for the DOL audit failures, we immediately and aggressively challenged that notion. Our investigation revealed that over the past decade, with the exception of two states because of an anomaly, very few referrals were ever made to the Boards of Accountancy and the vast majority were reported only to the AICPA.
For the past few months, NASBA senior staff and legal counsel have been engaged with AICPA, DOL and others to work towards establishing a viable process for resolving this situation. The discussions have not been about "pointing a finger" or "passing the buck", but about reaching a solution. Some of the processes under discussion represent unprecedented cooperation and working together with AICPA. Both NASBA and AICPA have a deep commitment to not only audit quality, but to good public policy. To achieve that commitment, we may have to rethink how we work together on some of these major issues.
As stated in the introduction to the Uniform Accountancy Act: "…appropriately designed regulation of CPAs serves to protect the public welfare in two principal ways: (a) by providing reasonable assurance of competence on the part of persons and entities that perform those services that require a substantial degree of skill and competence for proper performance and regarding which the consequences of inadequate performance may be of serious dimension; and (b) by preventing deception of the public regarding the level of competence that may reasonably be expected of a given practitioner."
In the United States, only Boards of Accountancy can license the use of the CPA title and grant practice privileges to perform restricted attest services. Only Boards of Accountancy can revoke those titles and privileges. While the SEC and IRS can limit practice privileges in respect to their operations, and others can revoke membership in an association, the final authority for permitting the practice of public accountancy rests with the State Boards. Any viable process needs to acknowledge that, and NASBA is respectfully articulating that position. At the recent Executive Directors conference we began having candid conversations about how we should work towards implementation of new approaches. That conversation will continue at the upcoming Regional Meetings in June, hopefully with well thought out processes to consider.
In the meantime, NASBA’s Compliance Assurance Committee at the beginning of May released a white paper for State Boards entitled, "Failed Reports Guidance." It contains recommendations for how Boards should deal with "pass with deficiencies" and "fail" peer review reports.
We have worked hard to enhance the relevance of NASBA and Boards of Accountancy. We are committed to ensuring that Boards are provided timely referrals, given adequate supporting documentation and have the resources to meet and exceed the expectations of the public. Is audit quality a top State Board issue? You betcha it is—and NASBA will be there to back you up!
Semper ad meliora. (Always toward better things.)
— Ken L. Bishop
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