House Passes AICPA-Backed Bill to Narrow Definition of "Municipal Advisor"

September 20, 2012

The U.S. House of Representatives approved a bill supported by the American Institute of CPAs that would prevent CPAs who perform “customary and usual” accounting services from being defined as “municipal advisors” under a broad definition of the term proposed by the U.S. Securities and Exchange Commission.  The House passed H.R. 2827 on a voice vote on Sept. 19. 

Section 975 of the Dodd-Frank Act amended Section 15B of the Securities Exchange Act of 1934 to, among other things, make it unlawful for municipal advisors to provide certain advice to, or solicit, municipal entities or certain other persons without registering with the SEC.  Once registered, an advisor would be subject to the rules that the SEC issues on municipal advisors and subject to potential enforcement actions by the SEC if the SEC believes the advisor has violated the rules.   

In December 2010, the SEC proposed rules to implement Section 975.  The proposed rules were very broad, and would have covered CPAs who gave advice to a municipality on, among other things, the application of GAAP, providing certain needed information to a government or its bond counsel regarding coverage requirements on outstanding bonds, or verifying the calculation of escrow account requirements for advance refunding of bonds, or a compliance audit.  If the CPA firm was subject to registration for performing these customary and usual accounting services, it would be subject to the SEC’s rules.  Many of these firms are not doing public company work and have never been subject to any SEC regulation or enforcement.  All of this would result in cost to the firms, both monetarily and time, to comply with SEC rules.  It would also raise the risk of having to defend an enforcement action.

H.R. 2827 was introduced in 2011 to clarify the provisions of the Dodd-Frank Act relating to the regulation of municipal advisors.  It narrows the definition of municipal advisors, while leaving investor protections in place.  For CPAs, this means they would have to register only when giving advice about the structure, timing, terms and other similar matters concerning the issuance of municipal securities.

On Sept. 12, 2012 the House Committee on Financial Services approved the bill by a vote of 60 to 0 and sent it to the full House.

AICPA President and CEO Barry Melancon, CPA, CGMA in a Sept. 10, 2012 letter to the Committee said, “Overall, we believe Section 975 of the Dodd-Frank Act is important for strengthening investor protections in the municipal securities market, but we believe that a narrower definition of a municipal advisor is also needed.  This bill would do that without weakening the investor protections afforded by Dodd-Frank.”

“We specifically support the definition of a municipal advisor that does not include an accountant who is ‘providing customary and usual services, including any attestation or audit service or issuing letters for underwriters for a municipal entity or providing advice that is related to or in connection with any such activities and not for separate compensation,’” Melancon wrote.

He noted that accountants providing “customary and usual services” are subject to the AICPA’s Professional Standards and to the regulatory authority of a state board of accountancy or a federal authority (e.g., the IRS for providing federal tax advice). Thus, these CPAs are subject to layers of regulation that adequately and appropriately protect investors. Additional regulation by the SEC is not necessary.

H.R. 2827, introduced by Congressman Robert Dold, a Republican from Illinois, was the result of a bipartisan effort.  Congresswoman Gwen Moore, a Democrat from Wisconsin, led efforts for the bill on the Democratic side.

The AICPA will continue to work to move the bill through the legislative process in the Senate.

For more information, see the municipal advisors page in the advocacy area of the AICPA’s website.