Senator Wicker Introduces Bill to Narrow Definition of “Municipal Advisor”

October 18, 2012

In the September 2012 issue of The CPA Advocate, we reported to you that a bill strongly supported by the American Institute of CPAs, which would prevent CPAs who perform “customary and usual” accounting services from being defined as “municipal advisors,” was passed by the U.S. House of Representatives on Sept. 19, 2012.  Two days later, on Sept. 21, 2012, Senator Roger Wicker, a Republican from Mississippi, introduced S. 3620, an identical bill, in the Senate.

The AICPA supports S. 3620 and is working closely with Senator Wicker and his staff to encourage other senators to support the bill and pass it during the lame duck session.

Both bills would clarify Congress’ intent about the provisions of the Dodd-Frank Act that relate to regulation of municipal advisors.  The legislation would result in a narrower definition of municipal advisors, while leaving the Act’s investor protections in place.  A narrower definition of municipal advisor is important to CPAs because it 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.

The clarification is necessary because of the broad rules proposed in December 2010 by the Securities and Exchange Commission to implement Section 975 of the Dodd-Frank Act.  Section 975 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.  The Dodd-Frank Act mandates that once advisors are registered with the SEC they are 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.

The rules proposed by the SEC would cover CPAs who give 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.

While the SEC has not taken final action on its proposed rule to implement Section 975 and while the AICPA submitted comments to the SEC in 2011 outlining its objections to the broad definition, the AICPA believes it is important for Congress to clarify its intent regarding the definition of a municipal advisor.

AICPA President and CEO Barry Melancon, CPA, CGMA said, “Narrowing the definition of a municipal advisor, while leaving investor protections in place, will insure that an unnecessary regulatory burden is not imposed on CPAs who do customary and usual accounting services for municipalities and states.  We are urging the Senate to take up this important bipartisan legislation during the lame duck session.”

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