Corporate governance, Wall Street and auditing reform regarding public companies have been in the forefront of Congressional activity. The AICPA and the State CPA Societies have actively participated in and supported the reforms that have been adopted at the federal level.
Congress passed, and President Bush signed, the Sarbanes-Oxley Act of 2002 providing unprecedented new requirements for auditors of public companies, corporations and Wall Street.
At the state level, several state legislators, regulators and other elected or appointed officials are seeking to duplicate and or extend provisions of the Sarbanes-Oxley Act to private companies and their auditors at the state level. While some measures may have merit and could possibly be supported, some of what is being discussed is overreaching and simply should not apply to CPAs and CPA firms that do not provide audits to publicly traded companies.
As states consider some of these provisions, the potential for an adverse impact on small businesses and the CPA firms which serve them is concerning. Small businesses make up roughly half of the U.S. economy and are a primary source of economic growth and job creations. In an increasingly complex business world, these small businesses depend upon their CPAs for the expertise and trusted advice to put complicated issues into context so they can continue to fuel that growth.
One of the steps taken by the AICPA to respond to the state issues resulting from the Sarbanes-Oxley Act was the formation of the AICPA Special Committee on State Regulation. Working closely with state CPA societies, this high-level volunteer committee is tasked with addressing the state implications associated with the Sarbanes-Oxley Act, recommending positions to the AICPA Board of Directors and providing resources and guidance to states with state legislative or regulatory proposals.
The Special Committee has identified three overarching themes:
- The profession should advocate for a reasoned approach to reform at the state level
- Uniformity of state laws is essential to protecting the public interest
- The complexity of the issues needs to be articulated and communicated
A Reasoned Approach to Reform
In October 2003, the Special Committee released the second edition of A Reasoned Approach to Reform. The Reasoned Approach is comprised of a compendium of two White Papers-A Reasoned Approach to Reform and the Complexity of the Issue and five Issue Briefs-Audit Partner Rotation, Peer Review, Scope of Services, State Board Composition and Professional Ethics.
The Second Edition includes modifications to the Audit Partner Rotation (formally known as Auditor Rotation) and Peer Review Issue Briefs. In addition, a Professional Ethics Issue Brief was added. These materials have been widely distributed to organizations such as State CPA Societies and State Boards of Accountancy. Because the Reasoned Approach is an evergreen document, as other issues develop, the Special Committee will supplement this effort with further materials.