CPAs are Called Upon to Self-Report on Quality Control Issues

Certified public accountants are being asked to report on their own firms' quality control procedures as well as their clients'. New model rules issued by the National Association of State Boards of Accountancy (NASBA), would have licensed public accounting firms submitting to their state licensing boards adverse quality control reviews of their operations, as well as having individual CPAs notify the licensing boards of civil charges brought against them involving fraud, violation of standards of practice or misappropriation of funds. Since the passage of the Sarbanes-Oxley Act of 2002, the state accountancy boards have been considering what issues need to be addressed at the local level. The model rules represent best practices recommended by NASBA to all state boards based on measures that have already been initiated in some states, as well as issues addressed in the Sarbanes-Oxley Act of 2002.


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The new rules also call for: a seven-year retention period for the accountants' audit-related materials for all size companies (not just those registered with the SEC); permitting CPAs with four years of public accounting practice within the past ten years to benefit from an expedited reciprocity process, allowing them to practice across state lines; and reminding all CPAs that they are to apply standards appropriate for specific clients (whether they be standards set by the PCAOB, GAO, ASB, etc.).

In recommending these rules to the state boards for adoption, the NASBA model rules document explains their purpose is "primarily to reinforce the [state] Board's efforts to ensure that only appropriately qualified CPA firms are engaged in the offering and rendering of services subject to peer review."

Some state boards of accountancy have already increased self-reporting by CPAs and their firms. For example, rules calling for self-reporting of civil charges have been implemented in California; North Carolina requires self- reporting of pending charges and binding arbitration; and Washington requires self-reporting on enforcement actions by federal and state agencies.

While many states have rules that require firms doing attest work to participate in quality review programs, the reports from those reviews have not traditionally been shared with the licensing boards. Instead, a board's oversight committee looks at the overall review process, rather than the individual reports. The new rules call for licensed firms to directly submit the reports from those reviews to their state boards. This represents a change in the nature of the review process, moving it from a purely educational program to one with an enforcement component.

"We're calling on professionals to report on their own problems, whether they be procedural, technical or legal," NASBA President David A. Costello stated. "It is because we believe our states' licensed accountants will not be ashamed to stand up to scrutiny, that we think this system will work. Despite the stories of financial disaster, we maintain the overwhelming majority of certified public accountants are the cure, not the cause."

The rules can be viewed on NASBA's website www.nasba.org

Source: National Association of State Boards of Accountancy

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