Tough Rules for Private Entities Could Burden Small CPA Firms

CPAs at small firms are worried about proposals to extend the tough rules of the Sarbanes-Oxley Act to private and nonprofit entities.

A task force of the AICPA is studying the matter, and more than 20 states are considering more stringent requirements.

Allan Koltin, president of PDI Global Inc., said that small CPA firms "are incensed that they may have to hold the bag because of mistakes the biggest firms made with such audits as Enron, WorldCom and Adelphia."

"The small guy is going to suffer greatly for the sins of the big guys," Koltin told Bloomberg columnist Lee Berton.

Small accounting firms, and the public, will undoubtedly face increased costs if full audits are required of all companies — whether public or private and no matter the size.

Anthony Delevati, a partner in the accounting firm of Ulrich Delevati, in Woodland, Calif., says that hospitals and charities may be forced to reduce staff and services if costs rise sharply for financial disclosure and required audits for loans and credit.

Delevanti said a private-school client recently upgraded its audit for a mortgage-refinancing loan because even though the rules haven't changed, lenders are "responding to the bad news about accounting scandals of the major accounting firms."

He added, "Sarbanes-Oxley is forcing some nonprofit clients to waste grant money on costly audits rather than for programs helping disabled children, for example."

Some private clients and nonprofits should be required to follow tighter rules, some accountants say, to ensure disclosure of problems that can hurt those who do business with them.

A task force set up by the AICPA is studying whether more stringent rules are needed for privately held entities. A report is expected by mid-September.

James Castellano, a former AICPA chairman who heads the task force, said the group would talk with lenders, bonding companies, owner-mangers of private entities and CPAs. "There are no preconceived ideas about what direction the recommendations will take."

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