SED Says Restrictions on Commissions Are Unenforceable

Points to Narrow Scope of Practice in Education Law

By Danielle D'Angelo

In a departure from its long-held view prohibiting commissions, the State Education Department recently said it does not have jurisdiction to discipline CPAs who accept commissions for services outside the state education law's defined scope of practice.

Speaking at a September meeting of the New York State Board for Public Accountancy, Johanna Duncan-Poitier, SED deputy commissioner for the professions, and Frank Munoz, SED executive coordinator for public responsibility, concluded that the state education law, which governs the accounting profession, narrowly defines the scope of practice as primarily the attest function. Since the state only has jurisdiction over CPA services outlined in the law, the SED reluctantly concluded that it cannot enforce Board of Regents rules claiming professional misconduct for CPAs who accept commissions for services outside this defined scope of practice.

The new interpretation of the law has far-reaching ramifications for the accounting profession and impacts many of the assumptions under which the Board of Regents and Office of Professional Discipline now operate. For example, besides rendering moot the rule against most commissions (commissions for attest services remain prohibited), the SED has no jurisdiction to discipline CPAs for malpractice in tax services.

The SED will mail a memorandum to all New York state practicing CPAs outlining its views on services that fall within and outside the defined scope of practice. In sharing a discussion draft of this document with the state board, the SED interpreted the law to define public accountancy primarily as the attest function. In essence, many of the services that CPAs currently offer, including personal financial planning, tax preparation, and business advisory and other consulting services, do not fall under that state law's definition. The SED asked for the state board's input prior to the mailing of the final memorandum.

These interpretations arose in reaction to the acquisition of Goldstein Golub Kessler & Co. by American Express Tax and Business Services. SED staff first took the position that American Express could not acquire Goldstein Golub Kessler & Co. because state law does not permit CPAs to practice in business corporations. The SED spent numerous hours working with attorneys and a CPA consultant to analyze the current state education law, particularly section 7401 which defines the scope of practice. On closer examination, the SED came to the conclusion that the business corporation prohibition applied only to CPA services defined in the state education law. Because American Express acquired only the nonattest functions of the CPA firm, and the attest services remain in a separate, independent entity, Goldstein Golub Kessler LLP, the SED could not oppose the merger.

"We were forced to take a very close look at that statute and interpret it as it is," said Munoz. "The rubber hit the road. American Express challenged us to justify why we thought tax preparation was included in [section] 7401 and we couldn't."

The state education law is nearly 50 years old and has not been amended since 1971. The SED recognizes that law needs to be changed and it asked the State Board for Public Accountancy and the NYSSCPA for assistance in drafting new legislation that better represents the services CPAs provide today.

"We need to act collectively to push for a law that protects the public and the future of the profession," said Duncan-Poitier.