Attorney General Circulates Proposed Accounting Legislation
Seeks New Provisions on Misconduct, Conflict of Interest and Others

By Joanne S. Barry , Director of Communications

ALBANY—New York State Attorney General Eliot Spitzer last month circulated a draft legislative proposal for comment touching on everything from the composition and authority of the state board of accountancy to defining unlawful conflicts of interest and specific acts of professional misconduct subject to discipline.

Spitzer also circulated a separate initiative he first announced at a Foundation for Accounting Education conference in January that will reshape governance and accounting for nonprofits in the state.

Spitzer’s legislative proposal on accountancy focuses on similar issues in an existing bill proposed by state Senate Higher Education Committee Chair Sen. Kenneth LaValle (bill S302), and it introduces five new components that have yet to appear in any legislation in New York.

These new proposals would:

• Identify in statute specific acts of professional misconduct by an accountant that would be subject to disciplinary action.
• Require licensees to report to the New York State Board for Public Accountancy certain events, including: restatements of financial statements attested to by the licensee; civil action settlements or arbitration awards; initiations of investigations by any governmental body; criminal convictions; and judgments in civil action alleging dishonesty, fraud, breach of fiduciary responsibility, materially incomplete or misleading financial statements, embezzlement, theft or misappropriation of funds or property by fraudulent means or false pretenses.
• Define a list of unlawful conflicts of interest beyond the restrictions in the Sarbanes-Oxley Act, applying not only to auditors of publicly traded companies, but also to auditors of any organization or entity, including not-for-profit corporations, partnerships and sole proprietorships, among other entities. Conflicts can include: providing specified nonattestation services to the attest client; failure to rotate lead or reviewing audit partners every five years; and performing attestation service for a client if a chief executive officer, controller, or chief financial officer, among others serving with the client, was employed by the accounting firm during the one-year period preceding the attestation. The draft bill adds other conflicts of interests beyond the scope of Sarbanes-Oxley, and allows the commissioner of education to expand the list of prohibited nonattestation services, upon consultation with the state board of accountancy.
• Establish a minimum seven-year record documentation requirement for attestation engagements that also creates a rebuttable presumption in the event of failure to meet the document requirement. The current Regents’ rule on record retention and documentation does not provide a rebuttable presumption, as previously recommended by the Society.
• Increase the number of public representatives on the state board of accountancy from two to no fewer than nine, and reduce the number of licensed accountants from 20 to no fewer than 16, but they must be representative of a wide geographic range and of broad practice experience.  

Spitzer’s draft bill focuses on issues also addressed in the LaValle bill, specifically the expansion of the scope of practice, with definitions of services and terms to clarify the bill’s application to the accounting profession. Spitzer also would require firm registration, mandatory peer review for attest and compilation, and other provisions.

While there is no provision in the LaValle bill on commissions, Spitzer’s proposal does allow commissions for nonattest services, while banning commissions for attest services.

Enforcement under the bill would remain with the State Education Department, with a component to allow the commissioner of education to make conflict-of-interest provisions inapplicable to services to small business clients, and to make revisions, after consulting with the state board of accountancy.

A draft of this proposed legislation is available at www.nysscpa.org under “Gov’t Center.”