Society Contemplates Elevating Ethics and Peer Review
Task Force to Study Issues, Make Proposals

By Jay Dismukes

NEW YORK—The New York State Society of CPAs has a long-standing commitment to upholding ethics and professional standards and is now considering substantive changes that could bolster NYSSCPA peer review and ethics programs, a board of directors meeting revealed last month.

During the Nov. 19 meeting, the New York State Society of CPAs Board of Directors, in part motivated by the need to protect the public interest and help restore confidence in the accounting profession, unanimously decided to reaffirm itself as a professional organization dedicated to the establishment of, enforcement of, and education regarding standards of ethical conduct and professional competency. Specifically, the board discussed the Society’s current peer review and ethics processes, as well as measures that would expand those programs more thoroughly into its governance and executive structure, including the possibility that peer review and continuing professional education (CPE) be requirements for NYSSCPA membership.

Upon hearing presentations by several of the Society’s peer review and ethics experts, the board appointed a task force, to be chaired by Brian A. Caswell, to examine the issues raised and make recommendations, including proposed bylaw changes.

“There is a movement to require peer review for all practice units, not just SEC engagements and Yellow Book audits. Do we, as a state society, want to endorse such a regulatory change? Do we want to affect membership rights by requiring adoption of such a regulation? Those are the kinds of questions we want to discuss,” Caswell said of the task force’s concerns and responsibilities. “We also want to look at the relationship of ethics to regulation. Our profession is governed by professional standards, including such standards as GAAP and GAAS codified in such publications as SAS, FASB, SSARS and so forth. Violation of those standards are also a violation of our ethics.”

During the meeting, several board members expressed dissatisfaction with the existing peer review process in New York state. Currently, the Society and New York state do not require peer review for membership or practice registration, respectively, though the Society, under contract with the American Institute of CPAs, does provide the service for non-SEC registrants, of which approximately 3,000 firms voluntarily participate. All members of the AICPA must undergo peer review, which includes CPE compliance; however, only those with the Institute’s SEC Practice Section must make the results public.

At the federal level, the Sarbanes-Oxley Act of 2002 requires that the new Public Company Accounting Oversight Board annually inspect firms that audit more than 100 SEC registrants, while smaller firms will undergo triennial inspections. Whether the inspection results and related disciplinary action will be made public is still uncertain; involvement by the AICPA may be precluded if the information is passed directly to state regulators for their investigation of licensees and possible disciplinary action.

Though the board members support widening the scope of its peer review and ethics programs, they prefer that the state first mandate peer review. Still, the board members mulled the possibility of making peer review a mandatory component of NYSSCPA membership if a member provides audit, review or compilation services, and posed many questions that require further review by the task force before any action would be taken.

Those questions include the following:

• Should the results of peer review be made public and sent to state regulators?
• Should there be a link between peer review, which traditionally has been remedial and educational, and discipline within the Society?
• Who should conduct the peer reviews, and is a “learning curve” necessary for those CPAs and firms that have never had one?
• What are the administrative costs and time considerations?

The board also discussed whether it would be necessary to create an NYSSCPA ethics and peer review division with separate policy and oversight committees for the two.

The board feels very strongly that, as a professional organization, the Society must continue to have an ethics enforcement program, which other state societies, including those in Florida, California, Arizona, Puerto Rico and Iowa, lack, instead referring complaints against a CPA or firm to their state boards of accountancy. Unlike the Society, these states do not participate in the AICPA’s Joint Ethics Enforcement Program (JEEP).

However, the ability to investigate ethics cases through JEEP is somewhat limited, as neither state societies nor the AICPA have subpoena power. Additionally, JEEP cases can be deferred for many years until criminal and civil actions as well as government tribunal proceedings involving the SEC, state boards of accountancy and the Department of Labor, among others, have concluded. Further, because of Sarbanes-Oxley, the AICPA no longer has sole jurisdiction over SEC-
related complaints, as state societies can proceed against a member pending the outcome of the PCAOB’s and state board’s disciplinary decisions on such cases.

Given these circumstances, the board members also raised the following questions:

• Should the Society continue its ethics enforcement program independent of JEEP?
• Should the NYSSCPA have greater capacity to debate within its membership and adopt its own standards of professional conduct?
• If so, what role should the public play in the Society’s ethics enforcement program?
• Should the Society’s Professional Ethics Committee report ethics complaints to the New York State Board for Accountancy and engage in joint investigation of ethics cases involving a Society member with the state education department?
• Should the ethics process be more transparent?
• Should ethics rulings be published?
• What are the confidentiality issues to consider?

The task force is scheduled to present a preliminary report of its findings and related recommendations next year. Members are encouraged to contact Caswell with their comments at brian@caswellaccountants.com.