Time to Move Beyond State-Based Regulation

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Regulation of the CPA profession in the U.S. needs a transformation. Mind you now, not a change — a transformation. Yes — a major overhaul. We need to look at this system in a different way. We need to look at this system from a 21st century perspective. There have been ongoing attempts during the entire history of the CPA profession in the U.S. to change. To align all of the jurisdictions throughout the U.S. Progress has been made. But the profession will never get to the goal of having a uniform system of regulation in the future as long as we wrap our collective arms around the current system.

Okay, some of you are already saying that there is no way you can support a national license for the profession. That’s fine. It isn’t being suggested here. Bear with me.

Let’s look at some fundamental components of the current system — for example, the educational requirement for the Uniform CPA Exam. More than 50 years ago, recommendations were made to enhance the educational requirements for CPAs. Thirty years ago, in 1984, Florida became the first state to enact a 150-hour educational requirement to qualify for the exam. Over the years, states were added to the list. Then, around the same time the exam became computer-based in 2003, some states made amendments to allow a candidate to sit at 120 hours but not certify until 150 hours. Now we have some “pure 150-hour” states and some “120-/150-hour” states. Crazy. Employers are interested in hiring the most qualified candidates. It doesn’t matter how many hours they have and if they took the exam before, in between or after the hours were earned.

Do I need to mention a fairly wide variety of experience requirements across the U.S.? Continuing professional education requirements may even be more inconsistent, especially in terms of things like state-specific “ethics” and A&A requirements (how many hours do you need?). And what about the various sign-in/sign-out requirements? One-hour increments, half-hour increments and now “nano-learning.” Would it make sense to forget all of that and simply focus on a competency-based learning system for professional development?

A recent effort to achieve uniformity is focused on attestation. Yep — attestation. You may think that you know how attest is defined. As we enter 2015, we have maybe 21 states that have it “right.” At least for the time being. By the time the 50th state gets it in statute, the model will have changed — again. (And yes, I do know that there are 55 jurisdictions, not just the 50 states.) Besides, there is a definition of attest — it’s in the professional standards. Let’s not forget it seems that more and more users are really not interested in that attested-to historical financial information. They might be more interested in an integrated report. Is the profession going to try to regulate that on a state-by-state basis?

The environment that the profession operates in drives change. It’s called the market. The market is a very strong force. CPAs will respond to the market as best as they can — some without regard to what a particular state statute says. These aren’t bad CPAs. They want and need to remain relevant and they need to deliver value. Firm business models are changing. The value proposition of CPAs in business and industry is evolving. How work gets done is changing, and a lot of that is driven by technology and user (market) expectations. Specialization is demanded by ever-increasing complexity. Oh yeah … and globalization. And I am sure that you have noticed that the velocity of all of this change is accelerating. We shouldn’t kid ourselves here — U.S. jurisdictions likely won’t be able to play in that arena. It’s true. State legislators and regulators won’t be able to keep up with the rate of change.

State-based regulation has served the U.S. CPA profession well. It has served the public well. However, in today’s environment it can’t keep pace. The legislative and regulatory process is designed to be very deliberate. And rightfully so. The question then becomes, what is a realistic alternative?  

Self-regulation may be a practical answer. Or perhaps a reasonable alternative is market-based regulation. Call it deregulation. Call it whatever makes sense, but continuing to embrace a state-based system of professional regulation for CPAs does not serve the public well. And the current system doesn’t recognize the need for the profession to be responsive, adaptive and agile in a business environment that won’t wait for some state to get the definition of attest amended. It could be argued that a move away from the current system will become an economic necessity.

We will need to talk about it. We will need to argue about it. It likely won’t be pretty. How many “problems” and “challenges” might be eliminated? What resources could be redirected to truly value-adding activities as opposed to antiquated compliance issues? The current system will become increasingly irrelevant as we move farther into the 21st century. It has to change. AT

Gary Bolinger, CAE, is president and CEO of the Indiana CPA Society.

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