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advocacy community education
Accounting firms of various sizes use the services of non-
CPAs who are critically important to the effectiveness of
the CPA practice. This is because it would be impossible
for a CPA to have the breadth of education and skill sets
necessary to be an expert in every area and aspect of a
firm's and its clients' businesses.
This is especially true for CPA firms performing audit
work. Business has grown increasingly complex. Global
competition, the complexity of business structures and
transactions, innovative financial instruments and trans-
actions, and rapid technological breakthroughs are the
norm and not the exception.
In order to perform an audit effectively and comply with
audit standards (GAAS and GAAP), in addition to know-
ing audit standards and procedures, an auditor must fully
understand the nature of the client's business, its techni-
cal and other systems, and the nature of the marketplace
in which the business competes. Without this knowledge
an audit will be useless. As a result, individuals are need-
ed on audits who have a deep understanding about
finance (MBAs), engineering (CEs), technology, and valu-
ations, and who possess other skill sets.
The idea that a breadth of education and skill sets for
CPAs and accounting firms is necessary is not new. As
far back as the 1970s, the profession recognized that
CPAs themselves needed a comprehensive education to
meet the challenges of complex businesses.
In the early 1990s the then-"Big 6" accounting firms
issued a paper, "Meeting the Needs of a Changing
World," noting that accounting firms must also have a
broad range of services and skill sets to not only serve
as a business advisor to clients, but the breadth of serv-
ices and skill sets "also helps strengthen the quality of
audit services" by enhancing the audit quality. "Auditing
large or small organizations is increasingly a sophisti-
cated challenge, requiring highly skilled professionals
who possess technical, industry, and general business
skills combined with the ability to use state-of-the-art
tools and methodologies."
The greater the auditor's insight into a client's operation,
the more likely it is that key audit risks will be identified
and business complexities and transactions fully under-
stood. As far back as 1978, the "Cohen Commission"
observed in its report on the quality of auditing that "An
audit requires considerable knowledge about a company,
its operations, and its industry."
It is well-established that to attract and maintain the high-
est caliber of individual, those individuals must be well-
compensated. While non-CPAs could be compensated
solely with cash, having an equity interest in the entity not
only provides a greater financial opportunity, it vests in the
individual an interest in the success of the organization.
And, especially for smaller CPA firms who cannot com-
pete solely on a salary basis, the possibility of equity can
be a significant draw to highly talented individuals.
The need for skills in addition to those of a CPA has been
recognized by the American Institute of CPAs (AICPA)
and the National Association of State Boards of
Accountancy (NASBA). The Uniform Accountancy Act
(UAA) has long contained a provision expressly allowing
non-CPA ownership provided that CPAs retain a majority
ownership interest.
The UAA model has been widely adopted across the
country. In fact, 46 states now expressly permit non-CPA
ownership. It is important that all states be consistent in
this regard, so that there is a level playing field in terms of
organizational structure for large and small firms across
the country.
The experience of non-CPA ownership has been one
without problems for the profession. Regulators have not
reported issues with non-CPAs, nor has this become a
compliance or enforcement problem.
We will continue to keep you apprised as this initiative
moves forward.
Connecticut State Board of Accountancy
Pursuing Legislative Change to Allow
Non-CPA Firm Ownership
he Connecticut State Board of Accountancy has decided to pursue a change in the
state's ownership laws to allow CPA firms to be owned by a simple majority of CPAs.
Currently, 46 states expressly permit non-CPA ownership.
Connecticut statute and rules do not specifically reflect information about non-CPA ownership. However, the
State Board's legal counsel has indicated that when individuals in a CPA firm hold themselves out as CPAs
or PAs, the firm must be 100 percent owned by the licensed individuals and shareholders within the firm.
The State Board members' reasoning for supporting the change are as follows: