advent and spread of IFRS could make accountancy one of the first
truly global professions, it has only been in the past two years
that momentum has been gathering to form a national profession in
the world’s largest economy. Carolyn Canham investigates. Each of the 55 licensing jurisdictions in the US has
the ability to set its own standards for CPA licensure and
practice, meaning CPAs and firms traditionally must be licensed
separately in every state where they serve client interests.
According to the American Institute of Certified Public Accountants
(AICPA), gaining a practice privilege differs so much from state to
state it is almost impossible for CPAs to navigate.
However, the battle to break down the state barriers is gaining
pace. For about ten years the AICPA and the US National Association
of State Boards of Accountancy (NASBA) have been advocating a
single criterion called substantial equivalency.
AICPA vice-president for practice mobility and state regulatory
and legislative affairs Sheri Bango says that until two years ago
there had been little progress.
“Substantial equivalency had existed in the Uniform Accountancy
Act since 1997, but every state had their own take on what that
meant and they did not pass it in a uniform manner,” Bango says,
explaining that this led to a patchwork of regulations where each
state agreed that moving to a single requirement was in the best
interest of the profession and the public, while believing it
should be based on their own law.
The beginnings of change
Two years ago the situation came to what Bango calls “the
critical point of realising that we had a true problem”. At this
point the AICPA, the NASBA and the state accounting boards and
societies agreed that something must be done.
In December 2006, the AICPA and NASBA approved an exposure draft
of legislation that simultaneously removed the notification
requirement for CPAs entering a jurisdiction and gave states
regulatory authority over any CPA or firm practicing in their
The exposure draft was so well received that despite it being
open for comment until May 2007, many states introduced the
legislation in draft form when the 2007 legislative sessions opened
“By the end of 2007, we had 11 states that had removed their
notification requirement,” Bango says. That number now stands at
27. A further two states are awaiting their governor's
signature and three have legislation pending.
“We were trying to provide a uniform system, a state-based
system but with national mobility… we are a little bit less than
halfway there, but we hope that towards the end of the 2008
legislating sessions we will be able to say we’re at least half-way
there,” Bango says.
Bango emphasises that by simultaneously removing the
notification requirement and giving the state regulators greater
power over CPAs practicing in their states, public protection has
Gaylen Hansen, a member of NASBA and the Colorado State Board of
Accountancy, agrees. “Interstate licensing really does not add a
whole lot to the protection of the public,” Hansen says. “It is
pretty easy to find CPAs as they are not typically the types of
people that don’t have websites and letterheads… I am not sure
how you are really helping the public by going through all of this
paper shuffling and permitting process.”
Small steps forward
The removal of the notification requirement is only one step
towards breaking down state boundaries. When a jurisdiction has
dropped the notification requirement, any CPA that is licensed in a
jurisdiction that is considered substantially equivalent can
automatically practice in the former jurisdiction.
For a jurisdiction to be considered substantially equivalent, it
must offer the uniform CPA exam and require its licensees to
complete 150 hours of education and at least one year of
The only jurisdictions that are not considered substantially
equivalent are California, Colorado, Delaware, New Hampshire,
Vermont and the Virgin Islands, which have not passed the 150 hour
education requirement; and Florida and Puerto Rico, which do not
have the experience requirement, although Florida has recently
passed legislation that will bring it up to speed. When a
jurisdiction is not considered substantially equivalent,
individuals can meet those requirements and then be considered
substantially equivalent through a process NASBA has in place.
Sandy Rothe, the Denver office managing partner for Deloitte US,
spoke at the testimony where the Colorado State Board of
Accountancy decided to drop its notification requirement. As he was
preparing for the testimony, Rothe heard that Deloitte US has up to
11,000 staff members travelling each week.
“Now all 11,000 of those would not require licensing, as they
are not all CPAs, but there’s a large majority and the point is we
have so many people travelling across the globe and across the
United States every day that to comply with 50 different rules is
really impossible,” Rothe says.
“My biggest concern is not so much about the time and the cost
as much as it is just the sheer ability to be able to [comply with
the licensing requirements].
“Clients call us literally Sunday night and want us in another
state or country the next day, so what I was worried about is what
I called a ‘foot fault’ in the sense that we want to comply, we
will comply, but if you set up rules that just aren’t practical,
somebody somewhere is going to trip up. Then we are going to be in
trouble not because we did bad work, not because anything’s wrong,
not because we didn’t try to comply, just because somebody didn’t
know that Colorado had a different rule than Iowa.”
Colorado is one of the few states that is not substantially
equivalent, which Rothe says “complicates our life”. “The
restriction potentially limits the ability of Colorado’s CPAs to do
business is other states, versus out-of-state CPAs doing business
in Colorado,” he says.
On rare occasions the situation also arises where work is
allocated to CPAs on the basis of which state they are licensed
“It’s the clients that potentially suffer,” Rothe warns. “If we
don’t have free mobility, if we have to get licensed, then we are
going to have to choose who is licensed verses who is best for the
engagement. Especially if [the client] wants us on short notice and
there is a lengthy licensing requirement.
“So it’s not so much that the accounting firm is being
disadvantaged, it’s the clients that are disadvantaged if we can’t
bring whoever is needed for that situation from wherever they are
in the globe to bear as quickly as possible.”
Rothe is not happy with the pace at which Colorado is moving
towards becoming substantially equivalent. “I think Colorado really
needs to become substantially equivalent. It’s our next priority;
it’s a priority of the profession,” he says.
In addition to his board duties, Hansen is director of quality
assurance for Ehrhardt Keefe Steiner & Hottman (EKSH). The
Leading Edge Alliance member has about 400 staff and 40 partners.
It has three offices, all of which are in Colorado, and Hansen says
the firm is the second largest in Colorado behind KPMG.
Despite being based only in Colorado, EKSH operates in about 20
to 25 other states and does some work internationally. Having to be
registered in more than 20 states has a “big-time negative impact”
One of Hansen’s responsibilities at EKSH is taking care of
licensing requirements. He said this consumes about a quarter of
his time and about half the time of an assistant.
“It’s significant in terms of just our internal costs,” he says.
“I wouldn’t hazard a guess as to how much we pay for inter-state
The time-consuming process includes “finding out what the
regulations are in the other states, which often means calling them
or searching on the website, [and] finding the right form.
Sometimes the other state requires confirmation of experience, exam
grades and education,” he explains.
“Some of the states require a certificate of good standing
indicating you don’t have any discipline that has been filed
against you. So there are quite a few hoops that you can end up
having to go through… it is pretty frustrating for our people.”
The timeframe for acquiring a licence varies from being
instantaneous to two to three months. Typically, it is a matter of
Hansen names Florida, Texas, California and New York as states
that have always been difficult. “Some of these states require that
you not only meet all of their requirements, but they will have
[continuing professional education] requirements that are unique to
their states. Ethics is the prime example – [some states] won’t
accept the ethics continuing education that we have here in
Colorado,” Hansen says.
Layers of licensing
In addition to ensuring individual CPAs are licensed, some
states require a firm licence.
“Sometimes that can take just as long because they want even
more information. For example, some want a list of all the partners
and they want you to have a registered agent so if there is ever
any complaint, they can file that complaint with the registered
agent,” Hansen explains.
Philip Politziner, the president and chief executive of Baker
Tilly International member Amper, Politziner & Mattia, has also
welcomed the move towards uniform practicing requirements. “We
believe that it makes sense to have commonality. It is a logical
way of the profession doing business so we are in support of that,”