The future of State-based regulation.

What to expect your state to do and what you can to do about it

Many events--economic, social, and political--contributed to the passage of the Sarbanes-Oxley Act. Although much of the impact of the legislation still remains to be seen, it is clearly far-reaching. One of the most disconcerting outcomes has been the acceptance of the standard by state legislators. Kathy G. Eddy, in her presentation, The Future of State-based Legislation, to the AICPA MAP Forum, November 11-13, 2002 in Phoenix, addressed the issue of this cascade effect, the adoption by states of laws and regulations similar to those enacted by the federal government. In the past, new federal legislation has become the template for parallel legislative or rule changes at the federal and state levels that directly affects CPA firms and their small business clients. State accountancy boards, the U.S. Department of Labor, the General Accounting Office (GAO), and state and federal bank regulators have followed Congress's and the SEC's lead in adopting new laws and regulations for auditors of public companies. Auditors providing services to small businesses are often subject to these laws and regulations. After explaining what has led up to these state activities, Eddy cited the statement of New York State Senator Kenneth P. LaValle to characterize how some states are reacting to the enactment of Sarbanes-Oxley and the circumstances that precipitated its enactment. LaValle said, "I have no problem with New York law being tougher than federal law, because we are talking about restoring faith with the investing community."

Turning the tide

The AICPA and state societies are working to stem the flow of cascading legislation that would limit growth opportunities and have a far-reaching impact on small businesses. Since January 2002, more than a dozen states have introduced approximately 30 related bills. Twenty bills directly affect the accounting profession, posing a threat to state uniformity.

In September 2002, California was first to enact legislation. Among other provisions, the bill prohibits accountants from being employed at companies where they have worked on audits within the last year and calls for a majority of non-accountants on the Board of Accountancy, making California the first state to have a public member majority.

Other significant legislation has been proposed in New York, Washington, Minnesota, and New Jersey. Legislation proposed in New Jersey would prohibit CPAs...