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7. QUALIFICATIONS OF MEMBERS OF THE BOARD OF ACCOUNTANCY

Mr. REGARDIE. Existing law requires only that an appointee to the Board shall be the holder of a certificate issued under the act. The duties and responsibilities of Board members require substantial experience and acquaintanceship with the problems and aspirations of the profession and with its responsibilities to the public. While the vast majority of Board members have possessed these qualifications, the law should be made specific in this regard. Numerous other States, as well as the Boards regulating architects and professional engineers in the District of Columbia, have such specific requirements.

8. SUMMARY OF MAJOR SHORTCOMINGS OF EXISTING LAW

To summarize: Existing law has seven major defects. They are (1) inadequate education requirements, (2) insufficient experience requirements, (3) no residence requirement, (4) no registration requirement, (5) no recognition of Government experience, (6) improper rules relating to partnerships, and (7) no qualifications (other than being a CPA) for appointment to the Board of Accountancy.

Our next witness, Mr. William T. Barnes, will discuss what the proposed legislation will do to correct these defects. Mr. ABERNETHY. All right, Mr. Barnes.

STATEMENT OF WILLIAM T. BARNES

Mr. BARNES. My name is William T. Barnes. I have been a certified public accountant of the District of Columbia since 1946. I am a partner of the international accounting firm of Lybrand, Ross Bros. & Montgomery and I am the partner-in-charge of the Washington office of that firm located in suite 928, Investment Building. I am the immediate past president of the District of Columbia Institute of Certified Public Accountants and am currently serving on the legislative committee of that organization.

I shall discuss the manner in which the proposed legislation will eliminate the shortcomings of existing law.

These companion bills are directly aimed at remedying the previously described defects which have been revealed over four decades of experience. The bills are the product of more than 8 years of intensive study by members of the Board of Accountancy and by the professional society of CPA's in the District. Characteristic of regulatory legislation, there were differences of opinion among interested persons and groups. After numberous discussions with affected parties, earlier drafts of the bill were reconsidered and revised in an attempt to reflect a broad consensus while still focusing on the paramount consideration-the public interest.

Having conducted a mail ballot of the members of the District of Columbia Institute of CPA's, we can inform this committee that the overwhelming majority of the certified public accountants in the District favor enactment of this legislation.

1. Requirements for education and experience: section 7 of the bill provides for a transitional period of 1 year during which virtually no change will be made in the effective requirements for applicants.

After the 1-year transitional period, the act would require any one of three combinations of education and experience, as follows:

Accountancy experience (Years)

Education:

60 semester hours, plus..

90 semester hours, plus.

120 semester hours, plus..

432

Of course, each of these references to semester hours embraces the idea that 30 of those will be in accounting and related subjects. Thus, each acceptable combination of posthigh school education and experience in the employ of a practicing CPA totals 6 years.

Subsection (c) of this section 7 adds that, upon the unanimous recommendation of the Board of Accountancy, the Commissioners may accept for any required year of employment, 11⁄2 years of experience (1) in auditing the accounts of other persons in three or more distinct lines of commercial business in accordance with generally accepted auditing standards, or (2) in reviewing financial statements on the financial condition and operations of business entities to determine reliability, fairness of the financial reporting, and compliance with generally accepted accounting principles and applicable Government regulations. The purpose of this exception to the general rule is to allow certain experience acquired in the employ of a public accountant (non-CPA) or in Government service to qualify. To illustrate its effect, an applicant with 60 semester hours of academic training would be required to have 6 years of this type of experience, as against 4 years of experience in the employ of a practicing CPA. An applicant with a college degree would need 3 years of this type of experience, as against 2 years in the employ of a practicing CPA.

At this point, with your permission, I would like to depart from my prepared paper and make a few additional comments.

It is our view that the CPA examination and certificate are for the purpose of regulating the public practice of accounting. The middle. word of the three words "certified public accountants" is important in our lexicon. The certificate is more nearly akin to a license to practice than it is to a diploma. Therefore, in our opinion, the required experience should be in the kind of work which a public practitioner performs. Otherwise, the public is not being protected. The most important function of the CPA is the "attest" function. All the work he does in his audit, hopefully, culminates in his ability in his report to state that the financial statements which he has reviewed fairly present the financial position of the enterprise and the results of its operations in accordance with generally accepted accounting principles applied on a basis consistent with that of the preceding year.

Governmental accounting is substantially different from commercial accounting, and generally accepted accounting principles for business enterprises are different from generally accepted accounting principles for governmental bodies. There is no question that experience gained in many Government agencies at certain levels of responsibility is comprehensive and sophisticated. Otherwise, we would not recognize it at all. But we doubt that there is any Government agency where every employee whose job description categorizes him as an accountant or an auditor is receiving experience of the kind that would qualify

him for public practice. Certainly some, perhaps many, but we doubt that there is any where all would be so qualified.

There are some in our profession who strongly believe there is no substitute at all for public accounting experience. The majority of us do not feel that way, and our bill reflects a middle ground, one in which there will be evaluation by the Board of Accountancy of an applicant's experience under the general guidelines set forth in section 7(c).

We have examined the laws of the 50 States and we find that there are 17 which mention government experience as qualifying, subject to certain conditions. Of these the majority require a higher weighting, a higher ratio of years than our bill does. The majority of them require either 2 for 1 or 3 for 1 as against our proposed 12 to 1.

We do not intend that the term "commercial business" as used in section 7(c) shall be narrowly construed but, rather, that it shall include governmental activities which are quasi-commercial in nature. Since section 7(c) is an exception to the general rule for the important experience requirement, we feel that there should be unanimity among the members of the Board of Accountancy before the general rule is waived.

Finally, it has been suggested that many well-recognized universities require no more than 24 hours of accounting subjects and, accordingly, that the 30-hour requirement set forth in sections 7(a) and 7(b) of the bill is too strict. This 30-hour requirement is already a rule of the Board of Accountancy of the District of Columbia, and we have encountered no serious complaint that this is burdensome or unreasonable. Our survey of colleges and universities in this area indicates that considerably more than 30 hours of accounting and related subjects are offered in these schools. We do not believe that this 30-hour requirement would cause hardship, but should it do so, section 7(c) of the bill gives the Commissioners the authority to permit exceptions to the general rule in hardship cases.

2. Certificate by endorsement: Section 8 provides that the Commissioners, in their discretion, may waive the examination required of applicants in section 6, and may issue an endorsement of a certificate of certified public accountant, renewable biennially, to an applicant who meets the following requirements:

(1) Is a CPA of any State or of any foreign country, provided the requirements for such certificate are equivalent to those required in this act;

(2) Meets the qualifications with reference to age, citizenship, etc., of section 6 of this act; and

(3) Declares his intention of engaging in the full-time public practice of his profession as a CPA of the District.

However, an applicant who is a CPA in good standing of any State may not be required to meet more extensive educational and experience qualifications than those required by the District of Columbia at the time when he was granted his certificate by his home State (sec. 8).

3. Biennial registration: Section 9 provides that every CPA who engages or proposes to engage in practice as a CPA in the District is required to register biennially with the Commissioners. This includes employees of CPA's or partnerships. Failure to register biennially will deprive a CPA of the right to practice as a CPA in the District until he subsequently registers.

I might interpolate here that as a partner in a national firm I am required to register annually in a number of States where all partners are required to get reciprocal certificates in order for the partnership to operate there. So, this is a quite common practice in many States. Mr. SICKLES. Do you have to maintain an office in those jurisdictions?

In

Mr. BARNES. We normally do not. We do in many of them. the State of Virginia, for example, we do not have an office but we do perform engagements there and our partners do register.

Mr. SICKLES. The registration is the important element?

Mr. BARNES. Yes.

Section 10 provides that a partnership may register biennially if it meets all of the following requirements:

(1) Each partner is a CPA in good standing of the District or of some State.

(2) At least one partner or the resident manager-by resident manager we mean the man running the office, no matter where his home happens to be--is a CPA of the District in full-time practice in the District.

(3) Each partner who practices as a CPA in the District is a certified public accountant of the District of Columbia.

4. Other provisions: The bill provides that only persons and partnerships who have been certified or registered under the provisions of this bill may use the title "Certified Public Accountant" or the abbreviation "CPA" (sec. 3).

The Commissioners are authorized to establish a three-man Board of Accountancy and to delegate appropriate functions to the Board. Each member of the Board must be a registered CPA under the act, and is required to have been engaged in practice as a CPA for not less than 10 years, of which at least 5 years must have been in the District of Columbia. Section 4(a) also provides, however, that these eligibility requirements shall not apply to those persons who are members of the Board of Accountancy on the date of enactment.

It is important to note that subsection (d) of section 3 of the bill provides that nothing in the act shall be construed to prohibit any person or partnership from practicing public accountancy, provided the title of "Certified Public Accountant" or the abbreviation "CPA" is not used. This bill does not affect in any way the existing public practice of noncertified public accountants.

If I may advert to your question, Congressman Harsha, I think the only way we can do this is by educating the public to what the term "CPA" means, and that it does mean a substantial amount in terms of professional competence and ability.

The bill will also require the usual qualifications of age, citizenship, good moral character, and the successful completion of the examination (sec. 6).

Under section 11 of the bill, certificates or endorsements may be revoked or suspended by the Commissioners, but only upon specific written charges, after a hearing, and only upon at least 20 days' notice of the hearing.

Section 17 of the bill makes violation of the provisions of section 3 a misdemeanor punishable by a fine of not more than $500, or imprisonment for not more than 1 year, or both. Section 3 is the section which

prevents you from holding yourself out as a CPA unless you are a District of Columbia CPA.

Mr. SICKLES. Before we move on to the next witness, I wonder if I could take time to ask one question.

Referring to page 4, subsection (2) under section 10, I wonder if you would explain what you mean by that sentence: "At least one partner or the resident manager is a CPA of the District in full-time practice in the District."

Mr. BARNES. In other words, we would not permit a firm—at this point there are no national firms in this situation-we would not let them come in and let them open an office having no partner present, having only employees present, and hold themselves out as CPA's. They would have either to appoint a resident manager who would become a CPA or, if they had a partner present, which all of us do now, he would become a CPA.

Mr. SICKLES. Suppose they did not have an office in the District of Columbia, then they do not satisfy point (2).

Mr. BARNES. They would not be seeking to hold themselves out if they did not have an office in the District.

Mr. SICKLES. They would be holding themselves out if it were not an isolated case, if they had, say, a major client with an office in the District of Columbia-it might be any sort of business establishmentand a national firm was auditing their accounts. They might come in constantly and regularly. It seems to me this requires it be an office of a national firm. Is this not your position?

Mr. BARNES. I do not think they are holding themselves out in the District of Columbia as CPA's when they do that. Let's say a national firm with an office in Baltimore has one Washington client and, as you have described, the spadework is done there but the report is written and issued on the Baltimore office letterhead. They would not be affected by this bill and they would not be regarded as holding themselves out in the District as CPA's.

Mr. SICKLES. Suppose they had 15 clients and as a matter of convenience they just did not open an office in the District of Columbia, they would not satisfy this requirement, then, would they? I am back to my same old horse that I am beating. It appears that you are setting up a requirement that there be an office."

Mr. BARNES. Not unless they are holding themselves out as CPA's in the District.

Mr. SICKLES. How can they practice certified public accountancy in the District without holding themselves out? It is not an isolated

case.

Mr. BERNSTEIN. In section 16 of the act, second paragraph:

Nothing contained in this Act shall prohibit a certified public accountant or a partnership of certified public accountants of another State from temporarily performing specific accounting engagements in the District of Columbia on professional business incident to regular practice outside the District of Columbia: Provided, That such temporary practice is conducted in conformity with the rules of professional conduct promulgated by the Commissioners.

I think the key word that would help you, sir, is that it is incident to regular practice outside of the District of Columbia. If their regular practice is outside, nothing in this act will prohibit them from temporarily performing specific accounting engagements in the District.

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