are engaged in Government work, such a provision is both necessary and fair, and I am glad that it is included in this legislation.

Third, the bills provide for biennial registration of CPA's. At present, no such registration is required, and there is no way to know. how many CPA's are practicing here right now. By establishing simple registration procedures, the bills would help both the profession and the public.

Finally, the bills provide for a 1-year transitional period between the time of its enactment and its effective date, in order to lessen any possible hardships.

In summary, I believe that this legislation is sound, practical, and long overdue. The professional services provided by certified public accountants have become increasingly varied and extremely important, and I am convinced that we should take steps to insure that CPA's practicing in the District of Columbia will meet professional standards, and be regulated through procedures which are comparable to those already in force in most of the States.

Mr. ABERNETHY. Mr. Bernstein, and the other four gentlemen may come to the table.

DISTRICT OF COLUMBIA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, REPRESENTED BY ROBERT BERNSTEIN, PRESIDENT; BENJAMIN F. REGARDIE, PAST PRESIDENT, MEMBER LEGISLATIVE COMMITTEE; WILLIAM T. BARNES, PAST PRESIDENT, MEMBER LEGISLATIVE COMMITTEE; MILLARD T. CHARLTON, PAST PRESIDENT, MEMBER LEGISLATIVE COMMITTEE; AND PHILIP M. GLICK, COUNSEL

Mr. BERNSTEIN. If agreeable to you, sir, we would like to speak individually. Each of us has a particular

Mr. ABERNETHY. You have prepared statements?

Mr. BERNSTEIN. Yes, sir.

Mr. ABERNETHY. Do you have copies of them?

Mr. BERNSTEIN. Yes, sir.

Mr. ABERNETHY. Very well.

STATEMENT OF MR. ROBERT BERNSTEIN

Mr. BERNSTEIN. Mr. Chairman and members of the committee, my name is Robert Bernstein. I have been a certified public accountant of the District of Columbia since 1952, and I am a senior partner of Oscar J. Bernstein & Co. with offices at 1832 M Street NW., Washington, D.C. I am president of the District of Columbia Institute of Certified Public Accountants and was formerly chairman of the legislative committee of that organization.

I am the first of four witnesses appearing on behalf of the District of Columbia Institute of Certified Public Accountants. I shall discuss three phases of the matter under consideration: (1) the legislative position; (2) why CPA standards are important to the public; and (3) the trend in recent legislation in the 50 States.

1. The legislative position: The District of Columbia Institute of Certified Public Accountants supports the enactment into law by the Congress of the companion bills-H. R. 7624 and H.R. 9815-intro

duced by Congressman Fraser of Minnesota and Congressman Mathias of Maryland. These bills provide for the regulation of the professional practice of certified public accountants in the District of Columbia, including the examination, licensure and registration of certified public accountants.

H.R. 7624 was introduced on April 27, 1965, and referred to the House Committee on the District of Columbia, Subcommittee No. 2. S. 1853 was introduced in the Senate by Senator Dominick of Colorado on April 29, 1965, and referred to the Senate Committee on the District of Columbia, Subcommittee on Business and Commerce. H.R. 9815 was introduced on July 13, 1965.

The bills are identical. They would repeal the present statute on this subject, and serve as a substitute for it. If enacted into law, the statute would be known as the "District of Columbia Certified Public Accountancy Act of 1965."

The present statute regulating the practice of certified public accountants in the District became law 42 years ago-on February 17, 1923 (District of Columbia Code, title 2, ch. 9, secs. 901-909; 42 Stat. 1261, ch. 94).

The present District law was adopted when the profession of certified public accounting was itself only a few years old. In the intervening 42 years the dependence of the business community, the Government, and the general public upon the services performed by the CPA have greatly increased, and the standards of the profession have been raised. Every State in the Union has adopted a statute to regulate the practice of this profession, and the majority of States have revised their statutes to reflect current needs. Because the present District law has been in effect so long without change, the standards of the great majority of the States are substantially higher than those established for the District of Columbia by the act of 1923.

It is in the public interest to raise the standards governing the professional practice of certified public accountants in the District of Columbia so that they may be generally equivalent to those that now prevail over the major portion of the United States.

2. Why CPA standards are important to the public: The practice of certified public accountants constitutes a professional function intimately affecting the public interest. Business management, stockholders, credit and investment analysts, banks and other financial institutions, legislators, Government agencies-all must depend on certified financial reports. The CPA certificate is a mark of professional competence, integrity, and independence. Stuart Chase, the well-known economist, has said that the auditor's opinion, signed by a CPA, "is something like the sterling mark on silver."

If an auditor's opinion, certifying that a financial statement fairly presents the position of a company is signed by a CPA, it means: 1. That the statement has been examined by a person who is fully qualified to express an expert opinion;

2. That enough supporting evidence has been examined to justify the opinion;

3. That the statement has been prepared in accordance with generally accepted accounting principles;

4. That the auditor stakes his reputation on the soundness of his opinion.

CPA's are governed by established codes of ethics, similar to the codes for other professions; and they are subject to suspension or revocation of their certificates-both under the existing law and under the proposed new legislation-if they are guilty of fraud or gross negligence.

The enormous expansion of our economy in the last 50 years has been achieved in part through wider ownership of business. This kind of ownership by millions of people with no direct knowledge of the business in which they invest would not be feasible without reliable financial information. The American economy depends for its smooth operation on the orderly and rational flow of credit and investment. Without access to reliable facts, certified by independent and competent people, those responsible for the orderly and rational flow of credit and investment would operate under severe handicaps. The Federal Government has become a major user and stimulator of independent audits. Inquiry to 26 Federal agencies reveals that 38,000 audits are stimulated or used each year by these agencies in 53 separate programs as compared with about half that number of engagements just 5 years ago. The Securities and Exchange Commission alone uses 11,825 such audits annually. Other major users include Housing and Home Finance Agency, Interior Department, Small Business Administration, Rural Electrification Administration, Federal Home Loan Bank Board, and Farm Credit Administration. A law enacted by the Congress in 1964 requires annual independent audits of the more than 50 federally chartered private corporations. Hearings are scheduled on bills which would require independent audits of all banks insured by the Federal Deposit Insurance Corporation. In addition, more and more State legislatures are fostering the use of independent audits by local governments; for example, in Colorado all local government units must have an annual independent audit.

This profession has always been marked by a high degree of training, skill, and discipline. But today's increasingly complex business climate has created the need for more and more competence on the part of the CPA.

In addition to their traditional function of examining and reporting on the basic annual financial statements from the viewpoint of their fairly presenting the financial position of a company and the results of its operations, CPA's today are called upon for a multiplicity of services.

Mr. SICKLES. You talk about independent auditors and the requirement by some of the States. Do those laws specifically require an audit by a certified public accountant or is this an independent audit? Mr. BERNSTEIN. If my recollection is correct, sir, I think it is just independent auditing.

Mr. SICKLES. So whether a person was certified or not would not affect that?

Mr. BERNSTEIN. They have to be certified public accountants or a licensed accountant, licensed by the State in which they are performing the audit.

Mr. SICKLES. Would there be a way of licensing the individual as an accountant even though he was not certified?

Mr. BERNSTEIN. Not under our law.

Mr. SICKLES. So if such a law were in existence in the District of Columbia it would have to be a CPA?

Mr. BERNSTEIN. That is right.

Mr. ABERNETHY. I didn't understand Mr. Fraser to say that a moment ago. I thought Mr. Fraser said a person can still practice accounting but cannot represent himself as a certified public accountant. Mr. BERNSTEIN. That is correct, sir. These statements are both correct.

Mr. ABERNETHY. You had better smooth them up a little bit, then. Mr. BERNSTEIN. Under the present law in the District of Columbia anyone can hold himself out as a public accountant.

Mr. ABERNETHY. And practice?

Mr. BERNSTEIN. And practice; yes, sir. There is no restriction on his ability to do so. He can practice as a public accountant.

We

This bill which we have introduced here will not change that. are not doing anything to disturb their right to practice. We are concerning ourselves only with certified public accountants.

Mr. ABERNETHY. This does not regulate, then, all accounting practitioners?

Mr. BERNSTEIN. That is right.

Mr. ABERNETHY. But only those who represent themselves to be certified public accountants?

Mr. BERNSTEIN. That is correct, sir.

Mr. ABERNETHY. All right.

Mr. SICKLES. To reemphasize my point-where the State legislatures regulate or where there is Federal legislation, it may or may not require that that audit be made by a certified public accountant. I am mindful of one section in the Taft-Hartley Act which requires an annual independent audit of welfare funds and pension plans. It seems it says nothing about certified public accountants. Is that only my interpretation? Or would you understand that to mean that if a person held himself out as a public accountant, even though he was not certified, he would continue to conduct that audit and would satisfy the Federal law?

Mr. BARNES. It is my opinion he could. We would like to address ourselves in a supplemental report to that point. The term "independent audits" means this does not proscribe a noncertified public accountant from performing.

Mr. SICKLES. The reason I raise this is that it seems to me the thrust of your statement is that there is now a requirement that there be an annual independent audit and therefore we should tighten up the regulations as to who should be certified. There is a break because they do not have to be certified to conduct the annual independent audits. Is that right?

Mr. GLICK. May I supplement the comment? I am Philip Glick, counsel for the District of Columbia Institute of Certified Public Accountants.

Mr. Sickles, you are quite right, that the statutes generally require the making of independent audits of the accounts of particular agencies, and rarely specify that the audits must be made by a certified public accountant. They usually require merely the making of an audit by an independent accountant or accounting firm.

The general practice under such statutes, however, which has grown up is to make the audit by a certified public accountant or a firm of certified public accountants, and the increasing requirement of

independent audits therefore does make it important to raise the educational and experience standards for CPA's.

Mr. SICKLES. Thank you.

Mr. FRASER. Mr. Glick-in any event, whatever the situation is, this bill does not fundamentally change it. All you are doing now is dealing with an already-existing professional class who are already under license. You are simply changing the requirements for that group, for your group.

Mr. GLICK. Both under the present law of the District of Columbia and under these companion bills one may practice as a public accountant without meeting the educational and experience standards of the bill or of the present law, but one may acquire a certificate as a certified public accountant which is recognized in the profession and in the business community as indicating a special level of competence and reliability only by meeting the standards stated in the

statute.

Mr. SICKLES. Are there some States where you may not practice public accountancy and practice only as a certified public accountant?

Mr. GLICK. No, sir, although there are some States which set up one set of standards for certified public accountants and then set up another set of lower standards which one may satisfy and then become a licensed public accountant as distinguished from a certified public accountant.

Mr. SICKLES. All right.

Mr. ABERNETHY. Proceed, Mr. Bernstein.

Mr. BERNSTEIN. Their ambit includes investigation of businesses to be acquired; assembly of data and formulation of plans for proposed mergers, sales and dissolutions; assistance in the preparation and presentation of financial data for inclusion in filings with the Securities and Exchange Commission; tax return preparation, tax planning for businesses; financial and tax planning for individuals; providing consulting services to management in such fields as organization planning, systems, procedures and controls, productivity measurement and compensation, and data processing; and assistance in the planning and administration of employee benefit programs such as pension plans, profit-sharing plans, group insurance plans, and stock option plans. The public's confidence in the ability and the integrity of the CPA must be continuously justified by the maintenance of high standards.

In 1896 New York State passed the first CPA law. By 1923, all of the 48 States, the then Territories of Alaska and Hawaii, as well as Puerto Rico and the Virgin Islands, had recognized the public interest in the profession by enacting legislation authorizing examinations leading to official recognition and designation of qualified practitioners as "CPA's". In every State the examination covers accounting theory and practice, auditing, and commercial law; and a successful candidate must have thorough training in these subjects.

In recent years, State after State has raised the standards and requirements for certified public accountants, in order to qualify this profession for living up to the needs and demands of the public upon it. The District of Columbia, as the Nation's Capital City, does not wish to keep its standards lower than those that already prevail over most of the country, and that are in the process of being raised in the States that still lag behind.