Accounting & Auditing | Legislative / Regulatory

Safe harbor: MACPA’s biggest legislative win yet?

87643046 By now we know that Maryland CPAs went a historic 5-for-5 on their 2011 legislative agenda.

Less well-known is that one of those victories centers on what Tom Hood calls "one of the most significant pieces of legislation we've enacted in the history of the MACPA."

The issue in question -- so-called “safe harbor” legislation -- has been decades in the making. It prohibits non-CPAs who perform compilations from filing reports that reference Statements and Standards on Accounting and Review Services (SSARS) and the American Institute of CPAs and requires them to state that they are not subject to peer review.

A big deal? You bet -- nearly as big, Hood said, as the 1901 law that created Maryland's CPA license itself. Here's why.

Since the advent of SSARS in 1981, confusion has mounted over how non-CPAs may represent themselves when performing compilations.

CPAs alone are allowed to conduct audits, and in doing so they must file a report stating that the financial statements have been prepared in accordance with generally accepted accounting principles and the audit has been conducted in accordance with generally accepted auditing standards. Similarly, when compilations and reviews are prepared, a report must be filed stating that the services have been conducted in accordance with SSARS as promulgated by the AICPA.

The confusion arises when non-CPAs use SSARS / AICPA language in the reports they file.

“Imagine that language being used by a non-CPA. What would happen?” said Hood. “A small business owner, even a bank, could potentially be misled to believe that person is a certified public accountant.”

To address that issue, “safe harbor” language has been introduced in other states specifically for non-CPAs. In performing compilations, non-licensed accountants would have to use the “safe harbor” language to state that they are not CPAs and are not subject to peer review. Such language also protects the non-licensed accountants from misleading the public and opening themselves up to potential prosecution.

Problem solved –- except in Maryland, where non-licensed CPAs have been allowed to file SSARS reports from the very beginning, thanks to an attorney general’s ruling in 1981. MACPA leaders and volunteers have been trying to get that ruling changed for nearly 20 years, to no avail.

Complicating matters even further is mandatory peer review. Enacted in Maryland in 2005, it makes peer review mandatory for all CPAs in Maryland who perform compilations, reviews, audits or other attest services. Non-CPAs are not required to undergo peer review, but thanks to the 1981 attorney general’s ruling, they were still allowed to file SSARS reports.

This year, the MACPA worked hand in hand with the state Department of Labor, Licensing and Regulation, the State Board of Public Accountancy and even the Maryland Society of Accountants to pass the groundbreaking “safe harbor” legislation. The bills in question –- Senate Bill 370 and House Bill 328 -– make it clear that only CPAs may perform audits and reviews in Maryland. It also stipulates that non-CPAs who perform compilations (a) must not use SSARS / AICPA language in their reports, and (b) must emphasize they are not required to undergo peer review.

“This protects the public -– small businesses, banks and people who rely on financial statements,” said Hood. “It certainly protects our small practitioners, who are the mainstays in issuing compilations and reviews.

“Beyond that, it was grossly unfair that a licensed CPA who was doing a compilation and review for a small company had to undergo peer review and all of the scrutiny that comes with it, and yet a non-licensed accountant could do the same service and avoid peer review -– and potentially mislead the public. This legislation corrects that."

Kudos to all involved. For CPAs, it's yet another key legislative victory in a year full of them.


Bill Sheridan