VSCPA Issues Statement on Corporate Reform — Higher Business and Auditing Standards

Corporate reform concerning business and auditing standards has been at the forefront of Congressional activity over the last few months. The Virginia Society of Certified Public Accountants (VSCPA) has monitored the situation closely and has adapted to the changes made at the federal level. At the state level, the VSCPA is working to ensure the public interest, and maintain efficiency and effectiveness within the CPA profession.

I. The Role of the Virginia Society of Certified Public Accountants (VSCPA)

The VSCPA and its members have zero tolerance for any CPA who does not adhere to the rules. The VSCPA is dedicated to taking whatever steps are necessary to restore public confidence in the capital market system and accounting profession that may have been shaken by recent corporate scandals.

The VSCPA monitors legislation and meets with lawmakers to help ensure the high standards of the CPA profession and promote a sound regulatory environment. The VSCPA encourages legislators to keep in close contact with CPAs in their district, and to contact the VSCPA whenever a CPA may assist in the legislative process.

The profession has been serving the public interest in Virginia for over 100 years. Approximately 17,000 public company audits nationwide are completed successfully every year without allegations of impropriety.

The VSCPA wants to help restore any lost confidence due to recent corporate revelations. The recent federal legislation and regulatory framework in Virginia have set us on the right path.

II. Federal Action — Sarbanes-Oxley Act of 2002

The President, Congress and regulators have moved swiftly to adopt sweeping corporate governance reforms in light of the financial and accounting scandals uncovered during the past year. Congress passed and President Bush signed the Sarbanes-Oxley Act of 2002 (the Act) providing sweeping new requirements for auditors and corporations.

The federal statute and proposed rules from the Securities and Exchange Commission (SEC) provide for new and stringent requirements including: tightened requirements for boards of directors of public companies; greater corporate governance requirements for public companies; additional disclosure of events that affect a company's finances; and certification by CFOs and CEOs on the accuracy of financial disclosures.

The Act also seeks auditor independence through a number of provisions. Non-audit services provided to a public company must be approved in advance by the company's audit committee. A company's auditors are prohibited from offering certain non-audit services to the company including: bookkeeping or other services related to financial statements; financial information systems design and implementation; appraisal or valuation services; and internal audit outsourcing and other services.

Auditors of a public company are required to report to an audit committee all critical accounting policies to be used by the company, alternative treatments that have been discussed with senior management, the auditor's preference, and any management letters between the auditors and senior management. In addition, an accounting firm cannot perform an audit of a public company if a senior executive officer of the company is employed by the accounting firm and participated in any capacity in the audit of the company during the one-year period prior to the current audit.

III. Federal Regulatory Oversight of the Accounting Profession

The Act also provides for establishment of a Public Company Accounting Oversight Board. In a nutshell, this Board will be charged with the power to regulate the accounting industry, adopt accounting standards and discipline auditors. The SEC will have oversight responsibilities with respect to the Board.

The VSCPA supports the new Public Company Accounting Oversight Board's authority to enforce standards; however, we firmly believe active CPAs that provide auditing services should be setting the standards. Standard-setting should only be done by experienced individuals who have an in-depth, current and comprehensive understanding of auditing. While the VSCPA understands the need for reform for those auditing public companies, we would oppose similar legislation impacting auditors of non-public companies.

The SEC is also considering a proposed rule that would create a framework for Public Accountability Boards (PAB). A PAB would be a new independent private sector body responsible for disciplining accounting firms and individuals for misconduct and reviewing quality controls for firms' accounting and auditing practices. The PAB would supplement, and not replace, the enforcement efforts of the SEC.

IV. Regulation in the Commonwealth of Virginia

The Virginia General Assembly had the foresight to pass legislation (SB 1080) in 2000 that provided for more effective regulation of the CPA profession in Virginia. This legislation provided for an independent Board of Accountancy devoted exclusively to the regulatory oversight of the CPA profession. The independent Board of Accountancy has been dedicated to improving and enhancing the strict regulations governing this profession in Virginia.

As an independent agency reporting directly to the Secretary of Commerce and Trade, the Board is more efficient and effective than ever at regulating the profession. The Board of Accountancy is charged with making sure the CPA profession complies with the high standards set forth for it, including licensure and ethics. The Board works to regulate in a sound, reasonable manner, and to ensure that the Board's requirements are administered fairly and consistently. The regulatory toughness of the Board is indicative of the high standards and strict regulatory climate in Virginia.

In addition, the CPA profession has tremendous continuing professional education (CPE) requirements, strong ethical requirements and strenuous peer review processes. The Board of Accountancy requires CPAs to complete 40 hours per year of CPE to maintain the high standards of the profession. The Board also requires all firms performing certain accounting and auditing engagements to undergo a strenuous peer review process every three years. All CPAs must adhere to the professional code of conduct as outlined by the Board of Accountancy and the American Institute of Certified Public Accountants (AICPA). The Board monitors the activity of CPAs in Virginia, has the authority to levy penalties and to revoke licensees' ability to practice in Virginia. The CPA profession has advocated for these strong requirements and is committed to protecting the public interest in Virginia.

The Virginia Society of Certified Public Accountants is always happy to arrange briefings for legislators. Any questions or inquiries can be directed to Thomas M. Berry Jr., CAE, President & CEO, or Erin Collins, Government Affairs Leader, at (800) 733-8272. The VSCPA's legislative representatives are Ralph L. "Bill" Axselle Jr., (804) 783-6405, and Frederick P. Helm, (804)783-6933, of Williams Mullen, Attorneys at Law, P. O. Box 1320, Richmond, VA 23218-1320.