Public Accountancy

Current Issues in Public Accountancy

Recent Amendments to the Professional Conduct Rules -
Guidelines/Questions and Answers

This document is designed to respond to frequently asked questions regarding the recent amendments to section 29.10 of the Professional Conduct Rules for NYS Licensed Certified Public Accountants and Public Accountants and all NYS-registered Public Accounting Firms. These amendments modified paragraph (7) of subdivision (a) of section 29.10, repealed previous paragraph (13) of subdivision (a) of section 29.10 and added subdivisions (d), (e), (f), and (g) of section 29.10 of the Rules of the Board of Regents. It is not a substitute for reading the provisions of law, rule or regulation. For further information, a list of contacts is provided at the end of this document.

General Information

1. What changes are included in the amendments?

The amendments strengthen the Regents oversight of the public accounting profession by:

• Updating the list of recognized professional standard setting bodies that promulgate generally accepted auditing standards and generally accepted accounting principles. Details of these provisions are including in the Recognized Standard Setting Bodies section of this page.
• Establishing a list of "reportable events" that all licensees and registered firms must report to the Department within 45 days of occurrence. The occurrence of one of these events does not, in itself, constitute unprofessional conduct. Failure to report one of the listed events within 45 days, however, will constitute unprofessional conduct. Detailed descriptions of these reportable events and instructions for reporting are presented in the Reportable Events section of this page.
• Revising the definition of unprofessional conduct in the practice of public accountancy to include violations of key practice standards established by the United States Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB). This will enable the Department to take disciplinary action when a licensee or firm has admitted to or been found guilty of a violation of these Federal practice standards or has consented to a penalty that suspends them from appearing or practicing before the United States Securities and Exchange Commission or the Public Company Accounting Oversight Board. Details regarding these provisions are presented in the New Definitions of Unprofessional Conduct section of this page.

2. When do these amended rules take effect?

All of the new provisions listed above take effect on July 13, 2006. In order to provide licensees and firms with enough time to become aware of the section of the third provision (revising the definition of unprofessional conduct to include violations of key practice standards established by the SEC and PCAOB) that defines as unprofessional conduct a licensee's or registered firm's voluntary consent to a revocation or temporary or permanent suspension of practice privileges before the SEC or PCAOB, that section has a delayed implementation date of January 1, 2007.

Recognized Standard Setting Bodies

3. How is the list of recognized standard setting bodies updated?

Part 29.10(a)(7) of the Rules of the Board of Regents makes it unprofessional conduct for a licensee or firm to be associated with statements purporting to show financial position or results of operations unless the licensee or firm has complied with generally accepted auditing standards and/or generally accepted accounting principles. The Rules also specifies the promulgating bodies whose standards and principles can be accepted by the State Board for Public Accountancy.

The amendments add the SEC and the PCAOB, for licensees who are subject to such requirements, to the list of entities promulgating generally accepted audit standards (GAAS). They also add the Government Accounting Standards Board and the International Accounting Standards Board to the list of organizations recognized as promulgating generally accepted accounting principles (GAAP).

4. What impact will these updates have on individual licensees and/or firms?

Updating the list of recognized standard setting bodies will not have a notable impact on licensees and firms. The updates are intended to give the State Board for Public Accountancy clear authority to accept standards promulgated by the newly specified entities. These amendments will not require licensees and firms to change the standards that they currently apply in the work that they do.

Reportable Events

5. How are these new reportable events different from the events that licensees currently report on their triennial registration form?

The Department currently requires licensed Certified Public Accountants and Public Accountants to disclose information regarding felony and misdemeanor convictions; disciplinary action taken by any licensing body; pending criminal charges; or pending professional misconduct charges in any jurisdiction on a triennial basis at re-registration.

The enacted amendments will require all licensees and registered firms to report any criminal convictions; civil action judgments and arbitration proceedings in excess of $25,000 that relate to the practice of public accountancy in NYS; or a disciplinary penalty by a governmental entity that relates to the practice of public accountancy within 45 days of their occurrence. (Please read the questions below for detailed explanations of each reportable event) In addition to these specific reporting requirements, licensed Certified Public Accountants and Public Accountants will continue to answer questions regarding convictions, disciplinary actions and pending charges on their registration renewal forms.

6. What is the Department going to do if I report an event?

It is important to remember that the occurrence of a reportable event, in and of itself, does not constitute unprofessional conduct. These amendments make failure to report that event the unprofessional conduct. Reporting of these events by individual licensees and firms will allow the Department to pursue timely investigations into possible instances of unprofessional conduct. Reports will be reviewed by staff in the Office of Professional Discipline (OPD) in the same way that disclosure on the triennial registration forms is currently reviewed.

The information submitted by a licensee or firm to meet the reporting requirement is immediately placed into an investigatory file. By law, all information in an investigatory file is confidential and cannot be disclosed except in the unlikely event that it is introduced in evidence in an OPD disciplinary hearing or upon court order in a pending action or proceeding. If it appears that unprofessional conduct pursuant to NYS regulations and rules has occurred, OPD will open an investigatory file, the contents of which are confidential while the investigation is being pursued. If it appears, after review of the submitted report, that there is no unprofessional conduct, pursuant to NYS rules and regulations, the documents constituting the report will be disposed of. If it appears, after review of the submitted report, that unprofessional conduct pursuant to NYS rules and regulations has occurred, the Office for Professional Discipline will conduct an investigation. All investigations are conducted pursuant to Section 6510 of the State Education Law. In the event that the investigation leads to disciplinary proceedings that result in a finding, the report of such disciplinary proceeding or voluntary settlement will become public information.

7. I am going to appeal my conviction/civil action judgment/arbitration decision/ disciplinary action. Do I still need to report it?

Yes. The amendments specify very clearly that you need to report each event to the Department within 45 days of occurrence even though all available appeals have not yet been exhausted.

While not required by these rules, you may voluntarily provide notice to the Department that you have filed an appeal. This notice will be added to the investigatory file and will be taken into consideration when the file is reviewed.

8. What happens if my court decision or arbitration award includes a confidentiality clause? How can I disclose a reportable event to the Department without violating that clause?

The regulations require the licensee or public accounting firm to proactively notify the court or arbitrator that there is a New York reporting requirement for court decisions and arbitration proceedings awarding a monetary judgment in excess of $25,000 in a civil action or arbitration proceeding.

This particular reporting requirement applies if the licensee or public accounting firm is found liable for:

• negligence, gross negligence, recklessness, or intentional wrongdoing relating to the practice of public accountancy in New York State;
• fraud or misappropriation of funds relating to the practice of public accountancy in New York State;
• breach of fiduciary responsibility relating to the practice of public accountancy in New York State; or
• preparation, publication, and/or dissemination of false, fraudulent, and/or materially incomplete or misleading financial statements, reports, or information relating to the practice of public accountancy in New York State.

After notification of the reporting requirement by the licensee or firm, the court or arbitrator could choose to:

1. specifically exempt from the confidentiality clause, notification of the reportable event to the State Education Department, or
2. specifically include the State Education Department, in the confidentiality clause, or
3. issue a confidentiality clause that does not expressly provide for disclosure to the State Education Department (neither exempts nor specifically includes the Department)

If the court or arbitrator provides that the State Education Department is exempt from the confidentiality clause, it is the responsibility of the licensee or public accounting firm to provide the State Education Department with the applicable court or arbitration documents within 45 days of their issuance. While not required by these rules, you may voluntarily provide notice to the Department that you have filed an appeal. This notice will be added to the investigatory file and will be taken into consideration when the file is reviewed.

If the court or arbitrator specifically includes the State Education Department in the confidentiality clause, the licensee or firm is not required to submit a report to the Department. If the Department learns of the decision or settlement from another source, it is likely that the Department will contact the licensee or firm for confirmation. Therefore, the Department recommends that the licensee or firm voluntarily inform the Department that a decision or settlement containing a confidentiality clause that includes the State Education Department was issued within 45 days of that issuance, without disclosing any confidential terms of such decisions or settlement.

If the confidentiality clause does not expressly provide for disclosure to the department (neither exempts nor specifically includes the State Education Department), the licensee or accounting firm is not required to report the event to the State Education Department if the licensee or firm explicitly informed the court or arbitrator of the New York State reporting requirement in writing prior to the execution of any confidentiality order, clause or provision. However, the licensee or firm must demonstrate to the State Education Department that the licensee or firm explicitly informed the court or arbitrator in writing prior to the execution of any confidentiality order, clause or provision. This could be accomplished if the licensee or firm submits a copy of its written notification to the court or arbitrator to the State Education Department. While the Rules do not specify a time frame for the submission of this copy of the written notification to the State Education Department, the Department recommends that this be done within 45 days of the issuance of the decision or arbitration award.

9. Who is responsible for reporting events that relate to me as an individual?

The amendments specify quite clearly that the individual licensee is responsible for reporting events that relate specifically to that licensee.

10. Who is responsible for reporting events that relate to a firm and/or partnership?

The amendments specify that a public accountancy firm (PC, LLC or LLP) shall designate an individual who shall be responsible for reporting events on behalf of the firm. In the case of a registered partnership, the licensed partners may designate an individual to report reportable events relating to the partnership, however, each licensed partner is responsible for ensuring the reporting of any reportable events. This responsibility to ensure reporting can be met by making sure that there is are established procedures for reporting events on a timely basis and periodically checking to ensure that the established procedures are being followed.

11. I am not sure if I need to report a particular event, what documentation I need to submit, or where I should send it. Can you provide additional details for reporting each type of event?

Yes. The amendments provide certain detail and limiting factors for each type of event, they also specify the report format for each type of event. All of the reports and supporting documentation should be sent to:

Conviction of a Crime

Any conviction of a felony or misdemeanor in any jurisdiction must be reported, regardless of the nature of the crime. For reporting purposes, the amendments define conviction to include a plea of guilty or non contest or a verdict or finding of guilt that has been accepted and entered by a court of competent jurisdiction. The 45 day reporting window is marked from the date that the court issues its verdict.

The report shall consist of: 1) a brief written statement from the licensee or firm, giving the licensee or firm name, the license number for individuals or the firm registration number for firms, the current mailing address, and a brief description of the nature of the event; and 2) a copy of the certificate of conviction or a comparable document of the court. In the event that the licensee does not have the specified documentation, the amendments allow the licensee or firm to meet the reporting requirement by submitting a narrative statement that includes the date and jurisdiction of the conviction.

Monetary Judgment in a Civil Court or Arbitration Proceeding

A licensee or firm must report a court decision awarding in excess of $25,000 in a civil action brought in a court of competent jurisdiction or an award in excess of $25,000 in an arbitration proceeding if the licensee or firm is found to liable for:

• Negligence, gross negligence, recklessness, or intentional wrongdoing relating to the practice of public accountancy in NYS; or
• Fraud or misappropriation of funds related to the practice of public accountancy in New York State; or
• Breach of fiduciary responsibility relating to the practice of public accountancy in NYS; or
• Preparation, publication, and/or dissemination of false, fraudulent and/or materially incomplete or misleading financial statements, reports, or information relating to the practice of public accountancy in NYS.
  
  

The 45 day reporting window is marked from the date that the court decision or arbitration award is issued. The report shall consist of: 1) a brief written statement from the licensee or firm, giving the licensee or firm name, the license number for individuals or the firm registration number for firms, and the current mailing address; and 2) a copy of the court decision or arbitration award and any findings of fact or special verdict form. In the event that the licensee does not have the specified documentation, the amendments allow the licensee or firm to meet the reporting requirement by submitting a narrative statement that includes the date and jurisdiction of the court decision/judgment or arbitration award and a brief description of the nature of the event.

Disciplinary Penalty by a Regulatory Entity

A licensee or firm must report the receipt of written notice of a disciplinary penalty (including, but not limited to censure, reprimand, sanction, probation, monetary penalty, suspension, revocation or other limitation on practice) if it relates to the practice of public accountancy and is issued by one of the following entities:

• The SEC or the PCAOB; or
• Another agency of the U.S. government that regulates the practice of public accountancy; or
• An agency of the government of another state or territory of the U.S. that regulates the practice of public accountancy; or
• An agency of the government of another country that regulates the practice of public accountancy.
  
  

The 45 day reporting window is marked from the date that the written notice of disciplinary action is issued. The report shall consist of: 1) a brief written statement from the licensee or firm, giving the licensee or firm name, the license number for individuals or the firm registration number for firms, the current mailing address, and a brief description of the event being reported; and 2) a copy of the notice of disciplinary penalty. In the event that the licensee does not have the specified documentation, the amendments allow the licensee or firm to meet the reporting requirement by submitting a narrative statement that includes the date and jurisdiction of the disciplinary action.

New Definitions of Unprofessional Conduct

12. Under these amendments being found guilty of professional misconduct by the SEC or PCAOB is defined to be unprofessional conduct in NYS. Are there any limits to this?

Yes. The amendments make it unprofessional conduct in NYS to have admitted to guilt or to have been found guilty of improper practice or professional conduct in a disciplinary proceeding brought by the SEC or PCAOB if the conduct upon which the finding or admission of guilt was based would constitute professional misconduct of committed in NYS.

In these cases, the Department will conduct an adversary proceeding pursuant to subdivision (3) of section 6510 of the Education Law and the individual licensee or firm will have all of the due process rights that are provided in that subdivision.

13. These amendments also make it unprofessional conduct for a licensee or firm to have consented to a revocation or temporary or permanent suspension of practice privileges before the SEC or the PCAOB. Again, are there any limits to this?

Yes. The amendments make it unprofessional conduct in NYS for a licensee or firm to consent to revocation or suspension of practice privileges before the SEC or the PCAOB if any of the conduct charged that results in the revocation or suspension would have constituted professional misconduct in NYS if committed in NYS. The amendment further specifies that this definition of unprofessional conduct applies only to cases where the date of the consent or surrender is on or after January 1, 2007.

Again, in these cases, the Department will conduct an adversary proceeding pursuant to subdivision (3) of section 6510 of the Education Law and the individual licensee or firm will have all of the due process rights that are provided in that subdivision.

For Additional Information

For Additional information regarding these Rules, please contact: