Reactionary Regulation

By O'Donnell, Richard F.; Lemein, Nancy M. | Regulation, Summer 2004 | Go to article overview

Reactionary Regulation


O'Donnell, Richard F., Lemein, Nancy M., Regulation


WELL-PUBLICIZED BUSINESS scandals often result in the enactment of new government regulation. Policymakers and industry leaders worry that if they do not enact new laws and rules, the public might confuse them with the unethical actors, regardless of whether or not the enacted regulations actually protect consumers in any meaningful way. Thus, worthless or counterproductive regulation usually follows corporate scandals.

Since 1988, the accounting industry has advocated a 30-hour increase in the traditional 120-semester hour baccalaureate degree required to sit for the Uniform Certified Public Accountant exam. Although states initially responded gradually to this push, the Arthur Andersen and Enron scandals changed that dynamic. Now, 45 states have adopted the increase, thus requiring accountants to pursue the equivalent of five years of college rather than the traditional four.

CENTENNIAL STATE OPPOSITION Colorado has resisted that change. In response, proponents of the 30-hour increase claim the state is not protecting consumers. Is Colorado's resistance to more credit hours a careless disregard for consumer protection?

There are two points that, prima facie, argue against increasing the credit-hour requirement. First, there is no evidence that consumers have been harmed by the 120-hour requirement. Second, increasing the required semester hours will increase the barriers to entry and thus reduce the supply of accountants. In light of those two points, it is difficult to argue that Colorado officials are somehow being derelict in their duty if they do not adopt the 150-hour standard.

Colorado is one of the least regulated states in the nation, and also one of the most prosperous. Offices within the Colorado Department of Regulatory Agencies review proposed rules to protect small businesses from potentially onerous new regulations and perform sunset reviews to evaluate the necessity of existing programs.

In 1997, the Colorado Legislature adopted the 150-semester hour requirement, but the provision was subsequently repealed in 2000. The increase never went into effect because the 1997 law included a five-year transition period. The repeal occurred in response to the 1999 sunset review of the Colorado Board of Accountancy, which determined that it was not in the public interest to mandate an increase in semester hours for accountants. In the words of Gov. Bill Owens, "Colorado CPAs aren't suffering with only four years of college. It's just a way to protect current CPAs. It's just a needless expense."

RACE TO THE BOTTOM? Critics claimed that Colorado would become a diploma mill and that the quality of the accounting profession in the state would suffer. There is no residency requirement to sit for Colorado's CPA exam, and the state has seen a slight increase in the number of international applicants for the test. …

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