Interstate Commerce versus Public Protection

By Grumet, Louis | The CPA Journal, December 2006 | Go to article overview

Interstate Commerce versus Public Protection


Grumet, Louis, The CPA Journal


Why Cross-Border Licensing Must Be Handled with Care

Talk to any CPA about the problems facing the accounting profession today, and you're bound to hear the phrase "substantial equivalency" repeated over and over again. Indeed, substantial equivalency is one of the profession's hottest, most talked about issues. But what exactly does substantial equivalency mean, and why is everyone so worked up about it?

When most people discuss substantial equivalency, they're talking about the ability (or, rather, the lack of ability) of CPAs licensed in one state to practice across state lines, freely and without restrictions. As it stands now, CPAs practicing across state lines, even via the Internet, often find themselves facing myriad obstacles, all of which, at their core, stem from two competing principles in the United States Constitution.

The first is the Constitution's Commerce Clause, which says that states should not be allowed to inhibit interstate commerce. The second is the constitutionally granted right of the states to protect their citizens. Both of these constitutional principles are sound, and both, individually, make sense. They are intended to be a check and balance of one another.

But checks and balances sometimes create conflict. For example, as the Internet economy has blossomed, so too has the potential for CPAs to serve clients doing business throughout the nation and the world. Many states, however, in their attempt to protect the public, have enacted laws saying that out-of-state CPAs and CPA firms must first register and pay a fee before doing business in their states, even if that business is conducted solely over the Internet

To many CPAs, this restraint on mobility doesn't seem fair. Shouldn't a CPA in one state have the same rights and privileges as a CPA in another state? Shouldn't the CPA license be considered substantially equivalent across state lines? Why should a CPA in New Jersey, for example, be forced to pay a fee or go through the (often lengthy) process of registering to practice in New York, when the educational qualifications and continuing professional education requirements for CPAs are similar?

Now let's look at the situation from the perspective of New York State officials. If this New Jersey-licensed CPA does not have to register to practice in New York, how is New York to know if the CPA's credentials are properly disclosed, or if the CPA has a professional ethics or disciplinary problem? The answer: The state cannot know without some form of reasonable notice submitted by the out-of-state CPA, and it is unlikely to enact a law that is perceived to leave citizens vulnerable. Requiring out-of-state CPAs to submit a uniform, electronically transmitted notice to another state could be a simple way to notify a state of a CPA's intent to practice without mandating registration, but this solution could also require multistate, legislatively approved notification provisions or an interstate compact.

Achieving a Workable Solution

As these differing perspectives show, this is a complicated issue, and reasonable people can disagree. There are no easy answers. It is essential, however, that the substantial equivalency problem be resolved quickly and that the profession actively develop an appropriate solution.

But in its attempt to solve the problem, the profession should avoid the temptation to implement a solution that may, in the long run, turn out to be ineffective and impractical. …

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