ACCOUNTANTS RULE CHANGE IN THE WORKS: WILL THE ‘C’ IN CPA MEAN ‘COMMISSION’?

Certified public accountants across the country may soon find another weapon in their financial planning arsenal. Thanks to a few new paragraphs on a document that is the framework of state accounting laws, CPAs in all 50 states have a good shot at being permitted to accept commissions.

Changing the rule may not bring in a stampede of CPAs to the financial business, experts say, but it likely will change the way CPA advisers do business. For instance, clients who had gone to CPAs for financial plans might now be able to buy a full range of investments from them — from mutual funds to insurance policies.

“The client doesn’t want to pay fees to a CPA and commissions to a salesman,” says Chuck Gielow, a member of the American Institute of Certified Public Accountant’s state legislative subcommittee on the uniform accountancy act.

This act, called the UAA within the industry, will be revised to allow CPAs to accept commissions — with restrictions. The final version of the UAA, a joint effort between the CPA institute in New York and the National Association of State Boards of Accountancy in Nashville, is expected to be published this month.

About half the 50 states already allow CPAs to accept commissions under certain conditions. These states include Florida, Pennsylvania, Ohio and Texas, according to Virgil Webb, the AICPA’s director of state societies and regulatory affairs. Those that don’t allow CPAs to accept commissions include California, New Jersey and Illinois.

But the adoption of the UAA is expected to spur the other half of the country — including the No. 1 CPA state, New York — to allow local CPAs to accept commissions. In fact, the New York State Society of CPAs will bring the latest version of the UAA to Empire State legislators to help sway their opinion.

“That doesn’t mean it will be adopted 100 percent,” warns Walter Primoff, the New York society’s deputy executive director.

Typically, state legislatures, sometimes with help from state CPA organizations
, pick and choose the UAA provisions they will follow. New York CPAs haven’t jumped on the commissions bandwagon because they tend to be “the most traditional,” Mr. Primoff says, noting that the state is the headquarters of most of the largest accounting firms and was first to offer a CPA license 101 years ago.

The commissions argument embodies the tug-of-war that plagues the accounting profession. On one side are traditionalists, who believe that CPAs perform the sacred audit function and shouldn’t compromise their integrity by accepting commissions. On the other side, CPAs who have seen tax and accounting revenues shrink want as many fee-generating options as possible.

The current UAA wouldn’t allow CPAs to accept commissions if they perform audits or financial statements that would be used by a third party. CPAs also must disclose to clients that they’re accepting commissions.

Legislation introduced in California last year by State Sen. Charles Calderon, a Democrat, is similar to the UAA. Mr. Calderon, however, removed the bill from consideration until he had the support of the California Society of CPAs. Or, better put, he waited until he had the society agree that it would not oppose the measure.

Last month, the state Senate approved the bill by a 34-0 vote. It is expected to sail through the state Assembly as well.

Even though it won’t oppose the measure, the California society’s personal financial planning committee maintains it is a “competitive advantage” to be a fee-only CPA planner, says Michael Freedman, the committee chair.

Even with the restrictions about taking commissions only for clients with no auditing conflicts, New York CPA society’s Mr. Primoff still is concerned that CPAs may jeopardize their ethical competitive edge by accepting commissions. “How do we maintain a CPA’s core values in a place that allows commissions?” he wonders.

But the UAA stance on commissions is preferable to what could come from the courts if states like New York don’t act.< p>The issue came to a head more than a decade ago when the Federal Trade Commission ruled that the AICPA’s banning of commissions in its code of ethics constituted restraint of trade. The CPA profession has a history of resisting change until lawsuits are filed and the rules are overturned — sometimes by the Supreme Court.

“The profession tries to hold on to what it has and some judge tells us we’re wrong and the baby gets thrown out with the bath water,” Mr. Primoff says. “We want to keep both the baby and the bath water.”