Although CPA mobility laws and regulations have significantly eased the process for CPAs to practice across licensing jurisdictions, recent enforcement reports of the New York Board of Accountancy suggest that at least some CPAs may not recognize when or how mobility rules apply. Importantly, more recently adopted mobility rules pertaining to CPA firms vary across licensing jurisdictions more than rules pertaining to individual CPAs. This article provides a refresher on CPA mobility, including examples of how rules differ between states and of how CPAs could unintentionally go afoul of the rules.

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Background

At one time, if a CPA wanted to practice in a state other than in the state he or she was licensed, it was necessary to become licensed in the other state. In the worst-case scenario, this meant obtaining additional college credit hours; in the best case, it meant submitting paperwork, registering, and paying a licensing fee.

By adopting the “substantial equivalency” provision of the Uniform Accountancy Act (UAA, Section 23) in 1997, the AICPA and the National Association of State Boards of Accountancy (NASBA) enabled state boards of accountancy (BOA) to work toward a uniform approach of regulating the accounting profession. BOA rules are considered substantially equivalent if, to become certified, they require 150 credit hours of education, passing the uniform CPA examination, and one year of professional experience. The road was rocky, but by 2014, 50 of 55 U.S. licensing jurisdictions had adopted CPA mobility regulations that removed many of the barriers for individual CPAs to practice across state lines. Mobility generally allows a licensed CPA in good standing with the licensing jurisdiction to practice in person or electronically across state lines without registering or obtaining a permit to do so. It also helps protect the public interest, as CPAs practicing across state lines automatically become subject to BOA rules where they are practicing.

More recently, many BOAs have adopted mobility rules that allow CPA firms to practice across licensing jurisdictions. For example, beginning September 1, 2019, out-of-state CPA firms performing certain attestation services for Texas entities are no longer required to be licensed by, or register with, the Texas Board of Accountancy. Mobility for firms is important given that some states require sole proprietorships to follow the same rules as firms, and firm ownership and peer review rules vary across states. These differences can complicate abiding by the rules.

Fortunately, AICPA and NASBA developed a tool (available at https://cpamobility.nasba.org/) that makes it easy for CPAs to verify mobility rules applicable to their specific situation. By entering your principal state of business (which should be your state of licensure), the state where you will be performing services (in person, by mail, telephonically, or electronically), and the type of services you intend to perform (audit, other attest, tax, other), the tool provides a summary of the licensing, registration, permitting, or notification rules that must be followed. Although the nomenclature differs by state, in general, “licensing” is applicable to individuals, “registration” requires providing a state with a firm’s articles of incorporation or partnership and following the state’s ownership and peer review rules, and “permitting” is permission to provide a specific service for a specified period of time.

Unfortunately, it appears that not all CPAs take advantage of this tool, either because they are unaware of it or because they do not recognize when they have unintentionally crossed state lines while practicing. Three CPAs licensed in New Jersey were sanctioned in 2018 and 2019 for failing to adhere to New York’s mobility rules. One failed to register prior to performing an audit of the financial statements of a New York entity ($4,000 fine), and two failed to complete New Jersey’s continuing education requirements ($1,000 fine each). Because staying in good standing with your licensing jurisdiction is a requirement of mobility, failing to timely complete CPE in your licensing state (in this case, New Jersey) can result in fines in states where you perform services under the mobility rules (in this case, New York).

When is CPA Mobility Applicable?

Technology has made it easier for companies and CPAs to operate across state borders, which may unintentionally result in CPAs practicing outside of their licensing jurisdiction. Mobility automatically triggers a requirement to abide by the rules of the jurisdiction in which a CPA practices, so being able to identify where you practice is important.

Consider the following scenarios:

  • A sole practitioner-CPA licensed in New York prepares the tax return and, following Statements on Standards for Accounting and Review Services (SSARS), compiles the personal financial statement of an individual that resides in both New York and California. The personal financial statement is required by, and provided to, the individual’s lender in California.
  • A CPA firm licensed in Nevada issues an audit report following Statements on Auditing Standards (SAS) covering the financial statements of a North Carolina subsidiary of a Nevada corporation that has substantial assets and operations in North Carolina.
  • At the request of an issuer incorporated in New Jersey, a CPA firm licensed in New Jersey performs an examination of prospective financial statements following Statements on Standards for Attestation Engagements (SSAE) of an acquisition target located in Georgia.

The above scenarios represent common examples of practicing in more than one state. Each requires registration, notification, or permitting in the state of practice (California, North Carolina, and Georgia, respectively), and each may trigger more strict ownership, peer review, or experience than the requirements of the CPAs’ licensing jurisdiction.

CPAs are required to adhere to the AICPA’s Code of Professional Conduct, which requires CPAs to not commit “discreditable acts” (section 1.400.001). These include negligence in the preparation of financial statements and failure to comply with laws, rules, and regulations, including those related to the preparation of tax returns. Not following BOA rules for licensing, registration, permitting, and notification may result in financial and reputational penalties; this can also result in the loss of one’s CPA license.

Differences across Licensing Jurisdictions

Although many rules are the same (or substantially equivalent) across BOAs, there are differences. For example, in some licensing jurisdictions, CPAs with prior disciplinary actions or license suspensions are ineligible to take advantage of mobility. A comparison of the CPA firm rules of the six states with the greatest number of licensed CPAs—New York, California, Texas, Michigan, Illinois, and Florida—demonstrates the importance of checking before working outside of one’s licensing jurisdiction (https://cpamobility.nasba.org).

As summarized in the Exhibit, New York and California require that CPAs register or receive a permit to perform any attest service—not just audits. California also requires CPAs preparing tax returns to register with the California Tax Education Council; CPAs performing audit services must have a minimum of 500 hours of experience performing attest services. This last requirement could preclude a newly licensed CPA from performing an audit of the financial statements of a California-based business.

Exhibit

Comparison of CPA firm rules in states with the most licensed CPAs

State; Performing audit (SAS) services; Performing tax services; Performing review (SSARS) services; Peer review requirements New York (NY); Permit required. Firm registration may require at least one CPA to hold a license in NY. Sole proprietorships must follow same rules as firms. Firms must meet NY ownership and peer review requirements.; Permit not required. Matters relating to accounting concepts and to the recording, presentation, or certification of financial information or data may trigger need for a firm permit. Firms must meet NY ownership and peer review requirements.; Permit required. Firm registration may require at least one CPA to hold a license in NY. Sole proprietorships must follow same rules as firms. Firms must meet NY ownership and peer review requirements.; All CPA firms performing attest services (audits, reviews, examinations, agreed-upon procedures) must undergo peer review every three years. California (CA); Registration required. Minimum of 500 hours of experience in attest services. Sole proprietorships must follow same rules as firms. Firms must meet CA ownership and peer review requirements.; Registration with the CA Tax Education Council required for preparation of tax returns.; Registration required. Minimum of 500 hours of experience in attest services. Sole proprietorships must follow same rules as firms. Firms must meet CA ownership and peer review requirements.; All CPA firms performing attest services (audits, reviews, examinations, agreed-upon procedures) must undergo peer review every three years. Texas (TX); Registration not required. Firms must meet ownership and peer review requirements of TX.; Registration not required. Firms must meet ownership and peer review requirements of TX.; Registration not required. Firms must meet ownership and peer review requirements of TX.; Firms performing audits, reviews, compilations, and any “special reports” (i.e., purport to express an opinion on the financial statements or any material portion thereof) must undergo a peer review every three years. Michigan (MI); Registration not required. Firms must meet MI ownership and peer review requirements.; Registration not required. Firms must meet MI ownership and peer review requirements.; Registration not required. Firms must meet MI ownership and peer review requirements.; Firms and sole practitioners performing audits, reviews, compilations, preparation of financial statements, or other attest engagements must undergo peer review every three years. Illinois (IL); Registration not required. Firms must meet IL ownership and peer review requirements.; Registration not required. Agreed upon procedures, forecasts, or other services included in “tax consulting” may trigger the need for a firm permit issued by IL.; Registration not required. Firms must meet IL ownership and peer review requirements.; Firms and sole practitioners providing audits or reviews of historical financial statements or examinations of prospective financial statements must undergo peer review every three years. Florida (FL); Registration not required. Firms must meet FL ownership and peer review requirements.; Registration not required. Agreed upon procedures, forecasts, or other services included in “tax consulting” may trigger the need for a firm permit issued by FL.; Registration not required. Firms must meet FL ownership and peer review requirements.; Firms performing audits or attest engagements under SSAEs must undergo peer review every three years. Source: https://cpamobility.nasba.org and states’ BOAs, as of October 2021 SAS=Statements on Auditing Standards SSARS=Statement of Standards for Accounting and Review Standards

Stay Vigilant

Although it has become easier for CPAs to practice outside of their licensing jurisdiction, doing this is still not seamless. It may be obvious that a New York CPA should not conduct an audit of the financial statements of a Texas business without first checking the mobility rules, but it may be less obvious that a New York CPA preparing the tax return of a California business has registration requirements. Running afoul of the rules can be costly, both in terms of financial penalties and reputational harm. CPAs should be alert for situations where they might cross the line and should take advantage of the cpamobility.org tool to reduce the likelihood of noncompliance.

Denise Dickins, PhD, CPA, CIA, is a professor at East Carolina University, Greenville, N.C.
Julia L. Higgs, PhD, CPA, is a professor at Florida Atlantic University, Boca Raton, Fla.
Joseph Reid, PhD, CPA, is an assistant professor at East Carolina University, Greenville, N.C.