Legislative News and Issues

SUPPORT A3959

The statutes governing the CPA profession in New Jersey have not been updated in nearly 20 years. They need to be updated to reflect changes in the business environment and CPA profession and to conform to the Uniform Accountancy Act (UAA). Working with the AICPA and NASBA, the Society drafted legislation to update the state’s accountancy law to make it conform with the UAA as much as possible. The bill was passed by the Assembly Regulated Professions Committee in December. There are many changes in the bill, but most of them are technical. The most substantive are the following three changes:

UPDATE THE DEFINITION OF ATTEST

Revising the definition of attest to include any examination, review or agreed-upon procedure engagement performed utilizing the Statement on Standards for Attestation Engagements (SSAE). Currently, the only SSAE under the New Jersey Act’s attest definition is examinations of prospective financial information. This presents a potential risk to the public because some non-CPAs interpret it to mean that they are not restricted from using the SSAE language or standards. However, non-CPAs are not required to have the same experience, education and competencies, nor are they regulated by Boards of Accountancy like CPAs are. They do not have to provide the same protections to clients that CPAs do.

Clients and third parties, including the general public, rely on attest reports issued under the SSAEs and they need to be able to trust the quality of the information contained therein. Furthermore, the demand for attest services by CPAs has been changing over the past decade, and the proposed change to the definition of attest reflects that evolution while also respecting the rights of marketplace competitors. Under the proposed change, non-CPAs can continue to offer these services, but they can no longer reference professional accounting standards and benefit from the implied quality and oversight accompanying those standards. Thirty-five states now have this revised version of attest (including NY, CT and DE) and more are expected to follow suit in the near future. 

FIRM MOBILITY

The current law’s mobility provisions allow for out-of-state CPAs providing tax and non-attest accounting services to practice temporarily in NJ without registering with the state or getting a NJ CPA license. However, out-of-state CPAs who provide attest services must still register with the NJ State Board of Accountancy. The revised UAA eliminates that restriction. Currently, 15 states permit firm mobility and many more are expected to do so in the near future. None of the 15 states has experienced any problems with permitting out-of-state CPAs to do attest work.

The bill allows an out-of-state CPA to provide attest services in NJ without registering with the state and without having to have a physical office here. They can do attest work here under a process known as the “no notice, no fee, no escape” regime. The out-of-state CPAs do not need to give notice to the NJ State Board of Accountancy nor pay a fee when coming into NJ, but the CPAs will be subject to the full regulatory oversight of the Board as well as the CPA’s home state. All of these out-of-state CPAs must also follow NJ’s peer review requirements.

CONTINUING PROFESSIONAL EDUCATION RECIPROCITY

The bill allows for CPE reciprocity, which exempts CPAs who hold multiple state licenses from having to meet the individual CPE requirements of each state so long as the licensee meets the CPE requirements of their home state. Currently, 22 states allow for CPE reciprocity and none has experienced any problems with it. More states are expected to follow suit.

For CPAs with multiple licenses, it has increasingly become a challenge to maintain CPE compliance in jurisdictions where a license is maintained, but that is not the primary place of his or her business. The paradox that currently exists is that under legislation enacted several years ago, CPAs without a license in NJ are allowed to practice here without having to fulfill NJ-specific CPE requirements. Thus, most of the out-of-state CPAs doing work in NJ already do not have to meet NJ’s specific CPE requirements.

OPPOSE A3064, S2450

This bill will unfairly hurt businesses and consumers, including CPA firms and their clients. The bill, which prohibits the state from conducting business with any company that requires binding arbitration in lieu of jury trial, will only add to the overly litigious climate in NJ, hurt economic development and lead to higher prices for consumers. Groups opposed to it include the NJCPA, NJBIA, NJ Chamber of Commerce and NJ Civil Justice Institute.

Arbitration is faster and cheaper than litigation, and an especially efficient means of resolving relatively low-dollar consumer disputes.  As a matter of federal law, arbitration is generally favored and enforceable through the 1925 Federal Arbitration Act (FAA).  The United States Supreme Court has held that the FAA precludes states from disfavoring arbitration, or from subjecting arbitration agreements to different treatment because they are arbitration agreements. It is doubtful this bill would meet the standards of existing Supreme Court precedent.  And there is no question it would be bad public policy.

Preserving individualized treatment of disputes over class actions actually works to the benefit of consumers.  Arbitration is a faster and more efficient means of addressing consumer disputes. Consumers receive equal or greater recoveries in arbitration at lower cost.  The incentive structure of class actions, on other hand, encourages self-dealing to the benefit of the attorneys bringing claims, at the expense of the class.  Because arbitration is cheaper than litigation and presents less risk of dramatic outlier rulings, businesses have an incentive to adopt the sort of generous arbitration provisions that will be upheld in court, and still be able to pass savings on to consumer in form of lower prices.

The bill passed the full Assembly and is pending in the Senate State Government Committee.

OPPOSE A15

This bill raises the minimum wage in the State of New Jersey to $15 per hour and indexes that minimum to increases in the consumer price index. This bill would harm small businesses and the state's economic climate. While the NJCPA appreciates the Legislature's efforts to help working families, increasing the minimum wage and imposing another mandate on businesses will have a particularly negative impact on Main Street and small businesses throughout the state. All of the main business groups in NJ are opposed to this bill. They believe that if this bill is enacted, businesses will have only two choices in order to afford a $15 minimum wage - reduce their workforce or pass on the increasing cost of their goods, services and products to consumers. Both of these options are bad for the NJ economy, workers and consumers.

Learn more

OPPOSE S992/A2750

S992 was vetoed by the Governor in 2016 because while it has the stated intention of promoting equal pay for women, it’s actually a vehicle being pushed by plaintiff attorneys to make it easier for them to file abusive lawsuits. Almost all business groups in the state are opposed to the bill. The Legislature has unsuccessfully tried several times to override the Governor’s veto and will probably try again.

The NJCPA and CPA firms in general have been out front supporting equal pay for women. However, this bill is not really about gender equity. In addition to encouraging abusive lawsuits, the bill also imposes onerous reporting requirements on employers that will do little, if anything to improve pay disparity. Furthermore, there are already a slew of state and federal laws and court decisions that address gender parity in the workplace.

There are other problems with the bill as well. For example, in Alexander v. Seton Hall University, 204 N.J. 219, the New Jersey Supreme court ruled that each paycheck resulting from a discriminatory pay decision constitutes an actionable act of discrimination under the New Jersey Law Against Discrimination (LAD). However, the court limited the recovery of back wages to a two-year period, consistent with the federal Lilly Ledbetter Fair Pay Act (LLFPA) of 2009 and prior case law. Likewise, it ruled that the “continuing violation doctrine” – which extends the life of a claim back to the initial date of an alleged discriminatory practice- is not applicable to pay discrimination claims under the LAD.

S992 departs from that decision, essentially stopping the statute of limitations clock, and applying the continuing violation theory for actions that may have occurred 20 or 30 years ago. Even if a claim against an employer is without merit, the employer still must spend time and money defending against it. This becomes all the more difficult if relevant records no longer exist or witnesses are no longer available.

OPPOSE ACR109, SCR2

The Senate President and Assembly Speaker introduced identical resolutions proposing a constitutional amendment to require annual multi-billion-dollar pension payments by the state, thus removing public workers pension payments from the annual budget appropriations process.

The Governor and Republican lawmakers are opposed to the resolution and called it an inappropriate use of the state’s constitution. They also state that the amendment would require severe spending cuts or tax hikes if the state economy does not hit the 3-percent growth target.

Particularly troubling to opponents is that the constitutional amendment process in NJ allows the resolutions to go directly to the public as ballot questions if the Legislature passes the resolutions in two consecutive legislative sessions. (It was already approved in the previous legislative session.) The resolutions do not need approval from the Governor.

In addition to stiff resistance from Republican lawmakers, business groups in NJ — including the NJCPA — are also opposed to the resolution. They too argue that amending the constitution is an inappropriate method for dealing with what should be an annual legislative appropriation process. They believe that the state needs the flexibility to deal with economic emergencies and that if the state economy doesn’t perform at the 3-percent growth rate called for in the resolution, funding for the pension payments will have to come from tax hikes and cuts to critical areas of state spending such as education and municipal assistance.

Opponents of the measure call for renegotiating the state’s pension and health care obligations with the unions along the lines of the recommendations contained in the February 2015 report issued by the bipartisan NJ Pension and Health Benefit Study Commission.

Learn more

SUPPORT A1982

The NJCPA supports this bill, which requires that civil actions alleging professional malpractice be brought within two years, as is the case with civil actions generally. Currently, the statute of limitations in these professional malpractice cases is six years. The bill sponsor is Assembly Speaker Prieto.

OPPOSE SJR34, AJR97

This legislation would establish a task force to make recommendations concerning the regulation of tax preparers. The task force would be required to issue a report that “determines the appropriate scope of a program for regulating commercial tax return preparers; addresses the appropriate qualifications, including, but not limited to, minimum educational qualifications and continuing education requirements for commercial tax return preparers; and considers any other matters the task force determines to be necessary or appropriate.”

Although it might seem like a straightforward issue, the subject of regulating tax preparers on a state level is actually quite complicated and has a number of pitfalls. For example, the IRS recently launched a federal voluntary program to regulate tax preparers, and the potential for marketplace confusion is immense. Will taxpayers know the differences between classes of preparers? Furthermore, the American Institute of CPAs recently is on record in opposition to state regulation of tax preparers.

While the NJCPA is opposed to this bill, it does support various regulatory options outlined by the AICPA that would enhance ethical behavior and competency requirements for non-CPA tax preparers. The NJCPA also supported previous legislation enacted into law that gave the NJ Division of Banking and Insurance the power to protect consumers from certain unethical practices conducted by some unscrupulous tax preparers.

SUPPORT A1638

The NJCPA and the NJ Civil Justice Institute support this legislation which limits the amount of appeal bonds in civil actions to $50 million. When a defendant loses a case at trial and the plaintiff receives a monetary award, state law typically allows the plaintiff to collect that money as soon as the trial court proceedings are completed. In many cases, however, the defendant will appeal to a higher court seeking reversal of the trial court’s determination. Under current New Jersey law, the defendant must post a bond for the full amount of the award while the appeal is pending.

With awards now reaching hundreds of millions of dollars, it is often financially ruinous for a defendant to post such a large bond and this de facto inability to appeal is used by plaintiff attorneys as a club against defendants. Defendants are forced to settle cases even though they are confident an unfair award would be lowered or dismissed at the appellate level. This legislation will help ensure that the appellate level remains open to defendants who are hit with large damages at the trial level.

The CPA profession’s concern about the impact of having to post huge appeal bonds is not just theoretical. In the last few years there have been many multi-million-dollar judgments against CPA firms. For example, in the 2007 case of Banco Espirito v. BDO International in Florida, the CPA firm BDO was held liable for $522 million. If Florida had not enacted legislation similar to S480/A2473 in the previous year, BDO would probably not have been able to post a bond of $522 million and would probably have gone out of business. That would have put the 2,700 people who work at BDO out of work. Instead, BDO was able to appeal and the case was eventually dismissed.

SUPPORT A4273

In February 2015, the U.S. Supreme Court issued a 6-3 ruling in North Carolina State Board of Dental Examiners v. F.T.C. (NC Dental) effectively limiting the conditions under which members of a state regulatory board – such as accountancy boards – may claim immunity from antitrust laws.

While the details of the case are particular to dentists, the ramifications apply equally to many state regulatory boards, including the NJ State Board of Accountancy, and puts board members at risk of being personally sued for the actions they take as board members. This presents a problem not only for individual board members, but for the profession as a whole, as fewer qualified CPAs may wish to serve on their state boards.

A4273 attempts to rectify this situation by amending the statutes to provide liability protection to all professional/occupational board members. While the NCPA supports the intent of this bill, it has several concerns with the way the bill is currently drafted and is working on amending the bill. The bill passed committee on December 5, 2016 and its next step is a floor vote in the Assembly. 

SUPPORT (seeking introduction of bill)

In an effort to promote investment and job creation in New Jersey, the NJCPA is seeking introduction of legislation that would follow the lead of the federal government and the vast majority of states in offering Internal Revenue Code “Section 1202” tax incentives to targeted NJ based businesses owners who are willing to make a long term commitment to investing in small and medium sized New Jersey based companies. 

OPPOSE A1446

The NJCPA joined a coalition of business groups fighting state and municipal efforts to require employers to provide paid sick leave to employees. The Keep NJ Competitive coalition is comprised of 35 business groups, including the NJ Business & Industry Association (NJBIA) and the NJ State Chamber of Commerce. The coalition opposes state legislation that would require all employers with 10 or more employees to provide nine paid sick days per year and employers with fewer than 10 to provide five days. Currently, only three states require paid sick time.

In addition to fighting A1446, the coalition has been contending with numerous municipalities that have passed local paid sick leave ordinances. Nine cities have already passed such ordinances.

Many employers who already offer paid sick leave incorrectly believe that A1446 would not affect them. In fact, it would because of the requirements listed below:

• Employees could carry-over unused leave from one year to the next — 40 hours for small companies (less than 10 employees) and 72 hours for larger companies (10 employees and above). The only alternative would be employers paying the time out each year.
• Employers would be required to keep confidential records of any leave time used by every employee for five years. Information on the health of an employee or their family member would need to be treated as confidential and not disclosed (even to a supervisor) without the employee’s written permission.

• Although employers could ask for documentation on the need for leave, they’d also have to pay for any costs obtaining it.
• An employer could be sued if they disciplined an employee for using paid sick leave, took “adverse action” against them or gave them an “unfavorable reassignment.”
• It would be illegal for an employer to require an employee to find his replacement, even if the employee knew in advance that they’d be taking leave.
• No PTO substitution: Employers offering general paid time off (PTO) would still have to provide an additional number of “sick” days to comply with the legislation. The legislation prohibits employers from reducing existing benefits which are more favorable to employees

OPPOSE

In August 2008 the NJ Comptroller released a report criticizing firms that do external government audits for local government units in NJ. Amongst his recommendations was mandating audit firm rotation for local government bodies every 10 years. Since then, there have been several other legislative and regulatory proposals to mandate audit firm rotation. The NJCPA successfully opposed all these initiatives.

Although the NJCPA generally supported most of the reforms called for in the Comptroller’s report, we are strongly opposed to mandatory audit firm rotation. Our opposition to this, as well as recommendations for real reforms that will strengthen the audit process for government units, can be found in our 2010 white paper, NJCPA Recommendations for Reforming the External Audit Process for Local Government Entities in NJ. Further recommendations are to be found in our 2014 correspondence with Assemblywoman Nancy Munoz in which we put forth comprehensive recommendations. In 2013, Assemblywoman Munoz had introduced legislation requiring mandatory firm rotation, but she withdrew it at our request. She is now considering introducing legislation that may include our recommendations, which focus on mandating audit committees and financial/budgeting education for elected local government board members.

While mandatory rotation is appealing on the face of it, in reality it puts a governmental entity at a greater risk of fraud going undetected, can easily lead to lower audit quality and is very costly. Requiring mandatory rotation leaves the new audit firm with significant startup costs and a steep learning curve, the cost of which will be passed on to taxpayers. It also leaves the door open to more fraud and waste, as the new auditors are less likely to spot suspicious transactions due to the knowledge gap they must overcome in the beginning years of taking on a new client. The NJCPA strongly believes that mandatory rotation is counterproductive and will harm efforts to reform the governmental audit process in NJ.

It is also worth noting that audit firm rotation was specifically NOT included in the Sarbanes-Oxley federal accounting reform legislation, and a 2003 U.S. Government Accountability Office (GAO) report on the issue stated that the “GAO believes that mandatory audit firm rotation may not be the most efficient way to strengthen auditor independence and improve audit quality considering the additional financial costs and the loss of institutional knowledge of the public company’s previous auditor of record…”

MONITORING A1026

This bill amends New Jersey’s Charitable Registration and Investigation Act by increasing the thresholds of gross revenue amounts received by charitable organizations that determine their annual financial reporting requirements with the Attorney General’s office. Under the bill, a charitable organization operating or soliciting within the state which receives annual gross revenue in excess of $1 million must file with its annual financial report a financial statement which has been audited by an independent CPA. Currently, the threshold is $500,000.

SUPPORT A2931

This bill realigns the NJ transfer inheritance tax payment due date to coincide with the payment due dates for the state and federal estate taxes. The purpose of this bill is to simplify New Jersey’s inheritance tax filing procedures. It was introduced at the request of the NJCPA State Tax Interest Group.