Legislative Action Center

SUPPORT A935

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.

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 S121, A1242

Arbitration is a faster, fair, and more efficient way for parties to resolve complex disputes. Many CPAs and businesses utilize arbitration agreements in employment contracts. S121 would attempt to ban these agreements.

If enacted, this law would also be unconstitutional under the Federal Arbitration Act and recent U.S. Supreme Court decisions. As recently as 2017, in Kindred Nursing Centers v. Clark, Justice Elena Kagan wrote for a 7-1 Supreme Court that “The FAA … preempts any state rule discriminating on its face against arbitration…” and that the law also “displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.”

S121’s language that states “A provision in any employment contract that waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable” is exactly the type of provision that Justice Kagan was referring to.

Banning arbitration in employment contracts would make employment litigation more expensive, longer to resolve, and ultimately less beneficial for employees and employers alike. It is also an anti-business measure which further erodes New Jersey’s ability to attract and retain leading employers, many of which can do business in states which do not attempt to discriminate against arbitration agreements.

SUPPORT A2810

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.

SUPPORT S2265

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 A2377, S864

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

OPPOSE S104, A1850 [ENACTED INTO LAW 4/2018]

The NJCPA is firmly committed to paying people equally for the same work, without discrimination, and based entirely on merit and performance. In fact, the accounting profession has been a leader in providing for the advancement of women. In a nationwide survey of female employees, four accounting firms were ranked as among the top 20 as “best places to work” for women. Of the national “Big 4” accounting firms, three of them have female Chief Executive Officers (CEOs).

S104 addresses the issue of gender equality. While the Society strongly supports the intent of the bill, it has concerns about certain provisions that it is seeking to amend. These concerns include:

Standard of Liability

S104 significantly shifts the burden of proof to the employer. Once any pay disparity is demonstrated, an employer must prove that no part of the pay difference was due to gender. It eliminates any consideration of whether an employee's work was equal and whether they undergo similar work conditions or even work in the same geographic area.

Treble Damages

The bill awards treble damages for violations, which is inconsistent with federal and current NJ law for these types of violations. This is more punitive than most other states allow. It will encourage meritless litigation that many companies will be forced to settle rather than litigate simply because of the risk of extraordinarily high damages. Many businesses may choose to relocate or stay out of NJ.

Reporting Requirement

S104 would require any employer entering into a contract with a public body in New Jersey to disclose to the Commissioner of Labor and Workforce Development the gender, race, job title, occupational category, and total compensation of every employee employed in connection with the contract; Reporting requirements of any type have been rejected in CA and MA. California Governor Jerry Brown vetoed such a measure outright, citing the opportunity for plaintiffs’ attorneys to mine the data for strike suits. The Society is also concerned about individual privacy when salary data is disclosed to a public entity. This data will be made available to any employee of any state contractor.

OPPOSE SCR91

The bill proposes 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.

Many groups and lawmakers from both parties are opposed to the resolution because they consider it an inappropriate use of the state’s constitution. They also fear that the amendment would require severe spending cuts or tax hikes if the state economy does not do as well as the bill projects.

Business groups in NJ — including the NJCPA — are 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.

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SUPPORT A480

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.

SUPPORT A434

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. 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 A434 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.

OPPOSE S2171, A1827 [ENACTED INTO LAW IN MAY 2018]

This bill requires employers to provide earned sick leave to employees that they employ in the State.  The bill provides that an employee accrues one hour of earned sick leave for every 30 hours worked.  The bill requires an employer to pay its employees for earned sick leave at the same rate of pay, and with the same benefits, as the employee normally earns.

The employer is not required to permit the employee to accrue or use in any benefit year, or carry forward from one year to the next, more than 40 hours of earned sick leave.  Accrual pursuant to this bill begins on the effective date of the bill for employees who commenced employment prior to the effective date.  If employment commences after the effective date, the accrual of earned sick leave will begin when employment commences.   An employee may use the earned sick leave beginning on the 120th day after employment commences, unless the employer agrees to an earlier date.  The employee may subsequently use earned sick leave as soon as it is accrued.

Under the bill, an employee may use earned sick leave:

1. for diagnosis, care, treatment, or recovery related to the employee’s illness;
2. to care for a family member during diagnosis, care, treatment, or recovery related to the family member’s illness;
3. for certain absences resulting from the employee or a family member being a victim of domestic or sexual violence;
4. for time during which the employee is not able to work because of a closure of the employee’s workplace, or the school or place of care of a child of the employee, in connection with a public health emergency or a determination that the presence of the employee or child in the community would jeopardize the health of others; or
5. to attend a school-related conferences, meetings, or events, or to attend other meetings regarding care for the employee’s child.

The bill permits an employer to require reasonable documentation of the need for the use of sick leave if the leave is for three or more consecutive days.  Under the bill, employers may prohibit employees from using foreseeable earned sick leave on certain dates, and require reasonable documentation if employees use sick leave that is not foreseeable during those dates.

 The bill permits an employer to offer payment to an employee for unused earned sick leave in the final month of the benefit year, which the employee may accept or decline.  If the employee declines a payment for unused earned sick leave, or agrees to a partial payment, the employee may have the unused leave carried forward to the following year.  If the employee accepts the full payment, the employer must make the entire accrual for the following year available to that employee at the beginning of that year.

The bill prohibits retaliatory personnel actions against an employee for the use or requested use of earned sick leave or for filing a complaint for an employer violation of the provisions of this substitute.  The bill sets requirements for record keeping and for notifying workers of their rights under the substitute.  The bill prohibits counties and municipalities, after the effective date of the bill, from adopting new requirements regarding earned sick leave and preempts existing local requirements. 

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 A661

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 A1303

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.