We recently hosted a live conversation on what is changing in CPA licensure and mobility, and what those changes mean for firms operating across state lines. Mark Rothert, CEO of LCvista, moderated a discussion with Lindsay Patterson, LCvista's Chief Regulatory Strategy Officer and the co-founder of CPA QualityPro, and Boyd Search, President and CEO of the Georgia Society of CPAs.
The profession is licensed across 55 jurisdictions, and while the Uniform Accountancy Act gives everyone a common reference point, no jurisdiction has adopted it in its purest form. Ohio had an associate's degree pathway on the books for years. Differences in substantial equivalency have always been there. What the new pathways did was resurface complexities that already existed and add a few that nobody fully understands yet.
The driver's license comparison
Lindsay offered the clearest explanation of why firms tend to overlook this.
The profession did an excellent job marketing the CPA license as something like a driver's license, and that marketing was largely accurate. CPAs enjoy mobility privileges that almost no other licensed profession has. But in making the comparison simple, the profession may have oversimplified it. A CPA can go practice in another state and still has to follow that state's rules, and there is no guarantee those rules match the ones they already know. The analogy holds up even here. Some states allow a right turn on red and some do not.
Roughly 45 states have now passed alternative pathways legislation, and Lindsay is not aware of any state intending to sit it out. That does not resolve the problem. Every state passed slightly different legislation, which means whether a given CPA holds practice privileges in a given state now depends in part on how that CPA earned the license in the first place.
Georgia is close to a clean standard. A CPA licensed and in good standing in another jurisdiction who has passed the exam can practice in Georgia with no fee and no notification. Other states describe themselves as automatic mobility, and Lindsay's point is that what they often mean is automatic if. New York and New Jersey have specific requirements around credit hours and coursework, and around who can supervise and sign off on experience.
Two things follow from that. Many firms assume the pathway changes affect only new CPAs coming in under the new rules, and they do not. They apply to everyone holding a license. Lindsay's read is that most long-tenured CPAs will be fine, but fine still has to be verified. And during this transition period, what a statute says and what a state board is actually doing may not match, because boards need time to promulgate rules. Lindsay's advice is to check the law and the rule. Boyd's addition is to get any board guidance in writing, since staff and board members change and interpretations move with them.
Firms of every size are short on capacity here
When Lindsay and her co-founder started CPA QualityPro, they expected the product would matter most to small and mid-sized firms with no capacity to track licensure. That turned out to be true. What they did not expect was how thin the coverage is at large firms. They assumed the biggest firms would have dedicated teams. Mostly they found one person.
That matches what LCvista hears from clients. At bigger firms it is frequently one individual manually looking up rules and laws across dozens of jurisdictions, and often that individual is the partner in charge of quality, which raises a fair question about the best use of that person's time. Pushing the work further down the organization is not obviously better, given how mission critical it is.
Firms in the middle of the market describe the situation differently. Mark noted that the phrase LCvista hears most from them is that they don't know what they don't know. They sense there is exposure without being able to size it, let alone manage it. Larger firms tend to know exactly what the issues are, and their problem is that the process for staying on top of them is manual and error prone.
Thin coverage matters because the failure modes are quiet. Renewal dates and cycle lengths vary by state. A firm operating in 25 jurisdictions may have one license renewing every April and another renewing every third December. Things fall through the cracks.
The fines are the least of the exposure
Lindsay spends a great deal of time in state board meetings and minutes, and the monetary penalties she sees run from roughly $15,000 to $50,000. For a smaller firm that is a serious number. For a top 10 firm it is closer to a rounding error. The other actions boards can take are the real exposure.
The scenario she described that should get every firm's attention is a firm issuing audit reports while its firm license or the audit partner's license had lapsed, which she said happens with some regularity. The remedy involves going back to a client and explaining that a report the client depends on for its own compliance has to be reissued. Boyd has seen partner rotations where nobody caught until days before signing that the incoming partner was not licensed in the state. He has also seen partners whose licenses were revoked keep that fact to themselves, which becomes a legal problem and a public relations problem at once. Lindsay pointed to a sole practitioner in Texas who let her license lapse a second time and lost her ability to practice altogether.
Boyd's broader observation was that fallout scales with firm size. A large firm's risk profile makes the potential damage from one of these misses both wider and deeper than it would be for a small local practice.
The risk of registering where you don't need to be
Mark raised a point that had not occurred to him before the conversation. Firms think hard about the risk of not being registered where they should be. There is a corresponding risk in registering where they do not need to be. Registering as a firm in a state can pull a firm into regulatory and reporting obligations that have nothing to do with practicing accounting, and those carry real cost. A regional firm that registers in all 50 states to play it safe has expanded its compliance surface for no reason.
Lindsay's counterpoint reframed it as an opportunity. A firm that knows where it and its people already hold practice privileges effectively has a market map, and may be able to pursue work in states it had written off.
What Lindsay and Boyd recommend doing this week
Asked for one practical step apiece, both kept it simple.
Lindsay's was to check the rules and laws for both firm and individual licensure before taking on a client or an engagement in a new state, every single time. Boyd's was to go to CPAverify.org and confirm that everyone at the firm who is supposed to hold an active license in good standing actually does.
Boyd offered one more suggestion for situations where something has already gone wrong. If someone at a firm receives an immediate denial on a reciprocal license application, call the state society in that state. A California CPA applying in Georgia will often be denied on the surface facts and approved once someone reviews the specifics of the case.
Firm and individual licensure are dependent on each other
One theme ran underneath the whole hour. Firm licensure and individual licensure depend on each other, and in many firms the people managing each side are not talking. Attest services require both the firm license and the individual license, and the mobility determination for an individual is tied back to the firm license. Lindsay's encouragement to the audience was to make sure those two conversations are happening in the same room.
Everything past that is a tracking problem, which is why LCvista acquired CPA QualityPro. Lindsay and her team spent years reading state laws and rules, sitting through board meetings, and building relationships with state societies and boards so that firms would not have to.
If you'd like to learn more about CPA QualityPro, reach out to your sales rep or Account Manager, or fill out this form to get in touch.