BOCA RATON Fla., March 04, 2021 (GLOBE NEWSWIRE) -- The severity of state sanctions handed out to certified public accountants (CPAs) is influenced by political regime, a practice with potentially dire consequences for companies and their shareholders, according to a study by a research team that includes professors at Florida Atlantic University.
The study, published in the Journal of Business Ethics, revealed that state Boards of Accountability (BOA) respond less aggressively to federal disciplinary actions from the Public Company Accounting Oversight Board (PCAOB) when Republicans control a state rather than Democrats.
Researchers Julia Higgs, Ph.D., and Abdullah Al-Moshaigeh, Ph.D., of FAU, and Denise Dickins, Ph.D., of East Carolina University, point out that CPAs who are punished less severely than they should be can negatively affect companies, whose investors may end up losing more money. But overly aggressive punishment may hurt economic growth.
Higgs, Al-Moshaigeh and Dickins said they believe this is one of the first studies addressing the impact of political regime on the regulation of professionals in any field. They say the study’s conclusions could be generally applied to other areas. For example, consumer insurance losses may be greater in Republican-led states due to less-severe enforcement of insurance companies, or businesses may avoid investment in Democrat-run states if enforcement is seen as comparatively more onerous.
“We felt that this was an important study because with uneven enforcement, the quality of professional services differs from state to state, degrading the public’s trust in the profession,” said Higgs, an accounting professor in FAU’s College of Business. “Ideally, disciplinary actions occur without bias by the disciplining authority.”
Higgs noted that accountants already have been punished once by the PCAOB so some might see further sanctions by the BOA as too harsh.
“State boards take this into consideration and, except in the most serious cases, don’t want to preclude someone from earning a living,” Higgs said.
The researchers compared public data about CPAs sanctioned by the PCAOB from May 2005 to May 2018 to the subsequent actions of the BOA. During the comparison period, 16 states were controlled by Republican governors, 12 were led by both Republican and Democrat governors, and seven were headed by Democrat governors. Fifteen states had no BOA actions during the 13-year period.
The study also noted that most states allow CPAs to practice in another state without having to be licensed in that state, making licensing and registration easier but muddling enforcement.
Higgs said she believes the issue of uneven enforcement is becoming more important with more Americans working from home during the pandemic and other professions considering recognizing the licenses of another state, known as reciprocity of licensing.
The problem, Higgs said, is likely to become more prominent as technology enables work to be done remotely. For example, a CPA in Florida can easily complete a tax return of a California resident or a radiologist in Dallas can read the images taken of a patient who had an X-ray in South Dakota.
Additionally, emergencies create situations where licensing may be expanded across state lines, Higgs noted. As a result of COVID-19, some states, including New York, allowed medical professionals to practice there even if they were licensed in another state.
“There are important societal reasons that professionals may need to work in a state where they are not licensed, but states may hesitate to grant reciprocity if there is uneven enforcement,” she said.