Choice in auditors is good for Minnesota
December 7, 2023 | Linda Wedul, CAE
Recently, MinnPost published an opinion piece titled, “Why Minnesota’s local audit function is in trouble,” written by Noah McVay.
The subhead for this piece stated that excessive privatization leads to an opaque control environment where policymakers and residents have little or no knowledge of localities’ financial conditions, the security of public asset or the extent to which local spending delivers value to taxpayers.
It is imperative residents engage with local governments and there is spending oversight. Whether we are discussing private businesses, not-for-profit or governmental entities, accountability is key to ensuring money and other assets are used as intended and are appropriately accounted for. This is one of the reasons the CPA (certified public accountant) credential exists. The value of accounting is referenced going back hundreds of years.
The audit provides trust, transparency and reliability whether the organization is private or public. The auditing process is far from opaque. CPAs must follow audit requirements as defined by the Auditing Standards Board (ASB), Public Company Accounting Oversight Board (PCAOB) and/or the Government Accountability Office (GAO).
Audits of governmental entities are performed by both CPAs working for the Minnesota Office of the State Auditor (OSA) or the Minnesota Office of the Legislative Auditor (OLA), as well as by CPAs who work for public accounting firms. The auditing standards are the same whether a CPA works for a governmental entity or a public accounting firm.
The accounting pipeline
Becoming a CPA requires a combination of education, experience and passing the four-part CPA exam. Each state determines requirements to qualify for that state’s CPA certificate. The CPA exam is the most consistent requirement across all states. Education and experience requirements vary between states. These variances have existed for many years and, yet all states are considered substantially equivalent.
The Minnesota Society of Certified Public Accountants (MNCPA) has proposed broadening the pathways to licensure with bills waiting in both the Minnesota House and Senate for further discussion next session.
Currently, CPA applicants are required to attain 150 college credits, which is 30 credits more than a standard bachelor’s degree. The MNCPA believes additional work experience can be equivalent to the extra 30 college credits and would help reduce tuition costs and lost wages for CPA candidates by getting them into the workforce a year earlier. It is important to note that passing the CPA exam remains the consistent requirement while allowing flexibility between education and experience requirements.
It Is also vital to mention that, in 47 states, you can sit for the CPA exam with 120 college credits — a standard bachelor’s degree. After passing the exam, a candidate must have 150 credits to qualify for licensure. After passing the exam, additional credits are a burden in both cost and time. Since the implementation of the 150-hour requirement, the profession experienced a candidate loss of 15% on a yearly basis. Over time, this has aggregated and could lead to an insufficient number of auditors to meet community and business needs.
State oversight, peer review
The Minnesota Board of Accountancy (BOA) issues CPA certificates and regulates CPAs. It does not matter if the CPA works for a public accounting firm, a nonprofit, a government entity or a private business. This enhances public protection given the importance of audits. The standards and rules are the same for all CPAs. This provides consistency across the accounting profession. It also provides a process to discipline and revoke a CPA certificate if an individual is not conforming to standards.
CPAs working in public accounting are required to have a peer review. Every three years, a public accounting firm has their work reviewed to assess quality, completeness and compliance with standards. Peer review reports are submitted to the BOA, which adds transparency and accountability to the system.
The statement that outsourcing audits leads to higher costs does not hold up under evaluation.
Governmental entities have the option to use either the OSA or a public accounting firm to perform their audit. We can see when a county switches audit providers from the OSA to a public accounting firm that their fees decrease. Because requests for proposals are sent to multiple public accounting firms, competition keeps downward pressure on prices.
It is a benefit to Minnesota residents that governmental entities have a choice in selecting auditors. Overall competition leads to increased innovation, higher quality and lower fees.
Topics: Clients, Legislative & Government Affairs, Accounting & Auditing, Staffing, Government
Linda Wedul, CAE
Linda Wedul is president and CEO of the MNCPA. She’s usually spotted at MNCPA events, introducing herself to members with a warm smile and memorable laugh. Mixed among the Footnotes, accounting journals, leadership books and three monitors in her office, you’d be surprised to see a dog kennel. Her unpaid job is volunteering as a foster family for service dogs in training through Can-Do-Canines. She and her husband have two adult children and live in Farmington. Linda can be reached at 952-885-5516 or lwedul@mncpa.org.
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