Copyright 2002 -Maryland Association of CPAs http://www.macpa.org1
MARYLAND ASSOCIATION OF
CERTIFIED PUBLIC ACCOUNTANTS, INC.
THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST,
STRENGTHENING THE CPA PROFESSION
A REPORT FROM THE
ACCOUNTING REFORM TASK FORCE
SEPTEMBER 18, 2002

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THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST, STRENGTHENING THE
CPA PROFESSION
TABLE OF CONTENTS
EXECUTIVE SUMMARY ...............................................................................3
The Climate for Reform.............................................................................3
MACPA Accounting Reform Task Force ..................................................3
MACPA ACCOUNTING REFORM TASK FORCE....................................4
PROPOSALS AND RECOMMENDATIONS.............................................4
THE REPORT
INTRODUCTION ...........................................................................................8
The Climate for Reform............................................................................8
MACPA Accounting Reform Task Force .................................................9
Criteria for Evaluating Reform Proposals...............................................10
Reform Matters for Consideration – Scope of this Document................10
Reform Proposals and Recommendations ...........................................11
Government Regulation and Oversight – The Sarbanes – Oxley Act11
State Level..................................................................................13
Board of Public Accountancy Action ...........................................13
Auditor Responsibility to the Public...................................................14
Detection of Fraud and Material Misstatements..........................14
Auditing Standards Issues ..........................................................15
Financial Reporting and Disclosures ...............................................15
Corporate Governance and Responsibility.......................................15
Management Responsibility.......................................................15
Market Realities and Expectations.............................................16
Role of CPAs in Business and Industry .....................................16
Boards and Audit Committees ...................................................17
Importance of Ethical Behavior and 'Doing the Right Thing' ............17
TASK FORCE MEMBERS..................................................................................20
RESOURCE DOCUMENTS .21

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THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST, STRENGTHENING THE CPA
PROFESSION
EXECUTIVE SUMMARY
The Climate for Reform
The collapse of Enron and accounting improprieties by Andersen and other large CPA
firms at major U.S. corporations led to public outrage and demand for new laws that
would correct flaws in the financial reporting system and rein in corporate greed. The
resulting Sarbanes-Oxley Act of 2002 has transformed the accounting profession, ending
nearly 70 years of self-regulation and relative autonomy for the profession.
MACPA Accounting Reform Task Force
The Maryland Association of Certified Public Accountants (MACPA) acknowledges the
need for improvements in financial reporting and emphasizes the urgency of restoring
public confidence in CPAs, the audit process and financial markets, and reaffirming the
CPA core values of integrity and objectivity.
To help achieve these goals, the association formed a "blue ribbon" task force, drawn
from representatives of large and small CPA firms and businesses, experts from the
investment, academic and legal fields, and the Maryland Chamber of Commerce.
The MACPA Accounting Reform Task Force (the task force), which met in July and
August, studied numerous existing proposals for financial reform, and analyzed
shortcomings of our current reporting system, auditors’ responsibility and how audits are
conducted, significant changes in the demographics of today's investors and their
changing expectations of financial reporting, and the related responsibilities of
management and the investment community.
The group concluded that while the intensive re-evaluation of the profession has
identified a flaw in the way some CPAs have done business, the most important
breakdown has been one of character and a lapse of values. Our most important
responsibility remains to protect the public interest.
The task force proposes recommendations related to the new federal law, other regulatory
bodies, standard setters and members of the CPA profession. These proposals are
designed to help restore public confidence in the profession and the markets, preserve the
vitality of the CPA profession in Maryland, and strengthen the Maryland economy.

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THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST, STRENGTHENING THE CPA
PROFESSION
EXECUTIVE SUMMARY
MACPA ACCOUNTING REFORM TASK FORCE
PROPOSALS AND RECOMMENDATIONS
The MACPA Accounting Reform Task Force focused on these principal issues facing the
profession:
Government Regulation and Oversight – The Sarbanes-Oxley Act of 2002
Public Trust and Confidence in the Integrity of CPAs
Public Understanding of Auditor’s Role
Corporate Governance and Responsibility
Importance of Ethical Behavior and “Doing the Right thing”
I. GOVERNMENT REGULATION AND OVERSIGHT – THE SARBANES –
OXLEY ACT OF 2002
The task force supports in principle a majority of the Act’s provisions for publicly traded
companies and their auditors, as being necessary for financial reform and in the best
interest of the public. (See specific items in the full report.) These include creation of an
independent Public Accountability & Oversight Board; strengthening of corporate
governance and responsibility; and provisions to clarify the auditor’s role.
The task force offers the following additional recommendations:
Adopt best practices from prior self-regulatory structures operated by the AICPA
(Auditing Standards Board, Professional Ethics Division, and SEC Practice Section).
Include an outside CPA on the audit committee to provide financial accounting and
auditing expertise.
Require publicly traded companies to make additional disclosures about board of
directors and audit committee relationships to management and compensation
policies.
Have the principal accounting officer and principal internal auditor in corporations be
currently licensed CPAs where possible.
Strengthen the law by changing the “lying to an auditor” provision from “fraudulently
mislead” to the higher standard of “willful or deliberate” with intention.
Lead audit partner and concurring partner to remain off an engagement for a
minimum of two years after rotation before returning for publicly traded companies.

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THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST, STRENGTHENING THE CPA
PROFESSION
EXECUTIVE SUMMARY
II. PUBLIC TRUST AND CONFIDENCE IN THE INTEGRITY OF CPAs
The task force believes a crucial step to re-establishing our credibility is the
acknowledgement of wrongdoing and the visibility of appropriate disciplinary actions by
the profession.
In Maryland, MACPA would set a timetable for action on investigations and disciplinary
actions, and cooperate with the Board of Accountancy in ethics investigations. To create
a more effective and efficient regulatory process for CPAs and help restore the public
trust, the task force:
Recommends that the Maryland State Board of Public Accountancy be reorganized as
a separate board with independent budget and funding.
Supports the Board of Public Accountancy initiative to introduce mandatory peer
review in Maryland, to ensure that high standards of professionalism and
independence are upheld and that CPA firms maintain an effective system of quality
control.
III. PUBLIC UNDERSTANDING OF AUDITOR'S ROLE
Auditor Responsibility to the Public
In order to reduce the gap between what the public expects and what the auditor does
provide, we need to approach this issue from both sides.
The task force recommends that the CPA profession:
Research public expectations and adjust the scope of the audit, including fraud
detection, to serve the public need;
Provide the public with an explanation of what an audit is in plain English;
Communicate the latest approaches for fraud detection to Maryland CPAs in public
practice;
Define and clarify the meaning of materiality in financial reporting;
Work with the appropriate federal agency to determine what needs to be done to
enhance financial reporting and provide real time financial information.
IV. CORPORATE GOVERNANCE AND RESPONSIBILITY
Management Responsibility
Financial statements and internal controls are considered the responsibility of
management, whether or not the company is publicly traded. The task force recommends
that management:
Indicate its acknowledgement of that responsibility by certifying appropriateness and
fairness of financial statements presented for audit;

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THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST, STRENGTHENING THE CPA
PROFESSION
EXECUTIVE SUMMARY
Provide a reference in financial statements of privately held entities to advise users of
significant weaknesses in the system of internal controls when possible.
Market Realities and Expectations
To help ensure the integrity and greater accuracy in analysts’ estimates, the task force
recommends that:
The SEC evaluate how analysts’ estimates impact corporate, market and media
behavior and consider the need for additional oversight;
Market analyst research be done by an independent entity;
The SEC provide information to the public regarding risk management relating to
investing in the stock markets it regulates;
The CPA Profession should take an active role in encouraging financial literacy for
the investing public.
Role of CPAs in Business and Industry
CPAs in business and industry prepare the financial statements for most publicly traded
entities. The task force recommends that:
The Maryland State Board of Public Accountancy should review the sufficiency of
current regulations relative to the education and license requirements for CPAs in
business and industry to meet their needs.
The MACPA should showcase best practices of CPAs in business and industry that
demonstrate integrity and transparency in financial reporting and ethical business
practices to give them greater recognition and promote sound ethical judgment and
behavior.
CPAs in business and industry become actively involved in the profession to ensure
that their interests in the future of the profession are considered.
Boards and Audit Committees
The new law requires audit committees of publicly traded companies to disclose whether
at least one member is a “financial expert.” The task force recommends that at least one
member of the audit committee be required to be a licensed CPA, and other members
demonstrate financial expertise-- whether the company it serves is publicly traded or not.
V. IMPORTANCE OF ETHICAL BEHAVIOR AND 'DOING THE RIGHT
THING'
The task force recommends that all MACPA members demonstrate their commitment to
ethical behavior in performance of their professional services. CPAs should annually
confirm they have complied and will continue to comply with rules, regulations and
ethical standards. Other entities employing CPAs should develop entity specific codes of
ethical conduct and a means to monitor and enforce those codes.

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THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST, STRENGTHENING THE CPA
PROFESSION
EXECUTIVE SUMMARY
Educational Programs
To ensure compliance with ethics standards, the task force recommends that educational
programs at all levels be expanded to incorporate ethics education and training.
Both AICPA and MACPA maintain a professional ethics hotline to address issues and
questions of members. The task force recommends that the MACPA promote the use of
the hotline to encourage members to seek advice on matters of ethical nature and report
unethical practices.
Awareness of Value
The current crisis facing the accounting profession points out the need for strong moral
leadership. However, economic pressures can make it difficult to do the right thing. We
recommend that companies emphasize the value of reputation of the entity in the long-
term and commitment to being an ethical company in addition to the importance of profit
and growth.
In order to assist companies in incorporating ethics into their business culture, we
recommend that CPAs take a lead role in identifying and promoting best practices of
businesses that demonstrate this type of culture. It is important to communicate this
corporate culture and ethical enforcement to the public as well as to CPAs.

Copyright 2002 -Maryland Association of CPAs http://www.macpa.org8
THE ROAD TO REFORM:
PROTECTING THE PUBLIC INTEREST,
STRENGTHENING THE CPA PROFESSION
INTRODUCTION
The Climate for Reform
The collapse of Enron in the fall of 2001 set off a chain of events that transformed the
accounting industry, ending nearly 70 years of self-regulation and relative autonomy for
the profession.
In the early accounts of the Enron disaster, the media and commentators singled out
Arthur Andersen, the company’s auditor, as a principal culprit in Enron’s deceptive
financial reporting. Public pressure and client fallout became so intense that the eminent
firm was virtually dismantled in a number of months. Reports of accounting
improprieties by Andersen and other large CPA firms, at such companies as Global
Crossing, Tyco, Adelphia, Xerox, and Kmart, led to further public outcry and investor
concern.
Public outrage, coupled with the determination to take action by members of Congress,
resulted in a concerted effort to enact new laws that would correct flaws in the financial
reporting system and rein in corporate greed. The SEC and both houses of Congress
developed proposals with an eye toward rapid reform. President Bush, government
agencies such as the General Accounting Office and private organizations such as
Financial Executives International weighed in with proposals of their own.
The Maryland Association of Certified Public Accountants (MACPA) immediately
acknowledged the need for improvements in financial reporting and the audit process,
which had been discussed within the CPA profession for some time. Above all, MACPA
emphasized the need to restore public confidence in CPAs, the audit process and financial
markets, and reaffirmed the CPA core values of integrity and objectivity. The association
took a measured position, awaiting the results of government investigations while
supporting the more moderate elements of the proposals.
In early summer 2002, WorldCom reported multibillion-dollar restatements of earnings,
which triggered allegations of corporate fraud and intensified investor concern. The
public, the media and lawmakers called for broader and more stringent reform.
Shareholder confidence was shattered and the market began to plummet. The accounting
profession remained a target, but the focus shifted to the responsibilities of management.
The “accounting bills” in Congress were now referred to as financial reform or corporate
governance legislation.
As the market continued to plummet amid failing investor confidence, the tide turned in
favor of the Senate’s more restrictive Sarbanes bill. Both SEC Chairman Harvey Pitt and
the supporters of the Oxley bill in the House moved to strengthen elements of their
proposals. The direction and urgency of reform were now clearly established.

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MACPA Accounting Reform Task Force
With the general components of reform now clarified, MACPA moved into an action
mode. The new legislation indicated several critical areas that would likely be left up to
individual state governments and regulators. To address this opportunity, the association
formed a "blue ribbon" task force, drawn from representatives of large and small CPA
firms and businesses, experts from the investment, academic and legal fields, and the
Maryland Chamber of Commerce.
The principal goal of the task force was to develop a positioning document that would
guide the CPA profession in establishing proactive steps to restore public confidence in
the profession and the markets, preserve the vitality of the CPA profession in Maryland,
and strengthen the Maryland economy.
The group was charged with taking a comprehensive view of the current business
environment, the shortcomings of our current reporting system, the auditors’
responsibility and how audits are conducted, and identifying what specifically needed to
be done to restore, on a long-term basis, faith in our profession and our financial markets.
The group also took into account significant changes in the demographics of today's
investors; the public's changing expectations of financial reporting; the expansion and
intensification of auditor responsibilities; the growing complexity of financial reporting
analysis; and the related responsibilities of management and the investment community.
Above All, Protect the Public Interest
Throughout the process, members expressed concern about the loss of public trust and
confidence in the integrity of the CPA in the wake of the accounting scandals. We
identified underlying problems, including the lack of public understanding of what an
audit is and the differences between what assurance an audit provides and the pubic
expectations and needs. This was among the most significant problems, according to the
members. Concern was also expressed that the fallout as a result of the accounting
scandals could have potential adverse impact on the public and small businesses in
Maryland.
The MACPA Accounting Reform Task Force concluded that MACPA should do what is
necessary to preserve the profession and perpetuate our core values of competence,
integrity and protection of the public. The intensive re-evaluation of the profession has
called into question the way some CPAs have done business. The task force believes the
most important breakdown has been one of character and a lapse of values of the
financial community, including the management of corporations, CPAs, brokers, market
analysts, and lawyers.
Moving forward, MACPA and its select group of experts emphasize that our most
important responsibility is to protect the public interest. The hallmark of a successful
revolution in our profession will be its effectiveness in accomplishing just that. The
recommendations set forth in the following pages are designed to provide practical,

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equitable and durable solutions to ensure that we capitalize on this one-time opportunity
to forge a corporate and financial framework that benefits all American citizens.
MACPA ACCOUNTING REFORM TASK FORCE -
OBSERVATIONS AND RECOMMENDATIONS
Criteria for Evaluating Reform Proposals
We focused our efforts on finding solutions and making recommendations that would be
meaningful. To evaluate our recommendations in this report, we used the criteria first
presented by the American Institute of CPAs (AICPA) in its testimony before Congress
in February 2002. These criteria ask:
Will the recommendation …
help investors make informed decisions?
enhance the quality of audit and financial reporting?
restore confidence in the markets, financial reporting and CPAs?
be good for the financial markets and economic growth in the future?
We recognize that the United States' financial system is built on trust. All of the parties
to that system – management of corporations, CPA firms, brokers, market analysts,
lawyers, and regulators – must take active roles in rebuilding and preserving that trust.
The government’s role is to stand guard over this system so it can continue to operate in
our free society.
Reform Matters for Consideration – Scope of this Document
This task force focused on the issues facing the profession that they identified as follows:
Government Regulation and Oversight - The Sarbanes-Oxley Act of 2002
Public Trust and Confidence in the Integrity of CPAs
Public Understanding of Auditor’s Role
Corporate Governance and Responsibility
Importance of Ethical Behavior and “Doing the Right thing”
This task force considered many of the reform proposals being discussed from all areas,
in addition to its own expertise. In addition to the primary legislative proposals from the
SEC, President Bush, Chairman Oxley (House) and Chairman Sarbanes (Senate), we
considered the work of Financial Executives International, the American Institute of
CPAs, the United States Chamber of Commerce, the National Association of
Manufacturers, the Public Oversight Board, the General Accounting Office, the New
York Stock Exchange and several research studies from colleges and universities.

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Reform Proposals and Recommendations
Government Regulation and Oversight – The Sarbanes – Oxley Act Of 2002
“To protect investors by improving the accuracy and reliability of corporate disclosures
made pursuant to the securities laws, and for other purposes.”
The Legislative proposals contained sweeping reforms, which were the most significant
changes in the regulatory structure of the capital markets since the Securities Acts of
1933 & 1934. The CPA Profession was at the center of the debate with its role in auditing
several of the corporations in the headlines. The profession came out early with support
of many of the provisions (specifically the SEC proposals, the President’s 10-point plan,
and the House Bill H.R. 3763). One of the main concerns expressed by the Maryland
Association of CPAs was the potential of these sweeping laws to adversely impact non-
public companies, small businesses and their CPA firms.
This task force was meeting in the midst of these legislative proposals and discussed
many of the proposed reforms in depth. By our second meeting, there had been more
corporate failures and the market was in a downward spiral. This task force concluded
that government intervention and oversight would be necessary to restore faith in the U.S.
capital markets and in the CPA profession.
Recommendation to create an independent Public Company Accountability &
Oversight Board
We recognize the need to add more government oversight and public involvement in the
regulation of the CPA profession with regard to the auditing of public companies. We
support in principle the structure created by the Sarbanes-Oxley Act of 2002. We further
recommend that this entity consider using some the best practices from prior self-
regulatory structures like the Auditing Standards Board of the AICPA, the SEC Practice
Section of the AICPA, and the Professional Ethics Division of the AICPA, with the
added oversight and authority of the new regulatory organization.
Recommendations to strengthen corporate governance and responsibility
We believe re-establishing the public trust starts with more transparency for the investing
public in the disclosures of management practices and corporate governance structures.
The newly enacted law (the Sarbanes-Oxley Act 2002) makes some significant
improvements in this area, which we support and in some cases extend:
Audit committee structure and responsibility: We recommend that an outside
CPA serve on the committee to provide financial accounting and auditing
expertise. [With respect to public companies’ Boards of Directors, MACPA will
create a referral bureau of CPAs willing to serve on boards in Maryland.]

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We support more transparency in corporate governance of publicly traded
companies in the form of disclosures about board of directors and audit committee
relationships to management and compensation policies.
We further recommend that the principal accounting officer and principal internal
auditor in corporations be currently licensed CPAs where possible.
We support the provisions that make it a crime [felony] to lie to an auditor. We
further recommend that the law be strengthened and clarified from “fraudulently
mislead” to “willful or deliberate” with intention. We further recommend that
States adopt similar provisions to protect the public in regard to non-public
corporations and entities that use audited statements for credit and other third-
party uses.
Recommendations to clarify the Auditor’s Role
The recent string of corporate failures and the CPA auditor’s “clean opinions” highlight
the need for clarification of the auditor’s role in attesting to financial statements. We
support the Sarbanes-Oxley Act's legislative approaches to strengthen auditor
independence and clarify the auditor’s roles as follows:
Non-audit services must be pre-approved by the audit committee for publicly traded
corporations subject to excluding the 5% safe-harbor exemption
We support the prohibition of specific services for auditors of publicly traded
corporations (SEC clients). We further seek clarification of the definitions of specific
services contained in the law. We support using the definition of audit services
contained in the General Accounting Office’s (GAO) recommendations – all
attestation and special procedure engagements should be included in the definition of
auditing services.
We support lead audit partner and concurring partner rotation every five (5) years
and a minimum of two (2) years before returning to an engagement for publicly
traded companies to assure independence.
We support the “cooling-off” period of one (1) year for corporations hiring senior
audit personnel in top senior management positions for publicly traded corporations
to insure independence.
Corporate responsibility
We support mandatory management reports on internal control for publicly traded
companies.
We support the various other provisions that increase protection of the public
interest with regard to corporate management behavior regarding deceptive practices.

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Public Trust and Confidence in the Integrity of CPAs
Integrity and objectivity are core values of the CPA profession. It is important that
we take immediate and meaningful steps to restore the public confidence and trust
in our profession. The task force believes a crucial step to re-establishing our
credibility is the acknowledgement of wrongdoing and the visibility of
appropriate disciplinary actions by the profession.
The bylaws of both AICPA and MACPA require CPAs who are members of their
organizations to comply with the Code of Professional Conduct. The bylaws also
provide how a member will be investigated and sanctioned for failure to comply
with professional ethics. AICPA and MACPA have a joint ethics enforcement
program to permit joint enforcement with respect to a member of either
organization by means of a single investigation and hearing if warranted.
National Level
The task force recommends that MACPA take the initiative to communicate to
AICPA the need for national leadership. We believe this should begin with a
positive statement accepting responsibility and include plans to take proactive
steps to prevent recurrence in the future. The task force recommends that
MACPA work with AICPA to develop proposals. We also recommend MACPA
assist by communicating with CPAs in Maryland.
State Level
The task force recommends strengthening ethics enforcement at the state level in
order to demonstrate the effectiveness of self-regulation at this level. We advocate
setting a timetable for action on investigations and disciplinary actions.
We also recognize the need to have a more involved community of CPAs to
eliminate "bad apples" in the profession. The task force recommends taking the
steps necessary to allow cooperation between MACPA and the Board of
Accountancy in ethics investigations. MACPA’s Professional Ethics Committee
will act as the liaison.
Board of Public Accountancy Action
MACPA acknowledges the responsibility for licensing and regulation of CPAs in
Maryland rests with the Board of Public Accountancy. The primary responsibility
of the board is to protect the interest of the public that it serves. The regulations
governing the practice of licensed CPAs in Maryland contain a code of
professional conduct that all CPAs must adhere to. The board investigates
complaints and violations of state laws and regulations. The board has sole
authority to suspend or revoke a CPA license.
Rather than create another public member board similar to the Public Company
Accounting & Oversight Board, we believe the Board of Public Accountancy can
sufficiently perform the oversight of CPAs in Maryland. The task force believes

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the Board of Public Accountancy could function more effectively if it was
organized as a separate board with independent budget and funding. The task
force recommends supporting efforts to this end.
At this crucial point in our profession, CPAs must take significant action to
restore the public trust. Self-regulation in the form of peer review is key to
maintaining that trust by ensuring that high standards of professionalism and
independence are upheld and that CPA firms maintain an effective system of
quality control. The AICPA Peer Review Program has proven to be a very
effective means of self-regulation in Maryland. However, not all CPA firms that
issue financial statements are subject to peer review. It is in the best interest of the
public and the CPA profession that those firms undergo peer review. We support
the Board of Public Accountancy in introducing a mandatory peer review
requirement in Maryland. This will have the added benefit of regulatory oversight
of all licensed CPAs and demonstrate the CPA professions willingness to operate
in an open and transparent way in fulfilling its duties as auditors of financial
statements.
Public Understanding of Auditor's Role
Auditor Responsibility to the Public
One of the primary issues that have come to light in the recent accounting crisis is
the lack of understanding on the part of the public as to what the auditor does or
should do in an audit. The task force recommends the AICPA’s Auditing
Standards Board (ASB) examine public expectations and adjust the scope of the
audit, including the auditor’s responsibility to detect fraud, to serve the needs of
the public. The profession needs to address what it is the auditor should be doing.
The task force recommends that the ASB focus specifically on the failures at the
public company level and determine if changes should be made to the audit
process that might prevent those failures from recurring.
We also recommend that the CPA Profession provide the public with an
explanation of what an audit is in plain English. In order to reduce the gap
between what the public expects and what the auditor does provide, we need to
approach this issue from both sides.
Detection of Fraud and Material Misstatements
The auditor is responsible for designing the audit to obtain reasonable assurance
that the financial statements are free of material misstatements whether caused by
error, fraud or illegal acts that have a direct and material effect on the
determination of financial statement amounts. Management is responsible for
adopting sound policies and controls to prevent those occurrences.
ASB recently issued a draft of a new standard concerning fraud to clarify the
procedures the auditor should perform. The task force recommends that the
MACPA determine the most effective means to communicate these changes to

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Maryland CPAs in public practice so they may become proficient with the
guidance in this new standard. The task force recommends this issue be revisited
to determine what can be done to further improve the auditor's competence in
detection of fraud and material misstatements.
Auditing Standards Issues
Some of the misunderstanding in the responsibility for fraud detection may be in
the definition of materiality. We recognize that CPAs themselves may need
additional guidance in this area. In light of the public confusion, the task force
recommends the definition of materiality be reviewed by the standard setting
bodies and that clarity and guidance be provided to auditors, preparers and users
of financial statements. Additionally, we recommend the language in the audit
report be revised to be more definitive regarding detection of fraud and
materiality. We also recommend including the entity’s definition of materiality in
the disclosures of significant accounting policies in the entity’s financial
statements.
With this increased responsibility to auditors comes increased exposure to liability
and the risk of frivolous lawsuits. This increased risk will potentially impact the
availability and price of insurance to CPA firms and the pricing of auditing
services to companies. The task force recommends that the AICPA and MACPA
take a proactive role in working with the insurance industry, evaluating the legal
environment, and working for appropriate reforms in order to meet the public’s
expectations.
Financial Reporting and Disclosures
The current accounting standards have been criticized for their complexity. It has
been said the specificity in the standards provides a road map for how to avoid
fair presentation and full disclosure. CPAs struggle to keep up with the overload
of new standards on a continual basis. Yet the Financial Accounting Standards
Board (FASB) is slow in producing a financial model that reflects the nature of
business in the current economy. The task force recommends studying the
feasibility of incorporating principles-based standards, which focus on overall
concepts rather than specific rules, to improve fair presentation of financial
information. We also recommend a comprehensive study be performed (by
FASB, SEC or PCAOB) to determine what needs to be done to enhance financial
reporting and provide real time financial information.
Corporate Governance and Responsibility
[Note: Where appropriate “corporate” refers to government organizations, no-for-profit
organizations and educational institutions.]
Management Responsibility
Professional standards indicate the financial statements are the responsibility of
management regardless of whether the company is publicly traded or not. The
task force recommends that management indicate its acknowledgement of that

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responsibility by certifying the appropriateness and fairness of financial
statements presented for audit.
According to professional standards, management is also responsible for
maintaining an effective system of internal control. Professional standards provide
guidance for an auditor to report material weaknesses or reportable conditions in
the internal control system to the audit committee or individuals with equivalent
authority. The task force recommends providing a reference in the financial
statements of privately held entities to this report if appropriate. We recognize the
importance of internal controls and the need to advise users of the financial
statements of significant weaknesses to the system of internal controls.
Market Realities and Expectations
CPAs in business are under a great deal of pressure to meet expectations in the
marketplace. Analysts’ estimates that drive those expectations are done without
consulting the management of the company they analyze. The task force
recommends that the SEC address expectations of the marketplace driven by
analysts’ estimates. We recommend they evaluate how analysts’ estimates impact
corporate, market and media behavior. We also recommend that analyst research
be done by an independent entity or that the SEC address the need for oversight.
In this day of rapid communication and technology more members of the general
public are investing in the stock market and handling their own transactions
online rather than seeking professional advice. Additionally, more individuals
participate in self-guided retirement plans. Many of these individuals are not
“sophisticated investors” and are not aware of the inevitable market risks—
particularly in the alluring high-return stocks. The task force recommends the
SEC provide information to the public regarding risk management for investing in
the markets. In addition, we support a program of education to help improve the
financial literacy of the investing public and we believe the CPA profession
should take a proactive role in this area.
Role of CPAs in Business and Industry
When we think of CPAs and their role in protecting the public, we primarily focus
on CPAs in public accounting firms. However, CPAs in business and industry
actually prepare the financial statements for most publicly traded entities. CPAs in
business and industry also play an important role in protection of the public
interest. In order to help assure that the public is protected, state laws and
regulations must also apply to CPAs in business and industry. The task force
recommends that the Board of Public Accountancy consider whether the current
laws and regulations relative to the education and license requirements for CPAs
in business and industry are sufficient to meet their needs. Specifically, in
Maryland, continuing education requirements should be modified to allow CPAs
in business and industry to take appropriate courses for their needs therefore
encouraging them to maintain “active” CPA licenses.

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The task force recommends that the CPA Profession take a leadership role in
showcasing best practices of CPAs in business and industry to give them greater
recognition and to promote sound ethical judgment and behavior. We encourage
CPAs in industry to become actively involved in the profession to ensure that
their interests in the future of the profession are considered.
Boards and Audit Committees
Boards of directors and audit committees serve a major role in the governance and
structure of businesses. Due to the significance of their duties and responsibilities,
it is important for their members to be financially literate. Under the new law,
audit committees of publicly traded companies will be required to disclose
whether at least one member is a “financial expert.” The task force recommends
that at least one member of the audit committee be required to be a licensed CPA.
We also recommend that other members be required to have financial expertise in
order to serve on the audit committee. We believe this should apply to any audit
committee — regardless of whether the company it serves is publicly traded or
not.
Importance of Ethical Behavior and 'Doing the Right Thing'
Commitment to Ethics
The task force recommends that all members of MACPA demonstrate their
commitment to ethical behavior in performance of their professional services,
whatever they may be. As indicated in MACPA’s Code of Professional Conduct,
“The reliance of the public and the business community on sound financial
reporting and advice on business affairs imposes on our members an obligation to
maintain high standards of technical competence, professional responsibility and
integrity.” The MACPA’s ethical standards exist to protect the public. Members
of MACPA should re-commit to these ethical standards that require them to:
maintain independence of thought and action at all times,
hold the affairs of clients in strict confidence,
strive continuously to improve professional skill,
comply with professional standards,
promote sound and informative financial reporting,
uphold the dignity and honor of the accounting profession, and
maintain high standards of personal conduct.
We recommend that members annually acknowledge their understanding of those
standards and the laws and regulations in Maryland governing Certified Public
Accountants and the rules of ethical conduct set forth in the Code of Professional
Conduct of the American Institute of Certified Public Accountants; and that they
confirm they have complied with and will continue to comply with them. We
recommend CPA firms and other entities employing CPAs develop entity specific
codes of ethical conduct and a means to monitor and enforce those codes.

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Understanding of Issues
Protection of the public is key to the existence of the profession. CPAs in public
practice should make certain to not lose sight of that responsibility in spite of the
demands of the client. CPAs in business and industry also owe a duty of
responsibility to the public in serving as the financial leaders of the business
entity. CPAs in government are responsible for upholding public expectations in
their roles as public servants. CPAs in education are responsible for training the
future protectors of the public. It is important that those entering the profession do
so with the understanding of the importance of protecting the public.
In recognition of the need for focus on accounting education in colleges and
universities, the task force recommends
Auditing courses be taught only by CPAs
Increasing the institutional accountability for accounting programs
Increasing oversight of non-business accredited colleges/universities by the State
Board
Promoting the value proposition of the CPA by integrating ethics across the
curriculum.
In order to ensure compliance with ethics standards and state regulations, the task
force recommends that educational programs at all levels be expanded to
incorporate ethics education and training. CPAs should be required to maintain
competence in this area. Specifically, we recommend the following:
Professional development programs should be expanded to focus on business
and professional ethics.
Continuing education programs for CPAs should incorporate ethics issues in the
course materials.
University programs should include more business ethics.
An orientation program for new CPAs on ethics and the regulation of the
profession should be developed to help them understand how the profession is
regulated and the importance of ethical behavior.
Ethics issues should also be included in the presentations to potential CPA
candidates at the high school level to enable students to understand the important
role that CPAs play in the protection of the public.
A business ethics program and possibly a facilitator should be provided to assist
companies in evaluating their understanding of ethics matters and incorporating
ethical values in their practice.
Maryland currently requires that CPA candidates pass an ethics examination in
addition to the CPA exam. We recommend including ethics in the CPA exam as a
separate capstone of the exam to emphasize the importance of ethics to the entire
profession.

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Both AICPA and MACPA maintain a professional ethics hotline to address issues
and questions of members. The task force recommends that the MACPA promote
the use of these hotlines to encourage members to seek advice on matters of
ethical nature and report unethical practices.
Awareness of Value
The current crisis facing the accounting profession points out the need for strong
moral leadership. Sometimes economic pressures can make it difficult to do the
right thing. We recommend that companies emphasize the value of reputation of
the entity in the long-term in addition to the importance of profit and growth.
Research has shown that companies can operate sustainable, profitable
businesses, provide a return to stockholders, and commit to ethical behavior and
the adherence to values. In order to assist companies in incorporating ethics into
their business culture, we recommend identifying and promoting best practices of
businesses that demonstrate this type of culture. It is important to communicate
this corporate culture and ethical enforcement to the public as well as to CPAs.
"Greatness is not an unblemished record. It's the ability to right yourself, to go
through the 'valley of the shadow of death' and come out even stronger. To be built
to last, you have to be built to change. You can't possibly be static — it is a
dynamic world. You have to change what you do to preserve what you are." Jim
Collins – author of Good to Great

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TASK FORCE MEMBERS FIRM
Chair:
Wesley P. Johnson, CPA KPMG LLP – Retired Timonium MD
MACPA President:
Graylin E. Smith, CPA Ernst & Young, LLP Baltimore MD
Michael J. Baader, CPA Venable, Baetjer and Howard, LLP Baltimore MD
Nancy A. Bechanan, CPA Bechanan & Company Gaithersburg MD
Barry P. Benjamin, CPA PricewaterhouseCoopers, LLP Baltimore MD
Wayne Berson, CPA BDO Seidman Bethesda MD
Craig A. Burris, CPA EMI Media, Inc. Baltimore MD
Thomas S. Chambers, CPA Thomas S. Chambers, CPA, P.C. Denton MD
Lisa J. Cines, CPA Aronson & Company Rockville MD
Thomas D. Foard, CPA Publishers Circulation Fulfillment Towson MD
Chad M. Gillenwater Sr., CPA Signal Perfection, Ltd. Columbia MD
R. Samuel Griffith, CPA National Jet Company, Inc. LaVale MD
Alvin D. Katz, CPA KAWG & F, PA Baltimore MD
Thomas J. Lantz Sr., CPA HeimLantz, PC Fort Washington MD
Michael P. Manspeaker, CPA Smith Elliott Kearns & Company, LLC Hagerstown MD
William H. Oliver, CPA Clifton Gunderson LLP Calverton MD
William T. Riley Jr., CPA Reznick, Fedder & Silverman Baltimore MD
David B. Rudow, CPA Adelberg, Rudow, Dorf & Hendler, LLC Baltimore MD
Susan T. Sadowski, CPA Johns Hopkins University Baltimore MD
Kathy Snyder CCE Maryland Chamber of Commerce Annapolis MD
Christine Stewart, CPA University of Maryland College Park MD
Robert M. Tarola, CPA W.R. Grace & Company Columbia MD
John I. Wilson, CPA McGladrey & Pullen, LLP Baltimore MD
Facilitators/Editors:
J. Thomas Hood, III, CPA MACPA, Executive Director Lutherville MD
Carol W. Kirwan, CPA MACPA, Director Lutherville MD
Richard Rabicoff MACPA, Manager Lutherville MD

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Resource Documents
Senate Bill 2673 (the "Sarbanes Bill"), United States Senate, June 25, 2002
http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=107_cong_bills&docid=f:s2673pcs.txt.pdf
House Bill 3763 (the "Oxley Bill), United States House of Representatives, Feb. 5, 2002
http://frwebgate.access.gpo.gov/cgi-
bin/getdoc.cgi?dbname=107_cong_bills&docid=f:h3673ih.txt.pdf
The Sarbanes-Oxley Act of 2002, 107th
United State Congress, July 30, 2002
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Framework for Enhancing the Quality of Financial Information Through Improvement of
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The President's Ten-Point Plan to Improve Corporate Responsibility and Protect
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A brief history of self regulation, American Institute of Certified Public Accountants,
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Exposure Draft: Proposed Statement on Auditing Standards Consideration of Fraud in a
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Observations and Recommendations for Improving Financial Management, Financial
Reporting and Corporate Governance, Financial Executives International, March 2002
http://www.fei.org/download/ReformRecommendations.pdf

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Recommendations for reform from the NYSE's Corporate Accountability and Listing
Standards Committee, New York Stock Exchange, June 6, 2002
http://www.nyse.com/press/NT00565884.html
Accounting Faces Crisis of Competence, Not Integrity, NFO WorldGroup, April 9, 2002
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Panel on Audit Effectiveness, Public Oversight Board, Aug. 31, 2000
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DeFond, Mark L.; Raghunandan, K.; and Subramanyam, K.R.; Do non-audit service fees
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School of Accounting, University of Southern California, and Texas A&M International
University, January 2002
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The Accounting Profession: Status of Panel on Audit Effectiveness Recommendations to
Enhance the Self-Regulatory System, General Accounting Office, May 2002
http://www.macpa.org/PDFs/gao602.pdf
Guidance on Yellow Book independence standards, General Accounting Office, July
2002
http://www.gao.gov/govaud/d02870g.pdf
Kansas, Dave, "A Restoration of Character Should Top the Reform List," The Wall Street
Journal, July 2, 2002
Gold, Howard R., "The Crisis: It's Time to Get Back to Basics," Barron's Online, July 3,
2002
Collins, Jim; Good to Great: Why Some Companies Make the Leap and Others Don’t,
HarperBusiness, New York, 2001.
Jacobs, Jane; Systems of Survival, Random House, New York, 1994.