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Meeting of the Board of Regents | November 2010

Monday, November 1, 2010 - 9:50am

SED Seal                                                                                   




Professional Practice Committee


Frank Muñoz


Proposed Amendment to the Regulations of the Commissioner of Education Relating to the Implementation of a Mandatory Quality Review Program in Public Accountancy


November 2, 2010


Goal 3




Issue for Discussion

Should the Board of Regents add a new section 70.10 to the Regulations of the Commissioner of Education relating to establishing a mandatory quality review program in public accountancy?

Reason(s) for Consideration

Required by law.

Proposed Handling

The proposed amendment is before the Professional Practice Committee for discussion in November 2010 and will be submitted for action at the December 2010 Regents meeting.

Procedural History

A Notice of Proposed Rule Making concerning the proposed amendment was published in the State Register on July 28, 2010.  The proposed amendment was subsequently modified in response to comments received during the comment period, and a Notice of Revised Rule Making was published in the State Register on October 6, 2010.  Supporting materials for the proposed amendment are available from the Secretary to the Board of Regents.

Background Information

The purpose of the proposed amendment to the Regulations of the Commissioner of Education is to implement section 7410 of the Education Law, which was added by Chapter 651 of the Laws of 2008.  Section 7410 requires certain public accounting firms to undergo periodic quality reviews and requires the Department to promulgate regulations to implement the mandatory quality review program.

The new law strongly enhances the protection of clients and the general public by requiring certain public accounting firms to undergo a quality review of the firm’s attest services as a condition to renewal of registration.  Sole proprietorship firms or firms with two or fewer accounting professionals, including certified public accountants or public accountants, or any combination thereof, are exempt from this requirement, unless they provide attest services for a governmental entity in New York State or attest services required to be performed pursuant to New York State law.

The proposed regulation establishes a mandatory quality review program in New York and defines those public accounting firms that must participate in the program.  The regulation also establishes and defines the responsibilities of a Quality Review Oversight Committee to oversee the program and to perform certain functions; defines the approval process for sponsoring organizations that administer the quality reviews, including the approval and assignment of reviewers and review teams; establishes standards to be used when conducting a quality review; establishes a document retention policy; requires the submission of the public version of a public accounting firm’s Public Company Accounting Oversight Board inspection report; and provides for the acceptance of equivalent quality review reports conducted outside of New York.

Staff of the State Education Department worked with the State Board for Public Accountancy to develop the proposed amendments.

Following publication in the State Register, the proposed amendment was modified in response to several comments received during the public comment period. Amendments were made to subdivisions (b)(5) and (7), (c)(5), and (f) of section 70.10 of the Regulations of the Commissioner for purposes of clarity and to conform to professional standards. Subdivision (f)(3)(i)(a)(1) was amended to clarify the qualifications for team captains who perform different types of quality review services.

Timetable for Implementation

In order to timely implement Chapter 651 of the Laws of 2008, the proposed amendment will come before the Board of Regents at its December meeting as an emergency rule.  If adopted, it will become effective as an emergency rule on December 17, 2010 and as a permanent rule on January 5, 2010.