Inside the CBA; CalCPA member & CBA president David Swartz: focused on the public.

David Swartz was more than a little concerned a few years ago when he heard of the California Board of Accountancy's plans to apply the provisions of the Sarbanes-Oxley Act to private companies in California. "It would have knocked the economic wind out of this state. You can see what it's doing to public companies today; imagine doing that to private companies. Many things they proposed would have been very damaging and would have made it more difficult for California companies to compete nationally."

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So, as a concerned CPA, Swartz attended a CBA meeting to speak his mind. He didn't expect that his decision to attend would put him on the path to becoming the first licensed CPA to be president of the CBA in almost four years--and put him in control of the state regulatory body's agenda.

THE MAN

Swartz, managing partner of Good Swartz Brown & Berns LLP in Los Angeles since 1993, speaks with confidence about the profession, and is proud of the 30-year-old firm he joined in 1990 and has helped build into one of the state's largest CPA firms.

Swartz attended Los Angeles public schools and went to college at Cal State Northridge before starting his career at BDO Seidman. He became a partner in 1976 and managing partner of the Southern California region in 1978 when he was just 34.

"I was there for 20 years, served on their national board, opened the Orange County office and then I left to go work for Westfield, a major shopping center developer," he recalls.

He was Westfield's CFO for a year before deciding it wasn't the right thing for him. "I started from scratch at my current firm," he says. "I had no clients and a non-compete with Seidman. That was in 1990. I built a practice and in 1993 took over as managing partner--and the rest is history."

ENTER THE CBA

The CBA must have been taken with what Swartz had to say about the cascading effect of SOX on private companies because it placed him on a special task force to deal with the issue after his appearance at that meeting. "Our task force agreed to recommend the board not apply SOX to private companies, for a variety of reasons," he says.

The CBA approved the recommendation.

After that meeting, Swartz was encouraged by a colleague to serve on the CBA. He was one of 150 applicants and was chosen for one of two positions. Gov. Arnold Schwarzenegger appointed him.

When Swartz first arrived on the board in November 2004, he realized it hadn't had a CPA-licensed president for three years, and there wasn't going to be one for a while because of the sentiment at the time.

"I became the first licensee president in four years, and it was something I really felt was important," he says. "We're the only jurisdiction in 54 jurisdictions of state boards that has more non-licensees than licensees on its board."

The CBA licenses all CPAs and firms, proposes legislation, makes regulations, polices the profession, enforces rules and metes out disciplinary action.

"We work closely with all of the other regulatory bodies," says Swartz. "We're a member of NASBA (National Association of State Boards of Accountancy) and attend their meetings. People from our board are also regional representatives on NASBA's board. We also interact with the AICPA and CalCPA on issues that are facing the profession. Right now we are dealing very closely with them on two issues which are a priority on our agenda: mobility and peer review."

And, according to Swartz, being president grants him the responsibility and power to do just that: set and prioritize the CBA's agenda, something he felt he couldn't accomplish as a board member.

"As a board member, it was really a good experience. I learned a lot about politics, government and working with legislation," explains Swartz. "But board members only have limited input regarding our agenda. They come to board meetings and act on information that is provided, but the president really sets the agenda. That's why I felt it was important to have a licensee president, so we could get some of the profession's consumer-protection agenda items on the list."

As a board member, Swartz's responsibilities included meeting preparation, which involved studying the foot-high stack of papers he was sent beforehand, which translated to about eight hours of work every two months. As president he works on board matters every week.

"I'm going up to Sacramento in a couple weeks to testify before a committee," says Swartz, whose term expires in November. "I go to Sacramento regularly to meet with staff, and am on the phone with our executive, Carol Sigmann, probably every week."

As CBA president, his board work grew from eight hours every two months, to five or six hours every week. "I have to read all the minutes, set the agendas, look at the time schedules and check out the locations. There's a lot of administration on top of dealing with the issues like talking to people from CalCPA and the AICPA. When issues come up, as president, I'm the focal point."

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TRIBULATIONS, REWARDS AND LESSONS LEARNED

Swartz says the biggest challenge about his post is working through the system, which goes against the grain of this "bottom-line type of person."

"I like to get things done," he says. "You find that working with the government, there's a lot more process; it's not like running your own business. Being chair of a board, or president, you usually get things done a bit more quickly. It takes a little time with this board--although I think we're moving fairly quickly because we have some quality people on our board who really are interested in doing the people's business. As a result, I think we're moving quicker than we could have been, but it's still a process."

And it's those same people that he finds to be the most rewarding aspect of his job. "Our state employees are as good as anyone," he says. "It's not about the profession, in my opinion. The things we're trying to do are focused on protecting the consumer. That's what it's all about."

The 15-member CBA is the only board of accountancy in the nation that has a majority of public members, but Swartz says this has not yet hindered unbiased, balanced and informed decision-making--a result of the equal efforts of both the licensees and non-licensees.

"It assumes accountants can't be trusted, and I vehemently disagree with that, despite Enron. It obviously would be more helpful to have more licensees because that could provide more background and knowledge on issues," he says.

Part of the reason he would like to see more licensees relates to the nature with which CPAs police the profession. He believes CPAs are actually harder on fellow CPAs when it comes to discipline.

"I think peer review is a great example of that," he explains. "We want peer review because we want the profession to be elevated, and we want the consumer to have more protection. Yet, there are others out there that would argue that's not in the best interests of the public because the system is flawed--it's a good ol' boys network, and one hand is washing the other.

"This couldn't be further from the truth," he asserts. "I think CPAs tend to be tougher on other CPAs because we really respect our profession, and we want it to be held in the highest regard."

LEAD THE WAY, MR. PRESIDENT

Swartz's agenda for his term focuses on peer review and mobility, in that order. Next in line are audit documentation issues. Financially, Swartz says the CBA is in good shape to tackle the issues ahead. The challenge is finding the right people for specific jobs.

"We're not allowed to hire the people we need," says Swartz. "We're restricted by the department of consumer affairs. For instance, to get certain CPA enforcement people we would have to pay more than the DCA allows. Therefore, we can never attract the people we need. We get few qualified applicants."

Although Swartz says this problem does not effect the quality of the work done by the CBA, it does mean the board cannot "cover all the cases that need attention in a timely manner." The problem could become much more serious at the end of the year when the CBA's most senior staff retires.

Swartz and the CBA are working with the state, the DCA and other committees to get that restriction changed and, at press time, Swartz expected to soon hear whether the CBA can start paying more.

Still, Swartz is confident the board can move its agenda forward.

PEER REVIEWS? WHICH PATHWAY? HOW ABOUT MOBILITY?

Swartz's main concern in relation to peer review are audits being done by inexperienced CPAs--and being conducted incorrectly.

"Peer review is a way to police those CPAs and make sure standards are being upheld during audits," he says. "CPAs doing audits without peer review is dangerous."

As far as mobility is concerned, Swartz points out that the issues became even greater with the advent of the internet and online services.

Before, if somebody came to California and performed incidental work, it was allowed. Now, with practice privilege, if somebody comes to work with a private company, you have to get a license to practice in the state. This also applies to licensees that don't come into the state, but do all their work online.

"It's ridiculous," says Swartz. "Someone in New York, who hasn't even set foot in this state, has to get a practice privilege. Imagine if you worked on returns in 30 states--which we do, some of our clients are in 30 states. We'd have to look at every state's license requirement and determine whether we need to get something similar to a practice privilege. It's horrendous."

At a recent CBA meeting, Swartz says the board related the problem to having to get different driver's licenses while traveling cross-country. "You can argue that lawyers have to be licensed in every state, but the laws of every state are different. We're dealing with GAAP and GAAS that are the same nationally--almost internationally.

"There really is no logic, in my opinion, for people to have to get separate licenses for every state one works in, whether you physically enter that state or not," continues Swartz. "What is the consumer getting by having a CPA licensed in every state? I would argue that they are getting nothing. The user of the statements or service, if they're unhappy, will report that CPA. The license does not give more assurance to a consumer."

The two pathways issue melds into the mobility question, because California CPAs that choose Pathway 1 are not considered "substantially equivalent," which is a requirement in most states.

"We're going to need to deal with that in some fashion," says Swartz. "At our last meeting, we discussed the fact that maybe the states should just trust each other."

In other words, if a CPA gets licensed in one state, maybe that should be good enough for another state and vice versa.

The last issue on Swartz's agenda is dealing with audit documentation issues, and the CBA has a regulation working its way through the process that Swartz says "will resolve the issues that are facing the profession, and provide a better product for the consumer.

By the end of his term, Swartz hopes to have the information needed to also put into legislation the issues related to mobility and peer review. "That's taking all of our time and attention," he says. "Although they won't get passed this year, if we can get them through our board, and into the queue at the state level, then I will have accomplished all I can."

THE REWARDS OF WORKING FOR THE PUBLIC

"Our main focus is the public," says Swartz. "CPAs are at the back of the line when it comes to the issues we deal with. Even though we deal with issues of mobility and peer review, which one would argue are licensee issues, the consumer benefits."

Swartz sees implementing peer review as part of serving the public, as it ensures quality service that adheres to regulations. "There are 42 states that have peer review. Our state prides itself on being the most consumer concerned, yet we are one of a handful that don't have peer review. There's a real disconnect there and we really have to get it connected.

"Another example is audit documentation," continues Swartz. "There's no harm in letting an accounting firm have 30 or 60 days to clean up its files after issuing a report, rather than before, which keeps the client, banker and other users of that financial service waiting. It doesn't make a lot of sense to me.

"In both these instances you can argue that it's better for the CPA, but it's really better for the consumer," he adds. "We have no doubt what our mission is: to serve the consumer better."

It's this public service aspect that keeps Swartz on task, and it's why he recommends other CPAs follow his lead.

"My time on the board is one of the more fulfilling things I've done in my career," he says. "If you stand back and look at the big picture, we're really making a big difference. There's a lot to be accomplished by really being involved in state service. I would encourage fellow CPAs to attend our meetings, serve on our task forces and learn more about the profession. It's good to know what's going on in the state you live in."

Swartz also points out the legion of volunteers that could use help from anyone who wants to get involved. The CBA staffs two committees, Administrative and Qualifications, with volunteer CPAs. "They are very dedicated people that don't get the kind of notoriety they deserve. They really make a commitment to the profession and the public, and I encourage any interested CPAs to get involved there. My hat is off to them--it's people like them that really provide the leadership."

And more involvement from dedicated CPAs is always needed, as issues old and new will continue to face the profession.

"Future issues will be over-regulation and the imposition of rules that are promulgated to deal with the public markets being foisted upon private companies, which are the backbone of most CPA practices and the major portion of business in the United States," says Swartz. "This is already starting to happen and it needs to be addressed."

As far as Swartz is concerned, now is a time of great opportunity for CPAs, as long as the profession plays its cards right.

"The CPA profession has never been better in terms of opportunities for the professionals and the impact we can make in the business community by being the most trusted adviser," says Swartz. "The scope of our services continues to expand almost as fast as the number of pronouncements that are being generated by the ASB, FASB, SEC, PCAOB and all the other acronyms that are regulating us. As long as we do the right thing we will always be OK. Those that don't will pay the consequences. I just hope the actions of a few don't negatively impact the profession, as it did with Enron and the like. That will be our challenge."

Damien B.M. English is California CPA's managing editor. You can reach him at damien.english@calcpa.org.