and come back and tell us, "Well, this is what we have done, and this is how we have carried out our proposals that we suggested to you during the first hearings."

And you will find us very willing and receptive to such testimony. I think you have helped us very much. I congratulate you on helping your profession.

Mr. KAPNICK. If I can make one final comment. We are a very unique profession. We must be independent of our clients. We must be independent of Government agencies.

We need the type of dialog that this committee has provided us. I can assure you that if you make that same statement as a charge to all of the leaders in the profession, that you will see positive action much quicker than probably either you or I could hope for.

Senator METCALF. Thank you very much.

Senator PERCY. Thank you very much, Mr. Kapnick.

Mr. Chairman, we have now hearings going on on regulatory reform, which is the Percy-Byrd-Ribicoff so-called bill. I will have to get back to those hearings. I hope the other witnesses will understand. I will go over very carefully the testimony and make every effort to get back. Senator Danforth will be here then. Thank you.

Senator METCALF. We were supposed to have a vote at 10 o'clock. I am informed that vote has been extended for a little while, about 15 minutes. So I am going to continue until the vote ring. I am supposed to be over there on regulatory reform, having a minor concern with that myself. Also we are marking up the Outer Continental Shelf bill in another committee. But we will go along. We all understand. Thank you so much for your contribution.

Senator PERCY. Thank you very much.

Senator METCALF. The next witness is Mr. Eli Mason, C.P.A., of Mason & Co.

Mr. Mason, the committee is very pleased to have you with us today. We are looking forward to your testimony.

You go right ahead. You may be interrupted, but we hope not.

TESTIMONY OF ELI MASON, C.P.A., MANAGING PARTNER, MASON AND CO., NEW YORK CITY

Mr. MASON. Thank you.

Mr. Chairman, members of the subcommittee, for the record, the pretty young lady who accompanied me to the table is not my secretary. She is my daughter and is a teacher in Mount Vernon, Va.

Mr. Chairman, my name is Eli Mason. I am a certified public accountant, and I appear before you this morning with the following credentials.

I am a past vice president of the American Institute of Certified Public Accountants and a past member of the executive committee-now the board of directors of the AICPA.

I have served on the Council of the American Institute of Certified Public Accountants for 9 years; elected on three separate occasions. I have served as president of the New York State Society of Certified Public Accountants, the largest of the State societies, with over

I have served as president of the Foundation for Accounting Education, Inc., the educational arm of the New York State society.

I presently serve as chairman of the Board of Advisors of Baruch College, City University of New York, one of the largest schools of business in the United States.

I also serve, at the present time, as a member of the New York State Board for Public Accountancy, the official State examining and licensing authority.

I have served as treasurer and member of the executive committee of C.P.A. Associates, a group of 45 independent accounting firms, with offices in principal U.S. and foreign cities.

I am managing partner of Mason & Company, Certified Public Accountants, New York City.

Mr. Chairman, may I state at the outset my basic philosophy. I believe that a C.P.A. receives his license to practice from a public agency, and that license to practice permits him to serve the public. Therefore, it follows that his authority flows from a public agency and his responsibility is to the public.

As an extension of that philosophy, I believe that State legislatures and other public agencies, before whom C.P.A.s practice, have a right to examine into the stewardship of the public accounting profession, and, Mr. Chairman, I believe that those of us who practice public accountancy have an obligation to respond fully and truthfully to the people's elected representatives.

Mr. Chairman, my credentials may project an image of being part of the accountaing establishment. I have served in the hierarchy of the accounting profession. I have participated in the decisionmaking processes of the accounting profession, and I have met at close range many of the past and current leaders of the accounting profession.

I wish to state unequivocally that the structure of the accounting profession is inefficient, obsolete, fragmented, and duplicative. I do not make the statement lightly, and I shall demonstrate briefly simple and ample proof of my charge.

Mr. Chairman, the American Institute of Certificated Public Accountants-the AICPA-is the largest organization with the largest resources, the largest membership, and the largest staff. The AICPA issues and promulgates auditing standards and procedures. It has issued and promulgated in the past accounting principles, formally until 1973, and still has vast impact on accounting principles at this very time. It publishes journals and books. It devises courses and seminars. And very importantly, it issues, determines, and promulgates rules of professional conduct.

But, Mr. Chairman, I submit that the AICPA is a paper tiger. I say that because if a member of the AICPA violates any of the rules. any of the standards, any of the principles, the most severe penalty that the American Institute can impose is mere expulsion from the AICPA. It cannot prevent a C.P.A. from practicing. There is no such authority. It does not issue the C.P.A. license; it cannot revoke the C.P.A. license. Many C.P.A.s do not belong and have never belonged to the AICPA. Many C.P.A.s belong only to their State society and do not belong to the AICPA. Now, there are some 54 State societies, and these 54 State societies do exactly the same thing the AICPA does; they issue

and promulgated accounting principles. They publish journals and books. They devise courses and seminars and they determine, issue, and promulgate rules of professional conduct.

But if you breach a rule of professional conduct of the State society and if you are brought up on charges, the most severe penalty that can be imposed is expulsion from the State society. Such a member can continue to practice the next day, because the State society has no authority to rescind or revoke a license.

The only authority in the profession at the present time to impose a true disciplinary penalty is the various State boards of accountancy. They issue the C.P.A. license and they have the statutory right to revoke or suspend the C.P.A. license.

The 54 State boards of accountancy have been created by the various State legislatures. They are completely unequal with respect to size of the board, compensation of the board, authority of the board, and in some States even as to who designates the State board.

In my State, the Governor does not designate the State board for public accountancy. In other States, the Governor does designate the State board for public accountancy. The standards which the various State boards of accountancy impose for issuance of the State license also are very unequal. They differ with respect to the basic educational requirements. They differ with respect to the basic experience requirements. There is no uniformity. But, a State board for public accountancy has the legal authority to rescind the C.P.A. license.

Now, Mr. Chairman, I originally proposed a restructure plan. One of the points I made is that there is an unequal measure of discipline.

Mr. Kapnick referred to discipline a few minutes ago. But if a C.P.A. were guilty of a breach, an identical breach of a rule of professional conduct, he could be tried by a trial board of the AICPA and receive a dismissal. He could then be tried for the very same infraction by a trial board of a State society and receive a censure and reprimand. He could then be tried a third time by a trial board of a State board for public accountancy and have his license to practice suspended. What could be more confusing, more unequal, and more undemocratic-and that is the present state of affairs.

There has been distributed earlier to the members of the subcommittee and perhaps to others--I had a rather small quantity-a report cover which includes three sets of rules of professional conduct governing the practice of public accountancy in the State of New York. You have it before you, Mr. Chairman. You will see that there are very complete rules imposed by the AICPA, different rules imposed by the New York State Society of Certified Public Accountants, and different rules imposed by the New York State Board for Public Accountancy.

To add to the confusion, may I review some further alphabetical accounting entities.

First, the Cost Accounting Standards Board. The CASB was created by an act of Congress in 1970 and commenced operations in 1971. The CASB, Mr. Chairman, just contemplate the words and the title, Cost Accounting Standards Board, issues accounting standards that pertain to defense contracts, and these accounting standards have been extended to practically all Government procurements. These accounting standards are audited by the Defense Contract Audit Agency

and other Government agencies. These standards have the effect, Mr. Chairman, of law. I think what I am saying should be obvious. The Federal Government at this very time is establishing accounting standards. It is naive, it is simplistic, and it is self-deceiving to say we don't want the Government to impose accounting standards.

The Government is by an act of Congress-and these standards have the effect of law. Where there is a conflict, Mr. Chairman, between an accounting standard laid down by the Cost Accounting Standards Board and any other accounting principle, the accounting standard laid down by the CASB prevails. The Cost Accounting Standards Board is chaired by the Comptroller General of the United States. The Cost Accounting Standards Board is administered by an executive secretary who is a certified public accountant.

The next alphabetical accounting agency is the Financial Accounting Standards Board-FASB-which I may state, Mr. Chairman, is very well detailed in the staff report of the subcommittee.

The relationship of the FASB to the Securities and Exchange Commission is also well detailed in the staff report, especially with respect to Accounting Series Release 150. It should be obvious that the FASB is never going to issue any accounting standards which will meet with the displeasure of the Securities and Exchange Commission. Neither will the AICPA ever issue auditing standards which will meet with the displeasure of the Securities and Exchange Commission.

I think, Mr. Chairman, we ought to eliminate what I consider a fiction that we don't want the Federal Government or any agency of the Federal Government to be involved in the promulgation of auditing standards or accounting standards. They are here. It is happening today.

Mr. Chairman, the Securities and Exchange Commission was created by an act of Congress. It has awesome authority and awesome responsibilities.

The Securities and Exchange Commission can effectively put an accountant or accounting firm out of business. They can suspend an accountant or accounting firm, and have done so. And they can permanently revoke an accountant's or accounting firm's right to practice before the Securities and Exchange Commission.

I think, Mr. Chairman, this very brief summary demonstrates that at the present time the structure of the accounting profession is a complete mishmash. I do not say this lightly, sir. I have been part of this accounting profession for well over 30 years. I think I have practiced with integrity and good conscience and my reputation is well known. I think that the proposal I am about to make will be opposed by the AICPA and will be opposed by the presently existing entities within the accounting profession-and that is to be expected. They have developed piecemeal over the years and, in truth, there are vested interests. You know, Mr. Chairman, there is a very overused word in American journalism, especially in this city, and the word is bureaucrat. But I submit, Mr. Chairman, there are corporate bureaucrats and organizational bureaucrats.

My proposal, Mr. Chairman, is that there be a not-for-profit corporation to be known as the U.S. Institute of Certified Public Accountants, which shall be granted a Federal charter. And if you will please

turn to the chart in the beginning of my testimony, you will see the structure which is simple and logical.

I propose that the U.S. Institute of C.P.A.s issue, determine, and promulgate all auditing standards and procedures, all accounting principles, all requirements for the C.P.A. license for those who practice in interstate commerce and before Federal agencies, and all rules of professional conduct. All of these standards would be uniform for all C.P.A.s, and would be uniformly enforced.

There would be a national C.P.A. certificate which would permit the holder of the C.P.A. certificate to practice in any State, in New York, in California, in Alaska, or Guam. Now, Mr. Chairman, a C.P.A. who receives a license in one State today cannot freely practice in other States. This is wrong. This should be corrected.

My proposal, Mr. Chairman, you will note, also includes a substructure of 54 State institutes.

Mr. Chairman, I am a believer in States rights. The 54 State institutes would be governed by 54 State institute presidents who would be democratically elected. These 54 State institute presidents annually would elect a president from among their midst, as president of the institute. There shall be an executive council of the U.S. institute of 12 persons.

The Executive Council of the U.S. Institute shall include the Chief Accountant of the SEC. It is ridiculous to exclude the Chief Accountant of the SEC from the decisionmaking process. He should be in the midst of the decisionmaking process.

It shall also include the Assistant Commissioner of Internal Revenue-Technical, the Comptroller General of the United States, the Executive Secretary of the Cost Accounting Standards Board, plus eight State institute presidents.

Mr. Chairman, I submit that this structure would permit a uniform, meaningful, and all-inclusive accounting profession instead of the present divisive accounting profession.

I think with all of the good intentions of Mr. Kapnick, for whom I have great admiration, and for all of the good intentions of Mr. Biegler, for whom I have great admiration, and for all of the good intentions of the people in the AICPA, and the other organizations, nothing meaninful will happen, because we have seen study groups before. I have worked on them. We have seen review groups before, and what happened was that you reached the point where you were when your staff report was issued.

Mr. Chairman, I submit that unless there is a vast restructuring of the accounting profession, nothing meaningful will happen.

I think that we in the accounting profession must have the courage to be logical, the willingness to be democratic, and the commonsense to realize that if we do not move forward, we may be pushed forward. Thank you very much.