CBA Update

California CPA magazine: November 2007

New Board Member; Peer Review and Mobility Top Agenda

Rudy Bermudez (D-Norwalk), former Assemblymember and the author of several pieces of landmark legislation, including last year’s mobility clean-up legislation, AB 1868, recently was appointed to the California Board of Accountancy.

Bermudez has had a long career in public service having served in law enforcement, as a member of the Norwalk City Council and California Board of Medical Quality Assurance, and six years in the California Assembly. While in the Assembly, he chaired the Assembly Revenue and Taxation Committee, served on the Business and Professions Committee and chaired Budget Subcommittee No. 4, which oversaw CBA budget requests. 

Mandatory Peer Review May Be One Step Closer in California

The exceptions would be those firms that perform engagements under Statements on Standards for Accounting and Review Services No. 8 as the highest level of work, and out-of-state firms that perform compilations as their highest level of work.
California is one of 11 states that does not already mandate peer review.

The proposal also exempts any public company work subject to Public Company Accounting Oversight Board inspection. However, if the firm also does nonpublic company audits, reviews and compilations, a periodic peer review of that side of the practice would be required.

Linda McCrone, CalCPA’s director of technical services, and Jim Brackens, from the AICPA’s peer review program, presented information to the CBA
supporting mandatory peer review in California.

CBA approval of mandatory peer review is the first step in what will probably be a lengthy process since the proposal must go through the legislative process prior to implementation.
It’s likely that a peer review mandate will carry with it a transparency mandate related to a firm’s peer review results. That means information received through the peer review process could be used for enforcement purposes if a firm receives an adverse report. For example, the CBA could discipline a firm or impose remedial measures, in addition to corrective actions required by the reviewing entity. 

The CBA has not adopted a specific proposal related to how or when an investigation of a firm receiving an adverse report will be instituted. Some states allow a firm one adverse report prior to initiation of an investigation.

The intent of peer review is to raise the standard of practice prior to the need for any enforcement by preventing consumer harm before it occurs.
While the board has not reached a final determination, the CBA’s Committee on Pro­fes­sional Conduct is recommending that peer review information reviewed by the CBA would not be made public unless an accusation was filed. Formal accusations become public when filed.

Still to be decided, too, is how the CBA will implement the requirement for sole practitioners who are not required to register as a firm unless they are doing business as a corporation or a fictitious name, what documents the reviewed firms would be required to submit, the CBA role in oversight and the actual statutory language to implement the requirement.

The CBA will consider these questions at a January 2008 meeting. 

Future Agenda: Probationers Pay for Oversight Costs

At a future meeting the CBA will consider whether CPAs on probation should be required to reimburse CBA costs related to overseeing their probation.

PAs who are disciplined by the CBA may be allowed to keep their license, which is placed on probation. Those CPAs are then required to comply with conditions of probation, such as periodic inspections by enforcement staff, continuing education in specific areas and filing quarterly reports.
Some CBA members believe CPAs on probation should bear the entire cost of the oversight, rather than the current practice of passing that cost on to all licensees.   

Restatement Reporting

The CBA will be pursuing statutory language to eliminate the requirement that CPA firms report restatements within 30 days of the restatement.
Currently, firms are required to report restatements of government audits, certain nonprofits and SEC registrants. The CBA has determined that the time used to process and investigate restatements can be better used to pursue other complaints. 

Mobility & 150-hour Requirement

The CBA will meet Nov. 15–16 to consider a draft of statutory language to implement a no-notice requirement for out-of-state CPAs who are not performing an audit of a company headquartered in California.

Any proposal would have to be enacted through statute before it could be used by out-of-state CPAs providing services in California.

The CBA also has approved, in concept, to eliminate Pathway 1 in 2012, which would require all CPAs licensed after that date to complete a bachelor’s degree, plus 30 units prior to licensing.

This would make California a “substantially equivalent” state and allow all California licensees to provide services in those states that conform to the mobility provisions of the UAA without needing additional licensing.

A common analogy is that of a driver’s license: CPAs must obey the laws of the state they are entering and can be disciplined by that state and their own state for any wrongdoing. 

Bruce C. Allen is CalCPA’s director of government relations.