BILL NUMBER: AB 2873 CHAPTERED
BILL TEXT
CHAPTER 230
FILED WITH SECRETARY OF STATE AUGUST 26, 2002
APPROVED BY GOVERNOR AUGUST 23, 2002
PASSED THE ASSEMBLY AUGUST 21, 2002
PASSED THE SENATE AUGUST 19, 2002
AMENDED IN SENATE AUGUST 5, 2002
AMENDED IN SENATE JUNE 29, 2002
AMENDED IN SENATE JUNE 17, 2002
AMENDED IN ASSEMBLY APRIL 25, 2002
AMENDED IN ASSEMBLY APRIL 15, 2002
INTRODUCED BY Assembly Members Frommer and Correa
FEBRUARY 25, 2002
An act to amend Section 5100 of, and to add Article 5.5
(commencing with Section 5097) to Chapter 1 of Division 3 of, the
Business and Professions Code, relating to accountancy.
LEGISLATIVE COUNSEL'S DIGEST
AB 2873, Frommer. Accounting.
Existing law establishes the California Board of Accountancy, in
the Department of Consumer Affairs, for the purpose of licensing and
regulating public accountants. In addition to other requirements, a
licensee is required to issue a report conforming to professional
standards upon completion of a compilation, review, or audit of
financial statements.
This bill would require audit documentation, as defined, to
contain sufficient documentation to enable a reviewer with relevant
knowledge and experience, but having no previous connection with an
auditing engagement, to understand the nature, timing, extent, and
results of auditing or other procedures performed, evidence obtained,
conclusions reached, and the identity of the persons who performed
and reviewed the work. The bill would create a presumption where the
requirements are not met, which may be rebutted by a preponderance
of the evidence, that the procedures were not applied, tests were not
performed, information was not obtained, and relevant conclusions
were not reached with regard to the portions of the audit not
documented as required.
This bill would require audit documentation to be maintained for
the longer of a 7-year period or a period sufficient to satisfy
professional standards and comply with applicable laws and
regulations. The bill would also require licensees to maintain a
written audit documentation retention and destruction policy that
sets forth the licensees' practices and procedures.
This bill would authorize the board to adopt certain regulations
regarding audit documentation retention, including regulations
establishing a different retention period for specific categories of
audit documentation where warranted.
Existing law authorizes the board to revoke, suspend, or refuse to
renew any permit or certificate, or to censure the holder of that
permit or certificate, for unprofessional conduct.
The bill would make a violation of the audit documentation
requirements unprofessional conduct subject to disciplinary action by
the board.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares that it is necessary
to enact legislation to provide consumer protection and audit
integrity in the field of accountancy.
SEC. 2. Article 5.5 (commencing with Section 5097) is added to
Chapter 1 of Division 3 of the Business and Professions Code, to
read:
Article 5.5. Audit Documentation
5097. (a) Audit documentation shall be a licensee's records of
the procedures applied, the tests performed, the information
obtained, and the pertinent conclusions reached in an audit
engagement. Audit documentation shall include, but is not limited
to, programs, analyses, memoranda, letters of confirmation and
representation, copies or abstracts of company documents, and
schedules or commentaries prepared or obtained by the licensee.
(b) Audit documentation shall contain sufficient documentation to
enable a reviewer with relevant knowledge and experience, having no
previous connection with the audit engagement, to understand the
nature, timing, extent, and results of the auditing or other
procedures performed, evidence obtained, and conclusions reached, and
to determine the identity of the persons who performed and reviewed
the work.
(c) Failure of the audit documentation to document the procedures
applied, tests performed, evidence obtained, and relevant conclusions
reached in an engagement shall raise a presumption that the
procedures were not applied, tests were not performed, information
was not obtained, and relevant conclusions were not reached. This
presumption shall be a rebuttable presumption affecting the burden of
proof relative to those portions of the audit that are not
documented as required in subdivision (b). The burden may be met by
a preponderance of the evidence.
(d) Audit documentation shall be maintained by a licensee for the
longer of the following:
(1) The minimum period of retention provided in subdivision (e).
(2) A period sufficient to satisfy professional standards and to
comply with applicable laws and regulations.
(e) Audit documentation shall be maintained for a minimum of seven
years which shall be extended during the pendency of any board
investigation, disciplinary action, or legal action involving the
licensee or the licensee's firm. The board may adopt regulations to
establish a different retention period for specific categories of
audit documentation where the board finds that the nature of the
documentation warrants it.
(f) Licensees shall maintain a written documentation retention
and destruction policy that shall set forth the licensee's practices
and procedures complying with this article.
5098. The board may adopt regulations to implement, interpret,
and make specific provisions relating to the following:
(a) Requirements for licensees maintaining an audit documentation
retention policy and procedures for review and approval of audit
documentation destruction.
(b) Procedures for the identification, dating, and retention of
audit documentation.
SEC. 4. Section 5100 of the Business and Professions Code is
amended to read:
5100. After notice and hearing the board may revoke, suspend, or
refuse to renew any permit or certificate granted under Article 4
(commencing with Section 5070) and Article 5 (commencing with Section
5080), or may censure the holder of that permit or certificate for
unprofessional conduct that includes, but is not limited to, one or
any combination of the following causes:
(a) Conviction of any crime substantially related to the
qualifications, functions and duties of a certified public accountant
or a public accountant.
(b) A violation of Section 478, 498, or 499 dealing with false
statements or omissions in the application for a license, in
obtaining a certificate as a certified public accountant, in
obtaining registration under this chapter, or in obtaining a permit
to practice public accountancy under this chapter.
(c) Dishonesty, fraud, or gross negligence in the practice of
public accountancy or in the performance of the bookkeeping
operations described in Section 5052.
(d) Cancellation, revocation, or suspension of a certificate or
other authority to practice as a certified public accountant or a
public accountant, refusal to renew the certificate or other
authority to practice as a certified public accountant or a public
accountant, or any other discipline by any other state or foreign
country.
(e) Violation of Section 5097.
(f) Violation of Section 5120.
(g) Willful violation of this chapter or any rule or regulation
promulgated by the board under the authority granted under this
chapter.
(h) Suspension or revocation of the right to practice before any
governmental body or agency.
(i) Fiscal dishonesty or breach of fiduciary responsibility of
any kind.
(j) Knowing preparation, publication, or dissemination of false,
fraudulent, or materially misleading financial statements, reports,
or information.
(k) Embezzlement, theft, misappropriation of funds or property, or
obtaining money, property, or other valuable consideration by
fraudulent means or false pretenses.