BILL ANALYSIS                                                                                                                                                                                                    Ó







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        |Hearing Date:May 2, 2011           |Bill                               |
        |                                   |No:306                             |
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                      SENATE COMMITTEE ON BUSINESS, PROFESSIONS 
                               AND ECONOMIC DEVELOPMENT
                          Senator Curren D. Price, Jr., Chair
                                           

                         Bill No:        SB 306Author:De Leon
                     As Amended:April 25, 2011          Fiscal:Yes

        
        SUBJECT:  Accountancy.
        
        SUMMARY:  Reinstates a 5-day "safe harbor" period that had previously 
        expired, to provide that an individual shall not be deemed to be in 
        violation of the practice privilege requirements solely because he or 
        she begins practicing as a certified public accountant in California 
        prior to notifying the as required, provided that notice is given to 
        the California Board of Accountancy within five business days.

        Existing law:
        
        1) Licenses and regulates some 40,000 certified public accountants 
           (CPAs) under the Accountancy Act by the California Board of 
           Accountancy (CBA) within the Department of Consumer Affairs (DCA).

        2) Prohibits a person from engaging in the practice of public 
           accountancy in this state unless he or she holds either a valid 
           permit issued by the CBA or a practice privilege, as specified. 
           (Business and Professions Code (BPC) § 5096.1)

        3) Provides that an individual whose principal place of business is 
           not in this state and who has a valid and current license, 
           certificate or permit to practice public accountancy from another 
           state may, subject to certain conditions and limitations, engage in 
           the practice of public accountancy in California under a practice 
           privilege without obtaining a certificate or license under from the 
           CBA if the individual satisfies one of the following: (BPC § 5096 
           (a))






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           a)   Has continually practiced public accountancy as a CPA under a 
             valid license issued by any state for four of the last ten years.

           b)   Holds a license, certificate, or permit from a state which the 
             CBA had determined to have education, examination, and experience 
             qualifications for licensure substantially equivalent to 
             California's requirements.

           c)   Possesses education, examination, and experience 
             qualifications which the CBA has determined to be substantially 
             equivalent to this state's qualifications.

        1) Requires, to obtain a practice privilege, an individual who meets 
           the requirements of Item # 3) above must: (BPC § 5096 (c))

           a)   Notify the CBA of the individual's intent to practice, as 
             specified.

           b)   Pay the required $100 fee. 

        2) Requires the CBA to extend the current "safe harbor" period 
           pertaining to practicing accountancy without a practice privilege 
           for up to 5 days prior to submitting a notification form to the 
           CBA, from December 31, 2007, to December 31, 2010. (BPC § 5096.14)

        3) CBA regulation provides:  "During the period January 1, 2006, 
           through December 31, 2010, an individual shall not be deemed to be 
           in violation of the practice privilege provisions solely because he 
           or she begins the practice of public accounting in California prior 
           to submitting the Notification Form, provided the Notification Form 
           is submitted within five business days of the date practice 
           begins." (Section 30 of Article 4 of Division 1 of Title 16 of the 
           California Code of Regulations)

        This bill:

        1) Provides that an individual shall not be deemed to be in violation 
           of the practice privilege requirements solely because he or she 
           begins practicing as a CPA in California prior to notifying the CBA 
           as required, provided that notice is given to the CBA within five 
           business days.  An individual who properly notifies the CBA within 
           the five day period shall be deemed to have the practice privilege 
           from the first day of practice in California unless that individual 






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           fails to submit the required fee to the CBA in a timely manner.

        2) Specifies the following with regard to this provision:

            a)    The provision does not apply in those instances in which 
              prior approval by the CBA is required because the individual has 
              a disqualifying condition, as specified.

            b)    Authorizes the CBA, in addition to any other sanction, to 
              impose a fine for notifying the CBA more than five business days 
              after beginning practice in California.

        3) Repeals the obsolete requirement for the CBA to amend a specified 
           regulation to extend the current "safe harbor" period from December 
           31, 2007, to December 31, 2010.

        FISCAL EFFECT:  Unknown.  This bill has been keyed "fiscal" by 
        Legislative Counsel.

        COMMENTS:
        
        1. Purpose.  This bill is sponsored by the Author.  According to the 
           Author, the purpose of the bill is to establish a 5-day safe harbor 
           for a person practicing accountancy under a practice privilege, 
           subject to specified requirements.  The bill would authorize the 
           CBA to fine an individual who notifies the CBA of his or her 
           practice more than 5 days after beginning practice within the 
           state.

        2. Background.  California's safe harbor provision which allowed 
           out-of-state CPAs five business days in which to file a Practice 
           Privilege Notification Form following the commencement of 
           practicing in California expired on December 31, 2010.  As a 
           result, a Practice Privilege notification Form must be filed with 
           the CBA prior to practicing public accountancy in the state.  

        BPC § 5096.14 was added in 2006 by AB 1868 (Bermudez, Chapter 458, 
           Statutes of 2006) and was intended to give an "introductory" period 
           for out-of-state CPA's to gain familiarity with California's new 
           Practice Privilege requirements.  The safe harbor period was 
           originally set to expire in 2007.  AB 1868 required the CBA to 
           extend the safe harbor period to match the sunset date for the 
           Practice Privilege Program in conjunction with Temporary and 
           Incidental provisions which AB 1868 also reinstated.  However, in 






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           2009, the SB 819 (Yee, Chapter 308, Statutes of 2009) removed the 
           sunset date, yet the safe harbor period was still treated as 
           "introductory," and was not addressed.  

        The CBA has considered several alternatives to resolve the problem 
           about re-creating the safe harbor period, including pursing 
           regulatory action, adopting emergency regulations, or seeking a 
           statutory solution through legislation.  At the CBA's March 
           meeting, the CBA determined it would support a legislative solution 
           to permanently establish the 5-day safe harbor period. 

        3. Related Legislation.   SB 819  (Yee, Chapter 308, Statutes of 2009) 
           increased the education requirement to obtain a CPA license from 
           120 hours to 150 hours effective January 1, 2014.  These provisions 
           were originally introduced in SB 961 (Yee) in 2009.  The bill also 
           removed the sunset date on the practice privilege provisions.

         AB 138  (Hayashi, Chapter 312, Statutes of 2009) required, until 
           January 1, 2014, California-licensed accounting firms to undergo a 
           peer review of their accounting and auditing services every three 
           years.

         SB 542  (Price) extends the sunset date on the Board of Accountancy 
           from January 1, 2012 to January 1, 2016; and extends the CPA peer 
           review provisions to correspond with the CBA's sunset date.  That 
           bill is set for hearing on May 2 in this Committee.

         SB 1543  (Figueroa, Chapter 921, Statutes of 2004) established the 
           practice privilege provisions.

        4. Arguments in Support.   Deloitte LLP  ,  Ernst & Young LLP  ,  Grant 
           Thornton LLP  ,  KPMG LLP  ,  PricewaterhouseCoopers LLP  support the bill 
           stating that existing law requires that a person practicing public 
           accountancy in California be licensed by the state or have obtained 
           a practice privilege.  This bill would allow accountants seeking to 
           practice in California a five-day period in which to notify CBA of 
           their actions through the filing of a practice privilege form.  By 
           rule, CBA has allowed a five day "safe harbor" for filing the 
           practice privilege form, however, the rule sunsetted on December 
           31, 2010.  The bill now would reestablish the five- day filing safe 
           harbor and make these changes permanent.


        






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        SUPPORT AND OPPOSITION:
        
         Support:   

        Deloitte LLP
        Ernst & Young LLP
        Grant Thornton LLP
        KPMG LLP
        PricewaterhouseCoopers LLP

         Opposition:   

        None received as of April 27, 2011



        Consultant:G. V. Ayers