BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:May 2, 2011 |Bill | | |No:306 | ----------------------------------------------------------------------- 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)) SB 306 Page 2 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 SB 306 Page 3 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 SB 306 Page 4 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. SB 306 Page 5 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