BILL ANALYSIS                                                                                                                                                                                                    







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        |Hearing Date:August 30, 2011       |Bill No:SB                         |
        |                                   |773                                |
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                      SENATE COMMITTEE ON BUSINESS, PROFESSIONS 
                               AND ECONOMIC DEVELOPMENT
                          Senator Curren D. Price, Jr., Chair
                                           

                      Bill No:        SB 773Author:Negrete McLeod
                    As Amended:August 15, 2011         Fiscal: Yes

        
        SUBJECT:  Accountants.
        
        SUMMARY:  Establishes requirements for ethics courses that certified 
        public accountants must complete to gain licensure.

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

       2)Requires an applicant for the CPA license to comply with 
          education, examination, and experience requirements under one of 
          two provisions that establish different criteria (Pathways) for 
          CPA licensure as follows: 

           a)   Until January 1, 2014, completion of a baccalaureate or 
             higher degree, as specified, including 24 semester units in 
             accounting and 24 semester units in business related 
             subjects, passing the examination prescribed by the Board, 
             and two years of qualifying experience (120-hour pathway) 
             (Business and Professions Code (BPC)
             5092).

           b)   Completion of a baccalaureate or higher degree, as 
             specified, including 24 semester units in accounting and 24 
             semester units in business related subjects, passing the 
             examination prescribed by the Board.  In addition, requires 
             proof of completion of at least 150 semester units (including 
             the baccalaureate degree), and one year of qualifying 





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             experience (150-hour pathway) (BPC  5093).

       3)Establishes criteria for education to be qualifying for purposes 
          of licensure, including:

           a)   The education must be from university, college or other 
             institution accredited by a regional or national accrediting 
             agency, as specified  (BPC  5094).

           b)   After January 1, 2014, the education shall include 10 
             units of ethics consistent with regulations promulgated by 
             the Board, as specified.

           c)   After January 1, 2014, the education shall include 20 
             units of accounting study consistent with regulations 
             promulgated by the Board, as specified.
       4)Establishes an Advisory Committee on Accounting Ethics Curriculum 
          (Advisory Committee) within the Board to recommend to the Board 
          ethics study guidelines, as specified, and authorizes the 
          committee to determine that a course or a portion of a course of 
          accounting education satisfies the ethics study requirement. 
          (BPC  5094.5).

           a)   Repeals the authorization for the Advisory Committee on 
             the later of:  January 1, 2014, or following the date the 
             Advisory Committee issues its final report, as required. 

       5)Requires the Advisory Committee to, no later than June 1, 2012, 
          to recommend to the Board ethics study guidelines consisting of 
          not less than 10 units of ethics study, and requires the Board 
          to adopt, by regulation, the recommendations made by the 
          Advisory Committee.  Requires the Advisory Committee to issue a 
          report during the public comment period of the Board's 
          regulatory process, and to offer an opinion as to whether the 
          regulations will implement the Advisory Committee's 
          recommendations, within 30 days after the regulations are final. 
             

        This bill:

        1) Revises the 150-hour pathway to require, after December 31, 2013, 
           the total educational program required for licensure as a CPA to 
           include a minimum of 10 units of specified ethics study established 
           pursuant to the bill, and 20 units of accounting study consistent 
           with regulations to be adopted by the Board by January 1, 2012, 
           pursuant to current law.





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        2) Provides that the Advisory Committee may determine that a course or 
           portion of a course satisfies this ethics study requirement. 

        3) Requires CPA license applicants to provide, to the satisfaction of 
           the Board, documentation of completion of 10 semester units or 15 
           quarter units of ethics study to meet the requirement of Item #1 
           above, and meeting the following:

           a)   Between January 1, 2014, and December 31, 2016, the 10 
             semester units or 15 quarter units of ethics study to be 
             completed from the following course areas: 

             i)     Business, government, and society; business law; corporate 
               governance; corporate social responsibility; ethics; fraud; 
               human resources management; business leadership; legal 
               environment of business; management of organizations; morals; 
               organizational behavior; professional responsibilities; or 
               auditing. 

             ii)         A maximum of three semester units or four quarter 
               units in philosophy, religion, or, theology.

             iii)        A maximum of one semester unit of ethics study for 
               completion of a course title specific to financial statement 
               audits.

            b)    Requires, beginning January 1, 2017, the 10 semester units 
              or 15 quarter units of ethics study ethics study to be completed 
              as follows: 

             i)     A minimum of three semester units or four quarter units in 
               courses at an upper division level or higher devoted to 
               accounting ethics or accountants' professional 
               responsibilities, unless the course was completed at a 
               community college, in which case it need not be completed at 
               the upper division level or higher; 

             ii)         A maximum of seven semester units or 11 quarter units 
               in courses in the following areas:  Business, government, and 
               society; business law; corporate governance; corporate social 
               responsibility; ethics; fraud; human resources management; 
               business leadership; legal environment of business; management 
               of organizations; morals; organizational behavior; professional 
               responsibilities; or auditing. 






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             iii)        A maximum of three semester units or four quarter 
               units in: philosophy; religion; or, theology.

             iv)         A maximum of one semester unit of ethics study for 
               completion of a course title specific to financial statement 
               audits. 

       4)Changes the sunset provisions for the Advisory Committee to remain in 
          effect until January 1, 2014. 

       5)Repeals the requirement that the Board adopt Advisory Committee 
          ethics study recommendations via regulation and related language.

        6) Deletes redundant language relating to the criteria for qualifying 
           education, and makes conforming changes.

        FISCAL EFFECT:   The Assembly Floor Analyses indicates that according 
        to the Assembly Appropriations Committee, costs associated with this 
        legislation are minor and absorbable within existing Board resources..

        COMMENTS:
        
        1. Assembly Amendments "Re-Write" This Measure.  This bill is before 
           the Committee under Senate Rule 29.10 to hear Assembly amendments 
           which are considered as a "Re-write" of this measure.  As 
           unanimously approved by the Senate Business, Professions and 
           Economic Development Committee (Committee) on April 14, 2011, this 
           bill revised the requirement for the Board to broadcast Board 
           meetings over the Internet to require video broadcasts and made a 
           correcting and conforming change relating to the Advisory 
           Committee.  The Assembly amendments deleted the portion of the bill 
           related to the internet broadcasting of Board meetings, and added 
           the current language to establish requirements for ethics courses 
           that certified public accountant must complete to gain licensure.

         The Committee may  :  (1) hold the bill, (2) return the bill as approved 
           by the Committee to the Senate Floor, or (3) re-refer the bill to 
           the fiscal committee pursuant to Joint Rule 10.5.

        2. Purpose.  This bill is sponsored by the  California Society of 
           Certified Public Accountants  (Sponsor) to make updating and 
           conforming changes to the law governing public accountancy in 
           California.  The bill establishes requirements for ethics courses 
           that certified public accountants must complete to gain licensure.  

        3. Background.  Legislation enacted in 2009, established the Advisory 





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           Committee on Accounting Ethics Curriculum to make recommendations 
           on ethics study guidelines to the Board by June 1, 2012.  The 
           Advisory Committee has finished that task and this bill implements 
           its recommendations.

        That legislation,  SB 819  (Yee, Chapter 308, Statutes of 2009), revised 
           the CPA license standards to increase the amount of education from 
           120 hours to 150 hours effective January 1, 2014.  In increasing 
           the required hours, the legislation required that the education 
           include a minimum of 10 units of ethics study and 20 units of 
           accounting study, as specified.  The 10 units of ethics study must 
           meet the guidelines established by the Board upon the advice of the 
           Advisory Committee.

        This bill establishes a set of ethics study requirements that must be 
           met in two different timeframes: (1) between January 1, 2014, and 
           December 31, 2016; and, (2) then beginning on January 1, 2017.  The 
           latter timeframe adds courses at an upper division level or higher 
           devoted to accounting ethics or accountants' professional 
           responsibilities, and more specifically delineates the number of 
           hours that must be completed from the other course areas outlined 
           in the bill.

        4. 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.  

         AB 1005  (Block, Chapter 379, Statutes of 2009) required the Board to 
           broadcast public Board meetings live over the Internet, and to also 
           post Board minutes and notices of formal accusations on the Board's 
           Website.

         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 543  (Price) extends the sunset date on the Board of Accountancy 
           from January 1, 2012 to January 1, 2016; and deletes the CPA peer 
           review sunset.  That bill is on the Assembly Floor.  

         AB 431  (Ma) authorizes the Board to establish a retired status license 
           for CPAs and PAs.  That bill was passed by the Senate 
           Appropriations Committee, and is being referred to the Senate 
           Floor.





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        5. Arguments in Support.  In sponsoring the bill,  California Society 
           of Certified Public Accountants  , states that the bill would codify 
           the Ethics Committee's recently adopted Ethics Study Guideline 
           required by  SB 819  in 2009.  According to the Sponsor, "Senate Bill 
           773 is the product of several months of dedicated work by the 
           California Board of Accountancy's Ethics Curriculum Committee.  SB 
           733 would enact the recommendations of the Committee and move the 
           process up by a minimum of a year so that students and educators 
           will have clear guidance."

        

        SUPPORT AND OPPOSITION:
        
         Support:    

        California Society of Certified Public Accountants (Sponsor)

         Opposition:      

        None received as of August 29, 2011.



        Consultant:G. V. Ayers