BILL ANALYSIS Ó
SB 1405
Page 1
Date of Hearing: June 26, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 1405 (De León) - As Amended: June 19, 2012
SENATE VOTE : 37-0
SUBJECT : Accountancy: military service: practice privilege.
SUMMARY : Revises California's practice privilege statutes for
the practice of accountancy to allow out-of-state licensees to
practice in California with no notice or fee paid to the
California Board of Accountancy (CBA), and allows certified
public accountants (CPAs), public accountants (PAs) and public
accounting firms to have their permits placed on military
inactive status (MIS). Specifically, this bill :
1)Repeals, beginning July 1, 2013, and ending January 1, 2019,
the requirement that a qualified individual notify the CBA of
intent to practice and pay a fee in order to obtain a practice
privilege in California, and makes conforming changes.
2)Allows, beginning July 1, 2013, and ending January 1, 2019, a
qualified individual to practice accountancy in California
under a practice privilege without notice to the CBA, a fee,
or any other requirement imposed by the CBA, and makes
conforming changes.
3)Allows an individual qualified to practice accountancy in
California under a practice privilege to perform the following
services only through a firm of CPAs that has obtained a
registration from the CBA:
a) An audit or review of a financial statement for an
entity headquartered in California;
b) A compilation of a financial statement when that person
expects, or reasonably might expect, that a third party
will use the financial statement and the compilation report
does not disclose a lack of independence for an entity
headquartered in California; or,
c) An examination of prospective financial information for
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an entity headquartered in California.
4)Maintains current law provisions subjecting those who hold a
practice privilege to the jurisdiction and disciplinary
authority of the CBA and California's courts, requiring
compliance with California law, regulations and professional
standards, restricting place of practice, and other
requirements, as specified, and additionally requires a
practice privilege holder to cease practice if:
a) The regulatory agency in the state in which the
individual's certificate, license, or permit was issued
takes action resulting in the suspension or revocation of
the individual's certificate, license, or permit, or takes
other disciplinary action against the individual's
certificate, license, or permit that arises from any of the
following:
i) Gross negligence, recklessness, or intentional
wrongdoing relating to the practice of public
accountancy;
ii) Fraud or misappropriation of funds; or,
iii) Preparation, publication, or dissemination of false,
fraudulent, or materially incomplete or misleading
financial statements, reports, or information;
b) The individual is convicted in any jurisdiction of any
crime involving dishonesty; or,
c) The United States (U.S.) Securities and Exchange
Commission or the Public Company Accounting Oversight Board
(PCAOB) bars the individual from practicing before them.
5)Requires an individual required to cease practice to notify
the CBA within 15 calendar days, prohibits him or her from
practicing until he or she has received written permission to
do so from the CBA, and imposes additional practice
restrictions on those individuals, as specified.
6)Requires an individual to notify the CBA and cease practice
until authorized by the CBA if any of the following has
occurred within the last seven years immediately preceding the
date on which the individual wishes to practice in California:
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a) He or she has been the subject of any final disciplinary
action by the licensing or disciplinary authority of any
other jurisdiction with respect to any professional license
or has any charges of professional misconduct pending
against him or her in any other jurisdiction;
b) He or she has had his or her license in another
jurisdiction reinstated after a suspension or revocation of
the license;
c) He or she has been denied issuance or renewal of a
professional license or certificate in any other
jurisdiction for any reason other than an inadvertent
administrative error;
d) He or she has been convicted of a crime or is subject to
pending criminal charges in any jurisdiction other than a
minor traffic violation; or,
e) He or she has otherwise acquired a disqualifying
condition, as specified.
7)Provides conditions and procedures under which a practice
privilege can be revoked, as specified, which are
substantially similar to current law provisions for the denial
of a practice privilege and include disqualifying conditions.
8)Requires CBA to add features to its Web site that allow
consumers to obtain information about those operating under a
practice privilege that is at least equal to the information
that was available to consumers through the CBA Web site
before January 1, 2013, through the practice privilege form
previously filed by out-of-state licensees operating in
California under a practice privilege, as specified.
9)Allows CBA to require licensees from a particular state to
file notice and pay a fee for a practice privilege if CBA
determines that allowing individuals from that state to
practice under a practice privilege violates the CBA's duty to
protect the public, as specified. This provision does not
apply if:
a) The National Association of State Boards of Accountancy
(NASBA) adopts enforcement best practices guidelines;
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b) The CBA issues a finding after a public hearing that
those practices meet or exceed the CBA's own enforcement
practices;
c) A state has in place and is operating pursuant to
enforcement practices substantially equivalent to the best
practices guidelines; or,
d) Disciplinary history of a state's licensees is publicly
available through the Internet in a manner that allows the
CBA to link consumers to an Internet Web site to obtain
information comparable to the information that is available
to consumers through the practice privilege form filed by
out-of-state licensees pursuant to current law.
10)Requires, until July 1, 2017, CBA to report to the relevant
policy committees of the Legislature, the director of the
Department of Consumer Affairs (DCA), and the public
preliminary determinations made pursuant to 9), above, no
later than July 1, 2015. The board must, prior to January 1,
2016, and thereafter as it deems appropriate, review its
determinations to ensure that it is in compliance with this
bill's provisions, as specified.
11)Requires, by July 1, 2014, the CBA to convene a stakeholder
group consisting of members of the CBA, CBA enforcement staff,
and representatives of the accounting profession and consumer
representatives to consider whether penalties established in
this bill are sufficient to deter violations of the bill's
self-reporting requirements.
12)Requires, by January 1, 2018, the CBA to prepare a report to
be provided to the relevant policy committees of the
Legislature, the director of DCA, and the public that explains
the CBA's implementation of this bill, whether its provisions
are more, less, or equivalent in the protection it affords the
public than current law, and how other state boards of
accountancy have addressed referrals to those boards from the
CBA, the timeframe in which those referrals were addressed,
and the outcome of investigations conducted by those boards.
13)Allows, beginning January 1, 2014, a holder of a permit to
practice pubic accountancy to apply to have his or her permit
placed in an MIS if the permit holder is engaged in, and
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provides sufficient evidence of, active duty as a member of
the California National Guard (National Guard) or the U.S.
Armed Forces, as specified.
14)Makes additional conforming and technical changes.
EXISTING LAW :
1)Licenses and regulates CPAs, PAs and public accounting firms
under the Accountancy Act by the CBA within DCA.
2)Allows 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 to, subject to specified conditions and
limitations, engage in the practice of public accountancy in
this state under a practice privilege without obtaining a
California certificate or license if the individual satisfies
specified experience, licensure, education and examination
requirements.
3)Requires, in order to obtain a practice privilege, an
individual who meets the above requirements to notify the CBA
of the individual's intent to practice and pay a fee, as
specified.
4)Subjects those who hold a practice privilege to the personal
and subject matter jurisdiction and disciplinary authority of
the CBA and California's courts.
5)Requires those who hold a practice privilege to comply with
California law governing the practice of accountancy, CBA
regulations, and other laws, regulations, and professional
standards applicable to the practice of public accountancy, as
specified.
6)Prohibits those who hold a practice privilege from providing
public accountancy services in California from any office
located in California, except as an employee of a firm
registered in California, as specified.
7)Requires those who hold a practice privilege to cooperate with
any CBA investigation or inquiry, as specified.
8)Prohibits an individual from practicing under a practice
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privilege without prior approval of the CBA if the individual
has, or acquires at any time during the term of the practice
privilege, any of the following disqualifying conditions:
a) Conviction of any crime other than a minor traffic
violation;
b) Revocation, suspension, denial, surrender or other
discipline or sanctions involving any license, permit,
registration, certificate or other authority to practice
any profession in this or any other state or foreign
country or to practice before any state, federal, or local
court or agency, or the PCAOB;
c) Pendency of any investigation, inquiry or proceeding by
or before any state, federal or local court or agency,
including, but not limited to, the PCAOB, involving the
professional conduct of the individual;
d) Any judgment or arbitration award against the individual
involving the professional conduct of the individual in the
amount of $30,000 or greater; or,
e) Any other conditions as specified by the CBA in
regulation.
9)Provides grounds and procedures for denying, revoking, or
suspending a practice privilege or imposing fines or other
disciplinary sanctions for violating practice privilege
statutes or other accountancy laws or regulations, as
specified.
10)Allows certified public accounting firms authorized to
practice in other states to practice in California through the
holder of a practice privilege, as specified.
11)Requires the CBA to set the annual fee for a practice
privilege with an authorization to sign attest reports at an
amount not to exceed one hundred twenty-five dollars ($125).
The annual fee for a practice privilege without an
authorization to sign attest reports shall not exceed 80% of
the aforementioned fee.
12)Authorizes any board or bureau within DCA to establish, by
regulation, a system for an inactive license category for
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persons not actively engaged in practice, subject to certain
provisions.
13)Authorizes any licensee whose license expires while on active
duty as a member of the National Guard or the U.S. Armed
Forces to reinstate his or her license without examination or
penalty if certain requirements are met.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author, "This bill seeks
to bring California law into alignment with the laws of 48 other
states, which allow out-of-state licensees to practice across
state borders without first filing a form and paying a fee to
exercise a 'practice privilege.' Generally referred to as
'mobility' laws, the laws of these other states generally tract
provisions of the Uniform Accountancy Act. New York was the
most recent state to enact mobility legislation (in 2011). The
provisions of SB 1405 are largely consistent with the New York
law, but add the following additional consumer protections:
SB 1405 will require the CBA to modify their website, to give
consumers easy access to information about out-of-state
licensees seeking to practice here that is 'at least equal
to' the information previously made available through the
filing of the practice privilege form under existing law.
Beginning in 2016, the CBA will have authority to require a
practice privilege form to be filed by licensees from a
particular state, if the CBA determines such action is
necessary to protect consumers in this state, based on
specified criteria.
States that adopt enforcement and regulatory 'best practices,'
developed by NASBA, will not be subject to the potential
threat that California will require their licensees to file a
practice privilege form, thereby encouraging the adoption of
the 'best practices' nationally.
"The bill also requires a report to the Legislature on the
impact of the legislation, and has a sunset of January 1, 2019."
The author also notes, "CPAs who are engaged in full-time
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training or active service in the U.S. Army, Navy, Air Force, or
Marine Corps cannot practice accountancy and should not be
burdened with the cost of licensing when they indeed cannot
practice and are actively engaged in military service. Current
law does not account for exemptions for military service and
this bill addresses this issue."
Background . The practice privilege provisions of this bill
represent a multi-year effort on the part of the accounting
profession to facilitate cross-border practice.
California's current practice privilege program requires
out-of-state CPAs to provide notice of their intent to practice
accountancy in California to CBA by filling out a form, which
can be completed online, and paying a $100 fee. The practice
privilege form is four pages in length and requires basic
professional identifying information such as name, address, CPA
certificate, nature of the intended practice in California, etc.
This bill eliminates the requirement to submit the form and fee
to CBA beginning July 1, 2013, and ending January 1, 2019, and
instead allows out-of-state licensees to practice under a
practice privilege without any fee or notification to the CBA.
It maintains many of the consumer protection provisions that
exist in current practice privilege statutes, adds stop-practice
provisions, and adds consumer information provisions by
requiring the CBA to post information on its website about
out-of-state licensees operating under a practice privilege.
The bill functions as something of a pilot by enacting the
changes only until January 1, 2019, when current law will be
reinstated. The bill requires the CBA to evaluate whether the
changes the bill enacts are more, less, or equivalent to current
law in the protection they afford the public, among other
things.
This bill also allows CBA licensees to have a permit placed on
MIS.
Existing law authorizes a member of the National Guard or the
U.S. Armed Forces to reinstate his or her professional license
or registration without examination or penalty if the license
expires while the licensee or registrant is on active duty. Any
licensee or registrant who continues to practice that
profession, either part-time or full-time, must maintain an
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active license in good standing, even while serving in the
military.
Existing law exempts medical doctors from the requirement to pay
the renewal fee while engaged in full-time training or active
service in the Army, Navy, Air Force, or Marines, or in the U.S.
Public Health Service. Those exempted from the renewal fee are
prohibited from engaging in any private practice and must pay
the fee after discharge from full-time active service.
Support . CalCPA writes, "SB 1405 provides for both consumer
protection and taxpayer choice. It is part of a national effort
by all state boards of accountancy to conform the regulation of
CPAs to a national standard that provides seamless, uniform
consumer protection. Business interests flow across state
lines. CPAs who provide services to businesses must be able to
support their clients even if their business crosses state
lines.
"The smallest California CPA firm has clients with business and
personal interests outside this state and, with increasing
frequency, outside this country. Only out-of-state CPAs meeting
the highest licensing and performance standards would be allowed
to provide services to their clients in California under
California's proposed interstate practice law without
registering with the CBA."
Deloitt LLP, Ernst & Young LLP, Grant Thornton LLP, KPMG LLP,
PricewaterhouseCoopers LLP writes, "This important reform will
bring California law in line with the 'mobility' laws of 48
other states, all of which authorize cross-border practice
without advance notice to their accountancy boards, or the
payment of a fee.
"SB 1405 incorporates the best attributes of the laws that
preceded it. Last year, the State of New York enacted mobility
legislation?Like the New Your mobility law, SB 1405 sets forth
'disqualifying conditions' that restrict the ability of an
out-of-state licensee to practice here?Similarly, an
out-of-state licensee must cease practice in California, and
notify the CBA, if the individual becomes subject to such a
disqualifying condition?Further, an out-of-state licensee that
exercises a practice privilege in this state 'is subject to the
personal and subject matter jurisdiction and disciplinary
authority of the board and the courts' of California. As such,
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the full enforcement authority of this state may be exercised
against an individual licensed by another state who practices
public accountancy here under the mobility provisions of SB
1405."
Related legislation . AB 1588 (Atkins) requires DCA boards to
waive professional license renewal fees and CE requirements for
military reservists called to active duty. This bill is pending
in Senate Rules Committee.
SB 1236 (Price), among other things, exempts physician
assistants from the payment of the renewal fee while engaged in
full-time training or active service in the Army, Navy, Air
Force, or Marines, or in the U.S. Public Health Service. This
bill is pending in Assembly Business, Professions and Consumer
Protection Committee.
Previous legislation . AB 431 (Ma), Chapter 395, Statutes of
2011, authorizes the CBA to establish a retired status license
for CPAs and PAs, as specified.
AB 2473 (Niello) of 2008 eliminates the experience-based pathway
for qualification to take the CPA examination, and the
requirement that out-of-state and foreign CPAs hold a practice
privilege from the CBA prior to practicing public accountancy in
California. This bill was held in Assembly Business and
Professions Committee.
AB 1666 (Frommer), Chapter 345, Statutes of 2005, requires,
among other things, the State Bar to waive the membership fees
of any attorney in good standing for the duration of his or her
military service upon written proof of such service.
REGISTERED SUPPORT / OPPOSITION :
Support
CalCPA (sponsor)
Deloitt LLP
Ernst & Young LLP
Grant Thornton LLP
KPMG LLP
PricewaterhouseCoopers LLP
Opposition
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None on file.
Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916)
319-3301