BILL ANALYSIS Ó SB 1405 Page 1 SENATE THIRD READING SB 1405 (De León) As Amended August 20, 2012 Majority vote SENATE VOTE :37-0 BUSINESS & PROFESSIONS 9-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Hayashi, Bill Berryhill, |Ayes:|Gatto, Harkey, | | |Allen, Butler, Eng, | |Blumenfield, Bradford, | | |Hagman, Hill, Ma, Smyth | |Charles Calderon, Campos, | | | | |Davis, Donnelly, Fuentes, | | | | |Hall, Hill, Cedillo, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | ----------------------------------------------------------------- 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)Allows the CBA to register out-of-state accounting firms for the purpose of allowing them to satisfy current-law registration requirements, provided that the CPAs providing services in California qualify for the practice privilege and the firms satisfy all other requirements to register in this state, as specified. 2)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. 3)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 SB 1405 Page 2 conforming changes. 4)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: an audit or review of a financial statement for an entity headquartered in California; 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, an examination of prospective financial information for an entity headquartered in California. 5)Maintains current law provisions subjecting those who hold a practice privilege to the jurisdiction and disciplinary authority of the CBA and California's courts, as specified, and additionally requires a practice privilege holder to cease practice, notify the CBA, and abide by additional practice restrictions under specified conditions. 6)Provides conditions and procedures under which a practice privilege can be revoked, which are substantially similar to current law provisions for the denial of a practice privilege, including disqualifying conditions. 7)Requires, beginning January 1, 2019, the CBA to consult the Public Company Accounting Oversight Board and the United States Securities and Exchange Commission every six months to identify out-of-state licensees who may have disqualifying conditions, or may be obliged to cease practice, and to disclose whether those licensees are lawfully permitted to exercise the practice privilege. 8)Requires CBA to adopt emergency regulations in accordance with the Administrative Procedure Act to establish policies, guidelines and procedures to initially implement this bill, as specified. 9)Requires CBA to add a feature to its Web site that allows 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 SB 1405 Page 3 previously filed by out-of-state licensees, as specified. 10)Allows CBA to require, by regulation, 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. 11)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 10) above, no later than July 1, 2015. Before January 1, 2016, and thereafter as it deems appropriate, CBA must review its determinations to ensure that it is in compliance with this bill's provisions, as specified. 12)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 the provisions of this bill are consistent with CBA's duty to protect the public and whether provisions of this bill satisfy the objectives of California's accounting profession stakeholders, including consumers. 13)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. 14)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 provides sufficient evidence of, active duty as a member of the California National Guard or the U.S. Armed Forces, as specified. 15)Makes additional conforming and technical changes. SB 1405 Page 4 FISCAL EFFECT : According to the Assembly Appropriations Committee: 1)Waiving the fees for out of state CPAs who wish to practice in California would reduce revenue by approximately $200,000 per year. A $50,000 reduction in expenditures due to reduced workload would partially offset the loss of revenue. 2)Costs associated with convening the workgroup and producing the required report for the Legislature would be minor and absorbable within existing resources. COMMENTS : 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 Web site 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 once again be operative. 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. SB 1405 Page 5 Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916) 319-3301 FN: 0005016