BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1405
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          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       
           
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          |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
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            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
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            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
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           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.










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           Analysis Prepared by  :    Angela Mapp / B.,P. & C.P. / (916) 
          319-3301



                                                                FN: 0005016