BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1405| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 1405 Author: De León (D) Amended: 8/23/12 Vote: 21 SENATE BUSINESS, PROF. & ECON. DEV. COMMITTEE : 9-0, 4/16/12 AYES: Price, Emmerson, Corbett, Correa, Hernandez, Negrete McLeod, Strickland, Vargas, Wyland SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SENATE FLOOR : 37-0, 5/14/12 (Consent) AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, Evans, Fuller, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Simitian, Steinberg, Vargas, Walters, Wolk, Wright, Yee NO VOTE RECORDED: Runner, Strickland, Wyland ASSEMBLY FLOOR : Not available SUBJECT : Accountancy: military service: practice privilege SOURCE : California Certified Public Accountant DIGEST : This bill revises California's practice privilege statutes for the practice of accountancy to allow CONTINUED SB 1405 Page 2 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). Assembly Amendments add numerous provisions to the bill related to practice privilege statutes for the practice of accountancy in California by out-of-state licensees. ANALYSIS : Existing law: 1. Licenses and regulates some 80,000 CPAs and PAs under the Accountancy Act by the CBA within the Department of Consumer Affairs (DCA). 2. Authorizes any CBA or bureau within the DCA to establish, by regulation, a system for an inactive license category for persons not actively engaged in practice, subject to certain provisions, including: (Business and Professions Code (BPC) Section 462) 3. Establishes fees for the renewal of a CPA license. (BPC Section 5134) 4. Requires each licensee to complete specified continuing education requirements as condition of license renewal. (BPC Section 5027) 5. Requires each CPA firm to undergo a peer review at least every three years as a condition of registration renewal. (BPC Section 5076) 6. Authorizes any licensee whose license expired while he/she was on active duty as a member of the California National Guard or the United States Armed Forces to reinstate his/her license without examination or penalty if certain requirements are met. (BPC Section 114) 7. Authorizes an individual whose principal place of business is not in this state, and who has a valid and CONTINUED SB 1405 Page 3 current license, certificate, or permit, to practice public accountancy from another state, and to engage in the practice of public accountancy in this state under a practice privilege if a condition is satisfied. Under existing law, if such a condition is met, the individual, in order to obtain a practice privilege, is required to, among other things, provide notice to the CBA by submitting a notification form and pay fees, as specified. 8. Provides that an individual with a practice privilege is subject to the personal and subject matter jurisdiction and disciplinary authority of the CBA and the state courts and is required to comply with the accountancy provisions applicable to licensees. Under existing law, except as otherwise specified, a practice privilege expires one year from the date of the notice to the CBA. 9. Authorizes the CBA to deny practice privileges using specified procedures. Existing law prohibits an individual with a practice privilege from signing an attest report unless he/she meets specified experience requirements and completes any continuing education or other conditions as required by the CBA. 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 CONTINUED SB 1405 Page 4 the CBA, a fee, or any other requirement imposed by the CBA, and makes 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 U.S. 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. Disclosure of this information shall not be considered discipline. 8. Requires CBA to adopt emergency regulations in accordance with the Administrative Procedure Act to establish policies, guidelines and procedures to CONTINUED SB 1405 Page 5 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 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 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 CONTINUED SB 1405 Page 6 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. 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. This bill functions as something of a pilot by enacting the changes only until January 1, 2019, when existing law will once again be operative. This bill requires the CBA to evaluate whether the changes this bill enacts are more, less, or equivalent to existing law in the protection they afford the public, among other things. This bill also allows CBA licensees to have a permit placed CONTINUED SB 1405 Page 7 on MIS. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes 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. SUPPORT : (Verified 8/28/12) California Certified Public Accountant (source) Deloitte LLP Ernst & Young LLP Grant Thornton LLP KPMC LLP PricewaterhouseCoopers LLP ARGUMENTS IN SUPPORT : According to the author's office, this bill exempts a certified public accountant or a public accountant from the biennial renewal fee while the permit holder is engaged in full-time training or active service in the California National Guard, U.S. Army, Navy, Air Force, or Marine Corps. According to the author's office, currently CPAs or PAs are required to pay the biennial fee for the renewal of each of the permits to engage in the practice of public accountancy, an amount up to $250. The author's office states that CPAs who are engaged in full-time 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. Existing law does not provide CONTINUED SB 1405 Page 8 exemptions for military service, and the Author states that this bill addresses the issue. JJA:k 8/28/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED