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