BILL ANALYSIS
AB 138
Page 1
ASSEMBLY THIRD READING
AB 138 (Hayashi)
As Amended April 23, 2009
Majority vote
BUSINESS & PROFESSIONS 9-1 APPROPRIATIONS 12-5
------------------------------------------------------------------
|Ayes:|Hayashi, Emmerson, Eng, |Ayes:|De Leon, Ammiano, Charles |
| |Hernandez, Niello, John | |Calderon, Davis, Fuentes, |
| |A. Perez, Price, Ruskin, | |Hall, John A. Perez, |
| |Smyth | |Price, Skinner, Solorio, |
| | | |Torlakson, Krekorian |
| | | | |
|-----+--------------------------+-----+---------------------------|
|Nays:|Nava |Nays:|Nielsen, Duvall, Harkey, |
| | | |Miller, |
| | | |Audra Strickland |
| | | | |
------------------------------------------------------------------
SUMMARY : Requires California-licensed accounting firms to
undergo a peer review of their accounting and auditing services.
Specifically, this bill :
1)Imposes a peer review requirement for all accounting firms
relative to accounting and auditing practice, which would be
conducted by a peer review program recognized by the
California Board of Accountancy (CBA).
2)Requires the CBA to adopt emergency regulations as necessary
to implement the program, and to appoint a peer review
oversight committee, as specified.
3)Specifies that these provisions shall be operative only if
sufficient appropriations and hiring authority are provided to
support these activities.
4)Makes findings and declarations regarding the value of peer
review.
AB 138
Page 2
EXISTING LAW :
1)Provides for the licensing and regulation of accountants and
accounting firms by CBA, and prohibits a person from engaging
in the practice of public accountancy in this state unless he
or she holds either a license issued by CBA.
2)Subjects an accounting firm providing attest services, with
certain exceptions, to peer review as specified, if CBA, prior
to September 1, 2011, determines that a peer review program
should be implemented and identifies the resources necessary
for that implementation.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, special fund costs in excess of $400,000 per year
(Accountancy Fund) for the workload associated with creating and
maintaining a peer review program. Included in that funding is
an estimated $160,000 in enforcement costs related to the
Attorney General's Office investigating an additional 16 cases
each year as a result of audit findings.
COMMENTS : According to the author's office, "With the ongoing
changes to professional standards that are designed to ensure
accuracy and quality of accounting and auditing engagements, it
is imperative that products and services provided to consumers
meet specific standards. Accounting firms going through the
educational process of a peer review will be better equipped to
deliver high quality accounting and auditing services and
products to consumers."
Peer review is a study, appraisal, or review of the accounting
and auditing work of a firm by a licensed certified public
accountant (CPA) who is unaffiliated with the firm being
reviewed, and is done in accordance with applicable professional
standards. The goal of peer review is to increase consumer
protection through a systemic review of accounting firms to
ensure that work conforms to professional standards. Peer
review achieves this goal in two ways: 1) by monitoring and
promoting quality accounting and auditing services provided by
accounting firms; and, 2) providing CBA with an enhanced
enforcement opportunity through reports of firms receiving
substandard peer reviews.
AB 138
Page 3
Forty-one state boards of accountancy currently require
mandatory peer review for licensure or license renewal, using
the peer review program developed and managed by the American
Institute of Certified Public Accountants (AICPA).
Firms providing audit, attest, or compilation (accounting and
auditing) services will be required to undergo a systematic
review (peer review) to ensure that work performed conforms to
professional standards. Peer review will be required for these
firms every three years as a condition for license renewal. The
CBA will require that firms report the date they underwent peer
review and the results of the peer review at the time of license
renewal. Firms receiving a substandard peer review report (in
essence a failed grade) will be required to submit the report
directly to the CBA. These reports will be reviewed by the
CBA's Enforcement Division, in conjunction with the CBA's
Administrative Committee, to determine if CBA action is
necessary.
Peer reviews will be performed by CPAs knowledgeable in
generally accepted accounting principles and generally accepted
auditing standards. The CBA will use outside organizations,
such as the AICPA Peer Review Program, to assist in the
administration of peer reviews. Firms will be required to
enroll in a CBA-recognized peer review provider's program, which
will work with firms to: ensure peer reviews are completed
timely; firms select peer reviewers with a currency of knowledge
of the professional standards related to the type of practice to
be reviewed; and review and accept peer review reports.
To ensure the effectiveness of mandatory peer review, the CBA
will establish a Peer Review Oversight Committee (PROC), the
purpose of which is to engender confidence in the peer review
program from consumers and the profession. The PROC will be
authorized to request any information and materials deemed
necessary to ensure that peer reviews are administered in
accordance with the standards established by the CBA in
regulation. The PROC will use these materials when performing
peer review program provider site visits and participating in
peer review program providers' peer review report acceptance
meetings.
Analysis Prepared by : Ross Warren / B. & P. / (916) 319-3301
AB 138
Page 4
FN: 0001159