BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
138 (Hayashi)
Hearing Date: 8/27/2009 Amended: 6/15/2009
Consultant: Bob Franzoia Policy Vote: B,P&ED 9-0
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BILL SUMMARY: AB 138 would impose a peer review requirement for
all accounting firms relative to accounting and auditing
practices, which would be conducted pursuant to a California
Board of Accountancy (CBA) recognized peer review program. The
CBA would be required to adopt emergency regulations as
necessary to implement the program and to adopt by January 1,
2010, regulations defining a substandard peer review report.
Accounting firms and peer review program providers would be
required to file copies of substandard peer review reports with
the CBA. This bill would specify that these provisions shall
become inoperative on June 30, 2010, if sufficient hiring
authority is not granted pursuant to a budget change proposal to
provide staffing to implement these provisions.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Oversight of peer review $200 $410
$400Special*
requirement for accounting
firms
* Accountancy Fund
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STAFF COMMENTS: SUSPENSE FILE.
Peer review means a study, appraisal, or review conducted in
accordance with professional standards of the professional work
of a firm by an individual who has a valid and current license,
certificate, or permit to practice public accountancy from this
state or another state and is unaffiliated with the firm being
reviewed, and may include an evaluation of other factors in
accordance with requirements specified by the board in
regulations.
Estimated CBA costs are as follows:
2010-11 2011-12 2012-13
Licensing $106,594 $113,819 $113,819
Division
Enforcement $296,771 $289,871
Division________________________________________________________
$106,594 $410,590 $403,690
The cost of the peer review is based on the size of the firm and
the time required for the review. The California Society of
Certified Public Accountants (CalCPA), the
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AB 138 (Hayashi)
administered entity for the American Institute of Certified
Public Accountants Peer
Review Program. The CalCPA charges an annual enrollment fee for
administrative purposes and evaluates this fee, currently $150
for the first professional, and $50 for each additional
professional up to a maximum fee of $1,500. A professional is a
licensee and other persons earning the experience required to
become a licensee. In addition to the annual enrollment fee,
the firm being peer reviewed pays a negotiated hourly rate to
the peer reviewer or team.
A system review, which generally requires onsite visits and more
significantly more review time is more costly than an engagement
review. The firm being peer reviewed selects from a list of
approved peer reviewers, though the administering entity may
select the reviewer when the firm encounters difficulty with the
selection process. The firm must select a peer reviewer that
has similar practice experience and industry knowledge. Prior
to commencement of the peer review, the administering entity
must approve the firm's selected peer reviewer.
The CBA estimates there are 6,000 firms that will be subject to
peer review every three years. Of the 2,000 subject to peer
review annually, it is estimated 100 firms (five percent) will
receive a substandard report. Those reports will be reviewed by
the CBA's Enforcement Division with an estimated 20 reports
prompting further action.
Of the 20 new investigations, it is estimated four cases will
result in either closure, citation or fine, or additional
continuing education. The remaining 16 cases will be referred
to the Department of Justice with eight resulting in
administrative hearings and eight resulting in some type of
stipulated settlement.
The Accountancy Fund is projected to have a 2009-10 fund balance
of $11,776,000. The fund provided a $14,000,000 loan to the
General Fund in the Budget Act of 2008.
Section 4 of this bill states that the provisions of Business
and Professions Sections 5076 and 5076.1 would become
inoperative on June 30, 2010, if sufficient hiring authority is
not granted pursuant to a budget change proposal (BCP) to the
CBA to provide staffing to implement those sections. This
language is problematic in that any BCP would not be effective
prior to July 1, 2010, what "sufficient hiring authority" would
be is not specified, and the CBA would already have incurred
costs to adopt emergency regulations for a program that may have
its funding delayed. To ensure implementation as determined by
the Legislature, staff recommends this section be deleted.
Additionally, staff recommends the time between when the CBA has
to replace emergency regulations with final, permanent
regulations be increased from 120 days to 180 days (page 3, line
34) in order to ensure there is sufficient time to adopt final
regulations.