BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 138|
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THIRD READING
Bill No: AB 138
Author: Hayashi (D)
Amended: 9/2/09 in Senate
Vote: 21
SENATE BUSINESS, PROFESSIONS & ECONOMIC DEVELOPMENT
COMMITTEE : 9-0, 6/29/09
AYES: Negrete McLeod, Wyland, Aanestad, Corbett, Correa,
Florez, Oropeza, Romero, Yee
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : 8-2, 8/27/09
AYES: Kehoe, Corbett, Hancock, Leno, Oropeza, Price, Wolk,
Yee
NOES: Cox, Denham
NO VOTE RECORDED: Runner, Walters, Wyland
ASSEMBLY FLOOR : 73-6, 6/1/09 - See last page for vote
SUBJECT : Accounting firms: peer review
SOURCE : California Board of Accountancy
DIGEST : This bill requires, until January 1, 2014,
California-licensed accounting firms to undergo a peer
review of their accounting and auditing services every
three years.
ANALYSIS :
CONTINUED
AB 138
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Existing law:
1. Licenses and regulates some 40,000 certified public
accountants (CPAs) under the Accountancy Act by the
California Board of Accountancy (Board) within the
Department of Consumer Affairs.
2. Requires, in order to renew its registration, that an
accountancy firm providing attest services, must
complete a peer review every three years, if the Board
establishes a peer review program.
3. Requires the Board to adopt regulations as necessary to
implement, interpret, and make specific the peer review
requirements, including requirements for the approval of
peer review providers, and establishing a peer review
oversight committee.
4. Requires the Board to review and evaluate whether to
implement a peer review program, and report its findings
and recommendations to the Legislature and the DCA by
September 1, 2011.
5. Provides that if the board determines that a peer review
program should be implemented, the Board must identify
the resources necessary for implementation and recommend
a date to begin the peer review program.
This bill:
1. Makes the peer review requirement apply to all
accounting firms, regardless of size, who perform
accounting and auditing practices, and requires that the
peer review be conducted by a peer review program
recognized by the Board.
2. Requires the Board to adopt emergency regulations, by
January 1, 2010, as necessary to implement the program.
3. Requires both the accounting firm that receives a
substandard peer review, and the peer review program, to
file a copy of any substandard peer review report with
the Board within 60 days.
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4. Requires the Board to define "substandard peer review
report" in regulation by January 1, 2010.
5. Provides that nothing shall prohibit the Board from
initiating an investigation and imposing discipline as
the result of a complaint from information contained in
a peer review report received by the Board.
6. Requires any report of a substandard peer review to be
collected by the Board for investigatory purposes.
7. Provides that nothing in the peer review provisions
shall affect the discovery or admissibility of evidence
in a civil or criminal action.
8. Prohibits a peer reviewer from disclosing information
concerning licensees or clients obtained during a peer
review, unless specifically authorized under law.
9. Requires the Board, until January 1, 2014, to appoint a
peer review oversight committee, composed of
California-licensed CPAs, to make recommendations to the
Board on any matter to ensure the effectiveness of
mandatory peer review.
A. Authorizes the committee to request any
information from a Board-recognized peer review
program provider deemed necessary to ensure the
provider is administering peer reviews in keeping
with the standards in board regulations.
B. Provides that any information obtained in
conjunction with reviewing peer review program
providers shall not be a public record, and shall
be exempt from public disclosure, but provides that
the information may be disclosed under any of the
following circumstances:
(1) In connection with disciplinary
proceedings of the board.
(2) In connection with legal proceedings in
which the board is a party.
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(3) In response to an official inquiry by a
federal or state governmental regulatory
agency.
(4) In compliance with a subpoena or
summons enforceable by court order.
(5) Or as otherwise specifically required
by law.
10.Requires the Board, by January 1, 2013, provide the
Legislature and the Governor with a report regarding
peer review, as specified.
11.Sunsets, on January 1, 2014, the requirement that a
firm, in order to renew its registration, have a peer
review report of its accounting and auditing practice
accepted by a board-recognized peer review program no
less frequently than every three years.
12.Makes findings and declarations regarding the value of
peer review.
Background
Peer Review . Peer review is a study, appraisal, or review
of the accounting and auditing work of a firm by a licensed
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 the Board
with an enhanced enforcement opportunity through reports of
firms receiving substandard peer reviews.
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).
Prior/Related legislation
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AB 797 (Ma) of 2009 , requires the California Board of
Accountancy to publish disciplinary decisions on its
Website for a period of at least 10 years.
AB 1005 (Block) of 2009 , requires the California Board of
Accountancy to publish on its Website a notice of formal
disciplinary accusations, documents related to disciplinary
decisions, a live audio or video broadcast of public
meetings, and the meeting minutes, as specified.
AB 117 (Niello) of 2009 , requires the holder of an inactive
certified public accountant license to disclose the
inactive license status on all materials that display the
CPA designation.
SB 691 (Yee) of 2009 , as heard by this Committee would
have, effective January 1, 2014, deleted the current
120-hour pathway education requirement, thereby requiring,
after January 1, 2014, an applicant for a CPA license to
meet the criteria of the150-hour pathway requirement for
education. This bill was heard in this Committee on April
27 and passed 7-0. This bill was substantially amended to,
instead, require, beginning January 1, 2014, applicants for
CPA licensure who have a BA degree and two years of
experience to acknowledge when they sit for the exam that
licensure under that pathway may not be considered
substantially equivalent for purposes of practice
privileges in other states that require 150 semester units
or hours for licensure.
AB 585 (Nation), Chapter 704, Statutes of 2001 , and SB
133 (Figueroa), Chapter 718, Statutes of 2001 , established
the initial requirement for firms other than sole
proprietor or small firms who provide attest services to
undergo peer review every three years.
AB 270 (Correa), Chapter 231, Statutes of 2002 , required
the Board to study whether to implement a peer review
program, and report to the Legislature by September 1,
2003.
SB 1543 (Figueroa), Chapter 921, Statutes of 2004 , extended
the date of the reporting requirement to 2005.
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SB 503 (Figueroa), Chapter 447, Statutes of 2006 , extended
the date of that reporting requirement to September 1,
2011.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee analysis:
Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12
Fund
Oversight of peer review $200 $410 $400
Special*
Requirement for accounting
Firms
*Accountancy Fund
SUPPORT : (Verified 9/2/09)
California Board of Accountancy (source)
California Senior Legislature
California Society of Certified Public Accountants
OPPOSITION : (Verified 9/2/09)
Society of California Accountants
ARGUMENTS IN SUPPORT : In sponsoring this bill, the
California Board of Accountancy writes: "With a growing
demand for increased transparency in all areas of business,
the Board believes that a mandatory peer review program,
built on a platform of both education and enforcement, is
necessary and advantageous to both California consumers and
the accounting profession. Forty-one other accounting
jurisdictions presently require mandatory peer review for
licensure or license renewal, and for California to remain
a leader in the regulation of the accounting profession and
enhance the protection of consumers, California must adopt
mandatory peer review."
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California Society of Certified Public Accountants writes:
"It is essential that California implement a peer review
requirement at the earliest opportunity to provide the
highest level of consumer protection. Peer review, along
with continuing education requirements and other report
quality monitoring programs, is an important tool in
ensuring that California CPAs are encouraged to maintain
competence and thus avoid future disciplinary problems
and/or consumer harm."
ARGUMENTS IN OPPOSITION : The Society of California
Accountants (SCA) has an "oppose unless amended" position
on this measure. SCA writes that although peer review is
valuable and beneficial for firms offering a number of
accounting and auditing services, such as complex full
disclosure compilations, audits and reviews, the bill would
also require peer review for non-disclosure of other
comprehensive basis of accounting (OCBOA) financial
statements. SCA states: "Non-disclosure OCBOA financial
statements are generally requested by small business and
issued by small CPA firms or sole practitioners.
Instituting peer review for CPAs providing these types of
services will adversely affect small businesses and the
public. The resulting increase in the cost to provide
these services will affect those least able to afford them,
small businesses. In these economic times, increased costs
may drive small businesses to engage the services of
unlicensed and unregulated bookkeeping services. This will
not only be detrimental to the practice of accountancy but
more importantly, will not be in the best interest of the
general public." SCA requests the bill be amended to
exclude CPAs issuing non-disclosure OCBOA financial
statements from the mandatory peer review requirement.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
Duvall, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Gilmore,
Hall, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,
Jeffries, Jones, Knight, Krekorian, Lieu, Logue, Bonnie
AB 138
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Lowenthal, Ma, Mendoza, Miller, Monning, Nestande,
Niello, John A. Perez, V. Manuel Perez, Portantino,
Price, Ruskin, Salas, Saldana, Silva, Skinner, Smyth,
Solorio, Swanson, Torlakson, Torres, Torrico, Tran,
Villines, Yamada, Bass
NOES: DeVore, Garrick, Hagman, Nava, Nielsen, Audra
Strickland
NO VOTE RECORDED: Block
JJA:do 9/2/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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