BILL ANALYSIS
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|Hearing Date:April 27, 2009 |Bill No:SB |
| |691 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: SB 691Author:Yee
As Amended:April 13, 2009 Fiscal: Yes
SUBJECT: Accountants.
SUMMARY: Effective January 1, 2014, deletes 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.
Existing law:
1)Licenses and regulates some 40,000 certified public accountants
(CPAs) under the Accountancy Act (Act) by the California Board of
Accountancy (Board) within the Department of Consumer Affairs.
2)Requires an applicant for the CPA license to comply with
education, examination, and experience requirements under one of
two provisions that establish different criteria (Pathways) for
CPA licensure as follows:
a) Completion of a baccalaureate or higher degree, as
specified, including 24 semester units in accounting and 24
semester units in business related subjects, passing the
examination prescribed by the Board, and two years of
qualifying experience (120-hour pathway) (BPC 5092).
b) Completion of a baccalaureate or higher degree, as
specified, including 24 semester units in accounting and 24
semester units in business related subjects, passing the
examination prescribed by the Board. In addition, requires
proof of completion of at least 150 semester units (including
the baccalaureate degree), and one year of qualifying
experience (150-hour pathway) (BPC 5093).
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3)Establishes criteria upon which an applicant for licensure who is
a CPA licensed by any other country may be deemed to have met the
examination requirements of the Act (BPC 5082.3).
4)Establishes criteria upon which a Canadian Chartered Accountant
may be deemed to have met the examination requirements of the Act
(BPC 5082.4)
5)Establishes criteria upon which a licensee shall be authorized to
sign reports on attest (audit) engagements (BPC 5095).
This bill:
1)Effective January 1, 2014, deletes the 120-hour pathway, above,
thereby requiring, after January 1, 2014, an applicant for a CPA
license to meet the criteria of the 150-hour pathway.
2)Makes conforming changes.
FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. This bill is Sponsored by California Society of
Certified Public Accountants (Sponsor). According to the
Sponsor, this measure would conform California's CPA
education/licensing laws to those of 46, soon to be 48, other
states. Without conforming this education requirement,
California consumers are not assured the same level of service
that consumers in other states enjoy, and California CPAs may
face insurmountable hurdles in representing their clients in
other states.
The Sponsor indicates that as a result of not providing for a
single education pathway of 150-hours, 75,000 [sic.] licensed
California CPA's could have their ability to practice in other
states either limited or eliminated. This would not only
impact California consumers, who rely on California CPA's, it
would also place California CPA's at a competitive disadvantage
with out-of-state practitioners. The Sponsor maintains that
the problem is already at hand as some states already bar or
limit California CPA's from representing their client's
interests in their state.
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The Sponsor states that this bill will bring California standards
into line with the national standards used by the vast majority
of other states. Currently, California law differs from other
states in that it allows two pathways to licensure:
Pathway 1 - BA to sit for the Uniform CPA Exam and
two years of experience for licensing.
Pathway 2 - BA to sit for the Uniform CPA Exam and
150 semester units total and one year of experience prior
to licensure.
The Sponsor notes that only the Pathway 2 meets the national
standard.
The Sponsor explains that this measure would sunset Pathway 1
effective 2014, so that the next generation of California CPAs
will be considered equivalent to CPAs for other states and
allowed to represent their client's/taxpayer's interests in those
states. All existing CPAs and those licensed before 2014, would
be grandfathered in under the National Association of State
Boards of Accountancy Rules of Substantial Equivalency to ensure
that all California taxpayers are represented.
1.Background.
a) Prior Legislation. The proposal to make the 150-hour
requirement the sole pathway has been unsuccessful in the
Legislature on prior occasions:
In 1991, SB 869 (Boatwright) sought to establish a single
150-hour pathway to licensure, and failed due to opposition
from the Wilson Administration. Furthermore there was
objection to the bill arguing that it limited entry into the
CPA profession, and would have a negative impact upon blacks
and other minorities entering the profession, and may limit
the number of persons choosing accounting as a career with
significant disproportionate effect on minorities whose
economic resources are limited.
In 1996, the Joint Legislative Sunset Review Committee rejected
a similar proposal by the Board, and instead required the
Board to study its education and experience requirements ( SB
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1077 Greene, Chapter 1137, Statutes of 1996). That study
found "no relationship" between more education in any topic
and better passage rates on the CPA exam.
In 2001, AB 585 (Nation, Chapter 704, Statutes of 2001) was
considered, and when the possible impact of the 150-hour rule
on people of color came to light, the Legislature refused to
mandate the 150-hour rule as the sole pathway to licensure
when it forced amendments to the bill.
In 2008, AB 2473 (Niello and Ma) included the 150-hour rule, and
sought to repeal the practice privilege in favor of a broader
cross border practice provision. That bill was pulled prior
to its first committee hearing.
b) Sarbanes-Oxley Act of 2002. One of the reasons the
Sponsors have given that for the urgent need to pass this bill
is that federal law requires the rotation of partners in
public accounting firms.
The Public Company Accounting Reform and Investor Protection Act
of 2002, also known as the Sarbanes-Oxley Act of 2002, is the
federal law adopted in response to a number of major corporate
and accounting scandals including those affecting Enron, Tyco
International, Adelphia, Peregrine Systems and WorldCom and
dozens of other headline-making cases. These scandals had
mainly to do with audit failures that cost investors billions
of dollars when the share prices of affected companies
collapsed, and shook public confidence in the nation's
securities markets. The legislation set new or enhanced
standards for all U.S. public company boards, management and
public accounting firms.
The Sarbanes-Oxley Act required a number of new procedures
related to the auditing of publicly traded companies,
including a requirement that partners in firms auditing
publicly traded companies "rotate" through different offices
in different states, in part to assure that no partner
developed any too-close relationships with members of firms
they were auditing (Sarbanes-Oxley Act, Title II, Section 203
(j)). Under these provisions a publicly held company
providing audit services must "rotate" the lead audit partner
(having primary responsibility for the audit) or the audit
partner responsible for reviewing the audit. The mandate is
for rotation after five years, with a five-year time-out
period in which the former audit partners can have no
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decision-making authority in respect to the audit. Requiring
every partner in every auditing firm to have a license in
essentially every state would be burdensome at best and, in
light of gradually evolving common standards among the states,
potentially unnecessary.
c) Practice Privilege. The Legislature sought to resolve the
problem of the partner rotation provisions of Sarbanes-Oxley
Act, and the larger issue of the Board needing to know who was
practicing public accountancy in California by creating the
new "Practice Privilege." Under practice privilege, these
practitioners are required to notify the Board that they
intend to practice public accountancy in California by
completing and filing a Notification and Agreement to
Conditions for the Privilege to Practice Public Accounting
form, swear under penalty of perjury that they are qualified
to do so, and pay the required fee (either $50 to be
authorized to practice without authorization to sign attest
reports, or $100 with authorization to sign attest reports).
Practice privilege continues in effect until this day. (As
noted above, last year AB 2473 (Niello and Ma, 2008) sought to
repeal the requirement of an out of state CPA to hold a
practice privilege from the Board, and instead allowed
cross-border CPA practice without notice to the Board. That
bill died in Assembly Business and Professions Committee
without being heard).
In the increasingly national and international economy,
cross-border practice, and specifically, interstate practice,
as in the case of the Big Five accounting firms in particular,
is to be expected. However, California's interest in consumer
protection must overshadow the drive toward removing
safeguards, and should not permit such practice to go on
without the Board's knowledge or oversight. Part of the sense
of urgency which the proponents bring to the table is driven
by the increasing need to practice in other jurisdictions, one
element of which is the Sarbanes-Oxley partner rotation
requirement, which applies only to publicly held accounting
firms and not to privately held firms.
d) Uniform Accountancy Act. The Uniform Accountancy Act (UAA)
is a model bill and set of regulations designed to provide a
uniform approach to regulation of the accounting profession.
The UAA standards were developed by the American Institute of
Certified Public Accountants (AICPA), which is the national
professional association of CPAs, and the National Association
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of State Boards of Accountancy (NASBA), which is the national
organization of state accounting regulators. The original
model to regulate the practice of public accountancy was
published in 1916 by the American Institute of Accountants,
the predecessor of the AICPA. In 1984, AICPA and NASBA
published the first joint model bill, later renamed the
Uniform Accountancy Act. A substantial majority of state
accountancy laws now in force follow, in their principal
provisions, the example provided by earlier model accountancy
bills and the UAA. In 1997, the AICPA and NASBA approved
significant changes resulting in the current UAA.
As stated in the UAA, differing requirements for CPA
certification, reciprocity, temporary practice, and other
aspects of state accountancy legislation in the fifty-four
American licensing jurisdictions (the fifty states, Puerto
Rico, the District of Columbia, the U.S. Virgin Islands, and
Guam) constitute artificial barriers to the interstate
practice and mobility of certified public accountants. The
UAA is an attempt to eliminate such differences and barriers
posed to the effective practice of CPAs under modern
conditions through a standard of "substantial equivalency"
that was added to the UAA.
e) Substantial Equivalency. Perhaps the most significant
change in the UAA relates to providing greater ease of
mobility across state lines for CPAs both in person and
electronically. The cornerstone of the approach in the UAA is
the concept of "Substantial Equivalency" originated by NASBA.
Under this concept, if a CPA has a license in good standing from
a state that utilizes CPA certification criteria that are
essentially those outlined in the UAA, the CPA would be
qualified to practice in another state that is not the CPA's
principal place of business. To use the concept to obtain a
reciprocal license, a CPA must personally have qualifications
that are substantially equivalent to those in the UAA. A
NASBA Qualification Appraisal Service makes these
determinations of equivalency at the request of state boards,
on a state-by-state basis, as well as for individuals.
Substantial equivalency is a determination by NASBA that the
education, examination and experience requirements contained
in the statutes and administrative rules of another
jurisdiction are comparable to or exceed the education,
examination and experience requirements contained in the UAA.
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If the state of licensure does not meet the substantial
equivalency standard, individual CPAs may demonstrate that
they personally have education, examination and experience
qualifications that are comparable to or exceed those in the
UAA.
Both AICPA and NASBA have strongly urged states to adopt the
entire UAA so as to promote its concept of uniformity and
substantial equivalency, but only a few states have actually
adopted all aspects of the UAA. There are, however,
approximately 49 jurisdictions, including California, who now
have education, examination and experience requirements that
are considered by the NASBA as substantially equivalent to
those of the UAA.
However, the Sponsors contend (as stated in a footnote in a
NASBA document titled Substantial Equivalency, which the
Sponsors supplied to the Committee) that, "These states
[California, Delaware, Pennsylvania and Wyoming ] have more
than one path to licensure, with at least one path meeting the
3E criteria of the UAA (baccalaureate degree or higher with
150-hours, 1 year experience and Uniform CPA Examination).
Based on their current laws/rules, Delaware and Pennsylvania
will retain their SE status after 2012 because the additional
licensure pathways are set to expire prior to that deadline.
However, California and Wyoming must terminate the additional
licensure paths to retain their SE status beyond 2012."
f) Sunset Review of the Board of Accountancy and Consideration
of the Board's Proposal to Replace Current Licensing
Requirements with those of the UAA. In September 2000, the
Board of Accountancy submitted its required sunset report to
the Joint Legislative Sunset Review Committee (JLSRC). In
this report, the Board provided a legislative proposal to
enact UAA provisions that would significantly change
California law affecting the so-called "three Es" of CPA
licensure-education, experience, and examination. In a
nutshell, the Board proposed to: (1) increase the amount of
education necessary for CPA licensure, from 120 semester-hours
generally, with or without an undergraduate degree, to
150-semester hours with an undergraduate degree; the
equivalent of a master's degree; (2) decrease its existing
accounting experience requirement of 2 to 4 years, depending
on education level, to 1 year, and eliminate the requirement
that applicants for CPA licensure have experience in the
"attest" function (the preparation of audits and reviews); (3)
register those firms involved in providing "attest" services
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and provide for peer review of these firms; and, (4) adopt the
UAA's exam passage standards.
During the hearings conducted by JLSRC in December 2000 and in
April 2001, there were concerns raised about the impact the
UAA licensing provisions may have on the CPA profession in
California on future accounting students and on consumers of
CPA services. As pointed out, only a few states had any
experience with these changes because of delayed
implementation of these requirements, and at least one state,
Colorado, had recently decided to repeal these new
requirements. The Department of Consumer Affairs also was
opposed to these changes in licensing requirements. Because
of the controversy surrounding these changes, and an inability
to determine what impact these changes may have on the CPA
profession, and especially on future accounting students who
may wish to obtain a CPA license, and also to evaluate whether
or not consumers would be adequately served if certain
experience requirements were eliminated, JLSRC recommended
that a comprehensive analysis and study be completed by
September 1, 2003, prior to the next sunset review of this
Board, before the UAA licensing requirement replaced the
current licensing requirements.
g) This Committee Rejected the 150-hour Education Requirement
as a Single Pathway to Licensure as a CPA. In 2001, AB 585
(Nation, Chapter 704, Statutes of 2001) sought to establish
the 150-hour pathway as the only pathway to qualify for
licensure as a CPA in California. At that time, there was
much concern about the short-term impact upon students and the
long-term impact upon students from minority populations.
Ultimately the Legislature rejected the proposal making the
150-hour rule the only way to become a CPA, for two reasons:
First , according to a California Board of Accountancy (Board)
sponsored report, requiring extra education in any subject
matter of the student's choosing has apparently not had any
beneficial impact upon consumer protection or the excellence
of the profession. The Board itself commissioned a study of
the 150-hour proposal in the late 1990s. Dr. Oriel Strickland
researched and wrote "A Series of Studies Related to the
Education and Experience Requirements for Licensure in
California" (1999).
According to the 2001 Joint Legislative Sunset Review report on
the Board, "No relationship was found between the number of
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semester units candidates completed and their performance on
any section of the Uniform CPA Examination; therefore, there
was no strong evidence for this requirement to improve passage
on the Examination."
According to the same Sunset Review report, Dr. Strickland also
observed that students most frequently took about 120 units of
overall education and that only 37% sitting for the 1998 CPA
examination had, on their own, completed 150-hours.
The sunset report further states:
In 1999, Colorado's sunset review staff recommended
elimination of the 150-semester-hour requirement that was
to take effect in the year 2002. The Colorado Legislature
eliminated the requirement in its 2000 Legislative
Session. The following conclusions were made by the
sunset review staff:
"The 150 credit-hour educational requirement is an overly
restrictive entry barrier into the accounting profession
with no demonstrable public protection function. Adoption
of the 150 credit-hour requirement is likely to raise
consumer costs, entrench market power in those accountants
who attain the CPA designation, and restrict competition.
On the other hand, keeping the educational requirement at
the Bachelor's level is in line with current entry level
educational trends in both the private and public sectors,
and will promote the optimum utilization of personnel. A
full 72% of Colorado CPA survey respondents agree by
indicating that the current entry-level educational
requirement is 'about right.'"
Second, the Legislature was provided a 1999 study published in
the Florida Institute of CPAs journal, Florida CPA Today that
found that imposition of the 150-hour rule had a
disproportionately harsh impact on people of color. The
journal article made the following observations:
"One side effect of this additional requirement was the
financial burden placed on students seeking to become CPAs.
In particular, minority students were hit the hardest."
"Florida CPA Today talked to several minority
accounting majors who had considered switching majors at one
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time or another. All pointed to the extra financial burden
of the fifth year as a major reason."
The Florida article cites the experience of Texas and
Ohio and states that,
"In each state the 150-hour requirement created discernable
and measurable consequences for minority students."
After the possible impact that this new educational
requirement had on people of color came to light in 2001, the
Legislature refused to force all potential licensees to take
150-hours of education and told the Board not to try and
repeal the other pathway without studying the consequences
first, Section 1 of SB 133 (Figueroa, Chapter 718, Statutes of
2001). The study has never been done by the Board
[underlined for emphasis].
However, the harmful impact of the rule on people of color was
again documented in a 2005 CPA-authored survey of CPAs in nine
states, in which over 40% of those responding said that the
requirement had caused "a decrease in the number of qualified
minority applicants," something the authors describe as a
possible "profound problem" with the 150-hour requirement
(William Dresnack and Jeffrey Strieter, New York State Society
of CPAs, The CPA Journal, April 2005).
h) Agreement Reached on Optional Pathways to Licensure for CPA
Candidates. SB 133 was introduced on behalf of members of the
JLSRC and originally required the comprehensive analysis and
study to be conducted by an independent consultant chosen by
DCA, and for the study to be completed by September 1, 2003.
A related bill, AB 585 (Nation), as originally introduced,
would have implemented the UAA licensing requirements by
January 1, 2005. The Sponsor of AB 585 was opposed to SB 133,
and argued that a study would delay the implementation of the
UAA standards for at least an additional three years.
Subsequently, there was agreement to amend both SB 133 and SB
585 to provide an optional pathway for licensure under the
UAA. There also was agreement to make modifications to the
current education requirements to reflect the current pathways
that most CPA candidates elect. In the meantime, the Board
would review the implementation of the new UAA licensing
requirements.
3.Arguments in Support. As stated above California Society of
Certified Public Accountants, the Sponsor of the bill, argues
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that the bill would bring California standards into line with the
national standards used by the vast majority of other states and
that without conforming, California consumers are not assured the
same level of service that consumers in other states enjoy and
California CPAs may face insurmountable hurdles in representing
their clients in other states. California licensed CPAs could
have their ability to practice in other states ether limited or
eliminated.
The California Board of Accountancy states that the bill will bring
California's licensure requirements in line with those
established in the Uniform Accountancy Act, the national "model"
for the profession, and will enable a California license to be
deemed "substantially equivalent" for purposes of practicing in
other jurisdictions.
The American Institute of Certified Public Accountants (AICPA)
Minority Initiatives Committee writes in support that, "Our
Minority Scholarship Program has contributed millions of dollars
over almost 40 years to deserving minority students so that
economic impediments would be removed as a consideration for the
study of accounting. . . Given that our primary purpose is
increasing the number of minorities who enter the profession, we
are alert to any possible hurdles which might negatively impact
pursuit of that goal. . . Programs to recruit minorities to the
study of accounting are numerous, and scholarship availability
based on need is considerable . . . the financial resources
available to support minority students during the extended
curriculum have proven sufficient to keep enrollments stable
during the implementation of the 150-hour requirements."
California Hispanic Chambers of Commerce (CHDD) contends that
California needs to conform to the national standard in
implementing the 150-hour rule, "With the proliferation of
auditing and accounting standards and the increasing complexity
of business, practitioners recognized that candidates need
additional units to achieve the broad-based communication skills,
computer knowledge, and analytical skills necessary to enter the
profession and to succeed."
Ascend, San Francisco Bay Area Chapter writes that business does
not respect state or even international boundaries, and argues
for the bill stating: "Our members have clients with business
interests in virtually every state and many countries. They want
to use us as their trusted financial advisors to manage issues
related to their interests."
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National Association of State Boards of Accountancy states that the
150-hour education requirement is the gateway, and affirms:
"Mobility of CPAs is rapidly becoming a reality on most of our
states an jurisdictions and will under the substantial
equivalency provisions of state laws constitute the most viable
methodology for CPAs to respond to consumer demands and to be
subject to reasonable regulation."
Chrislynn Freed , Professor of Clinical Accounting at Leventhal
School of Accounting in the University of Southern California
writes, "Many of our current students are graduating with more
than the 120 units when they receive their bachelor's degree and
we have a program and curricula to provide for the additional
education necessary to meet the licensing requirements of
150-hours."
National Association of Black Accountants, Inc. - Division of Firms
states: "Since 1959, the objective of increased education for
CPA licensure has been twofold; greater public protection and
improving the overall quality of work performed by CPAs in an
increasingly complex environment . . . never before has the need
for increased education been higher."
4.Arguments in Opposition. The California State Conference of the
National Association for the Advancement of Colored People
(NAACP) believes that the bill could have a discriminatory impact
and disproportionately harm people of color and may needlessly
restrain their entry into the accounting profession. NAACP
further cites the work by Dresnack and Streiter concluding that
the 150-hour education requirement is an overly restrictive entry
barrier into the accounting profession with no demonstrable
public protection function, finding that the rule hit minority
students the hardest.
Hispanias Organized for Political Equality (HOPE) states that
"through our research as an advocacy organization we have found
that the largest barrier to the educational advancement of Latina
has been cost. Limiting the number of pathways to obtain a CPA
license in California to the '150-hour rule' would have a
discriminatory impact on minority students who do not have the
financial means to complete the additional courses."
Writing on behalf of Public Citizen as board member, former Senator
Liz Figueroa writes: "I am deeply familiar with this issue. As
Chair of the Senate Business and Professions Committee . . .
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After the possible impact on people of color came to light in
2001, I brokered the compromise in current law . . . California
should not outsource its consumer protection and civil rights
values to the legislatures of other states. For this reason, the
fact that other states have adopted the 150-hour rule is no
reason alone for California to do so unless the proponents can
explain how the rule does not hurt people of color or, if it
does, how it offers off-setting benefits to consumers or
licensees that overcome that hurdle."
Consumer Action suggests that the 150-hour rule would hit minority
candidates the hardest and would preclude some students from
entering the accounting profession due to increased costs,
stating, "Considering the lack of real justification for changing
the current rule, it would appear that the 150-hour rules would
unquestionably be an unnecessary and unfair error in judgment."
Writing on behalf of Rainbow/PUSH , Rev. Jesse L. Jackson, Sr.
writes, "Other states have adopted this rule is of course no
reason alone for any other state to do so. California must
satisfy itself that there are sound public policy reasons for
raising the cost and the barrier to people of color entering any
profession before policymakers cast their votes to do so."
"Indeed, Rainbow/PUSH is currently in the process of evaluating
its options nationally and in the states to address the impact on
people of color of the 150-hour rule, as documented by CPA
scholars."
Center for Public Interest Law (CPIL) argues at length against this
measure stating that the bill, "would require CPA aspirants to
take an additional 30 hours of education in any college course -
that is correct: any course offered by a college, whether it be
volleyball, art, or film studies - as a pre-condition to
licensure. Such additional education is required even for those
who have previously passed the licensing exam." "But far worse,
a major 2005 CPA study has also found that by increasing the cost
of obtaining a license (an extra year of college), the extra year
also disproportionately blocks people of color from becoming
CPAs. This study echoes a similar one conducted in Florida in
1999."
CPIL further states that national CPA groups have organized to
lobby for the college elective educational requirement since the
late 1980s, but "Astoundingly, the UAA, to this day, includes no
required curriculum for the added 30 units beyond the 120-hour
bachelor's degree; the additional 30 units can be in accounting,
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business, art or music appreciation, or dance." CPIL suggests
that the four previous attempts failed to implement this rule in
California because there is no consumer benefit, no licensee
benefit, and worse, harm to people of color. CPIL further states
that the impact on people of color is still undisputed by the
proponents of this bill.
CPIL suggests amendments to address the issue of other states
threatening to prevent CPAs from practicing in their state unless
California implements the 150-hour rule, and proposes amending
the bill to state:
The certified public accountant licensees of another state
shall not be permitted to practice in California if that
other state in whole or in part denies the ability of
California licensees to practice in that state based upon
factors unrelated to the individual qualifications and
experience of the California licensee.
Finally, CPIL proposes a further amendment to allow CPAs who were
licensed under the 120-hour pathway who wish to practice in other
jurisdictions to obtain the 150-hours necessary for substantial
equivalency by amending BPC 5092 to add:
(e) At any time an applicant who has obtained a license
pursuant to this section [the 120-hour pathway] may, upon
presenting satisfactory evidence that the applicant has
completed 30 hours of additional education required by
section 5093, be issued a superseding license pursuant to
that section. The board may adopt regulations as necessary
to implement this section.
5.Recent Statistics Show a Growing Trend for CPA Students to Chose
the
150-Hour Pathway 1, but Substantial Number still Choose 120-Hour
Pathway 2.
Very late information has come to the attention of Committee staff
that has a bearing on the statements elsewhere in this analysis
that the Board of Accountancy has never made the study required
by Section 1 of SB 133 (Figueroa, Chapter 718, Statutes of 2001).
A letter was brought to staff's attention from the Board of
Accountancy, dated October 8, 2008, addressed to Assembly Member
Roger Niello. The letter thanks Assemblymember Niello and
Assemblymember Fiona Ma for providing the means for the Board to
again pursue statutory changes to bring California's education
requirement into conformity with the minimum standards employed
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by most of the nation. Included in the letter are the following:
Licensure Statistics from January 1, 2002 through September 30, 2008
Sections 5092 and 5093 of the Business and Professions Code
-----------------------------------------------------------------
| | Section 5092 |Section 5093 |
| | Pathway 1; | Pathway 2; |
| | degree | 150-hours |
|------------------------------------+--------------+-------------|
|Number of applicants applying for | 9,758 | 10,092 |
|licensure under Section 5092 and | | |
|5093 of the Business and | | |
|Professions Code | | |
|------------------------------------+--------------+-------------|
|Number of applicants applying and | 9,092 | 9.238 |
|qualifying for licensure under | | |
|Section 5092 and 5093 of the | | |
|Business and Professions Code | | |
|------------------------------------+--------------+-------------|
|Number of applicants and licensees | 5,060 |4,021 |
|applying and qualifying for | | |
|authorization to sign reports on | | |
|attest engagements under Section | | |
|5095 of the Business and | | |
|Professions Code | | |
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"However the Board is unable to provide statistics on "the number of
applicants passing the examination under Sections 5092 and 5093 of the
Business and Professions Code." California candidates are not required
to select a "pathway" to qualify and take the Uniform CPA Examination.
Consequently, the Board is unaware of which "pathway" a candidate might
select until successful passage of the examination and the candidate
selects a pathway for licensure. Also, provided below are statistics
reflecting the number of CPAs licensed since January 1, 2002, under
Pathway 1 and Pathway 2:"
CPAs Licensed Under Section 5092 and Section 5093
-----------------------------------------------------------------
| | Section 5092 | Section 5093 |
| | Pathway 1; | Pathway 2; |
| | degree | 150-hours |
|---------------------+---------------------+---------------------|
| 2002 | 1,814 | 494 |
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|---------------------+---------------------+---------------------|
| 2003 | 1,787 | 630 |
|---------------------+---------------------+---------------------|
| 2004 | 1,605 | 785 |
|---------------------+---------------------+---------------------|
| 2005 | 1,143 | 1,549 |
|---------------------+---------------------+---------------------|
| 2006 | 889 | 1,617 |
|---------------------+---------------------+---------------------|
| 2007 | 848 | 1,845 |
|---------------------+---------------------+---------------------|
| 20081 | 999 |2,317 |
| | | |
-----------------------------------------------------------------
1 Statistics as of September 30, 2008
Committee staff notes that the Board ultimately voted to not
pursue the legislation in 2009, and the statistical information
was not submitted until after the Board had first pursued
(unsuccessfully) legislation on this issue, contrary to the terms
specified in Section 1 of SB 133. Furthermore, the Board
indicated it is unable to track the number of applicants passing
the examination under each section; a request that was explicitly
made in the legislation.
The statistics show that overall since 2002 : 49 % of applicants
applied for licensure under Pathway 1; 51 % under Pathway 2. 50 %
of applicants applied and qualified under Pathway 1; 50% under
Pathway 2. In 2002 - 79% were licensed in Pathway 1 and 21 % in
Pathway 2., and the migration toward pathway 2 has increased, in
2008 - 30% were licensed in Pathway 1 and 70 % in Pathway 2.
6.Does the 150-Hour Pathway Make Better CPAs? When AB 585 was
before the Legislature in 2001, the issue of whether there was
any real benefit in the additional hours of school was raised.
Indeed historically, that has been one of the seemingly obvious,
but often ignored issues in this discussion.
The Sponsors of the current bill do not make an argument that the
additional education requirement helps CPA perform better on the
examination, or in their professional practice. They state that
there has been some anecdotal evidence that higher-educated
persons perform better as CPAs, but they readily admit that the
argument behind the bill is conformity to national standards and
not to any additional educational benefit behind the increased
hours of education.
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7.What if the 150-Hour Only Requirement is Not Adopted? The
Sponsor argues that there will be grim consequences for
California licensees if the 150-hour requirement is not adopted
as the sole pathway to licensure. The Sponsor states: "A review
of other states practice laws reveals that 41 states (or
jurisdictions) are either right now banning California CPAs who
have not met the 150-hour requirement from providing even
temporary or incidental services in their states or their ban
will go into effect sometime between now and 2012. This will not
only mean that young accountants now entering the profession that
choose the current 120-hour option will not be able to provide
temporary or incidental services in those states, but also
thousands of highly skilled and experienced CPAs with many
clients that depend upon their ability to provide services on a
multi-state basis will not be able to do so because those
licensed prior to 2001 did not have the 150-hour pathway option
available. SB 691 will solve this problem by making California
'substantially equivalent' to other states, which will result in
all licensees in California that took the 120-hour pathway being
grandfathered in, thus allowing them to serve clients' needs in
other states." The claims indeed are serious, and the Sponsors
claim that the only remedy is to enact SB 691 to establish only
the 150-hour pathway for licensure.
The Sponsor goes a step further and argues that 14 states already
have deemed California CPAs to not be substantially equivalent to
their licensing requirements and therefore inhibits their
abilities to practice in that state.
Committee staff notes that the Sponsor has not sufficiently
demonstrated this claim. The only evidence that has been
submitted on this point is a table that lists the 41 states and
jurisdictions, and in which 14 states are listed with an
"immediate . . .effective date of ban." There has been no
corroborating documentation or references to substantiate the
claim.
While it may be that these claims are true, they remain
undocumented claims. Such undocumented details are all the more
reason to delay acting upon this issue until the CRB report is
completed.
8.Constitutional Issue : Can Another State Refuse to License a
California CPA With 150-hours Simply Because California also
Provides a 120-Hour Pathway? Serious questions exist as to
whether the problems forecast by the Sponsor could ever arise.
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If another state were to try and block individual Californians
who satisfy the other state's own 150-hour requirements from
practicing because of activity that exists entirely within
California (i.e., a California CPA with 120 hours serving only
Californians), the state may well be acting in violation of the
federal constitution's Commerce Clause.
A key question in Commerce Clause analysis is whether a state
action has the "effect of controlling commercial activity
occurring wholly outside the boundary of the State." (See, for
example, Healy v. Beer Institute, Inc. (1989) 491 US 324, 327).
Indeed, state action that "directly controls commerce occurring
wholly outside the boundaries of a State exceeds the inherent
limits of the enacting State's authority and is invalid[.]" Id.
at 336. This is intended to protect "the autonomy of the
individual States within their respective spheres." Ibid.
It appears as though other states cannot easily limit the ability
of California CPAs who would qualify under the other state's own
admission rules from practicing in their state simply because of
economic activity that occurs solely within California's borders;
namely, a 120 hour California CPA working exclusively in
California.
While resolution of such legal questions are beyond the scope of
this Committee and this analysis, they do appear to strike at the
heart of the rationale for introducing the bill, that California
must only provide a 150-hour education pathway or CPAs will not
be able to practice in other states.
9.This Legislation Does Not Need to Go Forward This Year.
According to the Sponsor, the deadline for California to enact a
single 150-hour pathway to licensure is 2012. The Sponsor
further indicates that the change in law only has to be on the
books by that 2012; the change does not have to actually take
place by that date. Indeed, the terms of the bill would not make
the 150-hour requirement the only pathway to licensure until
2014. With these timeframes it is clear that there is not an
urgent need to pass this legislation during the first year of
this legislative Session. The actual policy of this bill would
not at all be negatively impacted by moving this issue next year
in the second half of the 2009-2010 Session.
10.Letter From the Committee Chair to CRB. The Chair of this
Committee sent a letter to the California Research Bureau (CRB),
dated April 15, 2009, regarding the longstanding controversy
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regarding the number of hours of education that should be
required to obtain a CPA license and the proposal to eliminate
Pathway 1 , and make the 150-hour requirement the sole pathway for
licensure in California. Citing information which divergently
conflicts with the claims of the proponents of this bill, and
seeking an unbiased approach to bring clarity to this
longstanding controversy, the Chair asked the CRB to work with
Committee staff to design an approach by May 1, 2009 to research
these issues, and to prepare a report based upon that research by
November 1, 2009 .
In compliance with that request, initial meetings have been held,
and a preliminary approach has been outlined. As a key part of
its approach, the CRB will meet with various stakeholders,
including the Author, and Sponsors of this bill, and the Board to
develop a balanced approach that will give clarity to the issues
and substantive options going forward. In that light, the
Committee may wish to determine that it is premature to go
forward with the current legislative proposal at this time.
11.Committee Staff Recommends this Measure to be Referred to
Interim Study. As noted in this analysis, there remains a number
of unanswered questions regarding this bill's proposed
elimination of the 120-hour pathway and mandate of the 150-hour
pathway only for students. Staff recommends that the bill be
recommended to be referred for Interim Study, during the upcoming
fall Recess. With the completion of the CRB report in November,
this Committee along with the Assembly Business and Professions
Committee and all stakeholders could convene an interim hearing
and have productive discussions about how to proceed going
forward after reviewing the independent study of the CRB.
SUPPORT AND OPPOSITION:
Support:
California Society of Certified Public Accountants (Sponsor)
American Institute of Certified Public Accountants (AICPA)
American Institute of Certified Public Accountants (AICPA) Minority
Initiatives Committee
Ascend, San Francisco Bay Area Chapter
Association of Latinos Professionals in Finance and Accounting
(ALPFA)
California Board of Accountancy
California Hispanic Chambers of Commerce (CHDD)
California Teachers Association
Latino Business Professionals of San Francisco
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National Association of State Boards of Accountancy
Philippine American Society of CPAs (PASCPA)
National Association of Black Accountants, Inc. - Division of Firms
Numerous Individuals
Opposition:
California State Conference of the National Association for the
Advancement of Colored People (NAACP)
Center for Public Interest Law
Consumer Action
Hispanias Organized for Political Equality (HOPE)
Public Citizen
Rainbow/PUSH
Consultant:G. V. Ayers