BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 691|
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THIRD READING
Bill No: SB 691
Author: Yee (D), et al
Amended: 6/1/09
Vote: 21
SEN. BUS., PROFE. & ECON. DEV. COMMITTEE : 7-0, 4/27/09
AYES: Wyland, Aanestad, Correa, Florez, Oropeza, Walters,
Yee
NO VOTE RECORDED: Negrete McLeod, Corbett, Romero
SENATE APPROPRIATIONS COMMITTEE : 12-0, 5/28/09
AYES: Kehoe, Cox, Corbett, Denham, DeSaulnier, Hancock,
Leno, Oropeza, Runner, Walters, Wyland, Yee
NO VOTE RECORDED: Wolk
SUBJECT : Accountants
SOURCE : California Society of Certified Public
Acountants
DIGEST : This bill requires, beginning January 1, 2014,
applicants for licensure as a certified public accountant
who have a Bachelor of Arts degree and two years of
experience to acknowledge at the time he or she sits for
the exam that licensure under their pathway will not be
considered substantially equivalent for purposes of
practice privileges in other states that require 150
semester units or hours for licensure.
ANALYSIS :
CONTINUED
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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 subject,
passing the examination prescribed by the Board, and
two-years of qualifying experience (120-hour
pathway). (Business and Professions Code Section
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). (Business and Professions Code
Section 5093)
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. (Business and Professions Code Section 5082.3)
4.Establishes criteria upon which a Canadian Chartered
Accountant may be deemed to have met the examination
requirements of the Act. (Business and Professions Code
Section 5082.4)
5.Establishes criteria upon which a licensee shall be
authorized to sign reports on attest (audit) engagements.
(Business and Professions Code Section 5095)
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This bill:
1.Requires, beginning January 1, 2014, applicants for
licensure as a certified public accountant who have
completed the 120-hour pathway acknowledge at the time he
or she sits for the exam that licensure under their
pathway will not be considered substantially equivalent
for purposes of practice privileges in other states that
require 150 semester units or hours for licensure.
2.Specifies it is considered unprofessional conduct for a
person licensed under the 120-hour pathway to seek
practice privileges in any state that requires an
individual from another state to have 150 semester units
to receive practice privileges or reciprocity.
3.States that the above requirement along with the 150-hour
pathway shall be interpreted to establish California as a
state substantially equivalent to every other state that
has adopted 150 semester units or hours as the only
educational pathway to licensure, and no licensed
California CPA who was licensed prior to January 1, 2014
and no individual licensed pursuant to the 150-hour
pathway is required to individually establish substantial
equivalency in any other state.
4.Requires the Board, with existing resources, verify with
each state that the 150-hour pathway establishes
California as substantially equivalent under each state's
practice privilege or reciprocity statutes.
5.Specifies that if any state does not consider #1 and #2
above enough to establish California as a substantially
equivalent state, that the 150-hour pathway shall govern
the education requirements for applicants for licensure.
Sarbanes-Oxley Act of 2002 . One of the reasons the
sponsors of this bill have given for the urgent need to
pass this bill is that the 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
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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 the 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 decision-making authority in respect
to the audit. Requiring every partner in every auditing
firm to have a license in essentially every sate would be
burdensome at best and, in light of gradually evolving
common standards among the states, potentially unnecessary.
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
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authorization to sign attest reports.) Practice privilege
continues in effect until this day.
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 privately held firms.
Uniform Accountancy Act . The Uniform Accountancy Act (UAA)
is a model bill and set of regulations designed to provide
a uniform approach to regulations 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 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
then 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 54 American
licensing jurisdictions (the 50 states, Puerto Rico, the
District of Columbia, the U.S. Virgin Islands, and Guam)
constitute artificial barriers to the intestate practice
and mobility of certified public accountants. The UAA is
an attempt to eliminate such differences and barriers posed
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to the effective practice of CPAs under modern conditions
through a standard of "substantial equivalency" that was
added to the UAA.
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 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 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/28/09)
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California Society of Certified Public Accountants (source)
American Institute of Certified Public Accountants
American Institute of Certified Public Accountants Minority
Initiatives Committee
Ascend, San Francisco Bay Area Chapter
Association of Latinos Professionals in Finance and
Accounting
California Board of Accountancy
California Hispanic Chamber of Commerce
California Teachers Association
Latino Business Professionals of San Francisco
National Association of State Boards of Accountancy
Philippine American Society of CPAs
National Association of Black Accountants, Inc. - Division
of Firms
OPPOSITION : (Verified 5/28/09) (PREVIOUS VERSION)
California State Conference of the National Association for
the Advancement of Colored People
Center for Public Interest Law
Consumer Action
Hispanias Organized for Political Equality
Public Citizen
Rainbow/PUSH
ARGUMENTS IN SUPPORT : The California Society of
Certified Public Accountants, the sponsor of this bill,
argue 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 either 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 UAA, the national "model" for the
profession, and will enable a California license to be
deemed "substantially equivalent" for purposes of
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practicing in other jurisdictions.
The American Institute of Certified Public Accountants
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 of 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."
JJA:cm 6/1/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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