And now you know: CBA finalizes reporting, documentation and notification regs. (Government Relations).

After months of deliberation, the California Board of Accountancy as agreed on new regulations that implement the accountancy legislation passed in California last year. Amended regulations will be re-noticed for a 15-day comment period before proceeding to the Office of Administrative Law for final review and approval.

Major provisions include:

* New audit documentation standards;

* A requirement that CPAs notify clients of the potential or actual participation of non-CPA owners in providing services to clients; and

* Clarification of the requirements for CPAs to report client financial statement restatements to the CBA.

The official text of the regulations will be posted at www.calcpa.org/ members/GR when they become available and on the CBA website at www.dca.ca.gov/cba.

Audit Documentation

Legislation passed last year in California defines audit documentation in Business and Professions Code Sec. 5097 as:

"A licensee's records of the procedures applied, the tests performed, the information obtained, and the pertinent conclusions reached in an audit engagement. Audit documentation shall include, but is not limited to, programs, analyses, memoranda, letters of confirmation and representation, copies of abstracts of company documents, and schedules or commentaries prepared or obtained by the licensee. Audit documentation shall contain sufficient documentation to enable a reviewer with relevant knowledge and experience, having no previous connection with the audit engagement, to understand the nature, timing, extent, and results of the auditing or other procedures performed, evidence obtained, and conclusions reached, and to determine the identity of the persons who performed and reviewed the work."

Failure to document sufficiently or to retain the documentation for a minimum of seven years would establish a rebuttable presumption that the work was not performed.

In addition to those basic requirements, the CBA also is requiring, by its newly adopted Regulation 68.2, that audit documentation include an index or guide and that work papers include the preparation date, review date, report date and date of issuance of the audit along with the identity of the preparer and reviewer.

The CBA also adopted the new SEC requirement for retention of audit documentation whether or not the documentation supports the auditor's final conclusions.

"All audit documentation regarding any significant matter related to the audit shall be retained whether or not the documentation contains information or data inconsistent with the auditor's final conclusions."

Private Companies Too

This requirement will apply to all audits performed by California CPAs--not just to public company audits. In determining what must be retained, "Significance of a matter shall be determined based on an objective analysis of the facts and circumstances."

Any changes to the audit documentation that are made more than 60 days after issuance of the report must be identified in the audit documentation along with the rational and identification of the individuals making the change.

The 60-day grace period was inserted to allow for assembling of the audit documents and the editing or completion of documentation, but not for completion of audit procedures.

All CPA firms in California regardless of their size are required to have written audit documentation and destruction policies that provide for retention, security and destruction of documentation.

All audit documentation must he retained for a minimum of seven years or longer if litigation or government investigations are pending. At the end of that seven-year period a self-executing destruction policy may be implemented as long as audit documentation that needs to be retained for a longer period is protected.

Restatement Reporting

As of Jan. 1, 2003, the Business and Professions Code Sec. 5063 requires client financial statement restatements to be reported to the CBA within 30 days of issuance.

The CBA regulations clarify that the reporting requirement applies to restatements reporting the correction of any error for a:

* Publicly traded company filing a California state tax return;

* Government agency located in California, or

* Charitable organization registered by the office of the attorney general in which the restatement has resulted in an amended or superceding IRS Form 990 or 990PF. Government agency financial statement restatement reporting would be limited to those situations in which the restatement exceeds the planning materiality used by the CPA in conjunction with the current year audit.

There's More

CPAs are encouraged to review all of the reportable events included in revised business and Professions Code Sec. 5063.

Full text of laws and, when available, the regulations will be posted on www.calcpa.org/members/GR.

Bruce C. Allen is CalCPA's director of government relations.