CBA's full plate: board seeking legislation on everything from licensing to fines.
The Legislature has requested that the CBA develop recommendations related to its ability to discipline large firms.
Ian Thomas, CBA president, acknowledged in his presentation that "oversight of large firms presents considerable challenges in budgeting and funding for the extensive, ever-fluctuating investigative and legal resources required in pursuing large matters.
"These barriers are compounded by a cumbersome state contracting process and the consumption of significant internal staff time," he said.
"Confirming and proving 'audit failure' by a large firm is a rigorous undertaking and investigations of complex audit engagements can consume several years and cost millions of dollars."
To enhance its enforcement ability the CBA is recommending budgeting flexibility so it can access $2 million of its contingency funds during a budget year, if necessary to pursue complex enforcement cases.
Additionally, the CBA is seeking authority to encumber funds for specific investigative contracts for at least two years and be able to have nine months' operating budget. Currently, the CBA's reserves are limited to a sum that is no more than six months of their operating budget.
The CBA also seeks to fill positions eliminated due to vacancies or the state's hiring freeze so its enforcement program can be more effective.
Increased Fining Authority
Thomas urged the Legislature to expand the CBA's fining authority to provide additional levels of discipline for violations of the Accountancy Act.
The CBA's current disciplinary options include probation, suspension and revocation.
The CBA is proposing adding a two-tiered fining structure: up to $5,000 for the initial violation; $10,000 for subsequent violations. These fines could be imposed on both individuals and firms for violating any part of the Accountancy Act.
More egregious violations--criminal convictions, embezzlement, gross negligence, fiscal dishonesty and fraud--could subject an individual practitioner to a fine of up to $50,000 for an initial violation and $100,000 for repeated violations. Firms could be fined up to $1 million for the first violation and up to $5 million for subsequent violations.
The extent of consumer harm, severity of the violation and the ability to pay must be considered in assessing fines.
Statutory changes that became effective Jan. 1, 2002, altered the education, examination and experience requirements for licensure as a California CPA. Candidates now have three options for licensure--Pathway 0, 1 or 2.
Pathway 2 is considered substantially equivalent to licensing laws in most other states. It requires 150 hours of education and one year of general work experience in government, private industry or public practice under the supervision of a CPA with an active license. CPAs who wish to sign audits and reviews are required to complete the audit experience requirement.
Pathway 0, which required less education and completion of the audit experience requirement, has been closed to new applicants since the new options became available. Pathway 0 was to be eliminated Dec. 31, 2005 and candidates who had not been licensed by then would have been required to re-take and pass the Uniform CPA Exam.
The CBA is proposing that Pathway 0 candidates be given four more years to qualify for licensure and that all interested Pathway 0 candidates be allowed to transition to Pathway 1 or 2 if they meet the new educational requirements.
The CBA is proposing postponing the effective date for mandatory peer review from Jan. 1, 2006 to July 1, 2008. This would apply to all firms with four or more partners that provide attest services (audits, reviews or examinations of prospective financial statements).
Incidental Practice in California
California law permits an out-of-state CPA not licensed in California to temporarily practice here without notifying the CBA, if the California practice is incidental to practice in another state.
Incidental is not defined and has been interpreted liberally by individual CPAs.
The CBA believes anyone providing audit services in California should be licensed by California, but has not enforced this policy. The board is proposing legislation to require out-of state CPAs to notify the CBA before providing services in California.
After paying a fee and agreeing to be subject to the CBA's authority for disciplinary purposes, the CPA could temporarily practice in California under a "practice privilege." This is consistent with Uniform Accountancy Act provisions being implemented in other states.
The recommendations, if enacted, will become effective Jan. 1, 2005.
Special Districts Bill Dies
SB 1272 (Ortiz) has been held by the Senate Appropriations Committee. The bill, among other provisions, subjects CPA firms performing audits of special districts to increased oversight by the state controller's office and mandates audit partner rotation every six years.
The issue may be revived next session, but appears to be dead this year. Special districts, CalCPA and others opposed the measure for numerous reasons.
Bruce C. Allen is CalCPA's director of government relations.
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|Title Annotation:||GovernmentRelations; California Board of Accountancy|
|Author:||Allen, Bruce C.|
|Date:||Jul 1, 2004|
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