STATE OF CALIFORNIA- BUSINESS, CONSUMER SERVICES, AND HOUSING AGENCY GOVERNOR EDMUND G. BROWN JR.

DEPARTMENT OF CONSUMER AFFAIRS CALIFORNIA BOARD OF ACCOUNTANCY 2000 EVERGREEN STREET, SUITE 250

SACRAMENTO, CA 95815-3832 CAl.!FORNI"A BOARD Ol' TELEPHONE: (916) 263-3680

FACSIMILE: (916) 263-3675 ACCOUNTANCY WEB ADDRESS: http://www.cba.ca.gov

October 31, 2014

Honorable Ted Lieu, Chair Senate Business, Professions, and Economic Development Committee

Honorable Susan Bonilla, Chair

Assembly Business, Professions, and Consumer Protection Committee

State Capitol Sacramento, CA 95814

Dear Senator and Assembly Member:

The California Board of Accountancy (CBA) would like to present you with its 2014 Sunset Review Report in fulfillment of your committees' request for information to assist il'") the sunset review process.

This report provides information regarding the Enforcement, Licensing, and Administrative activities of this CBA for each of the previous four fiscal years. The report also responds to questions and recommendations made to the CBA during its prior sunset review, in 2011, and presents three new issues the CBA wishes to discuss with the joint committee.

If you have any questions, or require further assistance regarding this report, please

contact me at (916) 561-1718.

Sincerely,

f 11 ii-.f)~ .'1-6-Patti~ IZ:Ulv Executive Officer

California Board of Accountancy

Attachment

c: Members, California Board of Accountancy Justin Paddock, Department of Consumer Affairs, Assistant Deputy Director, Office of Policy and Legislative Review

http:http://www.cba.ca.gov

CALIFORNIA BOARD OF ACCOUNTANCY

BACKGROUND INFORMATION AND OVERVIEW OF

THE CURRENT REGULATORY PROGRAM As of June 30, 2014

SUNSET REVIEW REPORT 2014

Glossary

Glossary of Acronyms and Terms

A&A Accounting and Auditing (continuing education) AB Assembly Bill Accountancy Act Chapter 1 of Division 3 of the Business and Professions Code AEC Accounting Education Committee AG Attorney General AICPA American Institute of Certified Public Accountants ALD Accountancy Licensee Database ALJ Administrative Law Judge BCP Budget Change Proposal BPC Business and Professions Code BPPE Bureau for Private Postsecondary Education CalCPA California Society of Certified Public Accountants CalHR California Department of Human Resources CAS Consumer Affairs System CBA California Board of Accountancy CBA Regulations Title 16, Division 1 of the California Code of Regulations CE Continuing Education CORI Criminal Offender Records Information CPA Certified Public Accountant CPA Exam Uniform Certified Public Accountant Examination CPC Committee on Professional Conduct CPE Continuing Professional Education DAG Deputy Attorney General DCA Department of Consumer Affairs DOF Department of Finance DOJ Department of Justice EAC Enforcement Advisory Committee ECC Ethics Curriculum Committee EPOC Enforcement Program Oversight Committee FTB Franchise Tax Board FY Fiscal Year ICPA Investigative Certified Public Accountant iExam International Delivery of the Uniform Certified Public Accountant

Examination ILU Initial Licensing Unit IQEX International Uniform Certified Public Accountant Qualifications

Examination ISO Interim Suspension Order IT Information Technology Unit LC Legislative Committee MSG Mobility Stakeholder Group

NASBA National Association of State Boards of Accountancy OAH Office of Administrative Hearings PA Public Accountant PC 23 Penal Code section 23 PCAOB Public Company Accounting Oversight Board PETH Exam Professional Ethics for CPAs Examination PROC Peer Review Oversight Committee PY Personnel Year QC Qualifications Committee RCC Renewal and Continuing Competency Reserve Accountancy Fund Reserve SB Senate Bill SEC Securities and Exchange Commission TEEL Taskforce to Examine Experience for CPA Licensure TRO Temporary Restraining Order

Table of Contents

Table of Contents

Section 1 Background and Description of the California Board of Accountancy and the Accountancy Profession

Section 2 Performance Measures and Customer Satisfaction Surveys Section 3 Fiscal and Staff Section 4 Licensing Program Section 5 Enforcement Program Section 6 Public Information Policies Section 7 Online Practice Issues Section 8 Workforce Development and Job Creation Section 9 Current Issues Section 10 Board Action and Response to Prior Sunset Issues Section 11 New Issues Section 12 Attachments Section 13 Appendices

1

SECTION 1

Background and Description of theCalifornia Board of Accountancy

and the Accountancy Profession

2

3

Section 1 Background and Description of the California Board of Accountancy and the Accountancy Profession The Glossary at the beginning of this report defines the acronyms and terms used herein. Provide a short explanation of the history and function of the board. Describe the occupations/profession that are licensed and/or regulated by the board.

HISTORY OF THE CBA From its inception in 1901, the CBA has, by statute, been charged with regulating the practice of public accountancy. The original law prohibited anyone from falsely claiming to be a certified accountant, a mandate which still exists today. The standards for licensure have always been high. The first accountants certified by the CBA in 1901 were required to sit for a written examination, including questions on Theory of Accounts, Practical Accounting, Auditing, and Commerce Law. Applicants were required to provide a notarized affidavit certifying at least three years accounting experience, at least two years of which must have been in the office of a CPA performing actual accounting work. In addition, each applicant was required to submit three references testifying to his character, in the form of a Certificate of Moral Character. Today's mandate that each CBA licensee pass an ethics course finds its antecedent in the CBA's original requirement of this certificate. From the beginning of the 20th Century, consumer protection has been the undertaking of the CBA. A December 1, 1913, letter to Governor Hiram Johnson signed by CBA Secretary-Treasurer T. E. Atkinson states, "For the further protection of the business public, a statute should be enacted regulating the practice of public accounting so as to require all persons holding themselves forth as being qualified to obtain from this board the certificate of CPA. Public accounting is now generally recognized in business to be of such importance that a standard should be set by public authority and no one allowed to practice without proper credentials." In 1929, the Legislature placed the CBA within the Department of Professional and Vocational Standards. In 1945, the Accountancy Act was substantially revised creating the framework for the laws as they exist today. In 1971, the Legislature located the CBA within the newly-created Department of Consumer Affairs where it has remained. FUNCTION OF THE CBA The CBAs legal mandate is to protect California consumers through its licensing, regulatory and disciplinary functions. The CBA establishes and maintains high standards of qualification and conduct for the accounting profession through these three functions. The CBAs practice act is found in Chapter 1 of Division 3 of the Business and Professions Code, and the CBAs regulations appear in Title 16, Division 1 of the California Code of Regulations.

4

The CBA performs its consumer protection mission for many stakeholders, including:

Consumers of accounting services who require audits, reviews, and compilations of financial statements, tax preparation, financial planning, business advice and management consultation, and a wide variety of related tasks.

Lenders, shareholders, investors, and small and large companies that rely on the integrity of audited financial information.

Governmental bodies, donors, and trustees of not-for-profit agencies that require audited financial information or assistance with internal accounting controls.

Regulatory bodies such as the SEC, the Public Company Accounting Oversight Board, the Public Utilities Commission, Department of Insurance, Department of Labor, the Government Accountability Office and federal and state banking regulators; local, state, and federal taxing authorities.

Retirement systems, pension plans, capital markets and stock exchanges. Other state boards of accountancy.

THE PROFESSION The CBA has the authority to license, regulate, and discipline not only individuals and accounting partnerships, but accountancy corporations as well. As accounting practitioners, the CPA and PA are proprietors, partners, shareholders, and staff employees of public accounting firms. They provide professional services to individuals, private and public companies, financial institutions, nonprofit organizations, and local, state, and federal government entities. Business and industry, government, and academia all employ CPAs and PAs.

1. Describe the make-up and functions of each of the boards committees (cf., Section 12,

Attachment B).

STATUTORY COMMITTEES ENFORCEMENT ADVISORY COMMITTEE (BPC SECTION 5020)

Purpose: To assist the CBA in an advisory nature with its enforcement activities by: Serving in a technical advisory capacity to the Executive Officer and Enforcement Program.

The EAC members may participate in investigative hearings along with staff investigators, counsel from the AGs Offi