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Regulatory Review Requirements for California Accounting and Auditing Professionals

Regulatory Review Requirements for California Accounting and Auditing Professionals. Charles W. Hester CPA/CFE/CGFM. Objectives. This course will provide participants with: A definition of ethics and ethical behavior

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Regulatory Review Requirements for California Accounting and Auditing Professionals

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  1. Regulatory Review Requirements for California Accounting and Auditing Professionals Charles W. Hester CPA/CFE/CGFM

  2. Objectives This course will provide participants with: • A definition of ethics and ethical behavior • The responsibilities and obligations of decision makers in the practice of professional ethics • A review of current statutes and regulations specific to the practice of public accountancy and how they relate to licensees in the practice of public accountancy • A review of disciplinary actions taken by the California Board of Accountancy • Some of the pitfalls that may be encountered in ethical analysis • The important principles as guides in the decision- making process when faced with ethical dilemmas

  3. Definitions Morals Rules Compliance Conduct Ethics Integrity Morals Rules Compliance

  4. Definition of Morals • Pertains to character, conduct, intention, social relations, etc. • Moral Actions • Moral Certainty • Moral Consideration • Moral Obligation

  5. Definition of Rules “An established standard, guide or regulation. Prescribed guide for conduct or action, regulation or principle.”

  6. Definition of Compliance • Submission • Obedience • Conformance

  7. Definition of Conduct “Personal behavior; deportment; mode of action; any positive or negative act.”

  8. Definition of Ethics “Professionally right or befitting; conforming to professional standards of conduct.”

  9. Definition of Integrity “Uncompromising adherence to ethical principles.”

  10. Most Frequent Questions and Violations in California • Ownership of Accountant's Working Papers • Practice without a Valid Permit • Name of Firm • Notification of Change of Address • Continuing Education • Basic Requirements • Exceptions and Extensions

  11. Current Top 3Causes of Discipline • 20/12 CPE Violation • Failure to Respond to CBA Inquires • Failure to Submit a Complete/Accurate Peer Review Reporting Form

  12. Rule NumberOne It is your responsibility to know and comply with all related laws and regulations!

  13. State Professional Accounting Conduct & Ethics Requirements • California Accountancy Act, Business and Professions Code, Division 3, Chapter 1, Accountants • Board of Accountancy Regulations, California Code of Regulations, Title 16, Division 1 • Selected Provisions of Other California Codes

  14. California Accountancy Act, Business and Professions Code, Division 3, Chapter 1 • Article 1 - Administration • Article 1.5 - Continuing Education • Article 2 - General Powers and Definitions • Article 3 - Application of Chapter • Article 3.5 – Standards of Professional Conduct

  15. California Accountancy Act, Business and Professions Code, Division 3, Chapter 1 - Continued • Article 4 - Applications, Registrations, Permits Generally • Article 5 - Certificates, Information and Records • Article 5.1 - Practice Privileges • Article 5.5 - Audit Documentation

  16. California Accountancy Act, Business and Professions Code, Division 3, Chapter 1 • Article 6 - Disciplinary Proceedings • Article 6.5 - Administrative Penalties • Article 7 - Prohibitions and Offenses Against the Chapter Generally • Article 8 - Revenue • Article 9 - Accountancy Corporations

  17. Accountancy ActDiv. 3, Chap. 1, Article 1 • Section 5018 - Professional Rules and Standards “The board may by regulation, prescribe, amend or repeal rules of professional conduct appropriate to the establishment and maintenance of a high standard of integrity and dignity in the profession.”

  18. Accountancy ActDiv. 3, Chap. 1, Article 1 • Section 5000.1 – Public Protection Priority “Protection of the public shall be the highest priority for the California Board of Accountancy in exercising its licensing, regulatory, and disciplinary functions. Whenever the protection of the public is inconsistent with other interests sought to be promoted, the protection of the public shall be paramount”

  19. Accountancy Act Division 3, Chapter 1 • Article 1.5 – Continuing Education • Section 5026 – Continuing Education • Section 5027 – Continuing Education Regulations • Section 5028 – Exceptions from Continuing Education Requirements • Section 5029 – Continuing Education Committee

  20. Accountancy Act Division 3, Chapter 1 • Article 2 – General Powers and Definitions • Section 5037 – Ownership of accountants’ working papers • Section 5073.1 – Construction of Licensees’ Obligations Under Section 5037 • Nothing in the subdivision of Section 17406 of the Financial Code shall be construed to impair or impede a licensee’s rights, duties, and obligations.

  21. Accountancy Act Division 3, Chapter 1 - Continued • Article 3 – Application of Chapter • Section 5050 – Practice Without Permit, Temporary Practice • Section 5050.1 - Consent to Board's Jurisdiction • Section 5050.2 – Discipline of Out-of-State or Foreign Accountant of Firm

  22. Article 3.5 – Standards of Professional Conduct • Section 5060 - Name of Firm • Section 5061 - Commissions • Section 5062 - Report Conforming to Professional Standards • Section 5062.2 - Restrictions on Accepting Employment with an Audit Client • Section 5063 - Reportable Events • Section 5063.1 - Reporting by Courts • Section 5063.2 - Reporting By Insurers • Section 5063.3 - Disclosure of Confidential Client Information Prohibited Section 5063.10 - Restatements

  23. Article 3.5 – Standards of Professional Conduct • Section 5060 – Name of firm • Cannot be misleading • MUST be in name that has valid permit to practice • Sole proprietor can use name registered with the Board

  24. Article 3.5 – Standards of Professional Conduct • Section 5061 – Commissions • Cannot pay or accept fee for referring client • Can accept fees or commissions from third parties if services are in conjunction with CPA services • Cannot accept commissions if also providing audit, compilation or examination of prospective financial information • MUST fully disclose that a fee or commission is being received

  25. Article 3.5 – Standards of Professional Conduct • Section 5062 – Licensees shall issue reports that conform to professional standards • Section 5062.2 – Licensees exercising significant judgments in audit process prohibited from accepting position for 12-months following issuance of audit report

  26. Article 3.5 – Standards of Professional Conduct • Section 5063 – Licensees MUST report certain events to the Board • Convictions of felonies • Any crime related to CPA functions • Any crime involving theft, embezzlement, breach of fiduciary responsibility or issuing improper financial reports or information

  27. Article 3.5 – Standards of Professional Conduct • Section 5063.1 – Courts that rendered a conviction or judgment of a licensee shall report that to the Board • Section 5063.2 – Insurers or brokers providing professional liability insurance to licensee shall report to the Board civil action settlements or arbitration awards of $30,000 or greater

  28. Article 3.5 – Standards of Professional Conduct • Section 5063.3 – No confidential information may be disclosed (including outside the U.S.) without written permission, except that following: • When required by law or the Board • In compliance with a subpoena or summons enforceable by court order • In response to official inquiry from a federal or state regulatory agency • To organizations that provide professional standards review and ethics or peer review • In defense of a legal preceding initiated by the client • To another licensee for professional consultation or in connection with sale or merger

  29. Accountancy Act Div. 3, Ch. 1, Article 3.5 • Section 5036.10 – Restatements • Any restatement of a financial statement that is included in any report filed with the SEC shall be exempt from the requirements in Section 5063.

  30. Accountancy ActDiv. 3, Chap. 1, Article 4 • Section 5076 – Peer Review • Mandatory Peer Review of accounting and auditing practices every 3 years • Section 5078 – Offices Not Under Personal Management of Certified Public Accountant • Shall be supervised by a Certified Public Accountant

  31. Accountancy ActDiv. 3, Chap. 1, Article 4 • Section 5079 – Non-licensee Ownership of Firms • Required to disclose to clients the actual or potential involvement of non- licensee owners in the services provided • Obligated to report investigations by SEC and PCAOB or professional licensing agency

  32. Accountancy ActDiv. 3, Chap. 1, Article 5 • Section 5080 – Granting of Certified Public Accountant Certification • The CPA license shall be granted to any person who meets the requirements, has not committed acts constituting grounds for denial, and files an application form. • Section 5080.1 – Personal Appearance of Applicant Before the Board • The Board may require an applicant to appear in person.

  33. Accountancy ActDiv. 3, Chap. 1, Article 5 • Section 5081 – Requirements for Admission to Certified Public Accountant Examination • Section 5082 – Certified Public Accountant Examination • Section 5082.1 – Administration of Certified Public Accountant Examination • Section 5082.2 – Reexamination

  34. Accountancy ActDiv. 3, Chap. 1, Article 5 • Section 5082.3 – Qualification for Examination by Foreign Applicants • Section 5082.4 – Qualification for Examination by Canadian Chartered Accountants • Section 5082.5 – Passage of the Exam in Another State

  35. Accountancy ActDiv. 3, Chap. 1, Article 5 • Section 5086 – Existing Certified Public Accountant Certificates • Section 5087 – Licensure Requirements: Out-of-State Licensee • Section 5088 – Out-of-State Certified Public Accountant Applying for California License

  36. Accountancy ActDiv. 3, Chap. 1, Article 5 • Section 5090 – Education and Experience Requirements • Section 5092 – Pathway 1 • Section 5093 – Pathway 2 • Section 5094 – Accredited Schools • Section 5095 – Providing Attest Services

  37. Accountancy Act Div. 3, Chap. 1, Article 5.1 • Section 5096 – Practice Privilege General Requirements THROUGH • Section 5096.21 – Determination Regarding Out-0f-State Practitioners

  38. Accountancy Act Div. 3, Ch. 1, Article 5.5 • Section 5097 – Audit Documentation Requirements • Defined as procedures applied, tests performed, information obtained, and conclusions reached • Sufficiently complete so knowledgeable reviewer can examine and understand • Not documented, presumed not done • Section 5098 – MUST have written policies for destruction and retain for minimum of 7 years or longer

  39. Accountancy Act Div. 3, Chap. 1, Article 6 • Section 5100 – Discipline in General THROUGH • Section 5115 – Petitions for Reinstatement or Reduction of Penalty

  40. Accountancy Act Div. 3, Chap. 1, Article 6 • Section 5103.5 – Notice of Formal Accusations • The Board shall post on its Internet Web site, in an easily marked and identifiable location, notice of all formal accusations. • The notice of any formal accusation shall contain a link to where a person may request and have sent to him or her a copy of the formal accusation, and the basis for the accusation and alleged violations filed by the Board against a licensee.

  41. Accountancy Act Div. 3, Chap. 1, Article 6.5 • Administrative Penalties • Section 5116 – General Provisions • Section 5116.1 – All Accountancy Act Violations • Section 5116.2 – Specific Accountancy Act Violations • Section 5116.3 – Subversion of the Examination • Section 5116.4 – Procedures for Administrative Penalties • Section 5116.5- Judgment Ordering Payment of Administrative Penalty • Section 5116.6 – Definition of “Licensee”

  42. Accountancy Act Div. 3, Chap. 1, Article 7 • Prohibitions and Offenses Against the Chapter Generally • Section 5120 – Violations as Misdemeanor • Section 5121 – Evidence of Violation • Section 5122 – Injunctions

  43. Accountancy Act Div. 3, Chap. 1, Article 9 • Section 5156 – Unprofessional Conduct “An accountancy corporation shall not do or fail to do any act the doing of which or the failure to do which would constitute unprofessional conduct under any statute, rule or regulation now or hereafter in effect.”

  44. Board of Accountancy Regulations, California Code of Regulations,Title 16, Division 1 • Article 1 - General • Article 2 – Examinations • Article 2.5 – License Status • Article 3 – Practice Privileges (Operative July 1, 2013 – December 31, 2018) • Article 4 –Practice Privileges (Inoperative on July 1, 2013)

  45. Board of Accountancy Regulations, California Code of Regulations,Title 16, Division 1 - Continued • Article 5 – Registration • Article 6 – Peer Review • Article 7 – Reserved • Article 8 - Appeals • Article 9 - Rules of Professional Conduct • Article 10 – Fees • Article 11 – Accountancy Corporations

  46. Board of Accountancy Regulations, California Code of Regulations,Title 16, Division 1 - Continued • Article 12 - Continuing Education Rules • Article 12.5 - Citations and Fines • Article 13 - Denial, Suspension, and Revocation of Certificates, Permits, or Licenses

  47. Accountancy RegulationsTitle 16, Div. 1, Article 1 • Section 2 – Confusing Titles • 2.4 = Definitions of Attest Services and Attest Reports • 2.8 = Definition of Satisfactory Evidence • Section 3 - Notification of Change of Address • Section 4 – Safe Harbor Language

  48. Board of Accountancy RegulationsTitle 16, Div. 1, Article 2 • Section 11 – Education Required to Apply for CPA License • Section 11.1 – Accounting Study • Section 12 – General Experience Required Under Business and Professions Code Sections 5092 and 5093 • Section 12.1 – Experience in Academia • Section 12.5 – Attest Experience Under Business and Professions Code Section 5095

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