Mandatory Peer Review Tops CBA List
California CPA magazine: September 2008
Peer Review, Ethics and Experience Requirements
The CBA is preparing legislative and regulatory language to implement mandatory peer review for firms that perform audits, reviews and compilations.
At its July meeting, the CBA voted not to exempt firms performing only compiled nondisclosure financial statements prepared on an other comprehensive basis of accounting (OCBOA) from peer review. The Society of California Accountants had requested that the CBA exempt firms providing these reports as their highest level of service from the peer review requirement and instead reinstitute the CBA’s Report Qualify Monitoring Program that was discontinued several years ago.
The CBA’s rationale for excluding only “plain paper financial statements” from the peer review process was that other states with mandatory peer review programs do require reviews of nondisclosure OCBOA financial statements and, in conversations with accountants’ malpractice liability insurance carriers, approximately 10 percent of all claims relate to compilations. Since the nondisclosure OCBOA financial statements make up the majority of compilations, it was believed that mandating peer review could offer significant protections to consumers.
Continuing Education Ethics Requirement
The CBA has appointed a task force to study whether or not to change its ethics continuing education requirement. The task force had its first meeting in July and plans to hold five more meetings to study the effectiveness of its ethics education requirement and how it might be changed.
The effort was started by a comment from CBA member Manual Ramirez, CPA, who felt that ethics, as a cornerstone of the profession, was not being highlighted enough in the CBA’s continuing education requirements.
California was the first state to adopt a mandatory ethics continuing education requirement—eight hours of an approved course every six years. Ramirez feels this requirement is not enough, and that the CBA should explore the feasibility of requiring more frequent exposure to ethical concepts.
The task force’s next meeting is scheduled for Sept. 18, and it will consider how ethics classes could be re-formatted to provide a more meaningful experience for participants, and perhaps offered in smaller increments. As part of this effort, the ethics education requirements of other states are being studied to find a more effective model.
Additional discussion on continuing education requirements in general has led to consideration of requiring a minimum number of hours every year, rather than a total requirement of 80 hours every two years. The idea being that CPAs would be less inclined to postpone continuing education and therefore would be more likely to maintain current knowledge if a minimum number of hours were required annually. Apparently, some CPAs take all of their continuing education in the weeks just before renewal deadlines.
The CBA also is looking at establishing an audit process whereby 25 percent of all licenses would have their continuing education hours audited annually as part of the renewal process.
Experience Requirement May Change
The CBA continues to explore changes to the experience requirement to become a CPA.
At its September meeting, the board will review whether or not to eliminate the option that allows candidates to enter the profession without completing the attest requirement.
California only requires attest experience for those wishing to sign audits and reviews. As part of this discussion, the board is considering issuing distinctive licenses to CPAs who complete the attest experience requirement and those who do not.
The CBA also is considering whether to increase the current 500-hour minimum attest experience requirement to 1,000 hours.
CalCPA previously has supported conforming to provisions of the Uniform Accountancy Act that require general experience for entry to the profession and then rely on peer review to ensure audit competency and to review the controls, experience and skill of audit staff. The UAA recognizes that three, or even six, months of attest experience is no guarantee of competency, and that the level of experience and skill required for a particular audit is vastly different depending on the entity being audited.
Proposed Changes to Regulatory Boards
SB 963 (Ridley-Thomas) would, among other provisions, require the membership of all regulatory boards within the Department of Consumer Affairs to be reconstituted at a specific time unless legislation is passed to extend the membership. In the case of the CBA, that time would be January 2011. If passed, the bill could allow the Legislature to eliminate all previous gubernatorial appointments. Other provisions of SB 693 could discourage ex parte communication with board members outside a board meeting.
CalCPA and the Department of Consumer Affairs are opposing SB 963. CalCPA views the bill as an overreaching and unnecessary attempt to politicize service on boards and discourage full communication on issues of concern.
Bruce C. Allen is CalCPA’s director of government relations.
