The battle continues: an update on California legislation impacting CPAs.

• Author: Allen, Bruce C.
• Position: Brief Article

California's Legislature is due to recess its two-year session Aug. 31. Between press time and that final recess, legislators will act on legislation of critical importance to the CPA profession.

Even though AB 1995 (Correa), which would have allowed California-based CPA firms performing audits of public companies to provide a limited set of services to those clients, died on the Assembly floor, several other bills are making their way through.

SB 1527: causing Confusion

SB 1527 (Burton) is a bill that broadly defines audit and severely restricts the services that may be provided to public companies for which an audit is done. The bill is awaiting a hearing in the Assembly Business and Professions Committee and will be heard in August.

This bill contains a very limited set of services that may be provided to public company audit clients. SB 1527 is severely flawed. It contains an overly broad definition of audit and both a list of permitted services and a list of prohibited services.

If the Legislature passes SB 1527 as it currently stands, its impact is unclear, both because it is confusing and because it would only apply to California CPA firms.

A California-only standard would cause confusion for California CPAs, public companies and investors and would not create results that would improve investor confidence statewide, nationally or internationally.

AB 2970: The Revolving Door

AB 2970 (Wayne), which would prohibit a California-licensed CPA from going to work for a publicly traded audit client for one year, has passed the Senate Business and Professions Committee and is awaiting a hearing with the Senate Appropriations Committee.

This bill, as originally introduced, would have required public companies to change audit firms every four years. It was then amended to require a two-year cooling-off period before CPAs could go to work for public company audit clients.

AB 2970's prohibition is now one year and although the bill is moving along, most legislators haven't expressed certainty that this bill would instill investor confidence in the financial markets.

AB 2873: Documentation

AB 2873 (Frommer) will make some changes to work paper documentation standards by codifying General Accounting Office standards for work paper documentation in California statutes. It will require auditor workpapers to be retained for seven years.

Additionally, the bill will create a rebuttable presumption: If procedures are not physically documented in the...