New laws impact all CPAs.

• Position: Practice Alert

New California laws that will have the greatest impact on the CPA profession are AB 2873 (Frommer), AB 2970 (Wayne), AB 270 (Correa, Figueora), AB 2834 (Midgen) and SB1955 (Figueroa). Among the areas addressed by these laws and pending regulatory action are:

Documentation

Audit documentation must be retained for seven or more years. And all firms--whether they serve public or private companies--must have written retention and destruction policies for audit documentation.

AB 2873 also establishes a rebuttable presumption. Beginning Jan. 1, 2003, you must supply and retain work papers that would allow any reviewer with relevant knowledge and experience (but having no previous experience with the engagement) to understand the audit completely.

If such papers are not in the engagement file and there is a dispute, the burden of proof shifts to the CPA to demonstrate to regulators that the appropriate work was performed. If the papers are not there, it is presumed that the auditor did not do the work.

Auditor Cooling-Off Period

Similar to the Sarbanes-Oxley Act, AB 2970 prohibits CPAs in a position of significant audit responsibility for an SEC client from assuming a responsible position with the client for one year after they performed the client's audit.

Regulatory Changes

The California Board of Accountancy has been expanded to 15 members, eight of whom are non-licensees. At least two licensees must be from small firms, which is defined as four or fewer licensees as partners or full-time professionals. The CBA is the last non-medical board in California to require an unlicensed majority.

The new laws clarify (and thus strengthen) the CBA's subpoena power for disciplinary purposes. The CBA may require the participation of witnesses and production of files for disciplinary purposes.

New laws also clarify that the Administrative Committee is advisory to the CBA and its executive staff.

Discipline

The definition of a "reportable event" has changed. Beginning Jan. 1, 2003, CPAs must report any of the following events to the CBA within 30 days. These events will be published for public review:

* Any restatement of a financial statement by the audit client of a CPA.

* Any civil settlement, arbitration award against a CPA...