California's proposals: Flurry of legislation to "reform" the CPA profession.

• Author: Allen, Bruce C.
• Position: Government Relations - Brief Article

California legislators and regulators have introduced a flurry of proposals focused on "reforming" the CPA profession in light of the Enron bankruptcy.

While not all of the proposals have been fleshed out, at least five new pieces of legislation dealing with accountancy are currently in the Legislature and others have the potential to be amended at any time.

At press time, many of the proposals paralleled the approaches being considered by Congress and the SEC for public companies, but would apply to all companies public and private in California. Other proposals that would only impact California CPAs are also being forwarded.

CalCPA's Position

CalCPA is committed to restoring faith in our financial markets and in the accounting profession and is supporting proposals that will further these goals. On the other hand we are strongly opposing proposals that would unnecessarily hinder California business and small CPA firms without providing any real consumer protection.

CalCPA members have presented testimony consistent with this view and have tried to educate decision makers about the profession's role and responsibility, as well as the need to focus on public companies and the need for national uniformity.

Punitive in Nature

Many of the proposals being advanced by California regulators and the state Legislature will not help prevent future Enrons, but rather are punitive in nature and may handicap small business through a wide range of unintended consequences.

Issues currently being considered include prohibiting all non-audit services to any audit clients, public or private; creation of a California-specific statutory documentation standard for audit workpapers and requiring that audit workpapers be retained for a minimum of five to seven years.

The Burden of Proof Is Yours?

Additionally, the California Board of Accountancy is pursuing creation of what is called a "rebuttable presumption" that would apply to any missing workpapers. That is, if the documentation for an audit test or procedure is not in the work papers, the presumption will be that the procedure or work was not done.

This is a far-reaching shift of the burden of proof that would require any CPA charged with a violation of the Accountancy Act to prove their innocence rather than requiring the state to prove guilt in any matters related to workpaper documentation.

Professional standards already require that audits be sufficiently documented to support the auditor's opinion and...