Auditing laws on tap: CBA discusses everything from audit documentation to restatements.

• Author: Allen, Bruce C.
• Position: California Board of Accountancy's Reform Statutes Implementation Task Force

The California Board of Accountancy's Reform Statutes Implementation Task Force has drafted proposed regulations related to audit documentation and retention; the reporting of financial statement restatements, settlements arbitration awards and judgments; and work done by non-CPA owners of firms.

The proposals, scheduled for a public hearing in March 2003, may be reviewed at www.calcpa.org.

Though these regulations have not been adopted, laws are in place that are effective Jan. 1, 2003. For example, CPAs are required to report any restatements of financial statements by a client audited by the licensee and the other reportable events contained in Section 5063 of the Business and Professions Code.

The new audit documentation and retention standards are also effective Jan. 1, 2003. Additionally, firms with non-licensee owners are required to disclose to their clients any involvement of non-licensee owners in the services provided.

Reportable Events

AB 270 (Enacted 2002 and effective Jan. 1, 2003, Chapter 231) allows the CBA to require CPAs to report restatements of any client's financial statements. The CBA is considering requiring the reporting of any restatement of a financial statement issued for the purpose of correcting any error that relates to:

* A publicly traded company located, incorporated or doing business in California;

* A government agency in California;

* Any other entity where disclosure of the financial statement is required by law and the entity is incorporated, located or doing business in California;

* A charitable organization registered with the Attorney General's Registry of Charitable Trusts where the restatement has resulted in the filing of an amended or superceding IRS Form 990 or 990PF.

The CPA would be required to report within 30 days of issuance of the restatement and describe the facts, including an explanation of the reason for the restatement.

CPAs reporting on a public company financial statement would be required to include copies of the original and the restated financial statements. CPAs providing services to charitable institutions would be required to include only those portions of the original and the amended forms 990 or 990PF related to the reissued financial statement.

One of the proposed regulations to be heard in March would require that CPAs report the notice of an opening or initiation of an investigation by the Public Company Accounting Oversight Board involving the licensee or any associated...