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California's Push to Meet National Accounting Standards

Author: Angie M. Grainger, CPA/PFS, CFP
July, 2009 Issue

Three bills are currently working their way through the California Legislature that will help build transparency within the CPA profession and ensure the state’s CPAs are held to the highest national standards. One of those bills, SB691, would raise California CPA licensing laws to be aligned with national standards. Currently, California CPA licensing is considered nationally substandard.

SB691 will align California with national standards, known as the Uniform Accountancy Act (UAA). The UAA sets three requirements for CPA licensure:

• Passage of the Uniform CPA examination;

• One year of experience working under the supervision of a CPA; and

• A bachelor’s degree and 150 semester hours of college education, with a specified number of hours in accounting and business subjects.

California CPAs must have the transparency and reciprocity to practice across the states easily and effectively. As a CPA, I embrace these changes and support raising our licensing standards to that of the UAA. My profession is built on the tenets of independence, objectivity, integrity and public protection. Any steps we can take to strengthen these core values will result in positive outcomes for the CPA profession—and California consumers and businesses.

As it stands

Under current California law, students have two pathways to a CPA license. The first has lower educational standards than UAA requirements, while the second conforms to the UAA. Most students pursuing a CPA license realize that the first pathway is a professional dead end, since it won’t easily let them represent clients outside California.

Forty-six states have already adopted the UAA legislation. California, Colorado, New Hampshire and Vermont are the only states yet to meet the national licensing standard. Additionally, most states have adopted mobility provisions that require out-of-state CPAs providing services to clients in that state to come from “substantially equivalent” states—that is, states with licensing laws that conform to the Uniform Accountancy Act.

All CPAs from states conforming to the UAA will be considered “substantially equivalent” beginning in 2012. That means CPAs from states not adopting the UAA will have to meet additional requirements if they want to represent clients outside their own state.

A united front

The UAA is the carefully crafted joint effort of the National Association of State Boards of Accountancy (the national organization of state accounting regulators) and the American Institute of Certified Public Accountants (the national professional organization of CPAs comprised of individual CPAs in small and large accounting firms, industry, government and academia). In drafting the UAA, these organizations also enlisted the participation of state accountancy boards, including the California Board of Accountancy, which fully supports the UAA. The UAA, thus, is a collaborative effort of regulators, the profession and the public.

California doesn’t currently conform to the UAA and, as a result, California CPAs face serious obstacles in representing their clients in other states. Individuals, small businesses and large corporations conduct business across state and national borders every day. Moreover, advances in technology have provided CPAs with the ability to conduct business anywhere in the nation without ever physically crossing state lines. In a November 2008 survey of California CPAs, 81 percent said they work with clients who have business interests outside of California. Without passage of SB691, these 81 percent would have to meet additional requirements in each state.

The ability of CPAs to meet changing consumer demands has been severely hampered by state licensing criteria that vary widely between jurisdictions. If the certification requirements in a CPA’s home state are less demanding than those elsewhere—as is currently the case in California—CPAs may be barred from serving their California clients in other jurisdictions. As a result, California consumers and businesses may be forced to hire multiple professionals—and incur multiple fees—to meet their multi-state needs.

Fine tuning

Two other upcoming bills that affect the CPA profession are AB117 and AB138. AB117 relates to CPA license disclosure—it would require CPAs who don’t maintain their license with continuing professional education to disclose this information. They’d need to include the disclaimer “inactive” after the use of CPA—e.g., Joan Smith, CPA (inactive)—on business cards, résumés or wherever they use their CPA designation.

AB138 would require mandatory peer review for California CPA firms. Peer review is a proven method of consumer protection that has a 20-year history in the CPA profession. It’s already mandatory in most of the country. The peer review process helps ensure CPA competence, which results in greater consumer protection.

There’s no justification for California to have different practice and licensing criteria than the rest of the nation. California’s conformance to the UAA with SB691, disclosure with AB117 and peer review with AB138 will help California CPAs better serve their clients—and save those clients additional expense.

Angie M. Grainger, CPA/PFS, CFP is chair of the CalCPA State Financial Literacy Committee and a member of the CalCPA State Committee of Financial Planning. She has more than 10 years experience working with closely held businesses and high net worth individuals in estate, tax and financial planning.



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