Get in line: CPAs face new set of CBA regs - Cover Story - California Board of Accountancy regulations for certified public accountants

California CPA, July, 2003 by Jerry Ascierto

Additionally, Reg. 68.2 states that audit documentation must include an index or guide to the documentation. That documentation must provide the date the document or working paper was completed by the preparer and any reviewer, as well as identify the preparer and reviewer.

The CBA's newly adopted Reg. 68.3(d) parallels the SEC requirement that documentation must be retained whether or not it supports the auditor's conclusion.

Any changes in the documentation made more than 60 days after the date of issuance must identify the person making and approving the change, the date of and reason for the change, according to Reg. 68.4. These regulations apply to all audits performed by CPAs licensed in California, not just those of public companies.

DO OR DIE

Preparing audit documentation and destruction policies is "an exercise that's going to take some time," Klein says. "Some firms are assigning it to one person, or a firm administrator, and think they'll just get it done, stick it in a drawer, end of story. But it may haunt you."

Compliance to the documentation standards is a do or die situation for CPAs.

"What's clear is you're going to have to have a retention and destruction policy, and to the extent that you don't follow it you could end up like Andersen," Dodsworth says. "We tell people, you can be an Arthur Andersen, you can have an Enron in your firm. You don't have to be that big. It's just the behavior of the firm itself."

EXPANDED SELF-REPORTING REQUIREMENTS

Changes to the disciplinary process also affect CPAs. What is now a "reportable event" has been expanded by changes to Business and Professions Code Sec. 5063, which took effect Jan. 1, 2003. The recent regulatory hearings clarified several misconceptions about the reporting requirements.

CPAs must report to the CBA:

* A restatement of a financial statement by the audit client;

* A civil settlement or arbitration award relating to the practice of public accounting against a CPA of $30,000 or more;

* The initiation of an SEC investigation;

* An SEC notice requesting a "Wells Submission;"

* An investigation by the PCAOB; and

* Certain civil judgments against the CPA.

CAPs were already required to report criminal convictions.

Misconceptions regarding these changes, especially about who the restatement requirements apply to, are many, Dodsworth says.

One misconception is that restatement requirements apply to all companies, including private ones. But Reg. Sec. 59 only applies to publicly traded companies required to file a tax return with the California Franchise Tax Board; government agencies located in California, where the amount of the restatement exceeds the planning materiality; and charitable organizations registered by the Attorney General, in which the restatement has resulted in an amended or superceding IRS Form 990 or 990PF.

"If a CPA has any reason to restate, they need to sit down and think this through," Dodsworth says. "If they're a CAMICO policyholder, we'd have somebody walk them through a process to determine whether they're supposed to report or not."