California Regulatory

Review for CPAs

Publication Date: December 2020

Regulatory Review

for California CPAs

All rights reserved. No part of this course may be reproduced in any form or by any means, without permission in

writing from the publisher.

The author is not engaged by this text or any accompanying lecture or electronic media in the rendering of legal,

tax, accounting, or similar professional services. While the legal, tax, and accounting issues discussed in this

material have been reviewed with sources believed to be reliable, concepts discussed can be affected by changes

in the law or in the interpretation of such laws since this text was printed. For that reason the accuracy and

completeness of this information and the author's opinions based thereon cannot be guaranteed. In addition,

state or local tax laws and procedural rules may have a material impact on the general discussion. As a result, the

strategies suggested may not be suitable for every individual. Before taking any action, all references and citations

should be checked and updated accordingly.

This publication is designed to provide accurate and authoritative information in regard to the subject matter

covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other

professional service. If legal advice or other expert advice is required, the services of a competent professional

person should be sought.

—-From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a

Committee of Publishers and Associations.

Copyright © 2020 by

DeltaCPE LLC

Course Description

This course is designed for California CPAs to meet the 2-hour Regulatory Review requirement. It includes a review

of current the California Accountancy Act and the current California Board of Accountancy Regulations. Also

included are historic and recent disciplinary actions taken by the Board to help illustrate how the acts and

regulations are enforced.

The course must be passed with a grade exceeding 90 percent.

Learning Objectives

After completing this course, you should be able to:

• Recognize key sections within the California Accountancy Act

• Recognize key sections within California Board of Accountancy Regulations.

• Identify standards of professional conduct.

• Recognize disciplinary proceedings taken by the Board and the associated misconduct.

Field of Study Regulatory Review

Level of Knowledge Overview

Prerequisite None

Advanced Preparation None

Approval Number:

RRS-014-0414

Table of Contents Introduction ................................................................................................................................................................1

Application of Chapter and General Standards ......................................................................................................3

Applications, Registrations, Permits Generally ......................................................................................................6

Continuing Education .............................................................................................................................................9

Section 1 Review Questions ................................................................................................................................ 15

Peer Reviews ....................................................................................................................................................... 16

Audit Documentation .......................................................................................................................................... 19

Standards of Professional Conduct ..................................................................................................................... 20

Disciplinary Proceedings ...................................................................................................................................... 36

Penalties, Citations and Fines .............................................................................................................................. 40

Section 2 Review Questions ................................................................................................................................ 43

Appendix - Disciplinary Actions Taken by the California Board of Accountancy .................................................... 44

Glossary ................................................................................................................................................................... 52

Index ........................................................................................................................................................................ 53

Review Question Answers ....................................................................................................................................... 54

1

Introduction This Regulatory Review course will cover the rules of the California Board of Accountancy. When taking this

course, you should also have access to the California Accountancy Act and the California Board of Accountancy

Regulations. If the material was not provided with this course, you can find it at the California State Board website

at the following locations:

• California Accountancy Act: http://www.dca.ca.gov/cba/about-cba/accountancy-act.shtml

• California Board of Accountancy Regulations: http://www.dca.ca.gov/cba/about-cba/regulations.shtml

The mission of the California Board of Accountancy (CBA) is to protect consumers by ensuring only qualified

licensees practice public accountancy in accordance with established professional standards.

• Examines applicants and sets educational and experience requirements for California certified public

accountants (CPAs).

• Regulates the practice of public accountancy in California and may deny licensure, suspend, revoke, or

refuse to renew any license, permit, or certificate for violation of the Accountancy Act or CBA Regulations.

• Regulates, prescribes, amends, or repeals the rules of professional conduct appropriate to the

establishment and maintenance of a high standard of integrity and competency in the profession.

To maintain a license in an active status, the CBA requires that you complete a Board-approved Regulatory Review

course every six years. This course provides information on the provisions of the current Accountancy Act and CBA

Regulations.

All courses are a minimum of two hours and must be completed within the six years preceding your license

expiration date. The two-hour course is included as part of the 80-hour CE requirement. The date by which you

must meet the requirement is provided on Part A of your license renewal application.

As required by the Board, this course includes the following topics:

Application of Chapter and General Standards:

• California Accountancy Act: Article 3, Application of Chapter

• CBA Regulations: Article 1, General

Continuing Education:

• California Accountancy Act: Article 1.5, Continuing Education

• CBA Regulations: Article 12, Continuing Education Rules

Profession Conduct:

2

• California Accountancy Act: Article 3.5, Standards of Professional Conduct

• CBA Regulations: Article 9, Rules of Professional Conduct

Applications, Registrations and Permits

• California Accountancy Act: Article 4, Applications, Registrations, Permits Generally

Peer Reviews:

• California Accountancy Act: Article 4, Applications, Registrations, Permits Generally

• CBA Regulations: Article 6, Peer Review

Audit Documentation:

• California Accountancy Act: Article 5.5, Audit Documentation

Disciplinary Proceedings:

• California Accountancy Act: Article 6, Disciplinary Proceedings

• California Accountancy Act: Article 7, Prohibitions and Offenses Against the Chapter Generally

• CBA Regulations: Article 13, Denial, Suspension, and Revocation of Certificates, Permits, or Licenses

Penalties, Citations and Fines:

• California Accountancy Act: Article 6.5, Administrative Penalties

• CBA Regulations: Article 12.5, Citations and Fines

3

Application of Chapter and General Standards

Please be sure to read the following materials for the actual language of the laws and rules:

• Accountancy Act: Article 3, Application of Chapter

• CBA Regulations: Article 1, General

Valid Permits

No person shall engage in the practice of public accountancy in California unless the person is the holder of a valid

permit to practice public accountancy issued by the board or a holder of a practice privilege pursuant to Article

5.1 of the Accountancy Act.

CASE STUDY – Invalid Permit

MEDLEN JR., DANIEL LEE MEDLEN & ASSOCIATES, LLP La Mesa, CA (CPA 96426; PAR 7362)

CBA ACTIONS: Revocation of CPA License, via default decision. Effective April 24, 2016

CAUSE FOR DISCIPLINE: Accusation No. AC-2015-37 contains the following allegations: Respondents are subject

to disciplinary action in that Respondents committed acts of gross negligence when they caused client C.E. to be

assessed a penalty by the United States Internal Revenue Service. Respondents are subject to disciplinary action

in that during the period from September 1, 2012, to February 28, 2013, Respondents practiced public

accountancy by holding themselves out to the public as a CPA and CPA firm, while their licenses were invalid.

Respondents are subject to disciplinary action in that they misled the public in believing that their licenses were

valid from September 1, 2012, to February 26, 2013. Respondents are subject to disciplinary action in that Medlen

& Associates, LLP, was not validly registered from September 1, 2012, when its only licensed partner’s individual

license expired and was not renewed until April 21, 2015. Respondents are subject to disciplinary action in that

Medlen & Associates, LLP, did not qualify as a registered firm with the CBA from September 1, 2012, when its only

licensed partner’s individual license expired and was not renewed until April 21, 2015. Respondents are subject

to disciplinary action in that Respondents failed to respond to the CBA’s request for information regarding C.E.’s

allegations and questions regarding their practice.

VIOLATION(S) CHARGED: Business and Professions Code, Division 3, Chapter 1, §§ 5051, 5060, 5072, 5100 (c) and

(g), and 5101. California Code of Regulations, Title 16, Division 1, § 52.

The Practice of Public Accountancy

A person shall be deemed to be engaged in the practice of public accountancy if he or she does any of the

following:

4

a. Holds himself or herself out to the public in any manner as one skilled in the knowledge, science, and

practice of accounting, and as qualified and ready to render professional service therein as a public

accountant for compensation.

b. Maintains an office for the transaction of business as a public accountant.

c. Offers to prospective clients to perform for compensation, or who does perform on behalf of clients for

compensation, professional services that involve or require an audit, examination, verification,

investigation, certification, presentation, or review of financial transactions and accounting records.

d. Prepares or certifies for clients reports on audits or examinations of books or records of account, balance

sheets, and other financial, accounting and related schedules, exhibits, statements, or reports that are to

be used for publication, for the purpose of obtaining credit, for filing with a court of law or with any

governmental agency, or for any other purpose.

e. In general or as an incident to that work, renders professional services to clients for compensation in any

or all matters relating to accounting procedure and to the recording, presentation, or certification of

financial information or data.

f. Keeps books, makes trial balances, or prepares statements, makes audits, or prepares reports, all as a part

of bookkeeping operations for clients.

g. Prepares or signs, as the tax preparer, tax returns for clients.

h. Prepares personal financial or investment plans or provides to clients products or services of others in

implementation of personal financial or investment plans.

i. Provides management consulting services to clients.

The activities in subdivisions (f) to (i), are “public accountancy” only when performed by a certified public

accountant or public accountant.

A person is not engaged in the practice of public accountancy if the only services he or she engages in are those

defined by subdivisions (f) to (i), and he or she does not hold himself or herself out, solicit, or advertise for clients

using the certified public accountant or public accountant designation. A person is not holding himself or herself

out, soliciting, or advertising for clients within the meaning of this section solely by reason of displaying a CPA

certificate in his or her office or identifying himself or herself as a CPA on other than signs, advertisements,

letterhead, business cards, publications directed to clients or potential clients, or financial or tax documents of a

client. (Accountancy Act Article 3, Section 5051)

FAQs

Question

Will I be in violation of the BPC or CBA Regulations if I allow my CPA license to expire, and I continue to practice

public accounting as a CPA?

Answer

Yes. BPC section 5050 requires that certified public accountants and public accountants licensed by the CBA

maintain a current, active license to practice public accountancy, as defined under BPC section 5051. When a

license expires, practice rights end. No certified public accountant or public accountant with an expired license

5

can engage in the practice of public accountancy in California. If a licensee continues to practice with an expired

license, the licensee may be subject to an enforcement action.

Employment by a CPA

A person who is not a certified public accountant or public accountant may serve as an employee of, or an assistant

to, a certified public accountant or public accountant or partnership or a corporation composed of certified public

accountants or public accountants holding a permit to practice pursuant to this chapter if the employee or

assistant works under the control and supervision of a certified public accountant, or a public accountant

authorized to practice public accountancy pursuant to this chapter and if the employee or assistant does not issue

any statement over his or her name. (Accountancy Act Article 3, Section 5053)

Licensure and Practice Privilege Exemption

An individual or firm holding a valid and current license, certificate, or permit to practice public accountancy from

another state may prepare tax returns for natural persons who are California residents or estate tax returns for

the estates of natural persons who were clients at the time of death without obtaining a permit to practice public

accountancy issued by the board provided that the individual or firm does not physically enter California to

practice public accountancy, does not solicit California clients, and does not assert or imply that the individual or

firm is licensed or registered to practice public accountancy in California. (Accountancy Act Article 3, Section 5054)

An individual holding a valid and current license, certificate, or permit to practice public accountancy from another

state shall be exempt from the requirement to obtain a permit to practice public accountancy issued by the board

if all of the following conditions are satisfied:

a. The individual’s client is located in another state.

b. The individual’s engagement with the client relates to work product to be delivered in another state.

c. The individual does not solicit California clients, or have his or her principal place of business in this state.

d. The individual does not assert or imply that he or she is licensed to practice public accountancy in

California.

e. The individual’s practice of public accountancy in this state on behalf of the client located in another state

is of a limited duration, not extending beyond the period required to service the engagement for the client

located in another state.

f. The individual’s practice of public accountancy in this state specifically relates to servicing the engagement

for the client located in another state. (Accountancy Act Article 3, Section 5057)

Proper Use of Titles

The Board states that no CPA or partnership shall assume or use the title or designation “chartered accountant,”

“certified accountant,” “enrolled accountant,” “registered accountant” or “licensed accountant,” or any other title

or designation likely to be confused with “certified public accountant” or “public accountant,” or any of the

abbreviations “C.A.,” “E.A.,” “R.A.,” or “L.A.,” or similar abbreviations likely to be confused with “C.P.A.”. However,

6

any person enrolled to practice before the Internal Revenue Service and recognized as an enrolled agent may use

the abbreviation “E.A.”

A person or firm may not use any title or designation in connection with the designation “certified public

accountant” or “public accountant” that is false or misleading.

The holder of an inactive license issued by the board, when lawfully using the title “certified public accountant,”

shall place the term “inactive” immediately after that designation.

The holder of a retired license issued by the board, when lawfully using the title “certified public accountant,” or

the CPA designation, shall place the term “retired” immediately after that title, designation, or reference.

The holder of a permit in a military inactive status issued by the board, when lawfully using the title “certified

public accountant,” the CPA designation shall place the term “military inactive” immediately after that title,

designation, or reference. (Accountancy Act Article 3, Section 5058)

Notification of Change of Address

Article 1, Section 3 of the CBA Regulations requires licensees and firms to report in writing to the CBA any change

in your address of record within 30 days after the change. Failure to update an address with the CBA may result

in delays in receipt of license renewal applications, pocket identification cards and other important documents

from the CBA.

To submit an address change, you may complete and sign the Address Change Form, then mail, email or fax it to

the CBA. The Address Change Form is available on the CBA website.

Applications, Registrations, Permits Generally

Please be sure to read the following materials for the actual language of the laws and rules:

• California Accountancy Act: Article 4, Applications, Registrations, Permits Generally

A CPA license is valid for a two-year period, and expires every other year at midnight on the last day of your birth

month. The year of expiration is based upon the birth year. If you were born in an even year, the license will expire

each even year; if you were born in an odd year, it will expire each odd year. You may find your license expiration

date on your pocket identification card, your license renewal application, or by using the License Lookup feature

on the CBA website.

License Renewal Options

You may:

7

• Renew your license in an active status by submitting the completed license renewal application, including

the license renewal fee and Peer Review Reporting form (PR-1), and documenting completion of the

required continuing education (CE).

• Renew your license in an inactive status by submitting the completed license renewal application and PR-

1 form with the license renewal fee. You are not required to complete CE if you renew your license in an

inactive status; however, you cannot practice public accountancy while your license is in an inactive status.

Additionally, when using the title certified public accountant or the CPA designation you must place the

term “inactive” immediately after the designation or title.

• Allow your license to expire if you no longer intend to practice public accountancy. An expired license may

be renewed up to five years after its expiration date with payment of all applicable fees. In order to renew

active, all required CE must be completed.

(CBA License Renewal Handbook)

Retired Status

Upon submitting an application to the Board, a licensee may have his or her license placed in retired status. A

holder of a license in a retired status may receive a share of the net profits from a public accounting firm or other

compensation from a public accounting firm, but must not otherwise engage in the practice of public accountancy.

Doing so while a license is in a retired status is grounds for revocation or discipline of the retired license.

A licensee applying to have his or her license placed in a retired status must have held a license as a certified public

accountant or public accountant in the United States or its territories for a minimum of twenty total years; and

during those twenty years, they must have held a license in active as a CPA or PA with the CBA for a minimum of

five years. If you maintain a license in a retired status, you must place the term “retired” immediately after the

CPA title or the designation you use. This applies to using the title “certified public accountant,” the CPA

designation, or any other reference that would suggest that the person is licensed by the CBA on materials such

as correspondence, Internet websites, business cards, nameplates, or name plaques. (CBA License Renewal

Handbook)

Military Inactive Status

A CPA may apply to have his or her permit placed in a military inactive status if the holder of a permit is engaged

in, and provides sufficient evidence of, active duty as a member of the California National Guard or the United

States Armed Forces. No holder of a permit in a military inactive status shall engage in any activity for which a

permit is required. The holder of a permit in a military inactive status shall be exempt from renewal fees,

continuing education requirements and peer reviews. To become active again, the CPA will need to pay necessary

fees, complete CPE, and meet any peer review requirements.

8

Public Accountancy Permits and Certificates

Permits to engage in the practice of public accountancy in this state shall be issued by the board only to holders

of the certificate of certified public accountant and to those partnerships, corporations, and other persons who,

upon application approved by the board, are registered with the board under this chapter.

All applicants for registration shall furnish satisfactory evidence that the applicant is entitled to registration and

shall pay any required fees. Each partnership, corporation, and other person issued a permit by the board to

practice as a certified public accountant or as a public accountant shall be furnished with a suitable certificate

evidencing that registration.

FAQs

Question

Are there special requirements for renewing an expired license?

Answer

Under normal circumstances, to renew a license in an active status, a total of 80 hours of qualifying CE must be

completed during the 24-months immediately preceding license expiration. If you are a new licensee, or you

recently converted your license to an active status, you most likely have a pro-rated CE requirement, which

requires you to complete less than 80 hours of CE.

If you allow your license to expire and go delinquent, you will now be required to complete an additional 20 hours

of CE for each full six-month period from the date of license expiration through the date you apply for license

renewal, up to a maximum of 80 hours of CE. If less than six full months have passed between the date that the

license expired and the date you apply for license renewal, no additional CE is required.

Note: The CBA will send one delinquent license renewal application to the licensee’s address of record

approximately 30 days after the license expiration date. No subsequent license renewal applications will be sent,

unless requested.

Renewal of Expired Permits

An expired license may be renewed up to five years after its expiration date upon the filing of an application for

renewal with payment of all accrued fees. In order to renew active, all required CE must be completed.

A permit that is not renewed within five years following its expiration may not be renewed, restored, or reinstated

thereafter, and the certificate of the holder of the permit shall be canceled immediately upon expiration of the

five-year period.

9

Note: A certified public accountant whose certificate is canceled may apply for and obtain a new certificate and

permit if the applicant:

• Pays all of the fees that would be required of him or her if he or she were then applying for the certificate

and permit for the first time.

• Takes and passes the examination which would be required of him or her if he or she were then applying

for the certificate for the first time. The examination may be waived in any case in which the applicant

establishes to the satisfaction of the board that, with due regard for the public interest, he or she is

qualified to engage in practice as a certified public accountant.

A permit which has been revoked is subject to expiration, but it may not be renewed. If it is reinstated after its

expiration, the holder of the permit, as a condition precedent to its reinstatement, shall pay a reinstatement fee

which shall be in an amount equal to the renewal fee in effect on the last regular renewal date before the date on

which it is reinstated, plus the delinquency fee, if any, accrued at the time of its revocation.(Section 5076.6)

Requirements for Registration as a Partnership

No persons shall engage in the practice of accountancy as a partnership unless the partnership is registered by

the board.

An accountancy partnership must have at least two partners with valid licenses in good standing. An accountancy

partnership with a non-licensee owner must have at least one partner with an active California CPA license. An

accountancy partnership must obtain a Certification of Registration from the CBA before it can hold out and

practice as an accountancy partnership. By law, the CBA cannot license limited partnerships, only limited liability

or general partnerships. An accountancy partnership license must be renewed every two years.

Continuing Education

The mission of the California Board of Accountancy is to protect consumers by ensuring only qualified licensees

practice public accountancy in accordance with established professional standards.

Please be sure to read the following materials for the actual language of the laws and rules:

• Accountancy Act: Article 1.5, Continuing Education

• CBA Regulations: Article 12, Continuing Education Rules

Basic Requirements

To renew a license in an active status, a total of 80 hours of qualifying CE must be completed during the two-year

period immediately preceding license expiration including:

• A minimum of 40 hours in technical subjects. (See Details below.)

10

• Four hours of ethics education as defined in section 87(b) of the CBA Regulations.

• If subject, 24 hours in Government Auditing CE or Accounting and Auditing (A&A) CE and 4 hours of CE

specifically related to the prevention, detection and/or reporting of fraud affecting financial statements

(Fraud CE). (see Government Auditing Continuing Education Requirement section below.)

• If subject, 8 hours in Preparation Engagement CE or Accounting and Auditing and 4 hours of CE specifically

related to the prevention, detection and/or reporting of fraud affecting financial statements (Fraud CE).

(see Preparation Engagements section below.)

• A two-hour Board-approved Regulatory Review course if more than six years have lapsed since you last

completed a Board-approved Regulatory Review.

• The remaining 40 hours may be completed in qualifying technical or non-technical subject matter of the

licensee’s choosing, so long as a minimum of 40 hours are completed in technical subject matter.

• No carryover of continuing education is permitted from one license renewal period to another.

Note: Licensees renewing a license in an active status must complete a minimum of 20 hours in each year of the

two-year license renewal period, including a minimum of 12 hours in technical subject matter.

For example: For a license set to expire on January 31, 2022 a licensee must complete a minimum of 20 hours of

CE, with 12 hours in technical subject matter, between February 1, 2020 through January 31, 2021. In addition, a

minimum of 20 hours of CE, with 12 hours in technical subject matter, must be completed between February 1,

2021 and January 31, 2022. 80 hours total must be completed during the two year period. (License Renewal

Handbook)

Details

Licensees shall complete a minimum of 50 percent of the required continuing education hours in the following

technical subject areas: accounting, auditing, fraud, taxation, consulting, financial planning, ethics as defined

below, regulatory review as defined in Section 87.8, computer and information technology (except for word

processing), and specialized industry or government practices that focus primarily upon the maintenance and/or

enhancement of the public accounting skills and knowledge needed to competently practice public accounting.

Licensees may claim no more than 50 percent of the required number of continuing education hours in the

following non-technical subject areas: communication skills, word processing, sales, marketing, motivational

techniques, negotiation skills, office management, practice management, and personnel management.

Programs in the following subject areas are not acceptable continuing education: personal growth, self-realization,

spirituality, personal health and/or fitness, sports and recreation, foreign languages and cultures and other

subjects which will not contribute directly to the professional competence of the licensee.

Ethics Continuing Education Requirement

A licensee renewing a license in an active status shall complete four hours of the 80 hours of continuing education

required pursuant to subsection (a) in an ethics course. The course subject matter shall consist of one or more of

the following areas: a review of nationally recognized codes of conduct emphasizing how the codes relate to

professional responsibilities; case-based instruction focusing on real-life situational learning; ethical dilemmas

11

facing the accounting profession; or business ethics, ethical sensitivity, and consumer expectations. Programs in

the following subject areas are not acceptable toward meeting this requirement: sexual harassment, workplace

harassment, or workplace violence.

Government Auditing Continuing Education Requirement

A licensee who plans, directs, conducts substantial portions of field work, or reports on financial or compliance

audits of a governmental agency, must complete 24 of the required 80 hours of CE in the areas of governmental

accounting, auditing or “related subjects.” “Related subjects” are those which maintain or enhance your

knowledge of:

• Governmental operations

• Governmental laws, regulations, or reports

• Special requirements of governmental agencies

• Subjects related to the specific or unique environment in which the audited entity operates

• Other auditing subjects which may be appropriate to government auditing engagements

This CE must be completed in the same two-year period in which the licensee performs the work.

Accounting and Auditing Continuing Education Requirement

A licensee who engages in planning, directing, performing substantial portions of the work, or reporting on an

audit, review, compilation, or attestation service, must complete 24 hours of the 80 hours of continuing education

in courses related to the following:

• Financial statement preparation and/or reporting

• Auditing, reviews, and/or compilations

• Industry accounting

• Attestation or assurance services

This CE must be completed in the same two-year period in which the licensee performs the work.

Attest services and attest report include an audit, a review of financial statements, or an examination of

prospective financial information. Attest services do not include the issuance of compiled financial statements.

Accounting and Auditing Continuing Education Requirement When Providing Preparation Engagements as

Highest Level of Service - Requirement

Effective October 1, 2017, if you perform preparation engagements as your highest level of service, as part of your

required 80 hours of CE, you must complete eight hours of preparation engagement or accounting and auditing

(A&A) CE and four hours of CE specifically related to the prevention, detection, and/or reporting of fraud affecting

financial statements. Additionally, if you perform preparation engagements as your highest level of service, you

will not be required to undergo a peer review. However, you would still be required to complete the Peer Review

Reporting Form as part of the license renewal requirement.

12

What is a preparation engagement? Statement on Standards for Accounting and Review Services No. 21 (SSARS

21), section 70 – Preparation of Financial Statements, describes a preparation engagement as an accountant in

public practice engaged to prepare financial statements but is not engaged to perform an audit, review, or

compilation on those financial statements. An engagement to prepare financial statements is a non-attest service

and not subject to peer review. The accountant is not required to be independent and no report is required. Each

page of the financial statement is required to clearly state that ‘no assurance is provided’ or another form of

disclaimer stating the accountant did not perform an audit, review, or compilation.

Fraud Requirement

A licensee who must complete continuing education in government auditing, accounting and auditing or

preparation engagement shall also complete an additional four hours of continuing education specifically related

to the prevention, detection, and/or reporting of fraud affecting financial statements. This continuing education

shall be part of the 80 hours of continuing education required, but shall not be part of the continuing education

required by government auditing or accounting and auditing requirements.

Regulatory Review Course

To maintain a license in an active status, the CBA requires that licensees to complete a Board-approved Regulatory

Review course every six years. This course provides information on the provisions of the current Accountancy Act

and CBA Regulations.

All courses are a minimum of two hours and must be completed within the six years preceding the license

expiration date. The two-hour course is included as part of the 80-hour CE requirement. The date by which the

licensee must meet the requirement is provided on Part A of the license renewal application. The licensee shall

select from a list of Board-approved courses. A self-study Regulatory Review course requires a passing score of 90

percent.

A licensee shall report completion of the Regulatory Review course at the time of renewal.

Inactive License Status

The continuing education requirements are not applicable at the time of renewal for a licensee renewing a license

in an inactive status.

Failure to Comply.

A licensee's willful failure to comply with the requirements of this section shall constitute cause for disciplinary

action.

Conversion or Restoration to Active Status Prior to Renewal

A licensee may convert a license from inactive status to active status either at the time of renewal or any time

within the two-year licensure period. If converting at the time of license renewal, the licensee must complete the

license renewal application, including completion of the CE Reporting Worksheet and the Peer Review Reporting

13

Form, and submit the appropriate license renewal fee. If converting the license to an active status before the next

expiration date, the licensee must complete a Status Conversion Form documenting completion of the required

CE hours. The Status Conversion Form and the Peer Review Reporting Form are available on the CBA website or by

contacting the RCC Unit.

If converting at the time of renewal, a total of 80 hours of CE must be completed within the 24-month period

immediately preceding the license expiration. A minimum of 20 hours of CE must be completed in the one-year

period immediately preceding the license expiration, including 12 hours in technical subject matter as described

in section 88(a)(1) of the CBA Regulations. A 4-hour ethics course must also be completed. In addition, a 2-hour

Board-approved Regulatory Review course must be completed if more than 6 years have lapsed since the licensee

last completed a Board-approved Regulatory Review course.

If converting any time prior to the expiration date, a total of 80 hours of CE must be completed within the 24-

month period prior to requesting license status conversion.

A minimum of 20 hours of CE must be completed within the one-year period immediately preceding license status

conversion, including 12 hours in technical subject matter.

Exceptions and Extensions.

A renewal applicant may be granted either an extension of time to complete continuing education requirements

or an exception from continuing education requirements. Extensions or exceptions may be granted by the Board

for the following causes:

• Reasons of health, certified by a medical doctor, which prevent compliance by the licensee;

• Service of the licensee on extended active duty with the Armed Forces of the United States;

• Other good cause.

No extension or exception shall be made solely because of age.

CASE STUDY – Failure to complete required CPE

HICKEY, JAMES EDMOND JR. Long Beach, CA (CPA 38579)

CBA ACTIONS Surrender of CPA license, via stipulated settlement. Mr. Hickey shall pay the CBA $5,551.35 for its

investigation and enforcement costs prior to the issuance of a new or reinstated license. Effective April 24, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2016-5 contains the following allegations: Mr. Hickey is subject to

disciplinary action in that he secured his license by fraud, deceit, knowing misrepresentation of fact, or by

knowingly omitting to state a material fact. On or about August 30, 2013, Mr. Hickey signed under penalty of

perjury and submitted a completed Certified Public Accountant/ Public Accountant License Renewal Application

to the CBA. Mr. Hickey misrepresented that he had attained 82 hours of CE by completing the following courses:

Rental Real Estate Deductions, Real Estate Accounting, Family Tax Planning, Ethics for California CPA, and Fraud

Auditing and Forensic Accounting, when, in fact, he did not complete any CE during the renewal period. Mr. Hickey

14

is subject to disciplinary action in that he willfully made false and misleading statements regarding his continuing

education.

VIOLATION(S) CHARGED Business and Professions Code, Division 1.5, Chapter 2, § 498; Division 3, Chapter 1, §

5100 (b) and (g). California Code of Regulations, Title 16, Division 1, § 89.

FAQs

Question

Can I get an extension for my CPE deadline?

Answer

The CBA offers a licensee the option to request an exemption from, or an extension of time to complete, the CE

requirements. These requests must be accompanied by substantiating documentation. Extension requests are

generally granted for one to six months beginning from the date of license expiration, and must fall under one of

the following categories: (1) health reasons, (2) military service, or (3) Other good cause such as a natural disaster

or death of a spouse or immediate family member, supported by a copy of the death certificate or obituary.

15

Section 1 Review Questions

1. Which of the following activities is NOT necessarily within the definition of the practice of accountancy?

A. Maintains an office as a public accountant

B. Performs audits for a fee

C. Certifies accounting records

D. Prepares tax returns

2. Which of the following statements is FALSE?

A. A CPA must provide a change of address notification in writing within 30 days to the Board.

B. A Texas CPA may prepare California tax returns.

C. A CPA use the title “CPA, Inactive” if they complete the appropriate application with the Board.

D. Only individual CPAs must be registered with the Board, not partnerships.

3. If a licensee fails to renew her license, which of the following statements is INCORRECT?

A. Her license may be renewed after paying a delinquency fee.

B. The license expires immediately, and she must not practice public accountancy.

C. A license that has been expired for more than 3 years will be canceled.

D. Her license may be renewed after completing required continuing education.

4. Which of the following statements regarding continuing education is FALSE?

A. A licensee must complete a minimum of 20 hours per year, and 12 of those hours must be in technical

subjects.

B. A CPA performing government audits must take 24 hours of government auditing, accounting or related

government courses.

C. No more than 50 percent of the required hours may be non-technical.

D. 120 hours are required every 3 years.

16

Peer Reviews

Please be sure to read the following materials for the actual language of the laws and rules:

• Accountancy Act: Article 4, Section 5076, Peer Reviews

• CBA Regulations: Article 6, Peer Review

If your accountancy firm provides accounting and auditing services, it (including sole proprietorships) must

undergo a peer review of its accounting and auditing practices every three years. A peer review is a systematic

review of your firm’s accounting and auditing services performed by a peer reviewer who is unaffiliated with your

firm to ensure work performed conforms to professional standards. Accounting and auditing is defined as any

services that are performed using the following professional standards:

• Statements on Auditing Standards (SASs)

• Statements on Standards for Accounting and Review Services (SSARS)

• Statements on Standards on Attestation Engagements (SSAEs)

• Government Auditing Standards (Yellow Book)

• Audits of non-Security Exchange Commission (SEC) issuers performed pursuant to the standards of the

Public Company Accounting Oversight Board (PCAOB).

Exclusions

There are two exclusions from the peer review requirement.

• If your firm’s engagements are subject to inspection by the Public Accounting Oversight Board’s inspection

program.

• If your firm, as its highest level of work, performs only preparation engagements (with or without

disclaimer reports) in accordance with the provisions of the Statements on Standards for Accounting and

Review Services (SSARS).

There is no exclusion from the peer review requirement based solely on the number of engagements performed.

Board-Recognized Peer Review Program Providers

If your firm performs accounting and auditing services, it must enroll in a Board-recognized peer review provider’s

program. Once enrolled, a recognized provider will assist in the firm’s selection of a qualified peer reviewer to

ensure that the peer reviewer has a currency of knowledge of the professional standards related to the type of

practice to be reviewed. Presently, only the American Institute of Certified Public Accountants (AICPA) is

recognized by the CBA to perform peer reviews. The AICPA uses several administering entities nationally, usually

state certified public accountant societies, to administer its peer review program. In California, the California

Society of CPAs (CalCPA) is the administering entity for the AICPA program. CalCPA can be contacted via e-mail at

peerreview@calcpa.org. Additional information is available on the CBA website www.calcpa.org.

17

Reporting to the CBA

All licensees are required to report to the CBA peer review information as required on the Peer Review Reporting

form (commonly known as PR-1) at the time of license renewal. The CBA will include the PR-1 with the firm’s

license renewal package. Although not all firms are required to undergo peer review, all firms must report peer

review information to the CBA by completing and submitting the PR-1 with the firm’s license renewal application.

If your firm is required to undergo peer review, it must do so and provide the peer review report to the CBA every

three years. Additionally, if your firm receives a substandard peer review rating, it is required to submit the peer

review report, along with any materials documenting prescription of remedial or corrective actions to the CBA,

within 45 days after the report is accepted by the Board-recognized peer review program provider. Your firm must

also submit, within the same 45-day reporting period, any materials, if available, documenting completion of any

or all of the prescribed remedial or corrective actions.

Extensions

Should an extension of time be needed to have a peer review report accepted by a Board-recognized peer review

program, your firm shall submit the request to the Board-recognized peer review program provider with which

the firm is enrolled. If the extension granted extends past the firm’s reporting date, the firm shall notify the CBA

of the extension and provide proof of the extension. Your firm shall then report the results of the peer review to

the CBA within 45 days of the peer review report being accepted by the Board-recognized peer review program.

FAQs

Question

I submitted a Peer Review Reporting Form to the CBA during the three-year phase-in period. When do I need to

report again?

Answer

CBA requires all licensees to report their specific peer review information at the time of license renewal.

Question

If I have to submit a Peer Review Reporting Form (PR-1) to the CBA every two years with my license renewal, do I

have to have a peer review every two years?

Answer

No. Even though reporting will be done at the time of license renewal, peer reviews are still only required every

three years. This means for some years you will report the same peer review results two renewal cycles in a row.

Question

Does a firm's Peer Review Reporting Form (PR-1) encompass all of the individual licensees employed at the firm?

Answer

18

No. Individual licensees must submit a Peer Review Reporting Form for their individual license number. Individuals

working for a firm or that are shareholders or partners of a firm, are not subject to peer review, but must still

submit a Peer Review Reporting Form to the CBA at the time of license renewal.

Question

I am not a sole proprietor. Do I need to submit a Peer Review Reporting Form?

Answer

Yes. Although not all CPAs are required to undergo peer review, ALL licensees must report to the CBA by

submitting a Peer Review Reporting Form at the time of license renewal. Since the CBA does not maintain a record

of individual licensees who operate as sole proprietorships, you are required to respond even if only to report that

you do not operate as a sole proprietorship.

Question

Once I notify the CBA that I am not required to undergo a peer review, do I need to submit a Peer Review Reporting

Form again in the future?

Answer

Yes. All firms and CPAs will be required to report to the CBA by submitting a Peer Review Reporting Form at the

time of license renewal.

CASE STUDY – Invalid Permit and Failure to Complete Peer Review

Cause for Discipline

ANDRADE, ANTHONY LEE Salinas, CA (CPA 94526)

CBA ACTIONS Revocation of CPA License, via default decision. Effective April 24, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2015-100 contains the following allegations: Mr. Andrade is subject to

disciplinary action because he engaged in the practice of public accountancy without a valid permit. After Mr.

Andrade failed to renew his certificate, he represented several clients, completed tax returns, and completed an

attest engagement.

Mr. Andrade is subject to disciplinary action because he willfully violated a rule promulgated by the CBA by failing

to participate in a peer review program within the required time frame. Mr. Andrade failed to have a peer review

report accepted by a Board-recognized peer review provider within 18 months of completing the attest

engagement. Mr. Andrade is subject to disciplinary action because he willfully violated a rule promulgated by the

CBA by failing to enroll his firm with a Board-recognized peer review program provider. Mr. Andrade is subject to

disciplinary action because he willfully violated a rule promulgated by the CBA by failing to respond to a CBA

inquiry.

19

VIOLATION(S) CHARGED Business and Professions Code, Division 3, Chapter 1, §§ 5050, 5051, and 5100 (g).

California Code of Regulations, Title 16, Division 1, §§ 39, 40, 41, and 52.

Audit Documentation

Please be sure to read the following materials for the actual language of the laws and rules:

• California Accountancy Act: Article 5.5, Audit Documentation

Audit Documentation Requirements

Audit documentation shall be a licensee’s records of the procedures applied, the tests performed, the information

obtained, and the pertinent conclusions reached in an audit engagement. Audit documentation shall include, but

is not limited to, programs, analyses, memoranda, letters of confirmation and representation, copies or abstracts

of company documents, and schedules or commentaries prepared or obtained by the licensee.

Audit documentation shall contain sufficient documentation to enable a reviewer with relevant knowledge and

experience, having no previous connection with the audit engagement, to understand the nature, timing, extent,

and results of the auditing or other procedures performed, evidence obtained, and conclusions reached, and to

determine the identity of the persons who performed and reviewed the work.

Failure of the audit documentation to document the procedures applied, tests performed, evidence obtained, and

relevant conclusions reached in an engagement shall raise a presumption that the procedures were not applied,

tests were not performed, information was not obtained, and relevant conclusions were not reached.

Audit documentation shall be maintained for a minimum of seven years which shall be extended during the

pendency of any board investigation, disciplinary action, or legal action involving the licensee or the licensee’s firm.

Licensees shall maintain a written audit documentation retention and destruction policy listing the licensee’s

practices and procedures.

CASE STUDY – Audit Documentation Standards

Cause for Discipline

Mr. Thomas Hart was grossly negligent and committed repeated acts of negligence in the performance of an audit

of a privately held corporation’s financial statements for the years ended December 31, 2006 and 2007. The audit

reports did not conform to professional standards; the notes to the financial statements failed to conform to

professional standards; and, Mr. Hart’s working papers did not contain sufficient documentation showing that

procedures were performed to afford a reasonable basis for an opinion on the financial statements. Further, Mr.

20

Hart failed to comply with the continuing education requirements, and practiced public accountancy with an

expired license for the period of September 1, 2008 through March 28, 2009.

Violations Charged

Business and Professions Code, Division 3, Chapter 1, §§ 5050(a), 5062, 5097, 5100(c), (e) and (g). California Code

of Regulations, Title 16, Division 1, §§ 58, 68.2, 87(d), (e) and 87.7.

CBA Actions

Revocation stayed with three years’ probation, via stipulated settlement. Mr. Hart shall complete 24 hours of

continuing education courses specified by the CBA. These courses are in addition to the hours required for license

renewal. Mr. Hart shall reimburse the CBA’s investigative and prosecution costs in the amount of $13,000 to be

made in quarterly payments. Mr. Hart is prohibited from engaging in and performing any attestation services,

including audits, during the period of probation. Mr. Hart is also permanently prohibited from engaging in and

performing any attestation services, including audits, after the completion of probation. This condition shall

continue until Mr. Hart successfully petitions the CBA for reinstatement of his ability to perform attestation

services. Other standard terms of probation. Effective June 29, 2013

Standards of Professional Conduct

Please be sure to read the following materials for the actual language of the laws and rules:

• Accountancy Act: Article 3.5, Standards of Professional Conduct

• Accountancy Act: Article 7, Prohibitions and Offenses Against the Chapter Generally

• CBA Regulations: Article 9, Rules of Professional Conduct

Name of Firm

No person or firm may practice public accountancy under any name which is false or misleading.

No person or firm may practice public accountancy under any name other than the name under which the person

or firm holds a valid permit to practice issued by the board.

A sole proprietor may practice under a name other than the name set forth on his or her permit to practice,

provided the name is registered by the board, is in good standing, and is not false or misleading.

(California Accountancy Act Article 3.5, Section 5060)

21

FAQs

Question

I am the sole proprietor of a small accounting firm that provides primarily compilation and tax preparation

services. I recently registered a fictitious name for my firm with the city and county where I practice. Do I also

need to register the fictitious name with the CBA, and is there a fee?

Answer

If a CPA or PA wants to practice public accountancy with a name other than the name by which he or she holds a

license to practice, under Business and Professions Code Section 5060, a fictitious name application must be

approved by the CBA before the name can be used. There is no fee to register a fictitious name.

Question

Can a corporation, partnership, and fictitious name permit have the same name at the same time?

Answer

Yes, you may have all three at the same time.

Question

Does a firm's name on its letterhead and business cards have to read the same as the name registered with the

CBA?

Answer

Yes

Commissions

A licensee must not accept any fee or commission which would violate the requirement that a licensee be

independent in the performance of services in accordance with professional standards. Nor must they

concurrently engage in the practice of public accountancy and in any other business or occupation which impairs

the licensee's independence, objectivity, or creates a conflict of interest in rendering professional services.

You may accept commissions in limited situations. Per section 5061 of the Accountancy Act, you may accept

commission-based compensation for defined services as long as the fees are disclosed in writing and various

prohibited services as described in section 5061(c) of the Accountancy Act are not performed. However, you still

are prohibited from accepting any fee or commission solely for referral of a client to a third party.

This provision is similar to the American Institute of Certified Public Accountants’ (AICPA) Rule 503, but has

significant exceptions. California’s disclosure rules are more stringent for consumer protection and must be in

detailed written form. For a detailed description of the disclosure requirements, please review sections 56, 56.1,

56.2, and 56.3 of the CBA Regulations. Generally, the disclosure must:

• Be in writing and be clear and conspicuous.

22

• Be signed by the recipient of the product or service.

• State the amount of the commission or the basis on which it will be computed.

• Identify the source of the payment.

• Identify the relationship between the source of the payment and the person receiving the payment.

• Be presented to the client at or prior to the time the recommendation of the product or service is made.

The written disclosure shall be on letterhead of the licensed firm or shall be signed by the licensee. The disclosure

statement shall be signed and dated by the client and contain an acknowledgment by the client that the client has

read and understands the information contained in the disclosure. Supplemental disclosures need not be signed

by the client or by the licensee. The licensee shall retain the disclosure statements for a period of five years and

shall provide copies to the client.

“Fee” includes, but is not limited to, a commission, rebate, preference, discount, or other consideration, whether

in the form of money or otherwise.

This section does not prohibit payments for the purchase of any accounting practice or retirement payments to

individuals presently or formerly engaged in the practice of public accountancy or payments to their heirs or

estates.

FAQs

Question

Can a licensee pay a referral fee or commission to obtain a client?

Answer

No. Section 5061 prohibits a licensee from paying a fee or commission to obtain a client.

CASE STUDY – Referral Fees and Commissions

Cause for Discipline

Mr. Craig Boone obtained referral fees for convincing investors to place their monies in Dennel Finance, Ltd. Mr.

Boone lacked knowledge and understanding of the Dennel investment program and market, and he failed to

question or investigate the promised excessive rate of return (60 percent with no risk) or the validity of the

investment. Mr. Boone did not have written disclosures to his accounting clients that he would be receiving

commissions or referral fees based on their investments. Mr. Boone failed to inform investors of the true rate of

return on their investments. He retained a portion of the return for himself and selected how much to pass on to

the individual investors, which he failed to disclose. During the period of approximately February 1998 to March

1999, Mr. Boone received referral fees or commissions of $524,015. Mr. Boone practiced public accountancy

without a valid permit from April 1996 to December 2002.

Violations Charged

23

Business and Professions Code, Division 3, Chapter 1, §§ 5050, 5051, 5061, and 5100 (c). California Code of

Regulations, Title 16, Division 1, § 56 and 56.1.

CBA Actions

Revocation of CPA Certificate, via proposed decision. Mr. Boone is required to reimburse the Board $27,418 for

its investigation and prosecution costs. Effective December 22, 2004

FAQs

Question

Can I accept a commission for referral of a client to the products or services of a third party?

Answer

A licensee may accept commissions in limited situations. Per BPC section 5061 and CBA Regulations sections 56

to 56.4, a licensee may accept commission-based compensation for defined services as long as the fees are

disclosed in writing and various prohibited services are not performed. However, a licensee still is prohibited from

accepting any fee or commission solely for referral of a client to a third party. California has disclosure rules for

consumer protection which must be in detailed written form.

The disclosure must:

• Be in writing and be clear and conspicuous

• Be signed by the recipient of the product of service.

• State the amount of the commission or the basis on which it is computed.

• Identify the source of the payment.

• Identify the relationship between the source and the person receiving the payment.

Report Conforming to Professional Standards

A licensee shall issue a report which conforms to professional standards upon completion of a compilation, review

or audit of financial statements. (California Accountancy Act Article 3.5, Section 5062)

CASE STUDY – Professional Standards

Effective July 22, 2020

Causes for Discipline:

Accusation Case No. AC-2019-55 contains the following allegations: (1) Repeated Acts of Negligence; (2) Report

Conforming to Standards; (3) Willful Violation - Failure to Comply with Standards.

24

Mr. Cummins and the Corporation are subject to disciplinary action in that they committed repeated negligent

acts. Mr. Cummins and the Corporation are subject to disciplinary action in that they issued a report that did not

conform to professional standards upon completion of a compilation, review or audit of financial statements. Mr.

Cummins and the Corporation are subject to disciplinary action in that they willfully violated provisions of Business

and Professions Code, Division 3, Chapter 1, as well as rules and regulations promulgated by the CBA under

authority granted under that chapter.

For Violations Of:

Business and Professions Code, Division 3, Chapter 1, § § 5062 and 5100(c) and (g).

California Code of Regulations, Title 16, § 58.

Disciplinary Actions/ License Restrictions:

Revocations stayed with three years' probation, via stipulated settlement.

Mr. Cummins and the Corporation shall be jointly and severally liable to reimburse the CBA $11,228.66 for its

investigation and prosecution costs. Mr. Cummins shall complete four hours of continuing education in ethics.

The hours shall be completed within 180 days of the effective date of the CBA’s decision and order and are in

addition to the continuing education requirements for relicensing. Mr. Cummins shall complete a CBA-approved

Regulatory Review course. The course shall be within 180 days of the effective date of the CBA:s decision and

order and is in addition to the continuing education requirements for relicensing. Mr. Cummins and the

Corporation shall be permanently prohibited from engaging in and performing audits, reviews, compilations, or

other attestation engagements. This condition shall continue until such time, if ever, Mr. Cummins and the

Corporation successfully petition the CBA for the reinstatement of the ability to perform audits, reviews,

compilations, or other attestation services. Mr. Cummins and the Corporation shall maintain an active license

status. Other standard terms of probation.

Restrictions on Accepting Employment with an Audit Client

A licensee shall not accept employment with a publicly traded corporation or its affiliate within 12 months of the

date of issuance of a financial statement report if both of the following criteria are met:

• The licensee has participated in an audit engagement for the corporation and held responsibility, with

respect to the audit engagement, requiring the licensee to exercise significant judgment in the audit

process. Responsibilities meeting the requirements of this subdivision include, but are not limited to,

positions, however titled, where the licensee was the person in charge of the fieldwork, up through

positions where the licensee was a partner on the engagement.

• The employment would permit the licensee to exercise significant authority over accounting or financial

reporting, including authority over the controls related to those functions.

(California Accountancy Act Article 3.5, Section 5062.2)

25

Reportable Events

A licensee shall report to the board in writing of the occurrence of any of the following events within 30 days of

the date the licensee has knowledge of these events:

• The conviction of the licensee of any of the following:

o A felony.

o Any crime related to the qualifications, functions, or duties of a public accountant or certified

public accountant, or to acts or activities in the course and scope of the practice of public

accountancy.

o Any crime involving theft, embezzlement, misappropriation of funds or property, breach of a

fiduciary responsibility, or the preparation, publication, or dissemination of false, fraudulent, or

materially misleading financial statements, reports, or information.

As used in this section, a conviction includes the initial plea, verdict, or finding of guilt, pleas of no

contest, or pronouncement of sentence by a trial court even though that conviction may not be

final or sentence actually imposed until appeals are exhausted.

• The cancellation, revocation, or suspension of a certificate, other authority to practice or refusal to renew

a certificate or other authority to practice as a certified public accountant or a public accountant, by any

other state or foreign country.

• The cancellation, revocation, or suspension of the right to practice as a certified public accountant or a

public accountant before any governmental body or agency.

A licensee shall report to the board in writing the occurrence of any of the following events within 30 days of the

date the licensee has knowledge of the events:

• Any restatement of a financial statement and related disclosures by a client audited by the licensee.

• Any civil action settlement or arbitration award against the licensee relating to the practice of public

accountancy where the amount or value of the settlement or arbitration award is thirty thousand dollars

($30,000) or greater and where the licensee is not insured for the full amount of the award.

• Any notice of the opening or initiation of a formal investigation of the licensee by the Securities and

Exchange Commission or its designee.

• Any notice from the Securities and Exchange Commission to a licensee requesting a Wells Submission.

• Any notice of the opening or initiation of an investigation by the Public Company Accounting Oversight

Board or its designee.

A licensee shall report to the board in writing, within 30 days of the entry of the judgment entered against the

licensee in any civil action alleging any of the following:

• Dishonesty, fraud, gross negligence, or negligence.

• Breach of fiduciary responsibility.

• Preparation, publication, or dissemination of false, fraudulent, or materially misleading financial

statements, reports, or information.

26

• Embezzlement, theft, misappropriation of funds or property, or obtaining money, property, or other

valuable consideration by fraudulent means or false pretenses, or other errors or omissions.

• Any actionable conduct by the licensee in the practice of public accountancy, the performance of

bookkeeping operations, or other professional practice.

If the event involves the action of an administrative agency or court, provide the title of the matter, court or

agency name, docket number, and dates of the event’s occurrence. Additionally, you are required to answer any

CBA inquiries concerning a reportable event. (California Accountancy Act Article 3.5, Section 5063)

CASE STUDY – Felony Conviction

HARNER, EDWARD LAI Newport Beach, CA (CPA 94570)

CBA ACTIONS: Revocation of CPA License, via default decision. Effective April 24, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2016-47 contains the following allegations: Mr. Harner is subject to

disciplinary action in that he was convicted of a crime substantially related to the qualifications, functions, and

duties of a certified public accountant or a public accountant. On September 11, 2013, Mr. Harner was convicted

on his plea of guilty of violating Penal Code Section 261.5(c). Mr. Harner is subject to disciplinary action in that he

failed to report his September 11, 2013, felony conviction.

VIOLATION(S) CHARGED: Business and Professions Code, Division 1.5, Chapter 2, § 490; Division 3, Chapter 1, §§

5063 (a)(1)(A), and 5100 (a).

Disclosure of Confidential Client Information

No confidential information obtained by a licensee, in his or her professional capacity, concerning a client or a

prospective client shall be disclosed by the licensee without the written permission of the client or prospective

client, except the following:

• Disclosures made by a licensee in compliance with a subpoena or a summons enforceable by order of a

court.

• Disclosures made by a licensee regarding a client or prospective client to the extent the licensee

reasonably believes it is necessary to maintain or defend himself or herself in a legal proceeding initiated

by the client or prospective client.

• Disclosures made by a licensee in response to an official inquiry from a federal or state government

regulatory agency.

• Disclosures made by a licensee or a licensee’s duly authorized representative to another licensee in

connection with a proposed sale or merger of the licensee’s professional practice.

• Disclosures made by a licensee to either of the following:

o Another licensee to the extent necessary for purposes of professional consultation.

o Organizations that provide professional standards review and ethics or quality control peer

review.

• Disclosures made when specifically required by law.

27

• Disclosures specified by the board in regulation.

• Disclosures made at the direct request of the client to a person or entity that is designated by the client

at the time of the request.

In the event that confidential client information may be disclosed to persons or entities outside the United States

of America in connection with the services provided, the licensee shall inform the client in writing and obtain the

client’s written permission for the disclosure.

The licensee, on request, returns the original and all copies of documents provided by the prospective client or

his or her representative within 30 days.

(CBA Regulations Article 9, Section 54.1)

CASE STUDY – Confidential Information and Other Actions

Cause for Discipline

Mr. David Solotky is subject to disciplinary action for failing to properly file tax return extensions for a partnership

and S corporation which resulted in the returns being filed late and in IRS penalties being assessed for the

taxpayer. Mr. Solotky breached his fiduciary responsibility as the Independent Special Trustee for two Qualified

Subchapter "S" Trusts by failing to provide requested accounting and bank account information held by the two

trusts. Mr. Solotky failed to respond to the CBA's multiple inquiries and subsequent subpoena regarding tax return

preparation and trust administration. Mr. Solotky failed to provide client files and documentation upon requests

from his clients. Mr. Solotky disclosed confidential information, as follows: CBA staff visited Mr. Solotky's office

on October 21, 2011 and observed client paperwork exposed to anyone that might look through the office

windows. Client names, Social Security numbers and addresses were visible.

Violations Charged

Business and Professions Code, Division 3, Chapter 1, §§ 5100(c), (i), and (g), 5037(b) and 5063.3(a). Probate Code

§§ 16060 and 16062(a). California Code of Regulations, Title 16, Division 1, §§ 52, 54.1 and 68.

CBA Actions

Revocation of CPA license, via default decision.

FAQs

Question

If a CPA uses an external service provider (separate legal entity) to process confidential information such as tax

returns, will written permission from the client be required?

Answer

Yes. If confidential information is disclosed to an outside third party, written permission from the client is required.

28

Question

What constitutes written permission?

Answer

Any reasonable written document that acknowledges the client is aware that the information may be disclosed

and confirms in writing the client's permission for the disclosure. The approval should always be secured in

advance of the disclosure. Written consent may be through an engagement letter or in a separate consent

agreement. Written permission includes faxes and emails.

Question

Can the written permission be obtained through the use of an engagement letter that discloses the anticipated

use of the external service provider?

Answer

Yes. An engagement letter signed and dated by the client could serve as written permission provided it complies

with the requirements of CBA Regulations section 54.1.

Question

If tax or accounting software is typically used wholly within the CPA firm's office, but confidential client

information needs to be disclosed to an external technician or software vendor in order to resolve software

problems, will written permission from the client be required?

Answer

Yes, written permission from the client is required.

Client Notification

Every licensee engaged in the practice of public accountancy shall provide notice to the licensee's clients of the

fact that the licensee is licensed by the California Board of Accountancy. For purposes of this section, "licensee"

means a Certified Public Account, Public Accountant, accountancy partnership, or accountancy corporation

licensed by the California Board of Accountancy. Notice shall be provided by any of the following methods:

• Displaying the certificate of licensure issued by the Board in the office or the public area of the premises

where the licensee provides the licensed service.

• Providing a statement to each client to be signed and dated by the client and retained in that person's

records that states the client understands the person is licensed by the California Board of Accountancy.

• Including a statement that the licensee is licensed by the California Board of Accountancy either on

letterhead or on a contract for services where the notice is placed immediately above the signature line

for the client in at least 12-point type.

• Posting a notice in a public area of the premises where the licensee provides the licensed services, in at

least 48-point type, that states the named licensee is licensed by the California Board of Accountancy.

29

• Any other method of written notice, including a written notice that is electronically transmitted or a

written notice posted at an Internet Website.

(CBA Regulations Article 9, Section 50)

Firms with Nonlicensee Owners

At initial registration and at renewal, all firms shall certify that any nonlicensee owner with his or her principal

place of business in this state has been informed regarding the rules of professional conduct applicable to

accountancy firms. This certification shall be signed by a licensed partner or licensed shareholder of the firm. (CBA

Regulations Article 9, Section 51)

Notification of Non-Licensee Ownership

Any firm with a nonlicensee owner or owners that has one or more offices located in California shall notify each

client served by an office located in California of the actual or potential involvement of a nonlicensee owner or

owners in any service to be provided to the client by the firm. Notice shall be provided by any of the following

methods:

• Providing a statement to each client served by a California office to be signed and dated by the client and

retained in the firm's records that states that the client understands that services will or may be provided

by a nonlicensee owner of the firm.

• Including a statement that the firm has a nonlicensee owner or owners who may provide client services

in any contract for services, proposal letter, or engagement letter with the client served by a California

office.

A copy of the statement, contract, engagement letter, or proposal letter containing this notice shall be maintained

by the public accounting firm in the client's files for a minimum of five years from the date of the notice. (CBA

Regulations Article 9, Section 51.1)

Response to Board Inquiry

A licensee shall:

• respond to any inquiry by the Board or its appointed representatives within 30 days. The response shall

include making available all files, working papers and other documents requested.

• respond to any subpoena issued by the Board or its executive officer or the assistant executive officer in

the absence of the executive officer within 30 days and in accordance with the provisions of the

Accountancy Act and other applicable laws or regulations.

• appear in person upon written notice or subpoena issued by the Board or its executive officer or the

assistant executive officer in the absence of the executive officer.

30

• provide true and accurate information and responses to questions, subpoenas, interrogatories or other

requests for information or documents and not take any action to obstruct any Board inquiry,

investigation, hearing or proceeding. (CBA Regulations Article 9, Section 52)

CASE STUDY – Failure to Respond

Cause for Discipline

Ms. Wendy Zinn failed to complete and file tax documents in a timely manner for two of her clients, and failed to

make timely responses to inquiries from the same two clients about filed and unfiled tax documents. For the first

clients Ms. Zinn was engaged to represent them in an Internal Revenue Service (IRS) audit of their 2006 tax return,

which Ms. Zinn had prepared. The clients provided supporting documents to Ms. Zinn and were later informed

that Ms. Zinn failed to provide the supporting documents to the IRS. The clients requested Ms. Zinn to return their

documents multiple times, but Ms. Zinn failed to respond to their requests. For the second client, Ms. Zinn

prepared a 2008 corporate tax return from a trial balance and income statement provided by the client. Ms. Zinn

failed to provide the client with adjustments needed to reconcile the trial balance with the tax return. The client

also sent a payroll tax notice received for the corporation to Ms. Zinn and Ms. Zinn advised the client she would

handle the matter. Ms. Zinn never addressed this issue. Ms. Zinn also failed to respond to multiple CBA inquiries

about complaints filed by three of her clients. Ms. Zinn also failed to respond to a subpoena issued by the CBA.

Violations Charged

Business and Professions Code, Division 3, Chapter 1, §§ 5037(b)(1-2), 5100(c) and (g), California Code of

Regulations, Title 16, Division 1, §§ 52 (a-d) and 68.

CBA Actions

Revocation of CPA license, via default decision.

Discrimination Prohibited

No licensee or registrant shall engage in any conduct or practice which shall deny any person an opportunity or

benefit of employment within the accounting profession based on race, color, religious creed, national origin,

ancestry, physical handicap, sex, marital status, sexual orientation or age. (CBA Regulations Article 9, Section 53)

Incompatible Occupations/Conflict of Interest

A licensee shall not concurrently engage in the practice of public accountancy and in any other business or

occupation which impairs the licensee's independence, objectivity, or creates a conflict of interest in rendering

professional services. (CBA Regulations Article 9, Section 57)

31

Compliance with Standards

Licensees engaged in the practice of public accountancy shall comply with all applicable professional standards,

including but not limited to generally accepted accounting principles and generally accepted auditing standards.

(CBA Regulations Article 9, Section 58)

CASE STUDY – Frivolous Positions Tax Return

Cause for Discipline

The decision, which was issued after a hearing before an Administrative Law Judge, included the following causes

for discipline:

On April 1, 2009, Mr. Anthony Tiongson was convicted on his plea of guilty to one count of violating Title 26,

United States Code Section 7207 (filing a false tax return), a misdemeanor. Mr. Tiongson was sentenced to one

year of unsupervised probation, under terms that he not violate any laws, and that he report his conviction to the

CBA within 45 days. All fines were waived. Mr. Tiongson pled guilty to the charge that he aided and assisted in the

preparation and presentation to the IRS of forms on behalf of two taxpayers for the tax year 2001 which

represented that California was not part of the United States as defined in the Internal Revenue Code; and that

Mr. Tiongson well knew at the time that the IRS considered California part of the United States for tax purposes.

However, it was established that during the four years from 1999 to 2003, covering the tax years of 1998 through

2002, Mr. Tiongson filed similar false federal income tax returns for approximately 20 to 25 clients. In those

returns, Mr. Tiongson filed a form 2555 which falsely claimed his clients' income earned in California was not

subject to federal income tax, and that those clients' California income was actually foreign income. Mr. Tiongson's

crime is substantially related to the qualifications, functions or duties of a CPA and his crime involved dishonesty.

Mr. Tiongson began filing tax returns using form 2555 in 1999 after attending a seminar where the presenter

represented himself as a former employee of the IRS and expert on the Internal Revenue Code. Mr. Tiongson

ceased using form 2555 under similar circumstances after he became aware of the IRS auditing his clients in or

about 2003.

Mr. Tiongson breached the standard of care for preparing tax returns by taking a position that he knew to be

frivolous.

Mr. Tiongson was also suspended by the IRS, barring him from representing clients before the IRS.

Violations Charged

Business and Professions Code, Division 1.5, Chapter 3, § 490; Division 3, Chapter 1, § 5100 (a), (c), (g), (h) and (j).

California Code of Regulations, Title 16, Division 1, §§ 58 and 99.

CBA Actions

32

Revocation stayed with five years' probation, via decision after a hearing before an Administrative Law Judge. Mr.

Tiongson's license is suspended for one year. Mr. Tiongson shall be prohibited from preparing and/or filing federal

tax returns while he is suspended by the IRS from representing clients before it. If the suspension is modified or

replaced, Mr. Tiongson shall comply with any orders issued by the IRS. Mr. Tiongson shall complete four hours of

continuing education in ethics. Courses must be passed prior to resumption of practice after the one-year

suspension is completed. Mr. Tiongson shall reimburse the CBA in the amount of $11,195.54 for its investigation

and prosecution costs. Other standard terms of probation.

FAQs

Question

If reissuing an audit report on financial statements that includes the correction of an error in financial statements

previously issued to the client, or adjustment to opening balances due to errors in a previous period, what are my

reporting obligations under the Regulations?

Answer

California Accountancy Act section 5063 (b) in conjunction with section 5063.10 and CBA Regulations section 59

requires a licensee to report to the CBA in writing any restatement of a financial statement reporting the

correction of any error in a previously issued financial statement of a client that is:

• A governmental agency located in California when the restatement(s) exceeds the planning materiality used

in conjunction with the current year audit.

• A charitable organization registered by the Office of the General's Registry of Charitable Trusts, when the

restatement has resulted in the filing of an amended or superseding Internal Revenue Service Form 990 or

990PF.

The report required under BPC section 5063 shall be made by the licensee issuing the report on the restatement

even if the licensee did not perform the original audit. The report must be provided to the CBA within 30 days of

issuance of the restatement, be signed by the licensee, and set forth the facts constituting the reportable event.

BPC section 59 requires that the report of restated financial statements for governmental agencies must include

copies of the original and the restated financial statements. The report involving a charitable organization should

include only those portions of the original and amended Forms 990 or 990PF related to the reissued financial

statements.

Contingent Fees

A contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no

fee will be charged unless a specific finding or result is attained or in which the amount of the fee is otherwise

dependent upon the finding or result of such service.

33

A licensee shall not:

(1) Perform for a contingent fee any professional services for, or receive such a fee from, a client for whom

the licensee or the licensee's firm performs:

o an audit or review of a financial statement; or

o a compilation of a financial statement when the licensee expects or reasonably should expect that

a third party will use the financial statement and the licensee's compilation report does not

disclose a lack of independence; or

o an examination of prospective financial information; or

o any other attest engagement when the licensee expects or reasonably should expect that a third

party will use the related attestation report; or

o any other services requiring independence.

(2) Prepare an original tax return for a contingent fee for any client.

(3) Prepare an amended tax return, claim for tax refund, or perform other similar tax services for a

contingent fee for any client.

(4) Perform an engagement as a testifying expert for a contingent fee.

The prohibition in (1) above applies during the period in which the licensee or the licensee's firm is engaged to

perform any of the services listed under (1) above and the period covered by any historical financial statements

involved in any such listed services.

Fees are not regarded as being contingent if fixed by courts or governmental entities acting in a judicial or

regulatory capacity, or in tax matters if determined based upon the results of judicial proceedings or the findings

of governmental agencies in a judicial or regulatory capacity or there is a reasonable expectation of substantive

review by a taxing authority.

(CBA Regulations Article 9, Section 62)

Advertising

A licensee shall not advertise or use other forms of solicitation in any manner which is false, fraudulent, or

misleading. (CBA Regulations Article 9, Section 63)

CASE STUDY – Misleading Advertisements, Expired License, Negligence

Cause for Discipline

Mr. Carl Cassidy practiced and held himself out as a Certified Public Accountant (CPA) when he failed to have a

valid license, as evidenced by the preparation of income tax returns. Mr. Cassidy's license was expired from at

least August 1, 2007, through January 30, 2008, and again from at least August 1, 2009, through September 8,

2010.

34

From at least September 14, 2007, Mr. Cassidy engaged in acts constituting dishonesty, fraud, gross negligence,

or repeated negligent acts by misrepresenting his status as a CPA to client(s) and misrepresenting to a client that

its 2008 corporate federal income tax return had been e-filed. The income tax return was never successfully filed

with the Internal Revenue Service.

From at least December 2, 2008, and thereafter, Mr. Cassidy knowingly and willfully practiced under the name of

"Cassidy & Burton, CPAs", which was not properly registered with the CBA.

Mr. Cassidy advertised or used other forms of solicitation which were false, fraudulent, misleading, or in violation

of Business and Professions Code section 17500, by using the unregistered firm name of "Cassidy & Burton, CPAs"

and holding himself out as a Certified Public Accountant.

Mr. Cassidy knowingly and willfully failed to respond to inquiries by the CBA and knowingly and willfully submitted

untrue statements to the CBA.

Violations Charged

Business and Professions Code, Division 3, Chapter 1, §§ 5050, 5051, 5055, 5060, 5100(c) and (g). California Code

of Regulations, Title 16, Division 1, §§ 52 (a), (d), and 63.

CBA Actions

Revocation of CPA license, via proposed decision. Respondent is required to reimburse the CBA $14,001.77 for its

investigation and prosecution costs. Effective March 15, 2011

Independence

A licensee shall be independent in the performance of services in accordance with professional standards. (CBA

Regulations Article 9, Section 65)

Retention of Client's Records

A licensee, after demand by or on behalf of a client, for books, records or other data, whether in written or

machine sensible form, that are the client's records shall not retain such records. Unpaid fees do not constitute

justification for retention of client records. Although, in general the accountant's working papers are the property

of the licensee, if such working papers include records which would ordinarily constitute part of the client's books

and records and are not otherwise available to the client, then the information on those working papers must be

treated the same as if it were part of the client's books and records. (CBA Regulations Article 9, Section 68)

Working Papers

Working papers are the licensee's records of the procedures applied, the tests performed, the information

obtained and the pertinent conclusions reached in an audit, review, compilation, tax, special report or other

engagement. They include, but are not limited to, audit of other programs, analyses, memoranda, letters of

confirmation and representations, abstracts of company documents and schedules or commentaries prepared or

35

obtained by the licensee. The form of working papers may be handwriting, typewriting, printing, photocopying,

photographing, computer, data, or any other letters, words, pictures, sounds, or symbols or combinations thereof.

Licensees shall adopt reasonable procedures for the safe custody of working papers and shall retain working

papers for a period sufficient to meet the needs of the licensee's practice and to satisfy applicable professional

standards and pertinent legal requirements for record retention.

Licensees shall retain working papers during the pendency of any Board investigation, disciplinary action, or other

legal action involving the licensee. Licensees shall not dispose of such working papers until notified in writing by

the Board of the closure of the investigation or until final disposition of the legal action or proceeding if no Board

investigation is pending. (CBA Regulations Article 9, Section 68.1)

FAQs

Question

I prepared income tax returns for a former client and provided him the original returns for filing with the taxing

agencies and a copy for his records. He is now requesting an additional copy of the returns. Assuming that I still

have copies, am I required to provide this former client with an additional copy of the income tax returns?

Answer

No. A licensee who was engaged and prepared income tax returns for a client and provided the client with a copy

of the income tax returns, as defined under Internal Revenue Code Section 6107(a), is not required to provide

additional copies under applicable BPC and CBA regulations. Licensees are, however, required to return tax

records provided by the client and provide a copy of the licensee's working papers that support information on

the tax returns.

Under BPC section 5037:

(b) A licensee shall furnish to his or her client or former client, upon request and reasonable notice:

(1) A copy of the licensee's working papers to the extent that those working papers include records that would

ordinarily constitute part of the client's records and are not otherwise available to the client.

(2) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee

removed from the client's premises or received for the client's account. The licensee may make and retain copies

of documents of the client when they form the basis for work done by him or her.

Retention Period for Audit Documentation

Audit documentation must be retained for seven years. The retention period shall be measured from the date of

issuance of the report (report release date). If audit documentation is required to be kept for longer than seven

years because of a pending Board investigation or disciplinary action, audit documentation shall not be destroyed

until the licensee has been notified in writing by the Board of the closure of a Board investigation or disciplinary

proceeding. (CBA Regulations Article 9, Section 68.3)

36

Disciplinary Proceedings

Please be sure to read the following materials for the actual language of the laws and rules:

• Accountancy Act: Article 6 - Disciplinary Proceedings

• Accountancy Act: Article 7 - Prohibitions and Offenses against the Chapter Generally

• CBA Regulations: Article 13 - Denial, Suspension, and Revocation of Certificates, Permits, or Licenses

Also, you should review the disciplinary actions listed in the Appendix for recent cases. In addition, the CBA’s

newsletter contains listings of the latest enforcement actions taken by the Board.

Discipline in General

After notice and hearing the board may revoke, suspend, or refuse to renew any permit or certificate granted, or

may censure the holder of that permit or certificate for unprofessional conduct that includes one or any

combination of the following causes:

a. Conviction of any crime substantially related to the qualifications, functions and duties of a certified public

accountant or a public accountant.

b. A violation dealing with false statements or omissions in the application for a license, in obtaining a

certificate as a certified public accountant, in obtaining registration under this chapter, or in obtaining a

permit to practice public accountancy under this chapter.

c. Dishonesty, fraud, gross negligence, or repeated negligent acts committed in the same or different

engagements, for the same or different clients, or any combination of engagements or clients, each

resulting in a violation of applicable professional standards that indicate a lack of competency in the

practice of public accountancy or in the performance of the bookkeeping operations.

d. Cancellation, revocation, or suspension of a certificate or other authority to practice as a certified public

accountant or a public accountant, refusal to renew the certificate or other authority to practice as a

certified public accountant or a public accountant, or any other discipline by any other state or foreign

country.

e. Violation of Section Audit Documentation Requirements.

f. Willful violation of this chapter or any rule or regulation promulgated by the board under the authority

granted under this chapter.

g. Suspension or revocation of the right to practice before any governmental body or agency.

h. Fiscal dishonesty or breach of fiduciary responsibility of any kind.

i. Knowing preparation, publication, or dissemination of false, fraudulent, or materially misleading financial

statements, reports, or information.

j. Embezzlement, theft, misappropriation of funds or property, or obtaining money, property, or other

valuable consideration by fraudulent means or false pretenses.

k. The imposition of any discipline, penalty, or sanction on a registered public accounting firm or any

associated person of such firm, or both, or on any other holder of a permit, certificate, license, or other

authority to practice in this state, by the Public Company Accounting Oversight Board or the United States

37

Securities and Exchange Commission, or their designees under the Sarbanes-Oxley Act of 2002 or other

federal legislation.

l. Unlawfully engaging in the practice of public accountancy in another state.

In reaching a decision on a disciplinary action under the Administrative Procedure Act, the Board shall consider

the disciplinary guidelines entitled "A Manual of Disciplinary Guidelines and Model Disciplinary Orders" (8th

edition, 2013), which are hereby incorporated by reference. Deviation from these guidelines and orders, including

the standard terms of probation, is appropriate where the Board in its sole discretion determines that the facts of

the particular case warrant such a deviation, for example: the presence of mitigating factors; the age of the case;

evidentiary problems.

The board has the power to inquire into and investigate any alleged violation of any other state or federal law,

regulation, or rule relevant to the practice of accountancy.

The board shall post on its Internet website, in an easily marked and identifiable location, notice of all formal

accusations. The notice of any formal accusation shall contain a link to where a person may request and have sent

to him or her a copy of the formal accusation, and the basis for the accusation and alleged violations filed by the

board against a licensee.

Any CPA or PA whose certificate, registration, or permit has been revoked or suspended shall upon request of the

board relinquish his or her certificate or permit. However, upon the expiration of the period of suspension, the

board shall immediately return any suspended certificate or permit which has been relinquished.

Any CPA or PA who is delinquent in the payment of his renewal fee shall upon request of the board relinquish his

certificate and permit; provided, however, the board shall reissue any certificate and permit which has been

relinquished for nonpayment of renewal fees if the permit is renewed properly within 5 years.

In connection with any investigation or action authorized by this chapter, the board may issue subpoenas for the

attendance of witnesses and the production of papers, books, accounts, documents and testimony pertinent or

material to its inquiry, investigation, hearing, proceeding, or action conducted in any part of the state.

The board may request that any holder of a permit or certificate found to have committed a violation to pay to

the board all reasonable costs of investigation and prosecution of the case, including, but not limited to, attorney’s

fees.

The board may deny an application to take the licensing examination, deny admission to current and future

licensing examinations, void examination grades, and deny an application for a license or registration to any

individual who has made false statements on license, examination or registration, or has cheated on any

examination.

For the purposes of denial, suspension, or revocation of a certificate or permit, a crime or act shall be considered

to be substantially related to the qualifications, functions or duties of a certified public accountant or public

accountant if to a substantial degree it evidences present or potential unfitness of a certified public accountant

or public accountant to perform the functions authorized by his or her certificate or permit in a manner consistent

38

with the public health, safety, or welfare. Such crimes or acts shall include but not be limited to those involving

the following:

a. Dishonesty, fraud, or breach of fiduciary responsibility of any kind;

b. Fraud or deceit in obtaining a certified public accountant's certificate or a public accountant's permit

under Chapter 1, Division III of the Business and Professions Code;

c. Gross negligence in the practice of public accountancy or in the performance of the bookkeeping

operations;

d. Violation of any of the provisions of Chapter 1, Division III of the Business and Professions Code or willful

violation of any rule or regulation of the board. (Section 99)

When considering the denial of a certificate or permit the board, in evaluating the rehabilitation of the applicant

and his present eligibility for a certificate or permit, will consider the following criteria:

1. Nature and severity of the act(s) or offense(s).

2. Criminal record and evidence of any act(s) committed subsequent to the act(s) or offense(s) under

consideration which also could be considered as grounds for denial, suspension or revocation.

3. The time that has elapsed since commission of the act(s) or offense(s).

4. The extent to which the applicant or licensee has complied with any terms of parole, probation,

restitution, or any other sanctions lawfully imposed against the applicant or licensee.

5. If applicable, evidence of expungement proceedings.

6. Evidence, if any, of rehabilitation submitted by the applicant or licensee.

Article 13 of the CBA Regulations

CASE STUDY – Multiple Violations including Fraud

Cause for Discipline

Accusation Case No. AC-2020-27 contains the following allegations: (1) Conviction of a Substantially Related

Crime; (2) Dishonesty: (3) Fraud; (4) Gross Negligence; (5) Repeated Negligent Acts; (6) Failure to Report

Reportable Events to the Board; (7) Suspension or Revocation of the Right to Practice Before Any Governmental

Body or Agency; (8) Fiscal Dishonesty; (9) Breach of Fiduciary Responsibility; (10) Knowing Preparation of False

Information/Documents; (11) Obtaining Money by False Pretenses-Misappropriation of Funds; (12) Discipline by

the U.S. Securities and Exchange Commission .

Ms. Pedersen is subject to disciplinary action in that she was convicted of a crime substantially related to the

qualifications, functions or duties of a certified public accountant or public accountant. She is subject to

disciplinary action in that she committed acts of dishonesty. She is subject to disciplinary action in that she

committed acts of fraud. She is subject to disciplinary action in that she committed acts constituting gross

negligence. She is subject to disciplinary action in that she committed repeated negligent acts. She is subject to

disciplinary action in that she failed to notify the CBA in writing within 30 days of sustaining the civil judgment of

criminal conviction. She is subject to disciplinary action in that she was barred from association with any broker,

dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized

39

statistical rating organization practicing before the United States Securities and Exchange Commission, a

governmental body or agency. She is subject to disciplinary action in that she committed acts constituting fiscal

dishonesty. She is subject to disciplinary action in that she committed acts constituting a breach of fiduciary

responsibility. She is subject to disciplinary action in that she prepared and disseminated false statements of

account in support of her misappropriation of investor funds. She ls subject to disciplinary action in that she

obtained money by false pretenses and misappropriated the funds. She is subject to disciplinary action in that she

was impose d discipline, penalty, or sanctions by the United States Securities and Exchange Commission.

For Violations Of:

Business and Professions Code, Division 1, Chapter 1, § 141. Business and Professions Code, Division 1.5, Chapter

3, § 490. Business and Professions Code, Division 3, Chapter 1, §§ 490, 141, 5063, 5100(a), (c), (g)-(I).

Petitions for Reinstatement or Reduction of Penalty

A person whose license has been revoked or surrendered may petition the board for reinstatement or reduction

of penalty after a period of not less than one year has elapsed from the effective date of the decision or from the

date of the denial of a similar petition, unless a longer period, not to exceed three years, is specified by the board.

A person whose license has not been revoked or surrendered but who has been disciplined by imposition of a

suspension or otherwise disciplined may petition the board for reinstatement or reduction of penalty after a

period of not less than one year has elapsed from the effective date of the decision. (California Accountancy Act

Article 6, Section 5115)

Evidence of Violation

The display or uttering by a person of a card, sign, advertisement or other printed, engraved or written instrument

or device, bearing a person’s name in conjunction with the words “certified public accountant” or any abbreviation

thereof or shall be prima facie evidence in any prosecution, proceeding or hearing brought forth that the person

whose name is so displayed holds himself or herself out as a certified public accountant, or a public accountant

holding a permit to practice public accountancy in this State under the provisions of this chapter. (California

Accountancy Act Article 7, Section 5121)

CASE STUDY – Expired License and Fraud

Cause for Discipline

Mr. Robert Hill solicited and obtained investments for at least four clients in real estate ventures that he

represented were safe and viable investments. Based on the Respondent's representation, the four clients

invested approximately $500,000 which he used for his own purpose and benefit. Respondent practiced public

accountancy and used the title of CPA during a period in which his license was expired. Mr. Hill also falsely signed

40

a statement under penalty of perjury that he had completed the requisite number of continuing education hours

for his prior renewal period.

Violations Charged

Business and Professions Code, Division 3, Chapter 1, §§ 5050, 5100 (c), (f), (h), (i), and (j), and 5121. California

Code of Regulations, Title 16, Division 1, §§ 57, 87, 89, and 94.

CBA Actions

Revocation of CPA Certificate, via default decision.

Disciplinary Cases

Please review the Appendix for some recent disciplinary action taken by the California Board of Accountancy,

including enforcement action for:

• Committing dishonest acts

• Practicing without a valid permit.

• Gross negligence

• Failing to file a required tax return

• Knowingly prepared, published, or disseminated false, fraudulent, or materially misleading financial

statement, reports, or information

• Insider trading and suspension by the SEC

• Failure to complete a peer review

• Engaging the services of an individual under suspension by the PCAOB

• Conviction of crimes substantially related to the qualifications, functions and duties of a CPA

• Failure to report criminal convictions to the State Board

• Chemical dependency

Penalties, Citations and Fines

Please be sure to read the following materials for the actual language of the laws and rules:

• Accountancy Act: Article 6.5 - Administrative Penalties

• CBA Regulations: Article 12.5 - Citations and Fines

The Board has a high level of authority to issue penalties, citations and fines to any licensee who violates laws and

rules in the Accountancy Act and CBA Regulations. Depending on the violation, the Board may assess an

administrative penalty of not more than five thousand dollars ($5,000) for the first violation and not more than

41

ten thousand dollars ($10,000) for each subsequent violation. However, the fines can increase substantially if a

licensee violates subdivision (a), (c), (i), (j) or (k) of Section 5100 (conviction of a crime relating to being a CPA,

fraud, fiscal dishonesty, embezzlement, etc.), in which case the licensee may be assessed an administrative

penalty of not more than one million dollars ($1,000,000) for the first violation and not more than five million

dollars ($5,000,000) for any subsequent violation.

As another example, any person who is found to have cheated or subverted or attempted to subvert or cheat on

any licensing examination or who conspired with or aided or abetted any other person to cheat, subvert or

attempt to subvert any examination may be assessed an administrative penalty of not more than five thousand

dollars ($5,000) for the first violation and not more than ten thousand dollars ($10,000) for each subsequent

violation. Any person who practices accountancy without a permit is guilty of a misdemeanor, punishable by

imprisonment for not more than six months, or by a fine of not more than one thousand dollars ($1,000), or both.

Citations and Fines

The CBA may issue a citation, which may contain an administrative fine, for violation of any provision of the

Accountancy Act or CBA Regulations.

In the event the administrative fine remains outstanding and your license is scheduled for renewal, full payment

of the outstanding fine must be made prior to the license being renewed. If less than full payment is received, the

payment will be applied first to any outstanding fines, and the remaining amount will be applied to the license

renewal fee. If the matter is resolved after the license expiration date, a delinquency fee will be assessed.

The amount of the administrative fine assessed by the executive officer shall not be less than $100 or more than

$5,000 for each investigation.

In assessing an administrative fine or issuing an order of correction or abatement, the executive officer of the

board shall give due consideration to the following factors:

a. The gravity of the violation.

b. The good or bad faith of the cited person or entity.

c. The history of previous violations.

d. Evidence that the violation was or was not willful.

e. The extent to which the cited person or entity has cooperated with the board's investigation.

f. The extent to which the cited person or entity has mitigated or attempted to mitigate any damage or

injury caused by the violation.

The failure of a licensee to comply with a citation containing an assessment of administrative fine, an order of

correction or abatement or both an administrative fine and an order of correction or abatement after this citation

is final and has been served shall constitute a ground for revocation or suspension of the license or permit.

Citation Format

Each citation:

42

a. shall be in writing;

b. shall describe with particularity the nature of the violation, including specific reference to the provision

of law determined to have been violated;

c. may contain an assessment of an administrative fine, an order of correction or abatement fixing a

reasonable period of time for correction or abatement of the violation, or both an administrative fine and

an order of correction or abatement;

d. shall inform the cited person that if he or she desires a hearing to contest the finding of a violation, that

hearing shall be requested by written notice to the board within 30 calendar days of the issuance of the

citation or assessment. (CBA Regulations Article 12.5)

FAQs

Question

Are CBA citations and enforcement actions public information?

Answer

Yes. An enforcement action may result from the CBA filing an accusation seeking to revoke, suspend, or otherwise

impose discipline upon a license or certificate. The CBA may also issue a citation for violation of various provisions

of the Business and Professions Code (BPC) or the California Code of Regulations, Title 16 (CBA Regulations).

Accusations, disciplinary orders, and citations are posted on the CBA website and are also provided to the public

upon request.

43

Section 2 Review Questions

5. Which of the following statements about the Peer Review Reporting Form is TRUE?

A. It is required every 3 years for any firm issuing compiled financial statements.

B. It is required for any licensee.

C. It is only required for firms that provide audits.

D. It is required at the firm level, but not at the individual level.

6. Which of the following statements is TRUE?

A. A CPA can pay another company to secure clients.

B. A CPA can help sell retirement plans to an audit client.

C. A CPA can sell insurance to a tax client.

D. A CPA can collect a bounty for sending clients to a stockbroker.

7. Which of the following items does NOT need to be reported to the State Board?

A. Reports of judgments in civil actions alleging negligent conduct public accountancy

B. Fictitious name used for a CPA’s practice

C. Loss of car insurance due to speeding ticket

D. Restatements of an audited financial statement

8. Which one of the following factors is NOT evaluated when the CBA is assessing administrative fines, corrections

or abatements?

A. The seriousness of the violation

B. Any history of previous violations

C. Whether the person has assisted with the board’s investigation

D. How long the person has had a license

9. Which of the following is NOT a crime that may lead the board to deny, suspend, or revoke a license because

the crime is substantially related to the qualifications, functions or duties of a CPA?

A. Fraud or breach of fiduciary responsibility of any kind

B. Deceit in obtaining a certified public accountant's certificate

C. Had tax returns audited while in the practice of public accountancy

D. Willful violation of any rule or regulation of the board

44

Appendix - Disciplinary Actions Taken by the

California Board of Accountancy

KIES, DANIEL R. A.K.A. DANIEL ROY KIES San Francisco, CA (CPA 104152)

CBA ACTIONS Revocation of CPA License, via decision. In the event Mr. Kies applies for a new license or petitions

for reinstatement and the license is issued, he shall reimburse the CBA $4,169.14 for its reasonable costs of

investigation and enforcement. Effective February 27, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2015-29 contains the following allegations: Mr. Kies is subject to

disciplinary action in that he was convicted of an offense substantially related to the qualifications, functions, or

duties of a licensee. On or about September 30, 2010, Mr. Kies was convicted after a jury trial of violating Penal

Code (PC) section 273.5(a) (inflicting corporal injury upon a spouse), a felony. The jury also convicted Mr. Kies of

three misdemeanors: two violations of PC section 240 (assault), and one violation of PC section 243(e)(1) (battery

on a spouse). Mr. Kies is subject to disciplinary action in that he failed to report in writing to the CBA within 30

days following his conviction. Mr. Kies is subject to disciplinary action in that he failed to comply with a citation

issued to him in 2011 for failing to respond to a CBA inquiry. Mr. Kies is subject to disciplinary action in that he

failed to respond to an inquiry by the CBA and/or failed to provide true and accurate information in response to

the CBA’s request for information.

VIOLATION(S) CHARGED Business and Professions Code, Division 1.5, Chapter 2, § 490 (a); Division 3, Chapter 1,

§§ 5063 (a)(1)(A), (a)(1) (B) and 5100 (a) and (g). California Code of Regulations, Title 16, Division 1, §§ 52 (a) and

(d) and 95.4.

TAYLOR, LLOYD San Francisco, CA (CPA 15170)

CBA ACTIONS Revocation of CPA License, via default decision. Effective April 24, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2015-98 contains the following allegations: Mr. Taylor is subject to

disciplinary action in that he was convicted of a crime substantially related to the qualifications, functions, and

duties of a certified public accountant or a public accountant. On or about June 30, 2014, in the case entitled

United States of America v. Lloyd Taylor, United States District Court, Southern District of California, case number

13CR1390, a jury found Mr. Taylor guilty of multiple crimes. Those crimes were substantially related to the

qualifications, functions, and duties of a certified public accountant, including Title 18, United States Code, section

1542 (False Statement on United States Passport Application-three counts); Title 26, United States Code, sections

45

7212(a) (Corrupt Endeavor to Obstruct and Impede the Due Administration of the Internal Revenue Laws-one

count), 7201 (Tax Evasion-two counts); Title 18, United States Code, sections 1014 (False Statements to a Federally

Insured Financial Institution-seven counts), and 1028A (Aggravated Identity Theft-six counts). Mr. Taylor is subject

to disciplinary action in that he engaged in conduct constituting dishonesty and fraud resulting in violations of

applicable professional standards that indicate a lack of competency in the practice of public accountancy or in

the performance of the bookkeeping operations described in Business and Professions Code (BPC) section 5052.

Mr. Taylor is subject to disciplinary action in that he willfully violated rules and regulations promulgated by the

CBA under the authority granted under the BPC. Mr. Taylor is subject to disciplinary action in that he committed

fiscal dishonesty. Mr. Taylor is subject to disciplinary action in that he knowingly prepared, publicized, or

disseminated false, fraudulent, or materially misleading financial statements, reports, and information. Mr. Taylor

is subject to disciplinary action in that he engaged in conduct constituting embezzlement, theft, misappropriation

of funds or property, or obtained money, property, or other valuable consideration by fraudulent means or false

pretenses. Mr. Taylor is subject to disciplinary action in that he failed to report his convictions to the CBA.

VIOLATION(S) CHARGED Business and Professions Code, Division 3, Chapter 1, §§ 5063, 5100 (a), (c), (g), (i), (j),

and (k).

TOMLINSON, BRUCE WILLIAM Los Altos, CA (CPA 50589)

CBA ACTIONS Revocation of CPA License, via default decision. Effective February 27, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2016-20 contains the following allegations: Mr. Tomlinson is subject to

disciplinary action in that he was disciplined in June 2013 by the United States Securities and Exchange

Commission (SEC). The SEC suspended Mr. Tomlinson’s right to practice as an accountant before the SEC based

on a SEC civil judgment. The complaint SEC Civil Case alleged that Mr. Tomlinson engaged in insider trading by

tipping a friend and former business associate to material nonpublic information in advance of an announcement

regarding the approval of certain pharmaceuticals. Mr. Tomlinson is subject to disciplinary action in that his right

to practice before a governmental body was suspended. Mr. Tomlinson is subject to disciplinary action in that he

failed to report the SEC discipline to the CBA in writing within 30 days.

VIOLATION(S) CHARGED Business and Professions Code, Division 3, Chapter 1, §§ 5063; 5100 (g), (h) and (l).

BOITANO, STEVEN F. San Jose, CA (CPA 49589)

CBA ACTIONS Revocation stayed with three years’ probation, via stipulated settlement. Mr. Boitano’s certified

public accountant certificate No. CPA 49589 is suspended for 90 days. Mr. Boitano shall reimburse the CBA

$10,170.76 for its investigation and prosecution costs. The payment shall be made within 30 days of the date the

46

CBA’s decision is final. Mr. Boitano shall complete four hours of continuing education (CE) in ethics. The hours

shall be completed within 12 months of the date the CBA’s decision is final and are in addition to the CE hours

required for relicensing. Mr. Boitano shall complete a CBA-approved Regulatory Review course. The hours shall

be completed within 12 months of the date the CBA’s decision is final and are in addition to the CE hours required

for relicensing. Mr. Boitano shall comply with procedures provided by the CBA regarding notification to, and

management of, clients. Mr. Boitano shall maintain an active license status. Other standard terms of probation.

Effective February 27, 2016

CAUSE FOR DISCIPLINE First Amended Accusation No. AC-2014-57 contains the following allegations: Mr. Boitano

is subject to disciplinary action in that he was convicted of crimes that are substantially related to the duties,

function, or qualifications of a certified public accountant. On or about August 9, 2013, Mr. Boitano plead guilty

to three misdemeanor charges of violating 26 USC Section 7203 for failing to file a required tax return for the

calendar years 2005, 2006, and 2007, a misdemeanor. Mr. Boitano is subject to disciplinary action in that he

knowingly prepared, published, or disseminated false, OTHER ENFORCEMENT ACTIONS THROUGH APRIL 24, 2016

fraudulent, or materially misleading financial statement, reports, or information. Mr. Boitano prepared and signed

tax returns for calendar years’ 2001, 2002, and 2003, which contained false, fraudulent, or materially misleading

information. The tax returns contained estimated tax payments that were not actually made. Mr. Boitano gave

those tax returns to an IRS agent who was auditing him.

VIOLATION(S) CHARGED Business and Professions Code, Division 1.5, Chapter 2, § 490; Division 3, Chapter 1, §

5100 (a) and (j).

CHISOLM, KERI MARIE Costa Mesa, CA (CPA 118994)

CBA ACTIONS In accordance with the CBA’s 2013 Order, Ms. Chisolm’s license is revoked, via stipulated settlement.

However, the revocation previously stayed pursuant to the CBA’s 2013 Order shall remain stayed and Ms. Chisolm

shall remain on probation for an additional year, until April 28, 2019, with the following terms and conditions,

which shall supersede those in the CBA’s 2013 order: Ms. Chisolm shall successfully complete a rehabilitation

program for chemical dependence approved by the CBA and shall have reports submitted by the program. In

addition, Ms. Chisolm must attend support groups as directed by the CBA. Ms. Chisolm shall completely abstain

from the personal use of all psychotropic drugs, including alcohol, in any form except when lawfully prescribed.

When requested, Ms. Chisolm shall submit to biological fluid testing. Other standard terms of probation. Effective

February 27, 2016

CAUSE FOR DISCIPLINE Petition to Revoke Probation No. D1-2013-9 contains the following allegations: Ms.

Chisolm’s probation is subject to revocation because she failed to comply with her probation condition number

12 (biological fluid testing) by failing to cooperate with the CBA and its designee, Pharmatech, by failing to login,

without excuse, into the testing system to indicate her availability for random biological fluid testing on 47 days

from October 2013 through September 2015. Ms. Chisolm’s probation is subject to revocation because her

47

quarterly report, due April 10, 2015, was not received until April 18, 2015, and the report due January 10, 2015,

was not received until January 12, 2015.

DELOITTE & TOUCHE LLP Los Angeles, CA (PAR 6515)

CBA ACTIONS 30-day suspension stayed with 20 months probation, via stipulated settlement. Deloitte & Touche

LLP shall comply with all requirements of the Public Company Accounting Oversight Board (PCAOB) Order and

report such compliance in its quarterly written reports submitted to the CBA. Maintain an active license. Within

15 days of the effective date of the order, Deloitte & Touche LLP shall disseminate the Stipulated Settlement and

Disciplinary Order to all of its professional personnel officed in California, and shall confirm such dissemination in

writing to the CBA. Deloitte & Touche LLP shall pay an administrative penalty in the amount of $300,000. Payment

shall be made to the CBA within 60 days of the effective date of the order. Deloitte & Touche LLP shall reimburse

the CBA a sum not to exceed $100,000 for its investigation and prosecution costs, including those costs associated

with probation monitoring. The CBA will periodically present Deloitte & Touche LLP with a certified statement of

costs to date, including additional costs incurred during probation, and Deloitte & Touche LLP shall pay those costs

to the CBA within 30 days thereafter. If costs are billed after the completion of the probationary period, the

obligation to pay the costs shall continue, but the probation shall not be extended thereby. Other standard terms

of probation. Effective February 27, 2016

CAUSE FOR DISCIPLINE First Amended Accusation No. AC-2014-66 contains the following allegations: Deloitte &

Touche LLP is subject to disciplinary action in that on or about October 22, 2013, the PCAOB imposed sanctions

against Deloitte & Touche LLP. Specifically, the PCAOB ordered, in pertinent part, that Deloitte & Touche LLP was

censured. Additionally, the PCAOB imposed a civil money penalty in the amount of $2,000,000. The PCAOB

entered an order and imposed sanctions on Deloitte & Touche LLP based on findings of violation including a finding

that Deloitte & Touche LLP violated PCAOB rules by permitting a former partner of Deloitte & Touche LLP, who

was subject to a PCAOB suspension order, to become an associated person of Deloitte during his period of

suspension. On three occasions during the suspension year, the PCAOB found that the former partner responded

to questions from engagement team members seeking guidance on the interpretation of firmwide policies and

procedures and the applicability of PCAOB audit standards concerning subjects falling within the former partner’s

areas of expertise, including, for example, the use of specialists and journal-entry testing in performing audits of

the financial statements of issuer clients. Specifically, during the suspension year the former partner provided

advice in connection with Deloitte & Touch LLP’s audits of the fiscal year-end 2009 financial statements of three

issuers, each of which the former partner knew, at the time, was an issuer audit client of Deloitte & Touch LLP.

The PCAOB found that the former partner performed services related to the audit of a public company located in

California and performed by CPAs located in California.

VIOLATION(S) CHARGED Business and Professions Code, Division 3, Chapter 1, § 5100 (l).

48

RIVERA, CHARLES JOSEPH RIVERA & COMPANY Northridge and Oxnard, CA (CPA 37618; FNP 1615)

CBA ACTIONS Revocation stayed with three years’ probation, via stipulated settlement. Respondent shall

reimburse the CBA $9,610.11 for its investigation and prosecution costs. Payments shall be made on a quarterly

basis, due at the same time as the quarterly written reports. The final payment is due six months before the

probation is scheduled to terminate. Respondent Rivera shall complete four hours of continuing education (CE) in

ethics. The hours shall be completed within six months of the effective date of the CBA’s decision and order, and

are in addition to the CE requirements for relicensing. Respondent Rivera shall complete a CBA-approved

Regulatory Review course. The course shall be completed within six months of the effective date of the CBA’s

decision and order, and is in addition to the CE requirements for relicensing. During the period of probation, all

review and compilation reports and work papers shall be subject to peer review by a Board-recognized peer

review program provider. The specific engagements to be reviewed shall be at the discretion of the peer reviewer.

The peer review shall be completed within a period of time designated and specified in writing by the CBA or its

designee, which time frame shall be incorporated as a condition of this probation. Within 45 days of the peer

review report being accepted by a Board-recognized peer review program provider, Respondent shall submit to

the CBA a copy of the peer review report. Respondent shall maintain an active license status. Respondent shall

not engage in and shall be prohibited from performing any audit services. Respondent shall pay to the CBA an

administrative penalty in the amount of $2,500. The payment shall be made within 90 days of the effective date

of the decision and order. During probation, Mr. Rivera and Rivera & Company shall not engage in and shall be

prohibited from performing any audit services. After the completion of probation, Respondent shall be

permanently restricted from engaging in and performing any audits services. This condition shall continue until

such time, if ever, that Respondent successfully petitions the CBA for the reinstatement of the ability to perform

audits, reviews, compilations, or attestation services. Other standard terms of probation. Effective April 24, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2014-41 contains the following allegations: Respondent is subject to

disciplinary action in that Respondent failed to submit to the CBA a completed Peer Review Reporting Form and

failed to complete a peer review by an accepted Board-recognized peer review program within 18 months of

completing accounting and/or auditing services. Respondent is subject to disciplinary action in that Respondent

failed to completely respond to an inquiry by the CBA and/or its appointed representatives within 30 days and/or

failed to provide true and accurate information in response to questions and/or other requests for information

from the CBA. Respondent is subject to disciplinary action in that Respondent failed to notify the CBA of a change

of address within 30 days of the change.

VIOLATION(S) CHARGED Business and Professions Code, Division 3, Chapter 1, §§ 5100 (g) and 5076 (a). California

Code of Regulations, Title 16, Division 1, §§ 3, 40 (c), 41, 45 (c), and 52.

JERASSY-ETZION, YANIV Agoura Hills, CA (CPA 98057)

49

CBA ACTIONS Surrender of CPA license, via stipulated settlement. Mr. Jerassy-Etzion shall pay the CBA for its costs

of investigation and enforcement in the amount of $4,076.88 prior to issuance of a new or reinstated license.

Effective April 24, 2016

CAUSE FOR DISCIPLINE Accusation No. AC-2015-96 contains the following allegations: Mr. Jerassy-Etzion is subject

to disciplinary action in that he was disciplined by the Nevada State Board of Accountancy (Nevada Board). Mr.

Jerassy-Etzion is subject to disciplinary action in that he failed to report to the CBA that he had been disciplined

by the Nevada Board. Mr. Jerassy-Etzion is subject to disciplinary action in that during an investigation, several

sources were discovered, including his company website, his Curriculum Vitae, and a CPA directory, that showed

that he continues to hold himself out as a California licensed Certified Public Accountant, when in fact, his license

expired on January 31, 2011. Mr. Jerassy-Etzion is subject to disciplinary action in that he failed to report to the

CBA that he had been disciplined by the Nevada Board and that his Nevada Certified Public Accountant’s

Certificate was placed on probation for five years. Mr. Jerassy-Etzion is subject to disciplinary action in that he

failed to respond to CBA inquiries sent on November 25, 2014, January 8, 2015, and February 17, 2015. Mr.

Jerassy-Etzion is subject to disciplinary action in that he failed to notify the CBA of a change in his address of record

within 30 days after the change. Mr. Jerassy-Etzion is subject to disciplinary action in that he failed to comply with

a citation containing an assessment of an administrative fine.

VIOLATIONS(S) CHARGED Business and Professions Code, Division 3, Chapter 1, §§ 5050 (a), 5063, and 5100 (d)

and (g). California Code of Regulations, Title 16, Division 1, §§ 3 (a), 52 (a), and 95.4.

MOE, ROBERT EMIL Lake Forest, CA (CPA 61321)

CBA ACTIONS Revocation stayed with three years’ probation, via stipulated settlement. Mr. Moe shall reimburse

the CBA $7,938.13 for its investigation and prosecution costs. Payments shall be made on a quarterly basis, due

at the same time as the quarterly written reports. The final payment is due 12 months before the probation is

scheduled to terminate. Mr. Moe shall complete four hours of continuing education (CE) in ethics. The hours shall

be completed within 12 months of the effective date of the CBA’s decision and order and are in addition to the CE

requirements for relicensing. Mr. Moe shall complete a CBA-approved Regulatory Review course. The course shall

be completed within 12 months of the effective date of the CBA’s decision and order and is in addition to the CE

requirements for relicensing. Mr. Moe shall complete 24 hours of CE in accounting and auditing. The hours shall

be completed within 12 months of the effective date of the CBA’s decision and order and are in addition to the CE

requirements for relicensing. Mr. Moe shall maintain an active license status. Mr. Moe shall pay to the CBA an

administrative penalty in the amount of $2,500. The payment shall be made within 180 days of the effective date

of the CBA’s decision and order. During the period of probation, Mr. Moe shall not engage in and shall be

prohibited from performing any audit services, but may still perform compilations, reviews, and other attestation

services. After the completion of probation, Mr. Moe shall be permanently prohibited from engaging in and

performing any audit services. This condition shall continue until such time, if ever, that he successfully petitions

the CBA for the reinstatement of the ability to perform audit services. Other standard terms of probation. Effective

April 24, 2016

50

CAUSE FOR DISCIPLINE Accusation No. AC-2015-44 contains the following allegations: Mr. Moe is subject to

disciplinary action in that he engaged in gross negligence and/or repeated acts of negligence evidencing a violation

of applicable professional standards and indicating a lack of competency in the practice of public accountancy or

in the performance of bookkeeping operations. Mr. Moe is subject to disciplinary action in that he issued reports

with an unqualified opinion, which was unsupported by audit documentation and which failed to conform to

professional standards upon completion of a compilation, review, or audit of financial statements. Mr. Moe is

subject to disciplinary action in that he failed to maintain audit documentation sufficient to enable a reviewer

with relevant knowledge and experience, having no previous connection with the audit engagement, to

understand the nature, timing, extent, and results of the auditing or other procedures performed, evidence

obtained and conclusions reached, and to determine the identity of the persons who performed and reviewed

the work. Mr. Moe is subject to disciplinary action in that he failed to enroll in and obtain a peer review as required.

VIOLATION(S) CHARGED Business and Professions Code, Division 3, Chapter 1, §§ 5062, 5076 (a), 5097, 5100 (c),

(e), and (g). California Code of Regulations, Title 16, Division 1, §§ 41, 45, 58, and 68.2.

Fraudulent Tax Shelters

CAUSE FOR DISCIPLINE Amended Accusation No. AC-2009-3 contains allegations that Mr. Dale Affonso while a

tax partner at KPMG LLP participated in devising, marketing and implementing fraudulent tax shelters. The

Accusation further alleges that Mr. Affonso participated in preparing and causing to be prepared, and filing and

causing to be filed with the IRS, false and fraudulent U.S. individual income tax returns containing the fraudulent

tax shelter losses.

Mr. Affonso denied each and every charge and each and every allegation contained within the Amended

Accusation. For purposes of settlement however, as Respondent no longer wishes to practice as a Certified Public

Accountant, Mr. Affonso has agreed to surrender his CPA Certificate No. 29994.

VIOLATIONS CHARGED Business and Professions Code, Division 3, Chapter 1, § 5100 (c) and (g).

CBA ACTIONS Surrender of CPA certificate, via stipulated surrender.

VIOLATION OF PROFESSIONAL STANDARDS

Ms. Eva Tsai and E-Fang Accountancy Corporation with Ms. Tsai as sole shareholder (respondents) admitted to

committing gross negligence, violating professional standards, and failing to issue a report in accordance with

professional standards in performing an audit of a securities firm for the fiscal year ended December 31, 2005.

51

The final audit report issued by the respondents varied significantly from the AICPA's professional standards as

follows:

- The report contained typographical errors;

- The report failed to give an opinion on various financial statements, including results of operations, and cash

flows;

- Supplementary schedules were omitted;

- A supplemental report on internal control was omitted;

- The balance sheet overstated the current asset "Securities Owned at Fair Value" by $540,000 due to the

respondents' failure to compute and adjust the book value to fair value for the year ending December 31, 2005.

The Accusation also alleged that the respondents 1) understated the auditee's "current liability account held

temporarily for customer" and "current asset account held temporarily for customer" resulting from an improper

audit adjustment in the amount of $582,761 and 2) overstated "commission income" and "operating expenses"

in the amount of $250,000 for two transactions that were external to the auditee. However, the respondents did

not admit to these specific allegations and charges in this stipulated settlement.

VIOLATIONS CHARGED Business and Professions Code, Division 3, Chapter 1, §§ 5100 (c) and 5062. California

Code of Regulations, Title 16, Division 1, § 58.

CBA ACTIONS Revocation stayed with three years' probation, via stipulated settlement. The licenses for Ms. Tsai

and E-Fang Accountancy Corporation with Ms. Tsai as sole shareholder are suspended for 30 days. All of the

respondents' audit, review and compilation reports and work papers are subject to peer review. All work papers

and draft reports for audit engagement undertaken by the respondents are subject to review by a qualified outside

CPA approved by the Board. Ms. Tsai shall complete 40 hours of additional continuing education courses in

accounting and auditing as specified by the Board. Respondents are required to reimburse the Board $9,948.21

for its investigation and prosecution costs. Other standard terms and conditions.

52

Glossary

Accountancy Act: The regulations and rules by the state under Division 3, Chapter of the Business and Professions

Code.

Accusation: A formal document that charges violations of the California Accountancy Act and/or CBA Regulations

by a licensee. The charges in the accusation are allegations. Allegations are not a final determination of

wrongdoing and are subject to adjudication and final review by CBA pursuant to the Administrative Procedure

Act.

CBA: California Board of Accountancy

Contingent Fees: A contingent fee is a fee established for the performance of any service pursuant to an

arrangement in which no fee will be charged unless a specific finding or result is attained, or in which the amount

of the fee is otherwise dependent upon the finding or result of such service.

Continuing Professional Education (CPE): CPE requirements are mandated by the Board for each renewal cycle

to ensure licensees maintain high levels of expertise.

Peer Review: A study, appraisal, or review conducted in accordance with professional standards of the

professional work of a firm, and may include an evaluation of other factors in accordance with the requirements

specified by the board in regulations.

Practice of Public Accountancy: A person who holds himself or herself out to the public in any manner as one

skilled in the knowledge, science, and practice of accounting, and as qualified and ready to render professional

service therein as a public accountant for compensation. Defined in Section 5051

Probation: The licensee may continue to engage in activities for which licensure is required, under specific terms

and conditions.

Revocation: The individual, partnership, or corporation no longer is licensed as a result of a disciplinary action.

Suspension: The licensee is prohibited for a specific period of time from engaging in activities for which licensure

is required.

53

Index

Advertising, 33 Audit documentation, 19 Client notification, 28 Client's records, 34 Confidential information, 26 Continuing education requirements, 12 Disciplinary proceedings, 36 Employment by a CPA, 5

Firm name, 20 Inactive status, 7 Partnership registration, 9 Practice of public accountancy, 3 Reportable events, 25 Response to Board inquiry, 29 Valid permits, 3

54

Review Question Answers

Section 1

1. Which of the following activities is NOT necessarily within the definition of the practice of accountancy?

A. Incorrect. According to section 5051, someone who maintains an office a public accountant is within the

definition of public accountancy.

B. Incorrect. Someone who performs audits for compensation is considered a person performing the

practice of accountancy.

C. Incorrect. If a person certifies accounting records for any reason is meets the definition of a performing

public accountancy.

D. Correct. Not all tax preparers are public accountants. EAs and registered tax preparers can do taxes

without meeting the definition of public accountancy.

2. Which of the following statements is FALSE?

A. Incorrect. The address is public information and must be provided within 30 days and signed by the

licensee.

B. Incorrect. Out-of-state CPAs with valid licenses may prepare tax returns for California residents.

C. Incorrect. An inactive CPA may use the title if she completes the appropriate application with the Board

D. Correct. No partnerships shall engage in the practice of accountancy unless the partnership is registered

with the Board.

3. If a licensee fails to renew her license, which of the following statements is INCORRECT?

A. Incorrect. A licensee will need to pay a delinquency fee along with other requirements to renew their

license

B. Incorrect. A licensee must have a valid, active license to practice accountancy.

C. Correct. This statement is false because the certificate will be canceled after 5 years and may not be

renewed. A new certificate would be required.

D. Incorrect. If she allowed her license to expire and go delinquent, she will be required to complete an

additional 20 hours of CE for each full six-month period from the date of license expiration through the

date she applies for license renewal, up to a maximum of 80 hours of CE.

4. Which of the following statements regarding continuing education is FALSE?

A. Incorrect. A minimum of 20 hours is required each year, and CPE may not be carried over into the next

55

license renewal period. 12 of the hours must be in technical subject matters.

B. Incorrect. CPAs doing governmental work must meet specific governmental CPE requirements, and must

also take 4 hours of fraud CPE as well.

C. Incorrect. Non-technical courses would include communication, marketing, and sales courses, among

others.

D. Correct. Licensees must take 80 hours during their 2-year renewal period.

Section 2

5. Which of the following statements about the Peer Review Reporting Form is TRUE?

A. Incorrect. The report is due with the license renewal every two years.

B. Correct. Every licensee must submit the report. Failure to submit the reporting form to the CBA may result

in the CBA initiating action.

C. Incorrect. A firm may not need a peer review (for instance, if they only do tax returns) but they must file

the peer review report with each license renewal.

D. Incorrect. All firms and CPAs are required to report to the CBA by submitting a Peer Review Reporting

Form (PR-1).

6. Which of the following statements is TRUE?

A. Incorrect. CPAs are prohibited from paying fees or commission to obtain clients. However, this does not

stop them from purchasing an accounting practice.

B. Incorrect. CPAs performing audits or reviews of financial statements are prohibited from receiving any

commissions from sales or services to their clients.

C. Correct. If a CPA is not prohibited from receiving commissions as stated in section 5061 (a)-(c), he or she

can sell insurance but should disclose clearly in writing such commissions to their client, and have the

client sign the disclosure prior to purchase.

D. Incorrect. Section 5061 prohibits people engaged in public accountancy from collecting fees for referring

clients to a third party.

7. Which of the following items does NOT need to be reported to the State Board?

A. Incorrect. Licensees must inform the board reports of judgments in civil actions alleging negligent conduct

by the licensee which relates to the practice of public accountancy in California.

B. Incorrect. No sole proprietor may practice under a name other than the name set forth on his or her

permit to practice unless such name has been registered with the Board.

C. Correct. Traffic violations are not one of the reportable events listed in section 5063.

56

D. Incorrect. Under section 5063, any restatement of a financial statement and related disclosures by a client

audited by the licensee must be reported.

8. Which one of the following factors is NOT evaluated when the CBA is assessing administrative fines, corrections

or abatements?

A. Incorrect. The board will apply due consideration to the gravity of the violation, and any administrative

fine shall not be less than $100.

B. Incorrect. The board will consider any history of previous violations. Any administrative fine shall not be

more than $5,000 for the first violation.

C. Incorrect. The extent to which the cited person or entity has cooperated with the board's investigation,

and the board will also look at the extent to which the cited person or entity has mitigated or attempted

to mitigate any damage or injury caused by the violation.

D. Correct. The board does not consider how long the person has held a license, but they will consider

evidence that the violation was or was not willful.

9. Which of the following is NOT a crime that may lead the board to deny, suspend, or revoke a license because

the crime is substantially related to the qualifications, functions or duties of a CPA?

A. Incorrect. Section 99, concerning Substantial Relationship Criteria, list dishonesty, fraud or breach of

fiduciary responsibility as one of the crimes.

B. Incorrect. Either fraud or deceit in securing the certificate is a crime highlighted in Section 99.

C. Correct. Audited tax returns are not a crime listed. However, if there was gross negligence in the return,

it could be fall into the Section 99 requirements for a crime.

D. Incorrect. Both a violation of any of the provisions of Chapter 1, Division II of the Business and Professions

Code or a willful violation of any rule or regulation of the board is a crime suitable for denial, suspension

or revocation of a certificate.