Download - California Regulatory Review
Regulatory Review
for California CPAs
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writing from the publisher.
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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
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—-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
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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:
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• 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
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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:
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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
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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,
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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:
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• 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.
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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.
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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.)
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• 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
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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.
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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
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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.
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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
[email protected]. Additional information is available on the CBA website www.calcpa.org.
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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
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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.
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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.
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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)
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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.
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• 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
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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)
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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.
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• 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.
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• 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.
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• 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)
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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
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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.
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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.
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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
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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)
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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
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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
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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:
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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.
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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).
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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
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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.
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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.
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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.
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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.