HOUSE BILL REPORT

HB 2433

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Reported by House Committee On:

Business & Financial Services

Title: An act relating to certified public accountant firm mobility.

Brief Description: Concerning certified public accountant firm mobility.

Sponsors: Representatives Vick, Kirby and Goodman.

Brief History:

Committee Activity:

Business & Financial Services: 1/20/16, 2/2/16 [DPS].

Brief Summary of Substitute Bill

  • Authorizes out-of-state Certified Public Accountancy (CPA) firms to perform attest and compilation services within Washington without a CPA firm license issued by the Board of Accountancy (Board), subject to restrictions.

  • Requires non-CPA owners of CPA firms to be of good character.

  • Changes the use of certain terms in the Public Accountancy Act.

HOUSE COMMITTEE ON BUSINESS & FINANCIAL SERVICES

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 11 members: Representatives Kirby, Chair; Stanford, Vice Chair; Vick, Ranking Minority Member; McCabe, Assistant Ranking Minority Member; Blake, Dye, Hurst, Kochmar, Ryu, Santos and G. Hunt.

Staff: Peter Clodfelter (786-7127).

Background:

The Public Accountancy Act (Act) governs the practice of accounting in Washington. Under the Act, both accountants and accounting firms must be licensed to hold themselves out as "certified public accountants" or "CPAs." The Board of Accountancy (Board) issues licenses, adopts rules, conducts investigations, and otherwise administers the Act.

Certified Public Accountants and CPA firms perform various services that, depending on the service, must meet certain professional standards. The Board conducts a quality assurance review (QAR) program to review the work of licensees and out-of-state CPAs with practice privileges in Washington.

2008 Individual Certified Public Accountant Mobility Act.

In 2008 the Legislature passed an act relating to enhancing the mobility of individual CPAs (the 2008 Act). Pursuant to the 2008 Act, an individual CPA whose principal place of business is outside of Washington is presumed to have qualifications substantially equivalent to Washington's requirements and has all the practice privileges of a licensed CPA in Washington without the need to obtain a license from the Board if the individual holds a valid license as a CPA from any state that has adopted standards substantially equivalent to Washington's standards.

An individual out-of-state CPA with practice privileges may hold out and practice within Washington and provide public accounting services in person, by mail, telephone, or electronic means to clients residing in Washington without notice or payment of a fee to the Board. As a condition of granting an individual out-of-state CPA practice privileges in Washington, the individual out-of-state CPA and the out-of-state CPA firm that employs the individual out-of-state CPA must:

The 2008 Act also defined "attest" services. "Attest" means providing the following financial statement services:

The 2008 Act also defined "home office" as the location specified by the client as the address to which a service is directed.

Board Licensure of Certified Public Accountancy Firms.

In addition to licensing individual CPAs, the Board also licenses CPA firms. The CPA firms must meet the following requirements for licensure by the Board:

In-State CPA Firms.

The following CPA firms must hold a CPA firm license issued by the Board:

Out-of-state CPA Firms.

Any CPA firm that does not have an office in Washington but performs certain attest services for a client having its home office in Washington must hold a CPA firm license issued by the Board. The following are the attest services triggering the licensure requirement for out-of-state CPA firms:

However, certain other services may be performed in Washington by an out-of-state CPA firm without a CPA firm license issued by the Board. Specifically, out-of-state CPA firms may perform compilations as well as reviews of financial statements to be performed in accordance with the Statements on Auditing Standards without licensure by the Board. When performing these services, the out-of-state CPA firm must meet QAR program requirements, the services must be provided by an individual CPA with practice privileges in Washington, and the Board has jurisdiction over the out-of-state firm.

Reports Prepared by Certified Public Accountants.

The Act defines the term "reports on financial statements" as any reports or opinions prepared by licensees or persons holding practice privileges under substantial equivalency, based on services performed in accordance with Generally Accepted Auditing Standards, Standards for Attestation Engagements, or Standards for Accounting and Review Services as to whether the presentation of information used for guidance in financial transactions or for accounting for or assessing the status or performance of commercial and noncommercial enterprises, whether public, private, or governmental, conforms with generally accepted accounting principles or another comprehensive basis of accounting.

Non-Certified Public Accountant Owners of Licensed Certified Public Accountancy Firms.

A person who is not a licensed CPA but who is an owner of a CPA firm must:

Additionally, resident non-CPA owners of licensed CPA firms must meet the ethics examination, registration, fee requirements, and the ethics Continuing Professional Education requirements established by the Board.

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Summary of Substitute Bill:

Board Licensure of Certified Public Accountancy Firms.

Out-of-state CPA Firms.

An out-of-state CPA firm may perform attest services in Washington without a CPA firm license issued by the Board if:

Additionally, an out-of-state CPA firm may perform compilation services and other non-attest professional services in Washington without a license while using the title "CPA" or "CPA firm" if the firm performs such services through individual CPAs with practice privileges in Washington and the firm can lawfully do so in the state where the individual CPAs with practice privileges have their principal place of business. The existing requirement that an out-of-state CPA firm performing only compilation services in Washington must comply with the Board's QAR program is removed.

As a condition of granting an out-of-state CPA firm practice privileges in Washington and not requiring licensure by the Board, the out-of-state CPA firm consents to the personal and subject matter jurisdiction and disciplinary authority of the Board, it must comply with the Act and Board rules, and it must appoint its home-state licensing board as its agent upon whom process may be served in any action or proceeding by the Board against it.

Reports Prepared by Certified Public Accountants.

The use of the defined term "reports on financial statements" is replaced by the word "report," which is defined.   A "report," when used with reference to any attest or compilation service, means an opinion, report, or other form of language that states or implies assurance as to the reliability of the attested information or compiled financial statements and that also includes or is accompanied by any statement or implication that the person or firm issuing it has special knowledge or competence in the practice of public accounting.  Such a statement or implication of special knowledge or competence may arise from use by the issuer of the report of names or titles indicating that the person or firm is involved in the practice of public accounting, or from the language of the report itself.  "Report" includes any form of language that disclaims an opinion when such form of language is conventionally understood to imply any positive assurance as to the reliability of the attested information or compiled financial statements referred to or special competence on the part of the person or firm issuing such language; and it includes any other form of language that is conventionally understood to imply such assurance or such special knowledge or competence.

Non-Certified Public Accountant Owners of Licensed Certified Public Accountancy Firms.

Non-CPA owners of licensed CPA firms must be of good character, in addition to the existing requirements.

Miscellaneous Changes.

The use of the term "home office" is removed.

Certified Public Accountancy firms must meet "requirements" established by Board rule, instead of "competency requirements" established by Board rule.

Substitute Bill Compared to Original Bill:

The substitute bill clarifies that the new definition of "report" and the bill itself is not intended to affect or in any way limit the services that professionals like non-CPA accountants, public bookkeepers, consultants, and others may currently perform. A wrong citation to the definition of "compilation" services is corrected. It is clarified that the the existing definition of "good character" that applies to individual CPAs is the same definition of "good character" that applies to non-CPA owners of licensed firms.

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Appropriation: None.

Fiscal Note: Available.

Effective Date of Substitute Bill: The bill takes effect 90 days after adjournment of the session in which the bill is passed.

Staff Summary of Public Testimony:

(In support) As a result of legislative efforts in 2007, the Legislature passed a bill that allows individual out-of-state CPAs to perform attest services in Washington without requiring a separate individual CPA license issued by the Board. Washington CPAs have similarly benefitted from the adoption of the same law in other states. Now, Washington should let out-of-state CPA firms perform these same types of services without requiring a separate CPA firm license issued by the Board. This bill would allow CPA firms located in Washington to more easily practice accountancy in other states without a separate license. Almost every state has adopted some form of the Uniform Public Accountancy Act, which is a model act with the goal of achieving uniform regulation of public accountancy across the United States. The most recent changes to the Model Act relate to CPA firm mobility and the definition of "attest" services. Since these changes were made to the Model Act in 2014, about 14 states have adopted the CPA-firm mobility language and about 29 states have adopted the new definition of "attest" services. The language in the bill concerning firm mobility and attest services is based on the Model Act. This bill will help all CPA firms, but particularly small and midsized CPA firms that do not have offices in every state. Obtaining a CPA firm license from another state in order to perform attest and audit work can take up to a month. This delay presents a roadblock for CPA firms and clients; this bill will eliminate that roadblock. The updated definition of "report" is broad and is aimed at protecting the public. Individual CPAs and CPA firms can still lose their license if their work does not meet specific standards. CPAs are subject to regulation while performing all the types of services that the public may rely upon, including audit, review, compilation, and tax services.

(Opposed) None.

Persons Testifying: Tom Neill, State Board of Accountancy; and Bill Simer, Washington Society of Certified Public Accountants.

Persons Signed In To Testify But Not Testifying: None.