Pennsylvania Act 2016-157 — CPA LAW - REQUIREMENTS FOR ISSUANCE OF CERTIFICATE, CERTIFICATES ISSUED BY DOMESTIC RECIPROCITY, LICENSES TO PRACTICES, LICENSING OF FIRMS AND PEER REVIEW

Act text

Session of 2016

No. 2016-157

SB 1018

AN ACT

Amending the act of May 26, 1947 (P.L.318, No.140), entitled, as amended, "An act relating to the practice of public accounting; providing for the examination, education and experience requirements for certification of certified public accountants and for the licensing of certified public accountants, public accountants and firms; requiring continuing education and peer review; providing for the organization and ownership of firms and for the procedures and grounds for discipline and reinstatement of licensees; prescribing the powers and duties of the State Board of Accountancy and the Department of State; providing for ownership of working papers and confidentiality; regulating the professional responsibility of licensees; defining unlawful acts and acts not unlawful; providing penalties; and repealing existing laws," further providing for definitions, for requirements for issuance of certificate, for certificates issued by domestic reciprocity, for licenses to practice, for licensing of firms and for peer review.

The General Assembly of the Commonwealth of Pennsylvania hereby enacts as follows:

Section 1. The definitions of "attest activity" and "report" in section 2 of the act of May 26, 1947 (P.L.318, No.140), known as the CPA Law, reenacted and amended December 8, 1976 (P.L.1280, No.286) and amended July 9, 2008 (P.L.954, No.73), are amended and the section is amended by adding a definition to read:

Section 2. Definitions.--The following words and phrases when used in this act shall have the meanings ascribed to them in this section unless the context clearly indicates otherwise:

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"Attest activity." The provision of any of the following [financial statement] services together with the issuance of a report expressing or disclaiming an opinion or other assurance on the information:

(1) an audit or other engagement performed in accordance with Statements on Auditing Standards (SAS);

(2) a review or compilation of a financial statement performed in accordance with Statements on Standards for Accounting and Review Services (SSARS);

(3) an engagement performed in accordance with Statements on Standards for Attestation Engagements (SSAE);

(4) an audit or other engagement performed in accordance with government auditing standards issued by the Comptroller General of the United States; or

(5) any other engagement performed in accordance with attestation standards established by an organization granted authority by statute or regulation to establish attestation standards, such as the American Institute of Certified Public Accountants (AICPA) or the Public Company Accounting Oversight Board (PCAOB).

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"Forensic accounting services." The application of specialized knowledge and investigative skills possessed by a licensee, qualified nonlicensee or qualified association to collect, analyze and evaluate evidential matter and to interpret and communicate findings in a courtroom, boardroom or other legal or administrative venue.

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"Report." Any opinion, statement or other form of written communication that states or implies assurance as to the reliability of any [financial information] attested information, compiled financial statements or assessments of the status or performance of any person and that also implies or is accompanied by any statement or implication that the person issuing it has special knowledge or competence in accounting or auditing. Such a statement or implication of special knowledge or competence may arise from use by the issuer of the communication of names or titles indicating that the issuer or any individual employed by or affiliated with it is an accountant or auditor or may arise from the language of the communication itself. The term includes any form of language which disclaims an opinion when the form of language is conventionally understood to imply any positive assurance as to the reliability of the [financial information] attested information or compiled financial statements referred to or special competence on the part of the person issuing the language. The term also includes any other form of language that is conventionally understood to imply assurance or special knowledge or competence.

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Section 2. Section 4.2 of the act, amended June 19, 2013 (P.L.46, No.15), is amended to read:

Section 4.2. Requirements for Issuance of Certificate.--(a) The board shall issue a certificate upon application by an individual who has passed the examination and meets the education and experience requirements in this section.

(b) Before an individual may take the examination, the board shall be satisfied that the individual:

(1) has attained eighteen years of age;

(2) is of good moral character; and

(3) has graduated with:

(i) a baccalaureate or higher degree from a college or university accredited by a nationally recognized accrediting agency recognized by the United States Department of Education, or a college or university approved by the board, and completed a total of one hundred fifty semester credits of post-secondary education, including at least a total of twenty-four semester credits of accounting and auditing, business law, finance or tax subjects of a content satisfactory to the board and an additional twelve semester credits in [accounting, auditing and] accounting and auditing subjects or tax subjects of a content satisfactory to the board, not necessarily as part of the individual's undergraduate or graduate work;

(ii) a baccalaureate degree from a college or university accredited by a nationally recognized accrediting agency recognized by the United States Department of Education, or a college or university approved by the board, and completed at least a total of twenty-four semester credits, which credits shall be in accounting and auditing, business law, finance or tax subjects of a content satisfactory to the board, not necessarily as a part of his undergraduate work; or

(iii) a Master's Degree or other post-graduate degree from a college or university accredited by a nationally recognized accrediting agency recognized by the United States Department of Education, or a college or university approved by the board, and completed at least a total of twenty-four semester credits, which credits shall be in accounting and auditing, business law, finance or tax subjects of a content satisfactory to the board, not necessarily as part of his undergraduate or graduate work.

(c) Before an individual who takes the examination under subsection (b)(3)(ii) or (iii) may be issued a certificate, the individual must also satisfy the education requirement in subsection (b)(3)(i).

(d) Before an individual may be issued a certificate, the board shall be satisfied that the individual has completed at least one year of experience that:

(1) was completed within sixty months preceding the date of application for a certificate;

(2) included providing any type of service or advice involving the use of accounting, attest, compilation, management advisory, financial advisory, tax or consulting skills, which were gained through employment in government, industry, academia or public practice;

(3) was of a caliber satisfactory to the board; and

(4) was verified by an individual with a current license to practice public accounting as a certified public accountant or public accountant in this Commonwealth or another state.

(e) The following requirements may be complied with instead of the otherwise applicable provisions of subsections (b), (c) and (d):

(1) An individual who took the examination before December 31, 2011, but did not pass at least one part taken before that date, may not be issued a certificate until the individual:

(i) has satisfied the education requirement in subsection (c), if applicable; and

(ii) has completed at least one year of experience described in subsection (d)(2), (3) and (4) within one hundred twenty months preceding the date of application for a certificate.

(2) An individual who passed at least one part of the examination taken before December 31, 2011, pursuant to subsection (b)(3)(ii), may be issued a certificate before or after December 31, 2011, without satisfying the education requirement in subsection (c), but not until the individual has completed at least two years of experience that satisfies the requirements in subsection (d)(2), (3) and (4). The experience may be completed within one hundred-twenty months preceding the date of application for a certificate.

(3) An individual who passed at least one part of the examination taken before December 31, 2011, pursuant to subsection (b)(3)(iii), may be issued a certificate before or after December 31, 2011, without satisfying the education requirement in subsection (c) and may complete the one year of experience required by subsection (d) within one hundred twenty months preceding the date of application for a certificate.

Section 3. Sections 5, 8.2, 8.8 and 8.9(g) of the act, amended July 9, 2008 (P.L.954, No.73), are amended to read:

Section 5. Certificates Issued by Domestic Reciprocity.--(a) Without requiring the examination otherwise required under section 4.2 of this act, the board may, in its discretion, issue a certificate of certified public accountant to a holder of a certificate of certified public accountant then in full force and effect issued by any other state following passage of an examination if the applicant shall submit evidence satisfactory to the board that he:

(1) possesses the general qualifications specified in section 4.2(b)(1) and (2) of this act, has passed the examination required to practice as a certified public accountant under the laws of the other state, meets the continuing education requirements specified in section 8.2(b) of this act and has the experience required under section [4.2(d)] 4.2(d)(2), (3) and (4) of this act [to receive the certificate in this Commonwealth]; or

(2) has passed the examination required to practice as a certified public accountant under the laws of the other state and has held a certificate and license to practice public accounting for the immediately preceding five years in another state.

(b) An applicant for a certificate under this section shall list in the application all states and foreign jurisdictions in which the applicant has applied for or holds a designation or certificate to practice public accounting.

(c) Each holder of a certificate issued under this section shall notify the board in writing within thirty days after its occurrence of any issuance, denial, revocation or suspension of his designation, certificate or license to practice public accounting or the commencement of a disciplinary or enforcement action against him or his firm by any state or foreign jurisdiction.

Section 8.2. Licenses to Practice.--(a) Biennial licenses to engage in the practice of public accounting in this Commonwealth shall be issued by the Department of State upon payment of the biennial licensing fee to (i) holders of the certificate of certified public accountant issued by this Commonwealth and public accountants registered in this Commonwealth who have certified to the board that they have complied with the requirements of subsection (b) of this section and (ii) qualified associations licensed under section 8.8 of this act. Licenses to practice shall expire on the last day of December of odd-numbered years or on such other biennial expiration dates as the department may fix. The renewal application of a certified public accountant or public accountant does not need to list the continuing education courses taken by the applicant except as provided by the rules and regulations of the board.

(a.1) A certified public accountant or public accountant who is not engaged in the practice of public accounting may request the board, in writing, to place his name on the inactive roll and thus protect his right to obtain a license at such time as he may become engaged in the practice of public accounting.

(a.2) Notwithstanding the act of August 21, 1953 (P.L.1273, No.361), known as "The Private Detective Act of 1953," a licensee, qualified nonlicensee or qualified association providing forensic accounting services shall be licensed and regulated solely under this act.

(b) Each certified public accountant and public accountant filing an application for a license or a renewal thereof to engage in the practice of public accounting in this Commonwealth must, during the reporting period immediately preceding the current biennial period, complete eighty hours of continuing education, in programs approved by the board. The reporting period for licensees shall be January 1 of even-numbered years to December 31 of odd-numbered years. No carry-over of credits shall be permitted from one biennial license period to another. The continuing education requirement shall not apply to firms but shall apply to all natural persons who apply for a license or a renewal thereof under this section.

(c) Failure by a licensed certified public accountant or public accountant applying for renewal of his biennial license to furnish a certification of completion of the required number of hours of acceptable continuing education shall constitute grounds for denial or refusal to renew such license, unless the board, in its discretion, shall determine that the failure to complete the required continuing education was due to reasonable cause, in which case the board shall grant an extension.

(d) In issuing rules, regulations and individual orders with respect to requirements of continuing education, the board may rely upon guidelines and pronouncements of recognized educational and professional organizations; may prescribe for content, duration and organization of courses; shall take into account the accessibility of such continuing education as it may require, and any impediments to interstate practice of public accounting which may result from differences in such requirements in other states; and may provide for relaxation or suspension of such requirements in instances of individual hardship such as for reasons of health, military service or other good cause.

(e) A certified public accountant or public accountant who is also certified, registered or licensed to practice public accounting in any other state or foreign jurisdiction shall report this information to the board on the biennial renewal application. Any disciplinary action taken in any other state or foreign jurisdiction shall be reported to the board on the biennial renewal application or within thirty days of disposition, whichever is sooner. Multiple certification, registration or licensure shall be noted by the board on the record of the certified public accountant or public accountant, and the other state or foreign jurisdiction shall be notified by the board within thirty days after any disciplinary action is taken against the certified public accountant or public accountant in this Commonwealth.

(f) An initial or renewal license shall not be issued after April 30, 2000, to a certified public accountant or public accountant practicing as a sole practitioner unless he complies with the requirements of section 8.9 of this act.

Section 8.8. Licensing of Firms.--(a) The following shall apply:

(1) A person other than an individual shall not practice public accounting in this Commonwealth unless it :

(i) is a qualified association, has been granted a license to practice and satisfies the requirements of this section at all times while it is a licensee[.] ; or

(ii) meets the requirements of section 5.4 of this act.

(2) A new firm shall apply for its initial license within thirty days after its formation; thereafter, the firm's license shall be subject to renewal in accordance with section 8.2 of this act.

(3) A new firm must designate a licensee of this Commonwealth, or for a firm which practices pursuant to section 5.4 of this act, a licensee of another state who meets the requirements under section 5.2 of this act, who is responsible for the proper registration of the firm and who identifies that individual to the board.

(b) The initial and all renewal license applications by a firm shall[:

(1) List the name, home address and license number of each certified public accountant or public accountant who owns an equity interest directly or indirectly in the firm and who is a licensee.

(2) List the name and home address of each qualified nonlicensee who owns an equity interest in the firm if the principal residence or the office out of which the individual principally practices is located in this Commonwealth.

(3) Include] include a statement that the firm is in compliance with subsections (d) and (e).

(c) An initial or renewal license shall not be issued to a firm after April 30, 2000, unless the firm complies with the requirements of section 8.9 of this act.

(d) A firm shall satisfy all of the following requirements:

(1) At least one general partner if the firm is a partnership, one record and beneficial owner of common shares if the firm is a corporation or one owner of a similar equity interest if the firm is any other form of qualified association shall be a certified public accountant or public accountant who is a licensee.

(2) Except as provided in subsections (e) and (f), each shareholder, partner, member or other owner of an equity interest in the firm must be the holder of a current license to practice public accounting as a certified public accountant or public accountant under the laws of this Commonwealth or another jurisdiction. This clause shall not:

(i) apply in the case of a person who withdraws from a firm for such period as may be reasonable under the circumstances to permit the firm to comply with this requirement; or

(ii) prohibit payments by a firm to a former equity owner or his estate in connection with his withdrawal from the firm.

(3) [Each individual in charge of an office that performs any attest] Attest activity [or business unit of the firm] rendered in this Commonwealth shall be under the charge of a certified public accountant or public accountant who is a licensee in this Commonwealth or another state .

[(4) The principal executive officer of the firm shall be a certified public accountant or public accountant who holds a current license to practice public accounting in this Commonwealth or another state.]

(5) An individual who does not hold a current license to practice public accounting as a certified public accountant or public accountant in this Commonwealth or another state or foreign jurisdiction shall not assume ultimate responsibility for any attest activity.

(e) Notwithstanding any other provision of law, a qualified nonlicensee may own an equity interest in a firm if all of the following conditions are met:

(1) All of the qualified nonlicensees owning equity interests in the firm shall not:

(i) own in the aggregate equity interests in the firm entitling them to cast more than forty-nine percent of the votes on any issue or to receive more than forty-nine percent of any dividend or other distribution of profits or assets of the firm; or

(ii) constitute more than forty-nine percent in number of the owners of equity interests in the firm.

(2) The qualified nonlicensee shall not hold himself out as a certified public accountant or public accountant.

(3) The qualified nonlicensee shall be permitted to designate or refer to himself as a principal, owner, officer, member or shareholder of the firm. The qualified nonlicensee may also use such other titles as may be authorized by the regulations of the board.

(4) The qualified nonlicensee shall not:

(i) have pleaded guilty to, entered a plea of nolo contendere to or been found guilty or been convicted of a felony under the laws of this Commonwealth or any other jurisdiction; or

(ii) be in violation of any regulation of the board regarding the character or conduct of a qualified nonlicensee who is the owner of an equity interest in a firm.

(5) The participation of the qualified nonlicensee in the business of the firm must be the principal occupation of the individual and shall be in the nature of providing services to the firm or clients of the firm and not solely as an investor or in another commercial or passive capacity.

(6) The qualified nonlicensee has graduated with a baccalaureate or higher degree from a college or university approved at the time of graduation by the Department of Education.

(7) The qualified nonlicensee shall comply with all applicable provisions of this act and the regulations of the board.

(f) An equity interest in a firm may be owned indirectly but only if all of the ultimate, indirect beneficial owners of the equity interest are licensees.

(g) In accordance with the procedure referred to in section 9 of this act, the board may revoke the license to practice of a firm if at any time it is in violation of any of the provisions of this section.

Section 8.9. Peer Review.--* * *

(g) A firm shall be exempt from the requirement to undergo a peer review if [all] any of the following [apply] applies :

(1) Within three years before the date of application for initial or renewal licensure, the firm has undergone a peer review conducted in another state or foreign jurisdiction which meets the requirements of subsection (c)(1) and (2). The firm shall submit to the board a letter from the organization administering the firm's most recent peer review stating the date on which the peer review was completed.

(2) The firm satisfies [all] both of the following conditions:

(i) During the preceding two years, the firm has not accepted or performed any audit or review engagement.

(ii) Within the next two years, the firm does not intend to accept or perform any audit or review engagement.

(3) For reasons of personal health, military service or other good cause, the board determines that the firm is entitled to an exemption for a period of time not to exceed twelve months.

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Section 4. This act shall take effect in 60 days.

APPROVED--The 4th day of November, A.D. 2016.

TOM WOLF