CBA: get it in writing: clients must grant written permission before you disclose

Section 54.1 of the California Accountancy Act prohibits the disclosure of any confidential information concerning a client or a prospective client unless the client or prospective client gives permission for that disclosure or the disclosure meets one of the exemptions contained in the regulation.

As of Jan. 1, 2005, the client will be required to give written permission for the disclosure of any confidential information. Also, any disclosures made to individuals or entities outside of the United States in connection with the services provided to the client will have to be specifically disclosed and written permission obtained.

The California Board of Accountancy has indicated that disclosures made in an engagement letter will satisfy the requirement.

Those limited exemptions contained in the regulation include:

* Complying with a subpoena or a summons;

* Disclosures made in defending a legal proceeding initiated by the client or prospective client;

* Responding to an official inquiry from a federal or state government regulatory agency; and

* Disclosures made to another licensee in connection with a proposed sale or merger of the licensee's professional practice or for the purpose of consultation, quality control, ethics or peer review.

Disclosures specifically required by law are exempted from the prohibition on sharing information.

The CBA is proposing an amendment to the regulation to allow an exemption from the written permission requirement for client requested disclosures.

Mandatory Peer Review Requirement Postponed

Legislation has been enacted that will move the requirement that CPA firms, which provide attest services, be required to have a peer review if they have four or more CPAs on staff from the 2006 license renewal period to those renewing after July 1, 2008.

In preparation for implementation of this requirement, the CBA Peer Review Task Force is planning the peer review or inspection program that will be required.

CalCPA member Charles Drott is chair of the CBA Peer Review Task Force. At issue is how the requirement will be administered, who will conduct the reviews and who will furnish peer review reports to the CBA.

Other considerations include whether peer review reports should be made public and at what point should the CBA be required to investigate firms with adverse peer review reports.

More than 20 states require firms performing attest services to have peer reviews completed and some require reporting to the state board of accountancy. CBA staff is exploring options to be presented to the task force at its next meeting in February.

Practice Privilege Task Force

Out-of-state CPAs wishing to provide services to California clients will be required to register for a practice privilege with the CBA after Jan. 1, 2006.

That is the date that California's incidental practice exemption for out-of-state CPAs is repealed.

This concept is part of the Uniform Accountancy Act. The thinking is that with the registration requirement, the CBA will have a better idea of who actually is practicing in California and where they actually are licensed.

Individuals filing for a practice privilege in California are required to agree that they will abide by all of California's laws and regulations, including the reportable events requirements that govern California CPAs.

California CPAs are required to report to the CBA within 30 days if they have had a judgment or arbitration award of more than $30,000 entered against them in a civil action; or have become the subject of an investigation, inquiry, or proceeding by or before a state, federal or local court or agency, including the Public Company Accounting Oversight Board, involving their professional conduct or have action taken against their license by another state.

Additionally, conviction of any crime requires reporting to the CBA.

Between now and Jan. 1, 2006, the CBA will be fine-tuning the details of the practice privilege registration requirement and developing a program to verify the accuracy of the information submitted to the CBA. Unlike a license, a practice privilege can be administratively suspended while an investigation is conducted.

New Interactive CPE Requirements

Effective Jan. 1, 2005, only interactive self-study continuing education courses will be accepted by the CBA for CPA and PA license renewal. Non-interactive self-study courses completed prior to Dec. 31, 2004, will be accepted for renewals occurring after the new requirement goes into effect.

Interactive courses must:

* Require frequent participant response to questions that test for understanding of the material presented;

* Provide evaluated feedback (a response specific to each incorrect answer of the study questions that explains why the particular answer is wrong) to incorrectly answered questions; and

* Provide reinforcement feedback (a response to the correct answer of the study questions that restates and explains why the answer selected was correct) to correctly answered questions.

In addition, all paper-text courses also are required to be interactive to qualify as continuing education. Continuing education credit for these courses will be granted for 100 percent of the average completion time.

Bruce C. Allen is CalCPA's director of government relations.

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