Win Win - accountants licensure

2 Pathways for CPA Licensure in California

Patiently awaiting signature, somewhere among the heaps of IF bills on Coy. Davis' desk in Sacramento, lay AB 585 and SB 133. These two laws-in-waiting dramatically change the licensing requirements for California CPAs. They don't make it easier to become a CPA, instead they reflect the natural evolution of the profession and offer two similar, yet distinctly different licensure pathways.

In response to this legislation, the California Board of Accountancy has proposed new regulations to implement the changes in CPA licensing requirements that take effect next year These regulations address several issues including transition rules, education requirements, examination elections and qualifying experience. If adopted, both the new law and proposed regulations will take effect Jan. 1, 2002.

Relying heavily on task force recommendations, the CBA will substantially revise current regulations to reflect AB 585 (Nation, Campbell) and SB 133 (Figueroa et al.). Further, the new law extends California's present requirements until Dec. 31, 2005 for candidates already in the CPA pipeline.

Two New Pathways

AB 585 and SB 133 offer candidates two new pathways for certification. Both pathways require candidates to complete a bachelor's degree with 24 semester units of accounting-related courses and 24 semester units of business-related courses before sitting for the Uniform CPA Examination. However, after that point, the two pathways diverge.

THE EXAM

Pathway 1 allows candidates to pass the exam under the current format: A candidate must sit for at least two parts of the exam initially. Once passed, candidates may sit for the remaining sections individually.

Pathway 2 follows the Uniform Accountancy Act (UAA) format and requires a candidate to sit for all unpassed sections concurrently. To receive passing credit for a section under Pathway 2, a candidate must pass at least two sections, and receive at least 50 percent on all unpassed sections.

Conditional credit under both pathways is good for only three years.

EDUCATION

Pathway 1 requires no additional education for licensure beyond that needed to sit for the exam (i.e., a bachelor's degree with the required accounting and business units).

Pathway 2 requires 150 total semester college-level units for licensure. The extra units (beyond those required to sit for the exam) can be in any subject.

EXPERIENCE

Pathway 1 requires two years of accounting experience for licensure.

Pathway 2 requires only one year of accounting experience for licensure.

In both pathways, the experience can be general (including non-public accounting experience) and must occur under a CPA licensed to practice in a valid jurisdiction.

RECIPROCITY

Pathway 2 provides reciprocity with other states under the UAA, whereas Pathway 1 does not. This is an important consideration for candidates choosing a licensure pathway.

The UAA has been enacted in 46 states as well as the District of Columbia. In an increasingly global environment, a CPA license earned under UAA conditions (Pathway 2) offers a significant career advantage. CPAs whose licenses are UAA-compliant also will be substantially equivalent in all but four states, a factor that will continue to increase in importance for CPA firms and businesses as they consider job candidates.

CHANGING PATHWAYS

A candidate can switch from Pathway 2 to Pathway 1 at any time, however a candidate cannot switch from Pathway I to Pathway 2 without retaking the entire CPA exam. The CBA considers the implications of reciprocity and pathway switches so important that it has designated Pathway 2 as the default option. Candidates are automatically in Pathway 2 unless they elect -- in writing -- to follow Pathway 1. Additionally, the CBA is considering talking to candidates who choose Pathway 1 to ensure that they understand the ramifications of their choice.

The present CPA requirements will remain in effect for only those candidates who applied, qualified and sat for the May 2002 or prior examination until Dec. 31, 2005. All other candidates will be placed in Pathway 2 unless they elect Pathway 1.

AUTHORITY TO SIGN AUDITS AND REVIEWS

Although audit experience is not required under either Pathway 1 or Pathway 2 for licensure, at least 500 hours of supervised audit experience is required before a CPA has the authority to sign audit and review reports under either pathway.

Of course, candidates qualifying under the old rules are required to obtain at least 500 hours of audit experience anyway and will therefore have signing authority (although not reciprocity under the UAA unless all the UAA requirements were met).

Transition Rules

CBA-proposed regulations clarify several points in the new law.

First, there is a question of equity for candidates who will have passed the entire CPA exam under the old rules prior to end of 2001, but have not completed the experience requirement. These candidates may have fulfilled all the requirements for qualifying under Pathway 1 or Pathway 2 except that when they passed the CPA exam, they did not have a bachelor's degree Or, they may have passed the exam by taking only two sections at a time (without earning at least a 50 percent score on all unpassed sections) and therefore do not meet Pathway 2 requirements (the UAA path).

Without relief, these candidates might have had to retake t CPA exam -- after earning a bachelor's degree -- to qualify under Pathway 1 or Pathway 2 (and under the new exam conditions I qualify for Pathway 2). Of course, these candidates could qualify for licensure under the old rules (non-UAA with a 500-hour audit experience requirement) -- but then they would not have interstate reciprocity provided by UAA-compliant Pathway 2.

The regulations allow any candidate who has completely passed the May 2002 or prior examination to qualify for licensure under Pathway 1 or Pathway 2 as long as all requirement of that pathway have been met by Dec. 31, 2005.

The new law's statutory language seems to indicate that a candidate who applied and qualified for examination by Dec. 31 -- but did not actually take the exam -- could continue seeking licensure under the old rules. The regulations clarify this point by requiring a candidate to actually sit for at least two sections of the May 2002 or an earlier exam to receive licensure under the old rules. Even then, applications for licensure under the old rules will be accepted until Dec. 31, 2005.

Education Requirements

Although 24 semester units of accounting subjects and 24 units of business-related subjects are required for both Pathway 1 and Pathway 2, the statute does not specify exactly what courses are included under these topics. The CBA's proposed regulations include as accounting subjects courses in accounting, auditing, financial statement analysis, financial reporting, external or internal reporting and tax.

Tax courses are considered accounting-related in the initial licensure process, but not accounting-related for CPA continuing education purposes.

The proposed regulations include as business-related courses those in business administration, economics, finance, business management, marketing, computer science/information systems, statistics, business communications, mathematics, business law and business law-related courses offered by an accredited law school. Although no minimum or maximum number of units are required in any sub-area, CBA staff indicated informally that they will monitor applicants' courses for signs that candidates "load up" in one subject area to the exclusion of others and will report any perceived abuses.

No specific curriculum is recommended in meeting the 150-hour requirement under Pathway 2. This position is consistent with the intent of the statute and the UAA enacted by other states.

Experience Requirement

The statute removes attest experience as a licensure requirement--except for CPAs who wish to sign audit and review reports. It defines qualifying experience (both attest and non-attest) the same as under current law and requires that candidate experience be performed under the supervision of a CPA with a valid license to practice.

According to the proposed regulations, licensees providing general-experience supervision need not be authorized to perform attest services. However, to supervise attest experience, licensees must be authorized to provide attest authority in their home state.

CURRENT STATUS OF THE LAW

Although AB 585 and SB 133 have not yet been signed into law, the process is moving quickly and passage is expected soon. If you are reading this after Oct. 15, it likely has been signed.

The CBA is reviewing the proposed regulations and, after approval, will probably schedule a public hearing at its Nov. 16 meeting.

Tom Dalton, Ph.D., CPA, is an associate dean of the School of Business Administration at the University of San Diego. Dalton also served on the California Board of Accountancy's Transition Task Force that helped draft the regulations for the new licensing requirements.

COPYRIGHT 2001 California Society of Certified Public Accountants
COPYRIGHT 2001 Gale Group