Open Letter to the California Board of Accountancy

Now that the issue of practice privilege has been temporarily dealt with, I would like to see the California Board of Accountancy (CBA) get back to its primary mission – to protect the public.

I understand that this may seem overly critical, but I believe the CBA has lost its focus over the past few years since the large accounting scandals hit the press. Too much time and energy has been spent in areas that should be addressed by the SEC, the PCAOB, the NYSE, NASDAQ, and other national regulatory agencies. The limited budgets, staff, and state-oriented focus do not make state boards of accountancy the most effective place to deal with large multi-state issues.

For example, I don’t believe that standard setting (such as California’s documentation standards) is the proper role for a state board of accountancy - not that the focus put on the issue did not have positive affects on getting the other organizations to act.

Let me share an example of what I believe are the more critical areas for state boards of accountancy and especially for CBA.

Last week I received a call from a practitioner who wanted me to help him with the preparation of a reviewed financial statement of a not-for profit organization. After asking him a few questions, I learned that he had not prepared a financial statement of any kind (compiled, reviewed, or audited) in many years and was not familiar with the special characterisitcs of a not-for-profit organization. I soon learned that he did not feel he had the time and was not interested in taking appropriate courses or obtaining the appropriate resources such as Practitioners Publishing Company’s Compilation and Review or Not-for-Profit guides. Finally I suggested that he compare the situation to me being asked to prepare an estate tax return for the first time. I suggested that he joint venture the engagement with an experienced practitioner from his local area.

I could hear from his tone that this was not what he wanted to hear. He just wanted a quick fix.

I tell you this story because it is not uncommon for me to get these kinds of calls or questions at one of my seminars. It is way more common than many in our profession would want you and the public to believe. While certainly not a majority, I believe that the number of practitioners who do not see themselves as professionals, is large enough that significant harm is being done to the public and businesses in California.

What Can the California Board of Accountancy Do?

1. The CBA should immediately reinstate the Section 89.1 program of financial statement reviews.

2. Peer review should be made mandatory NOW, not years from now.

The focus of these programs should be on practitioners and firms that opt-out of the AICPA program. While we can all debate the relative merits of the AICPA program and the PCAOB program for public companies, these programs do exist. The most immediate problem is practitioners who skip through the system and have no inkling of what they are doing or that what they may be doing is wrong. They are not helping their clients who rely on their financial information or outside users, who lend, borrow, bond, or invest based on insufficient or erroneous information.

There is one other area, I believe should be of the highest priority for the CBA - that is improving the services to their constituencies. This means more staff and more funds.

I find it hard to believe that the Board chose to reduce their budget and reduce the fees charged to practitioners at a time when so much more needs to be done. Practitioners constantly complain to me that they cannot get anyone at the CBA to return their calls. The “Quarterly” Update from the CBA should be quarterly once more. The public also needs far better information of what they should expect from licensed practitioners and why it is important for them not to get slipshod work.

I hope this letter is not disregarded because of my strong positions, but is used as a first step in reexamining the CBA’s methods of meeting its mission for protecting the public.