California Board of Accountancy Proposes Regulations to Implement AB 2138 and Amend its Disciplinary Guidelines

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By Connor Greth

On May 8, 2020, the California Board of Accountancy (CBA) published notice of its intent to amend sections 98, 99, 99.1, and 99.2, Title 16 of the California Code of Regulations (CCR) relating to the denial, suspension, and revocation of a license issued by the Board, and the assessment of administrative penalties for violations of the Accountancy Act.

According to the initial statement of reasons this regulatory change will bring CBA into compliance with the provisions of AB 2138 (Chiu) (Chapter 995, Statutes of 2018), which became effective July 1, 2020, and requires boards to amend their existing regulations to specify, when considering the denial, suspension, or revocation of a license, whether a crime is substantially related to the qualifications, functions, or duties of the profession regulated, and to develop criteria to evaluate the rehabilitation of a person when considering the denial, suspension, or revocation of a license.  The bill also permits certain boards, including CBA, to deny a license if “the applicant was convicted of a financial crime currently classified as a felony that is directly and adversely related to the fiduciary qualifications, functions, or duties of the profession” being regulated.

Specifically, in addition to amending section 98 to update its Disciplinary Guidelines to reflect current law, CBA proposes to amend section 99 to clarify that it will consider the following factors when considering whether a crime or act of professional misconduct is substantially related to the accounting profession: the nature and gravity of the offense, the number of years elapsed since the date of the offense, and the nature and duties of the profession in which the applicant seeks licensure or in which the licensee is licensed. CBA’s proposed amendments to the substantial relationship criteria also include language to consider “whether the crime or act of professional misconduct reflects a lack of sound professional or personal judgment relevant to the practice of public accountancy, regardless of whether financial harm occurred to a consumer.”

CBA also proposes to amend section 99.1 to add the following criteria to consider when evaluating rehabilitation of a licensee or the eligibility for a certificate or permit: the nature and extent of actual and potential consumer harm; the individual’s attitude toward his or her commission of the violations; the individual’s recognition of wrongdoing; the individual’s history of violations; the nature and extent to which the applicant or licensee has taken corrective action to ensure the violation will not recur; the nature and extent of restitution to consumers harmed by violations; and other aggravating or mitigating factors.

At its July 23, 2020 meeting, staff presented CBA with the written comments received during the 45-day public comment period and a memo with its proposed responses to each of the commenters. [Agenda item I.J].  According to staff, CBA received two written comments, one from an individual regarding personal issues, and one from community organizations Roots and Rebound and Community Legal Services in East Palo Alto, on behalf of 20 separate organizations, which set forth five substantive comments with respect to the regulation. [See agenda item I.J, attachments 6 and 7].  The Board voted to adopt staff’s recommendation to reject all of the public comments, for the reasons stated in the memo, and authorized some minor amendments to the regulations, as suggested by the Business, Consumer Services, and Housing Agency.

Accordingly, on August 5, 2020, the Board released modified text to its proposed amendments to sections 98, 99, 99.1, and 99.2, for a 15-day comment period, expiring on August 20, 2020.  Specifically, the Board proposes modifications to section 99.1 (rehabilitation criteria) to clarify its applicability to applicants and licensees, and to applicants who have completed their criminal sentence without a violation of parole or probation, compared with those applicants who had not. Additionally, the modified text removes the word “fiduciary” from section 99.2, and updates the Authority or Reference to replace section 480 of the Business and Professions Code with new section 5100.2 of the Business and Professions Code, in light of AB 1521 (Low) (Chapter 359, Statutes of 2019), which removed CBA from section 480 and added section 5100.2, specific to the CBA, which does not use the term fiduciary.

At this writing, the proposed regulations are pending review with the Business, Consumer Services and Housing Agency.

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