By Frannie Winters
On July 30, 2021, the California Board of Accountancy (CBA) published notice of its intent to add sections 54.3 and 54.4, Title 16 of the CCR to protect client confidentiality in the sale, transfer, or discontinuance of a licensee’s practice. In its Initial Statement of Reasons, CBA explained the proposed regulations are the Board’s efforts to implement the American Institute of Certified Public Accountants (AICPA) Professional Ethics Executive Committee’s (PEEC) revised interpretations of the AICPA Code of Professional Conduct.
The initial statement of reasons expands on the relevant interpretations of the AICPA Code of Professional Conduct. The interpretations recommend that CPA members submit a written request to each client who is subject to the sale or transfer of a licensee’s practice, asking for the client’s consent to transfer the client’s files to the other firm. Members are further encouraged to retain evidence of the client’s consent. Proposed section 54.3 would mirror the interpretation’s recommendation and require licensees to mail and retain a copy of the written notice regarding the sale or transfer of a licensee’s practice and retain any documentation indicating the client’s consent or objection for a specified period of time. If a member is unable to contact the client, the interpretation recommends that those client’s files remain confidential and follow either the firm’s record retention policy or an applicable state law or regulation, whichever lasts longer. Proposed section 54.3 would require the licensee to retain the client files and records for a specified period and establish an appropriate method of disposal once the record retention period concludes.
The AICPA interpretation further recommends that a member who discontinued practice and does not sell or transfer the practice notify each of the member’s clients. Proposed section 54.4 would require licensees to notify the client and specifies how to do so. According to the initial statement of reasons, the anticipated benefits from these added sections include established procedures for licensees to follow when selling or transferring their practice to protect the confidential information of affected consumers. In addition, the proposed sections create requirements for the handling of client records and their disposal, which further enhances consumer protection.
On September 16, 2021, the CBA held a public hearing on the proposed regulations described above. The transcript of the hearing was posted to the CBA’s website on September 16, 2021. The transcript indicates that no public comments were received at the hearing. At the September 23, 2021 Board meeting, [see Agenda Item II.G. and Attachment 5] Deanne Pearce (Assistant Executive Officer) explained that due to the nature of the proposals, all licensees must be notified of the proposed changes. A second public hearing will be scheduled after a letter is sent to all licensees to allow them the opportunity to provide public comments. The CBA anticipates the proposals will be prepared for board consideration in early 2022.