By Yi Zhou

On May 28, 2024, the Office of Administrative Law approved an Order of Adoption for amendments to sections 10, 10.1, and 87.1 of Title 16 of the California Code of Regulations (“CCR”). These amendments discontinue the requirement for CPA candidates to pass the Professional Ethics Exam for Certified Public Accountants (“PETH”) as part of the licensure process. According to the Final Statement of Reasons, the decision to eliminate the PETH exam was based on the fact that professional ethics are already tested within the CPA Exam itself, and there was insufficient evidence to prove that the PETH exam met professional and technical standards. Furthermore, section 10 was amended to reflect these changes, and the reference to Business and Professions Code section 5092, which became inoperable on January 1, 2014, was removed from the regulation.

To replace the PETH exam, the California Board of Accountancy (CBA) added section 10.1, which introduces a new requirement for a two-hour Regulatory Review continuing education (“CE”) course. The newly enacted rule requires CPA candidates to complete the CE course during their first license renewal. The Final Statement of Reasons explains that this change aims to ensure that new licensees are familiar with California’s specific statutes and regulations relevant to the practice of public accountancy. CBA aims to protect consumers by ensuring that licensed CPAs are aware of these state-specific professional standards from the outset of their careers.

CBA also addressed the financial impact of these changes. Currently, candidates pay $175 for the PETH exam, amounting to an annual cost of $551,250 for approximately 3,150 candidates. With the elimination of the PETH exam and the introduction of the Regulatory Review CE course, the total annual cost for candidates will drop to $157,500, as the average course cost is $50. To accommodate candidates who have already purchased the PETH exam but will not be able to use it before the exam’s elimination, CBA provided a two-year transition period. During this period, candidates can use their PETH exam passing score toward two hours of technical CE for their first license renewal.