Title of Regulation: 18VAC5-22. Board of Accountancy Regulations (amending 18VAC5-22-140).

Statutory Authority: §§ 54.1-4402 and 54.1-4403 of the Code of Virginia.

Public Hearing Information: No public hearings are scheduled.

Public Comment Deadline: August 22, 2018.

Effective Date: September 6, 2018.

Agency Contact: Rebekah E. Allen, Enforcement Director, Board of Accountancy, 9960 Mayland Drive, Suite 402, Richmond, VA 23223, telephone (804) 367-2006, FAX (804) 527-4207, or email rebekah.allen@boa.virginia.gov.

Basis: Section 54.1-4403 of the Code of Virginia grants authority to the Board of Accountancy to promulgate regulations "in accordance with the Administrative Process Act (§ 2.2-4000 et seq. of the Code of Virginia) necessary to assure continued competency, to prevent deceptive or misleading practices by licensees, and to effectively administer the regulatory system." The board is the promulgating entity for regulations governing public accountancy.

Purpose: The amendments are intended to make the level of services that triggers the requirement for specific continuing professional education (CPE) topics match the level of service that triggers the requirement for a firm certified public account (CPA) license. The board believes it is necessary for the safety and welfare of the public that CPAs are competent to provide the services that they offer, which is best realized by ensuring that CPAs who release or authorize the release of reports for any level of firm-only services take a minimum number of CPE hours annually on the topic of those services.

Rationale for Using Fast-Track Rulemaking Process: This regulatory action is expected to be noncontroversial because the proposed amendment does not increase the CPE requirements for affected CPAs, and it is anticipated that the majority of those affected CPAs are already completing CPE hours that are related to the services they provide. This regulation inadvertently was not amended following the passage of Chapter 287 of the 2015 Acts of Assembly, and due to the time elapsed since that passage, this amendment is no longer eligible for the exempt rulemaking process. This change is also supported by the Virginia Society of Certified Public Accountants.

Substance: The amendment includes financial statement preparation services as a service that triggers the requirement for specific CPE topics. The amendment does not increase a CPA's regulatory burden or obligation as the overall required total number of CPE hours earned in either a calendar year or during a reporting period remains the same; the amendment merely states that, of the minimum hours taken, at least eight have to be on the topic of these types of services.

Issues: The primary advantages to the public are greater likelihood that CPAs are taking CPE courses that directly relate to the services they are providing, which allows them to stay up to date with current technical standards and improves work product produced. There are no primary disadvantages to the public. There are no primary disadvantages or advantages to the board or the Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

Summary of the Proposed Amendments to Regulation. Chapter 287 of the 2015 Acts of Assembly amended § 54.1-4400 et seq. of the Code of Virginia to include "financial statement preparation services" as a level of service requiring a firm Certified Public Accountant (CPA) license. Consequently, the Board of Accountancy (Board) proposes to update continuing professional education (CPE) requirements so that CPAs who are releasing or authorizing the release of reports on all firm-level services annually complete 8 hours of CPE related to those services.

Result of Analysis. The benefits likely exceed the costs for all proposed changes.

Estimated Economic Impact. Prior to the enactment of Chapter 287 of the 2015 Acts of Assembly, § 54.1-4400 defined "Virginia license" as "a license that is issued by the Board giving a person the privilege of using the CPA title in Virginia or a firm the privilege of providing attest services and compilation services to persons and entities located in Virginia." The legislation amended the definition to add "financial statement preparation services" so that it now reads "a license that is issued by the Board giving a person the privilege of using the CPA title in Virginia or a firm the privilege of providing attest services, compilation services, and financial statement preparation services¹ to persons and entities located in Virginia."

The Board of Accountancy Regulations require licensees to obtain at least 120 hours of CPE during the three-calendar-year period ending with the current calendar year. For each of the calendar years in that period, the licensee must obtain at least 20 hours of CPE, including an ethics course of at least two hours.

Under the current regulation, "… a person who releases or authorizes the release of reports on attest services or compilation services provided for persons or entities located in Virginia must annually obtain a minimum of eight hours of CPE related to attest services or compilation services." Those hours do apply to the 20 annual and 120 over the three-calendar year period CPE requirements.

Given that the Code of Virginia's definition of the license that gives a person the privilege of using the CPA title now includes financial statement preparation services along with attest services and compilation services, the Board proposes to add financial statement preparation services to the eight-hour CPE requirement for CPAs who are releasing or authorizing the release of reports. The statement in the proposed regulation would read "… a person who releases or authorizes the release of reports on attest services, or compilation services, or financial statement preparation services provided for persons or entities located in Virginia shall annually obtain a minimum of eight hours of continuing professional education related to attest services, or compilation services, or financial statement preparation services."²

The proposed amendment would be beneficial in that it helps provide assurance that CPAs who are performing firm-level services are taking CPE courses that will enable them to stay current on professional technical standards. The proposed amendment does not increase the total number of required CPE hours for licensees. Thus the benefits of the proposal likely exceed the costs.

Businesses and Entities Affected. The proposed regulation affects CPA firms and CPAs. As of September 30, 2017, there were 27,842 persons who held Virginia CPA licenses, and 1,179 entities or sole proprietors that held Virginia CPA firm licenses.³ All or most CPA firms would qualify as small businesses.

Localities Particularly Affected. The proposed amendments do not disproportionately affect particular localities.

Projected Impact on Employment. The proposed amendments do not significantly affect employment.

Effects on the Use and Value of Private Property. The proposed amendments do not significantly affect the use and value of private property.

Real Estate Development Costs. The proposed amendments do not affect real estate development costs.

Small Businesses:

Definition. Pursuant to § 2.2-4007.04 of the Code of Virginia, small business is defined as "a business entity, including its affiliates, that (i) is independently owned and operated and (ii) employs fewer than 500 full-time employees or has gross annual sales of less than $6 million."

Costs and Other Effects. The proposed amendments do not significantly affect costs for small businesses.

Alternative Method that Minimizes Adverse Impact. The proposed amendments do not adversely affect small businesses.

Adverse Impacts:

Businesses. The proposed amendments do not adversely affect businesses.

Localities. The proposed amendments do not adversely affect localities.

Other Entities. The proposed amendments do not adversely affect other entities.

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¹Bold added.

²Ibid.

³Data source: Board of Accountancy.

Agency's Response to Economic Impact Analysis: The Virginia Board of Accountancy concurs with the economic impact analysis of the Department of Planning and Budget.

Summary:

Pursuant to Chapter 287 of the 2015 Acts of Assembly, the amendments update the continuing professional education (CPE) requirements so that certified public accountants who are releasing or authorizing the release of reports on all firm-level services annually complete eight hours of CPE related to financial statement preparation services.

18VAC5-22-140. Persons who release or authorize the release of reports.

A. To comply with subdivision D 4 of § 54.1-4412.1 of the Code of Virginia, a person who releases or authorizes the release of reports on attest services or, compilation services, or financial statement preparation services provided for persons or entities located in Virginia shall annually obtain a minimum of eight hours of continuing professional education related to attest services or, compilation services, or financial statement preparation services. The hours obtained to meet this requirement shall be considered in determining whether the person has complied with the requirements of 18VAC5-22-90.

B. Firms providing attest services or, compilation services, or financial statement preparation services shall establish policies and procedures to provide the firm with reasonable assurance that persons who release or authorize the release of reports on attest services or, compilation services, or financial statement preparation services possess the kinds of competencies that are appropriate given the facts and circumstances. These policies and procedures shall address the required technical proficiency, familiarity with the industry and the person or entity, skills that indicate sound professional judgment, and other competencies necessary under the circumstances.