TITLE 18. PROFESSIONAL AND OCCUPATIONAL LICENSING

BOARD OF ACCOUNTANCY

Fast-Track Regulation

Title of Regulation: 18VAC5-22. Board of Accountancy Regulations (amending 18VAC5-22-60, 18VAC5-22-70, 18VAC5-22-80).

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

Public Hearing Information: No public hearing is currently scheduled.

Public Comment Deadline: March 13, 2024.

Effective Date: March 28, 2024.

Agency Contact: Kelli Yoder, Communications Coordinator, Board of Accountancy, 9960 Mayland Drive, Suite 402, Henrico, VA 23233, telephone (804) 367-1568, FAX (804) 527-4409, TDD (804) 367-9753, or email kelli.yoder@boa.virginia.gov.

Basis: Section 54.1-4403 of the Code of Virginia grants authority to the Board of Accountancy to promulgate regulations necessary to ensure continued competency, to prevent deceptive or misleading practices by licensees, and to effectively administer the regulatory system.

Purpose: The National Association of State Boards of Accountancy (NASBA) has adopted updated subject matter requirements and other guidance for the certified public accountant (CPA) exam, which it administers. The board is updating its regulations so that Virginia's requirements are in line with national standards. CPAs have license mobility nationally through every jurisdiction with substantially the same requirements over the CPA exam. The amendments ensure Virginia continues to meet the mobility requirements and that any CPA working for a Virginia citizen or business has met the national requirements of education for licensure. This regulatory change will ensure that Virginia students and CPA applicants are competitive with other states, and that substantial equivalency and reciprocity is maintained.

Rationale for Using Fast-Track Rulemaking Process: It is expected this rulemaking will be noncontroversial because the board is taking action to ensure students at Virginia accounting programs are prepared for the CPA exam and are not disadvantaged when compared with students from other states.

Substance: These amendments update education requirements that impact Virginia CPA applicants. The Uniform CPA Exam is a nationally administered exam. There are model rules known as the Uniform Accountancy Act (UAA), which the board follows for significant matters. Not related to the changes in UAA, these amendments are updating the accreditation organizations to the current approved organizations. This is a housekeeping issue. The board has the authority to approve accreditation organizations but took this opportunity to clean up the ones listed. Based on the UAA and the new CPA exam, the materials in the exam blueprint now require Accounting Information System in place of the prior requirement of Management Accounting. The amendments also allow for three credits of introductory accounting courses to count towards the education requirements. Finally, the 55 jurisdictions that license and regulate CPAs are moving the credit expiration from 18 months to 30 months.

Issues: The primary advantage to the public is continued mobility with other states in taking the CPA exam. Educational institutions may need to update their curricula. There are no primary disadvantages to the public. The primary advantage to the board and Commonwealth is consistency with national standards and updated regulations. There are no primary disadvantages to the board or Commonwealth.

Department of Planning and Budget's Economic Impact Analysis:

The Department of Planning and Budget (DPB) has analyzed the economic impact of this proposed regulation in accordance with § 2.2-4007.04 of the Code of Virginia and Executive Order 19. The analysis presented represents DPB's best estimate of the potential economic impacts as of the date of this analysis.¹

Summary of the Proposed Amendments to Regulation. The Board of Accountancy (board) seeks to update the education requirements for applicants for the certified public accountant (CPA) examination so that they conform to national standards.

Background. The National Association of State Boards of Accountancy, which administers the CPA exam, has updated subject matter requirements and other guidance for the CPA exam.² The board seeks to update the education requirements in the regulation so that CPA applicants in Virginia are appropriately prepared and to maintain equivalency and reciprocity with other state accountancy programs. The most substantive changes are summarized.

18VAC5-22-60 Determining whether a college or university is an accredited institution. The regulation currently requires the board to form a task force to determine if an accrediting body's accreditation process is "substantially equivalent" to the process used by the major regional accrediting organizations. The proposed change would provide the board with greater flexibility in determining whether an accreditation organization that is "neither one of the major regional accreditation organizations or their successors, nor an accreditation organization recognized by the Council on Higher Education Accreditation (CHEA) or its successor" is substantially equivalent to the accreditation process recognized by the board. Under the proposed language, the board would be responsible for setting requirements and maintaining records of those organizations deemed eligible by the board."

18VAC5-22-70 Education. To conform with changes in national standards, "management accounting" would be replaced with "accounting information systems" as one of the required subjects for an accounting concentration.

The proposed changes would allow up to three hours of introductory or foundational accounting courses to be counted towards the 48 semester hours required for an accounting concentration. The current regulation does not allow the introductory accounting course to count toward this requirement; this change is also due to changes in national standards.

The board also seeks to specify that, "A person who has passed the CPA examination in a state other than Virginia and who has met the educational requirements of that state will be deemed to have obtained an accounting concentration or equivalent if the requirements of that state are substantially equivalent as defined in § 54.1-4411 of the Code of Virginia." Currently, when an applicant is transferring grades to become licensed in Virginia, the board must conduct another complete education review which takes staff time and requires the applicant to order original transcripts again. The proposed change would allow the applicant to just demonstrate that they have passed the CPA examination and met the education requirements of the state they are transferring from.

18VAC5-22-80 Examination. To conform to changes in national standards, a person who passes the first section (of four) of the CPA exam would now have 30 months to pass the other three sections. This change would increase the time limit from the current 18-month requirement.

Estimated Benefits and Costs. The proposed changes serve to conform the regulation to national standards and would broadly benefit CPA applicants in Virginia by ensuring that they are appropriately prepared for the exam, are competitive with applicants from other states, and that they benefit from the longer time limit to pass all four sections of the exam. Out-of-state applicants seeking a license in Virginia would benefit from not having to request additional transcripts, and the board would benefit from not having to go through the full education review process. Some educational institutions offering undergraduate accounting degree programs may face one-time costs to develop curriculum in accounting information systems. However, to the degree that educational institutions will incur new costs, these primarily result from changes in national standards, which the regulatory changes reflect. In addition, educational institutions have incentives to keep their course offerings current so that their graduates can be competitive as CPA applicants and to maintain the reputation of their programs. The board reports that the new required course is already offered by most educational institutions and that all accounting programs in the state are aware of these changes.

Businesses and Other Entities Affected. This regulation primarily affects Virginia CPA applicants and Virginia educational institutions that offer undergraduate accounting degrees. There are 34 such educational institutions, and roughly 1,200 new candidates for the CPA exam each year. The board reports that all educational institutions are aware of the changes in national standards and that most of them have already changed their curriculum in order to prepare their students for the changes to the CPA examination. Lastly, the board may experience greater efficiency as a result of the changes to 18VAC5-22-60 and 18VAC5-22-70, since they will reduce the administrative burden on staff.

The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.³ An adverse impact is indicated if there is any increase in net cost or reduction in net revenue for any entity, even if the benefits exceed the costs for all entities combined. To the degree that educational institutions will incur new costs, these primarily result from changes in national standards, which the regulatory changes reflect. Because the proposed changes would not create any new costs for educational institutions that are not required for conformity with national standards, and because such costs have likely already been incurred, an adverse impact is not indicated.

Small Businesses⁴ Affected.⁵ The proposed amendments would not create any new costs for small businesses.

Localities⁶ Affected.⁷ The proposed changes would not disproportionately affect any particular localities and would not affect costs for local governments.

Projected Impact on Employment. The proposed amendments are not likely to have a substantive impact on total employment. However, the proposed changes, and the changes in national standards they derive from, are likely to increase the number of licensed CPAs in the long term. As mentioned previously, the Board reports that roughly 1,200 new candidates start the process of taking the CPA exam each year. Students currently have 18 months to pass all four sections of the CPA exam; the board reports that there are roughly 4,000 candidates in the process of taking the exam at any given time. Under the 30-month timeframe, candidates are likely to take more time to prepare for each section and will have more time to re-take the specific section they did not pass without having to start over. As a result, the overall pass rate on the CPA exam is likely to increase. As students become aware of the longer timeframe and higher pass rate, some students who may have been on the fence about attempting the CPA exam may decide to register for it, which would also increase the number of new candidates. Even modest increases in the pass rate and in the number of new candidates would expand the labor pool of licensed CPAs.

Effects on the Use and Value of Private Property. To the extent that the proposed amendments serve to expand the labor pool as described above, private firms that employ or contract licensed CPAs would experience a decrease in their hiring costs, which would result in a corresponding increase in the value of those firms. The proposed amendments would not affect real estate development costs.

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¹Section 2.2-4007.04 of the Code of Virginia requires that such economic impact analyses determine the public benefits and costs of the proposed amendments. Further the analysis should include but not be limited to: (1) the projected number of businesses or other entities to whom the proposed regulatory action would apply, (2) the identity of any localities and types of businesses or other entities particularly affected, (3) the projected number of persons and employment positions to be affected, (4) the projected costs to affected businesses or entities to implement or comply with the regulation, and (5) the impact on the use and value of private property.

²See https://www.evolutionofcpa.org/.

³Pursuant to § 2.2-4007.04D: In the event this economic impact analysis reveals that the proposed regulation would have an adverse economic impact on businesses or would impose a significant adverse economic impact on a locality, business, or entity particularly affected, the Department of Planning and Budget shall advise the Joint Commission on Administrative Rules, the House Committee on Appropriations, and the Senate Committee on Finance. Statute does not define "adverse impact," state whether only Virginia entities should be considered, nor indicate whether an adverse impact results from regulatory requirements mandated by legislation.

⁴Pursuant to § 2.2-4007.04, 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."

⁵If the proposed regulatory action may have an adverse effect on small businesses, § 2.2-4007.04 requires that such economic impact analyses include: (1) an identification and estimate of the number of small businesses subject to the proposed regulation, (2) the projected reporting, recordkeeping, and other administrative costs required for small businesses to comply with the proposed regulation, including the type of professional skills necessary for preparing required reports and other documents, (3) a statement of the probable effect of the proposed regulation on affected small businesses, and (4) a description of any less intrusive or less costly alternative methods of achieving the purpose of the proposed regulation. Additionally, pursuant to § 2.2-4007.1 of the Code of Virginia, if there is a finding that a proposed regulation may have an adverse impact on small business, the Joint Commission on Administrative Rules shall be notified.

⁶"Locality" can refer to either local governments or the locations in the Commonwealth where the activities relevant to the regulatory change are most likely to occur.

⁷Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

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

Summary:

The amendments update education requirements to conform with national standards, including (i) providing the Board of Accountancy with greater flexibility in determining whether an accreditation organization is substantially equivalent to the accreditation process recognized by the board; (ii) adjusting the required subjects for an accounting concentration to allow up to three hours of introductory or foundational accounting courses to be counted toward the 48 semester hours required for an accounting concentration; (iii) allowing an applicant to simply demonstrate that the applicant has passed the certified public accountant (CPA) examination and met the education requirements of the state from which they are transferring to Virginia; and (iv) extending to 30 months the amount of time a person who passes the first section of the CPA exam has to pass the other three sections.

18VAC5-22-60. Determining whether a college or university is an accredited institution.

A. For the purpose of complying with subdivision A 1 a of § 54.1-4409.2 of the Code of Virginia, a college or university that is not accredited by one of the six major regional accrediting organizations listed in the definition of accredited institution in § 54.1-4400 of the Code of Virginia or their successors shall be considered an accredited institution if it is accredited by an accrediting organization recognized by the Council on Higher Education Accreditation (CHEA) or its successor. Publication of the name of the accrediting organization by CHEA or its successor shall be sufficient notification that the accrediting organization is recognized by CHEA or its successor.

B. To determine whether a college or university is an accredited institution if it is accredited by an accrediting organization that is neither one of the six major regional accrediting organizations or their successors, nor an accrediting organization recognized by CHEA or its successor, representatives of the accrediting organization shall meet with a task force appointed by the board to study and recommend to the board how the organization shall demonstrate that its accreditation process and standards are substantially equivalent to the accreditation process and standards of the six major regional accrediting organizations or their successors. The size and composition of the task force shall depend on the facts and circumstances. However, at least one of the members of the task force shall have substantial experience with the accreditation process and standards of the six major regional accrediting organizations or their successors.

After the task force provides its recommendations to the board, the board shall decide what the requirements shall be to demonstrate that the accreditation process and standards of the accrediting organization are substantially equivalent to the accreditation process and standards of the six major regional accrediting organizations or their successors and shall communicate its decision to the organization. The organization shall then provide the required documentation to the board that will enable the board to decide whether a college or university accredited by the organization is an accredited institution as defined in § 54.1-4400 of the Code of Virginia. The board shall determine whether accrediting organizations that are neither one of the major regional accrediting organizations or their successors nor an accrediting organization recognized by CHEA or its successor are substantially equivalent to the accreditation process recognized by the board. The board will be responsible for setting requirements and maintaining records of those organizations deemed eligible by the board.

18VAC5-22-70. Education.

A. In order for a person to take the CPA examination through Virginia, he the person must have obtained from one or more accredited institutions at least 120 semester hours of education, a baccalaureate or higher degree, and an accounting concentration or equivalent prior to taking any part of the CPA examination.

B. For the purpose of complying with subsection A of this section and with subdivision A 1 a of § 54.1-4409.2 of the Code of Virginia, obtaining an accounting concentration or equivalent requires obtaining at a minimum:

1. 24 semester hours of accounting courses that must include courses in auditing, financial accounting, management accounting information systems, and taxation; and

2. 24 semester hours of business courses, no more than six semester hours of which could be considered accounting courses.

Principles or No more than three semester hours of introductory or foundational accounting courses cannot can be considered in determining whether a person has obtained the 48 minimum number of semester hours required for an accounting concentration or equivalent. A person who has passed the CPA examination in a state other than Virginia and who has met the educational requirements of that state will be deemed to have obtained an accounting concentration or equivalent if the requirements of that state are substantially equivalent as defined in § 54.1-4411 of the Code of Virginia.

18VAC5-22-80. Examination.

A. In order to comply with subdivision A 1 b of § 54.1-4409.2 of the Code of Virginia:

1. Each section of the CPA examination must be passed by attaining a uniform passing grade established through a psychometrically acceptable standard-setting procedure approved by the board.

2. Persons may take sections of the CPA examination in any order.

a. Subject to subdivision 2 b of this subsection, a person who fails a section of the CPA examination may not retake that section until the next quarter of the calendar year unless otherwise prescribed by the board.

b. The board may decide to eliminate the current restriction outlined in subdivision 2 a of this subsection and allow a person to retake sections of the CPA examination as soon as the person's grade for any previous attempt of that same section has been released.

3. When a person first passes a section of the CPA examination, the person has 18 30 months to pass the remaining sections. If the remaining sections are not passed within the 18-month 30-month period, the person loses credit for the first section passed, and a new 18-month 30-month period starts with the next section passed. Depending on the facts and circumstances, the board may grant additional time to pass the remaining sections provided that the waiver or deferral is in the public interest.

B. Failure to comply with the policies established by the board for conduct at the CPA examination may result in the loss of eligibility to take the CPA examination or credit for sections of the CPA examination passed. Cheating by a person in connection with the CPA examination shall invalidate any grade earned on any section of the CPA examination and may warrant expulsion from the CPA examination site and disqualification from taking the CPA examination for a specified period of time as determined by the board.

C. The board may postpone scheduled CPA examinations, the release of grades, or the issuance of licenses under the following circumstances:

1. A breach of CPA examination security;

2. Unauthorized acquisition or disclosure of the contents of a CPA examination;

3. Suspected or actual negligence, errors, omissions, or irregularities in conducting a CPA examination; or

4. Any other reasonable circumstances.

D. Prior to being considered for a Virginia license, a person shall pass an ethics examination approved by the board.