TITLE 18. PROFESSIONAL AND OCCUPATIONAL LICENSING

BOARD OF ACCOUNTANCY

Proposed Regulation

Title of Regulation: 18VAC5-22. Board of Accountancy Regulations (amending 18VAC5-22-20, 18VAC5-22-50, 18VAC5-22-80, 18VAC5-22-130, 18VAC5-22-150, 18VAC5-22-170, 18VAC5-22-180; repealing 18VAC5-22-30).

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 27, 2026.

Agency Contact: Alessandra Gabriel, Information and Policy Advisor, Board of Accountancy, 9960 Mayland Drive, Suite 402, Henrico, VA 23233, telephone (804) 367-0728, fax (804) 527-4409, TDD (804) 367-9753, or email alessandra.gabriel@boa.virginia.gov.

Basis: Section 54.1-4402 of the Code of Virginia authorizes the Board of Accountancy to establish rules and procedures for the implementation of the provisions of Chapter 44 (§ 54.1-4400 et seq.) of Title 54.1 of the Code of Virginia. Section 54.1-4403 of the Code of Virginia authorizes the board to promulgate regulations necessary to ensure continued competency, prevent deceptive or misleading practices by licensees, and effectively administer the regulatory system.

Purpose: Amendments related to firms are necessary to improve regulatory and ethical oversight of certified public accountant (CPA) firms for the sake of public protection and safety. This is especially important given the increasing risk of non-CPA influence and control within CPA firms through alternative practice structures and private equity investment. Some technical amendments in this regulatory change will be made to enhance public clarity and understanding.

Substance: The proposed amendments (i) eliminate the CPA re-exam fee; (ii) clarify the definition of principal place of business; (iii) remove restrictions for re-examination requirements and clarify CPA license eligibility requirements; (iv) clarify statutes related to CPA firm ownership requirements; (v) clarify statutes related to firm peer review enrollment; (vi) require firms to report changes to their ownership or organizational structure to the board; (vii) repeal 18VAC5-22-30, which is redundant; and (viii) make technical changes.

Issues: The primary advantage to the agency and the public is that this action will allow continued oversight and compliance of CPAs and CPA firms. There are no known disadvantages for the public, the agency, or the Commonwealth.

Department of Planning and Budget 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) proposes to (i) remove a fee for processing additional applications to take one or more sections of the CPA (Certified Public Accountant) examination, (ii) update and clarify the factors used to determine whether an individual licensee principal place of business is within the Commonwealth or not, (iii) remove unnecessary restrictions regarding how long individuals must wait before retaking a section of the CPA examination, and (iv) update the requirements for firm ownership.

Background. Executive Directive 1 (2022) directs executive branch entities under the authority of the Governor to initiate regulatory processes to reduce by at least 25% the number of regulations not mandated by federal or state statute, in consultation with the Office of the Attorney General, and in a manner consistent with the laws of the Commonwealth.² The board reports that the fees in this regulation have not been changed since 2013 and that the regulatory requirements have not been significantly revised since 2018. Thus, the proposed changes are intended to update and clarify certain requirements, while removing unnecessary fees and outdated or overly burdensome requirements, as required by Executive Directive 1 (2022).

18VAC5-22-20 is amended to remove a $20 fee for processing additional applications to take one or more sections of the CPA examination. The board specified that this change is intended to reduce the burden on applicants who are still in the process of meeting licensure requirements, because the cost of enrolling to take the exam has increased significantly since these fees were set. It should also be noted that the initial application fee to apply to take one or more sections of the CPA exam ($120), the initial individual license application fee ($75), and the initial license application fee for firms ($100) would remain the same.

18VAC5-22-50 is amended to specify how such determinations are made. The current text requires the person or firm to use reasonable judgment, which was deemed overly subjective and difficult to enforce. Under the proposed language, the principal place of business for a CPA firm is deemed to be in Virginia if the firm has one or more offices in Virginia. For individual CPAs, the proposed language seeks to align with the Internal Revenue Service (IRS) distinctions between employment and contracting. That is, the principal place of business for CPAs who are (i) owners, partners, or employees of a firm that is located in Virginia, or (ii) are assigned to a firm office that is located in Virginia, is deemed to be in Virginia. (The CPAs need not be physically located in Virginia.) On the other hand, independent contractors who are physically located in Virginia would be considered to have their principal place of business in Virginia, even if the firms that contract them are located in other states.

18VAC5-22-80 is amended to remove a requirement that 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. This requirement was considered unnecessary and overly burdensome, and the proposed change is intended to reduce the time taken for applicants to retake sections of the exam.

18VAC5-22-130 is retitled "Firm ownership" and would be amended to reiterate and clarify the requirements of Code of Virginia § 54.1-4412.1 D of the Code of Virginia.³ Specifically, the board seeks to add language clarifying that a CPA firm licensed in Virginia must be at least 51% owned by persons who hold an active license or trustees of an eligible employee stock ownership plan. The board would also require firms to designate an active individual Virginia CPA license holder as the principal licensee who will be responsible for the firm.

18VAC5-22-170 is amended to require licensees to notify the board of any change that affects the ownership, operating status, or structure of a Virginia CPA firm within 30 calendar days.

Lastly, the board seeks to make clarifying changes and to remove language that either re-states Virginia statute or has become obsolete.

Estimated Benefits and Costs. Individuals applying to take the CPA exam would benefit from (i) not having to pay additional fees to retake sections of the exam, and (ii) not having to wait until the next quarter to retake a section of the exam. The board reports that it receives approximately 4,415 re-exam applications per year; thus, eliminating the $20 fee for this application would result in approximately $88,300 in savings for prospective CPAs each year. In addition, obtaining a CPA license is likely associated with increased job opportunities at CPA firms, eligibility for promotions, higher salaries, and the option to be self-employed or a proprietor of a CPA firm. Thus, aspiring CPAs who take less time to pass the exams would benefit from having more time to accrue the financial and non-financial benefits of being licensed in the profession. Taken together, these changes would marginally reduce barriers to entry into the profession. Individuals and firms licensed in Virginia or seeking to relocate to or operate in Virginia would benefit from greater clarity in 18VAC5-22-50, with regard to determining the principal place of business. Some individuals may find that they either need to obtain a Virginia license or no longer need to maintain a Virginia license. However, to the extent that the proposed changes implement a policy that aligns with IRS designations and may already be followed in practice, few such changes are expected. The changes to 18VAC5-22-130 regarding ownership are intended to protect small and/or sole-proprietor accounting firms in Virginia from efforts to acquire and consolidate these businesses by larger financial companies. This in turn would benefit the various small businesses throughout the Commonwealth that rely on small accounting firms or individual contractors/sole proprietors to pay their taxes. Some CPA firms may incur a cost to reorganize and designate an active individual Virginia CPA license holder as the principal licensee who will be responsible for the firm, which would be a new requirement.

Businesses and Other Entities Affected. The board reports that the proposed changes are expected to directly benefit the applicants who currently submit roughly 4,415 requests per year to take additional sections of the CPA exam. Current and future individual CPAs and CPA firms would benefit from having clear and accurate regulations. The Code of Virginia requires DPB to assess whether an adverse impact may result from the proposed regulation.⁴ An adverse impact is indicated if there is any increase in net cost or reduction in net benefit for any entity, even if the benefits exceed the costs for all entities combined.⁵ Since the proposed changes does not increase net costs or reduce net benefits, an adverse impact is not indicated.

Small Businesses⁶ Affected.⁷ The board reports that the vast majority of CPA firms licensed in Virginia would meet the statutory definition of a small business. The proposed amendments would not adversely affect small CPA firms.

Localities⁸ Affected.⁹ The proposed amendments do not disproportionately affect particular localities or affect costs for local governments.

Projected Impact on Employment. Although, as described previously, the proposed amendments would reduce the barriers to entry for CPAs, the proposed amendments are unlikely to have a significant impact on total employment.

Effects on the Use and Value of Private Property. The proposed fees are not expected to affect the value of CPA firms. Real estate development costs would not be affected.

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¹ Section 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.

² See https://www.governor.virginia.gov/media/governorvirginiagov/governor-of-virginia/pdf/ed/ED-1-Regulatory-Reduction.pdf.

³ See https://law.lis.virginia.gov/vacode/title54.1/chapter44/section54.1-4412.1/.

⁴ Pursuant to § 2.2-4007.04 D: 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.

⁵ 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. As a result, DPB has adopted a definition of adverse impact that assesses changes in net costs and benefits for each affected Virginia entity that directly results from discretionary changes to the regulation.

⁶ Pursuant 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."

⁷ If 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.

⁸ "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.

⁹ Section 2.2-4007.04 defines "particularly affected" as bearing disproportionate material impact.

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

Summary:

The proposed amendments (i) eliminate the certified public accountant (CPA) re-exam fee; (ii) clarify the definition of principal place of business; (iii) remove restrictions for re-examination requirements and clarify CPA license eligibility requirements; (iv) clarify statutes related to CPA firm ownership requirements; (v) clarify statutes related to firm peer review enrollment; (vi) require firms to report changes in ownership or organizational structure to the Board of Accountancy; (vii) repeal 18VAC5-22-30, which is redundant; and (viii) make technical changes.

18VAC5-22-20. Fees.

A. The board shall charge the following fees for services it provides:

B. All fees for services the board provides are due when the service is requested and are nonrefundable.

C. Any original application for a CPA license in Virginia will expire six years from the original application date, and a new application with the corresponding fees and requirements will need to be submitted.

18VAC5-22-30. Determining whether persons or entities to whom communications are made, or for whom services are provided, are located in Virginia. (Repealed.)

For the purpose of determining whether a person who holds a Virginia license is providing services to the public or to or on behalf of an employer, those terms are to be defined in accordance with § 54.1-4400 of the Code of Virginia.

18VAC5-22-50. Determining whether the principal place of business of a person or of a firm is in Virginia.

Complying To comply with subdivision A 1 of § 54.1-4409.1 A 1, subsection B of § 54.1-4411 B, or subsection B of § 54.1-4412.1 B of the Code of Virginia requires the, a person or firm to use reasonable judgment in determining whether must hold a Virginia is license if the person or firm practices public accounting and the principal place of business in which where the person or firm provides those services is in Virginia. The principal place of business shall generally be determined as follows:

1. The person provides services to the public; or If a firm has an office in Virginia, its principal place of business is deemed to be Virginia. In the event a firm has multiple offices in Virginia operating under the same entity, all locations can be covered under a single firm license.

2. The firm provides attest services, compilation services, or financial statement preparation services For individuals, the principal place of business is deemed to be Virginia if the individual is:

a. An owner, partner, or employee of a firm that practices public accounting in Virginia and is assigned to a firm's office located in Virginia; or

b. An independent contractor who practices public accounting in Virginia and maintains an office location in Virginia where the individual performs services.

The determination shall be reasonable considering the facts and circumstances and can be based on quantitative or qualitative assessments. The determination shall be reconsidered for changes in facts and circumstances that are not temporary.

18VAC5-22-80. Examination.

A. In order to comply with subdivision A 1 b of § 54.1-4409.2 A 1 b 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 person who fails a section of the CPA examination may retake that section after the failing grade has been released, unless otherwise prescribed by the board.

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 30 months to pass the remaining sections. If the remaining sections are not passed within the 30-month period, the person loses credit for the first section passed, and a new 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 suspend or revoke the privilege of CPA licensure in Virginia 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 cheating, negligence, errors, omissions, or irregularities in conducting a completing the CPA examination or any requirements of licensure; 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.

18VAC5-22-130. Owners of firms who are not licensees Firm ownership.

A. A firm licensed in Virginia must (i) be at least 51% owned by persons who hold an active license or trustees of an eligible employee stock ownership plan, as defined in § 13.1-543 of the Code of Virginia, and (ii) designate an active individual Virginia license holder as the principal licensee who will be responsible for the firm.

B. To comply with subdivision D 2 of § 54.1-4412.1 D 2 of the Code of Virginia, owners of a firm who are not licensees must be persons who, based on the facts and circumstances, participate in the firm's activities on a regular, continuous, and substantial basis.

18VAC5-22-150. Monitoring program and peer review.

In order to comply with subdivision D 6 of § 54.1-4412.1 D 6 of the Code of Virginia, a every Virginia licensed firm that provides services within the scope of the practice-monitoring program of the American Institute of Certified Public Accountants or its successor shall be enrolled and comply with all components of the monitoring program in which it is enrolled, except that, depending. Based on a firm's risk profile, the board may require a firm to enroll in a specific practice-monitoring program. Depending on the facts and circumstances, the board may waive the requirement for a peer review or grant additional time for complying with the requirement.

18VAC5-22-170. Communication with the board.

A. Pursuant to § 54.1-4425 of the Code of Virginia, each licensee or applicant shall respond within 30 calendar days to any board request for information regarding compliance with any statutes or regulations pertaining to the board or any of the programs that may be in another title of the Code of Virginia for which the board has regulatory responsibility. When the requested response is not produced by the licensee or applicant within 30 calendar days, this nonproduction shall be deemed a violation of this rule, unless otherwise determined by the board.

B. Each holder of a Virginia license shall notify the board in writing within 30 calendar days of:

1. Any change in the holder's legal name or in the postal and electronic addresses where the person or firm may be reached;

2. Any administrative disciplinary action that the holder is the subject of or party to before any court, agency of the state or federal government, branch of the armed forces of the United States of America, or before the American Institute of Certified Public Accountants, the Virginia Society of Certified Public Accountants, or their successors;

3. Any conviction concerning a felony or misdemeanor, regardless of whether sentence is imposed, suspended, or executed;

4. Any guilty plea or plea of nolo contendere;

5. Any final judgment rendered against the holder in a civil court of law; or

6. Any receipt of a peer review report or a PCAOB firm inspection report containing criticisms of or identifying potential defects in the firm's quality control systems; or

7. Any change that affects the ownership, operating status, or structure of a Virginia CPA firm.

C. Upon the renewal, reinstatement of, or the application for a Virginia license, each person or entity shall notify the board in writing if any of the sanctions in subsection B of this section have occurred.

18VAC5-22-180. Issuance, renewal, and reinstatement of Licenses.

A. For Virginia licenses expiring on June 30, 2019, or later, the The holder of a Virginia license shall annually renew his license on or before June 30 of each calendar year by submitting a completed license renewal application and paying to the board a renewal fee as prescribed in 18VAC5-22-20.

B. If a person or entity applies for an initial license or reinstatement on or after March 1 of a calendar year, the license will not expire until June 30 of the following calendar year.

C. The board shall transmit license renewal notices electronically unless a person or firm is unable to communicate electronically. The responsibility license holder is responsible for renewing a the Virginia license is on its holder, and that responsibility is not affected by whether the holder receives a license renewal notice.