Sunset Commission Adopts Final Report
By John Sharbaugh, CAE
Managing Director, TXCPA Governmental Affairs
Nov. 15, 2018 (Austin) - At its hearing on Wednesday, Nov. 14, the Texas Sunset Commission adopted a final report on the Texas State Board of Public Accountancy (TSBPA) and the Texas Public Accountancy Act (TPAA). Most importantly, the Commission voted to continue TSBPA and the TPAA for another 12 years (until 2031). TSBPA will then go through the sunset process once again as required under the Texas Sunset Law. Continuation of TSBPA was TXCPA’s number one goal going into the sunset process, so we are pleased with that result.
In addition to the recommendation to continue TSBPA, the Commission considered 20 other recommendations for change that were presented in the Sunset Staff Report issued back in August. The Commission adopted all of the staff recommendations in that report with a few modifications. The details on those modifications are as follows.
A recommendation of major concern to TXCPA was the sunset staff’s proposal to change the current composition of TSBPA to make it a majority of non-CPAs. The current composition of the board is 10 CPAs and five public members. The sunset staff was recommending that it be changed to eight public members and seven CPAs. TXCPA argued against this proposed change in the comment letter it sent to the Sunset Commission, as did AICPA and the National Association of State Boards of Accountancy (NASBA). Reducing the number of CPAs on TSBPA would dilute the technical knowledge and expertise needed to adequately carry out the board’s regulatory role.
At this week’s hearing, that recommendation was modified to “have the Sunset Commission request that the legislature examine all state boards, including TSBPA, for any legislation needed to mitigate the potential liability of boards controlled by active market participants.” Thus, this issue will not be included in the sunset bill for TSBPA and no change to the composition of TSBPA will take place at this point in time. However, the broader issue of board composition will be studied by the legislature and it is possible the legislature could adopt proposed changes that may affect all licensing boards, including TSBPA. We will continue to monitor how this issue plays out in the legislature.
Another modification the Sunset Commission adopted at the hearing relates to the recommendation to require TSBPA to conduct fingerprint-based criminal background checks of all licensure applicants and licensees. This requirement is being implemented for all Texas licensees, not just CPAs. The Commission adopted a modification suggested by TXCPA which will “exempt licensees in ‘retired status’ from having to receive a fingerprint-based criminal background check, unless they decide to resume their practice with an active license.”
The recommendation as modified must be implemented by TSBPA over a two-year period with a deadline of Sept. 1, 2021. So once the sunset bill is passed by the legislature, TSBPA will be working to implement this new requirement. TSBPA has already been requiring this kind of background check for new licensees since 2014. Now, all licensees who were certified prior to 2014 will have to undergo a similar procedure.
Another modification to the sunset staff recommendations, and one that TXCPA encouraged the Commission to adopt, relates to removing unnecessary licensure and CPE requirements for non-CPA owners of CPA firms. In addition to the specific recommendations from the sunset staff, the Commission approved a modification to “clarify that a firm’s internal management would be left to the discretion of the firm’s owners, provided that CPAs continue to supervise accountancy work regulated by TSBPA.” This change will bring the TPAA in line with the AICPA/NASBA Uniform Accountancy Act and many other states that have adopted similar provisions.
Another modification related to the recommendation was directing TSBPA to comply with the Texas statute on rules and procedures to accommodate military service members, veterans and military spouses. The Commission modified the timetable for accomplishing this by moving it up from June 1, 2019 to March 1, 2019. TSBPA is already in the process of making this change and has proposed the necessary rule changes to accomplish it. So, it should be implemented in the near future.
In a similar fashion, the Commission also made a modification to the recommendation directing TSBPA to update its complaint policies and procedures, moving the timetable to accomplish this up from Sept. 1, 2019 to March 1, 2019. Again, TSBPA is already in the process of adopting rule changes to accomplish this recommendation.
Other than these modifications noted above, the Commission adopted all the other sunset staff recommendations as spelled out in the report they issued in August
And you can see their “decision document” used at this week’s hearing.
TXCPA Recommendations Not Adopted
While the Sunset Commission was responsive to several of the issues that TXCPA suggested in its comment letter and testimony at the August hearing, they did not adopt all of our suggestions, which is typical in any political process. Two items that the Commission did not address include firm mobility and the sunset staff recommendation that TSBPA amend its peer review rules to account for risk to the public.
The issue of firm mobility was a matter TXCPA recommended be included in the bill the Commission will send to the legislature, even though it was not a recommendation of its staff. Firm mobility is a national initiative promoted by AICPA and NASBA to ease cross border practice by CPAs. It allows a CPA firm licensed in one state to practice in another without the need to get another firm license as long as the firm is not going to have a physical presence or office in that state. There are 25 other states that have already adopted this standard and several others are working on having it implemented through changes to their practice acts.
In Texas, we already provide for firm mobility for any service performed by CPAs except audits and examinations of prospective financial information. TXCPA’s recommendation was to have those services included as well, to conform to the national model on this issue and reciprocate with other states. Since the Commission did not adopt this concept in its final report, TXCPA plans to work on the issue in the upcoming legislative session to try to have it implemented there.
Another issue TXCPA disagreed with in the sunset staff recommendations related to peer review. The sunset staff report calls on TSBPA to amend its rules on peer review to account for risk posed to the public and to ensure that non-members of TXCPA pay the same fee for peer review administration as members of TXCPA. TXCPA disagreed with this recommendation and encouraged the Commission to reject it. That was not the case at the final hearing, so we will continue to look for ways to deal with these issues as TSBPA goes through any rule-making proposals. The goal is to assure that Texas will continue to adhere to the national standards for peer review and that TXCPA will continue to have control of its fee-setting process for administering peer reviews.
Next Step in the Process
Now that the Sunset Commission has adopted a final report on TSBPA, the next step in the process is for the sunset staff to take the recommendations that require statutory changes (about half of them) and include those in proposed legislation that will modify the current TPAA. The other half of the sunset recommendations will be enacted by rule changes or process changes at TSBPA.
The proposed legislation that comes out of the Sunset Commission will then go to the legislature for enactment during the upcoming legislative session that begins in January. A member of the Sunset Commission will serve as the sponsor of the bill. At this point, we do not know who that will be. The Commission typically divides up all the bills on the various boards it has reviewed and assigns half to senators and half to representatives on the Commission who then serve as the sponsors on the bills. Including TSBPA, the Sunset Commission is reviewing 31 boards this cycle. We will probably learn which legislator will sponsor the TSBPA/TPAA bill in the later part of December.
Once the sunset bill gets to the legislature, it still has to go through the legislative process and be enacted by the legislature. Thus, there will be an opportunity to try and make changes to it as it goes through that process and TXCPA will pursue the firm mobility issue there. Typically, the legislature is not receptive to wholesale changes to bills coming out of the Sunset Commission, as they know they have gone through an intensive review process that is overseen by their colleagues who serve on the Commission. But TXCPA can try to work on a few issues if we feel they are important. As we get closer to January and the start of the legislative session, we will finalize our legislative agenda and priorities and keep members advised of our progress.