HB 44-PRACTICE OF ACCOUNTING; LICENSURE  1:30:47 PM CHAIR COSTELLO announced the consideration of CS FOR HOUSE BILL NO. 44(STA) "An Act relating to the practice of accounting." [CSHB 44(STA) was before the committee.] She noted that there was an amendment for the committee to consider and following that she would look to the will of the committee. 1:31:55 PM SENATOR REVAK joined the committee. 1:32:26 PM REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature, Juneau, Alaska, Sponsor of HB 44. explained that he introduced the bill after members of the Alaska Board of Public Accountancy contacted his office to share that the National Association of the State Boards of Accountancy (NASBA) and the American Institute of Certified Public Accountants (AICPA) had reached out to ask them to work to update Alaska statutes to meet the standards of the Uniform Accountancy Act (UAA) and the Institute of CPA's Code of Professional Conduct. The national organizations provided the Board of Public Accountancy with a summary of areas where Alaska's statutes do not meet the national standards. The board reviewed those statutes over the past several years and developed a rough draft of a bill to address the issues. REPRESENTATIVE THOMPSON stated that HB 44 incorporates these changes and would update the public accountancy statutes to bring Alaska more in line with national standards while continuing to protect the public interest by ensuring that only qualified persons are licensed, and that appropriate standards of competency and practice are established and enforced. He listed the individuals who were available to answer questions, deferred to Ms. Bergh to provide a sectional analysis, and mentioned an amendment he would like the committee to consider. CHAIR COSTELLO made a motion to clarify that the bill version that passed the House was before the committee. SENATOR STEVENS commented that HB 44 appears to simply align Alaska statutes with national standards. REPRESENTATIVE THOMPSON agreed. CHAIR COSTELLO offered her understanding that the bill removes current regulations that are beyond what the federal law requires. She asked what impact this would have to the public. REPRESENTATIVE THOMPSON deferred to one of the subject matter experts who were available online. CHAIR COSTELLO asked Ms. Bergh to walk through the sectional analysis. 1:37:23 PM LYNETTE BERGH, Staff, Representative Steve Thompson, Alaska State Legislature, Juneau, Alaska, stated that many of the changes in the bill are redundant to replace antiquated accountancy terminology, which makes the sectional lengthy. She asked if the committee would prefer a summary rather than the complete sectional. CHAIR COSTELLO conveyed her preference to hear the complete sectional. 1:38:21 PM MS. BERGH provided the following sectional analysis for HB 44: [Original punctuation provided.] Section 1. AS 08.04.020(b)  Appointment and qualifications of board. Revises the qualifications for public members for board appointments by deleting "out-of-state exemption' license holders. Section 2.  AS 08.04.100 Certificate granted. Eliminates "out-of- state exemption" and "practice privilege" from those certificate holders who are not authorized to engage in the practice of public accounting without a current license or permit. Section 3. Amends AS 08.04.105 (b)  License for individual to practice as a public accountant. The individual requirements for the board to renew a license granted in this section are amended by deleting reference to repealed statutes [AS 08.04.360-AS 08.04.380] and inserts statutes [AS 08.04.360 and AS 08.04.370]. Substitutes the word "peer" review for "quality" review. Section 4. AS 08.04.195(d) Reciprocity with other states. Deletes references to repealed statutes [AS 08.04.360-AS 08.04.380] and inserts revised statutes [AS 08.04.360 and AS 08.04.370]. Section 5. AS 08.04.240(a)(1-4) Application of partnerships, limited liability companies, corporations, and other legal entities for permits. Replaces the phrase "as a partnership to a partnership" to "a firm with an office in the state". Replaces the term "partnership" with the term "firm". The term "partner" is replaced with the term "owner" as relates to the board or an individual who is engaged in the practice of public accounting. Section 6. AS 08.04.240(f) References a new subsection (k) to the list in which initial permits can be issued and deletes subsections (b), (d), and (e). Section 7. AS 08.04.240(g) References subsection (k) and deletes (b), (d), or (e) for a permit renewal. Deletes references to repealed statutes [AS 08.04.360-AS 08.04.380] and inserts revised statutes [AS 08.04.360 and AS 08.04.370]. Substitutes the term "peer" for "quality" review and deletes specific competency requirements. 1:41:50 PM Section 8. AS 08.04.240(i) Replaces the terms "partnership, corporation, limited liability company or other legal entity" with the term "firm". Section 9. AS 08.04.240.(j) Replaces the terms "partnership, corporation, limited liability company or other legal entity" with the term "firm". Section 10. AS 08.04.240 Adds a new subsection (k) that mandates that the board shall grant a permit to engage in the practice of public accounting to a firm that does not have an office in the state but offers or provides attest functions in the state. The permit shall be granted If the firm applies to the board as a firm of certified public accountants and meets the requirements as set out in AS 08.04.240(k)(1-4). Section 11. AS 08.04.360 Supervision required.  Deletes the requirement of "in residence" for an individual who holds a license as a supervisor. Deletes the phrase "practice privilege" and inserts the phrase a license "issued under this chapter". Adds that a 3 supervisor may serve for each office in the state that is maintained by a firm. Section 12. AS 08.04.370 Use of title "certified  public accountant" by office of "firm". Replaces the term "legal entity" with the term "firm". Deletes "out-of-state exemption" as a permit holder. Section 13. AS 08.04.420(a) Practice privileges. Deletes subsection (b) as an exception to the requirements for licensure (repealed). Section 14. AS 08.04.420(c) Practice privileges. Deletes subsection (b) as a requirement for engaging in the practice of public accounting in this state (repealed). Section 15. AS 08.04.422 Conditions of Practice  Privileges.  Deletes "out-of-state permits and out-of-state exemptions" as conditions for practice privileges. Substitutes the term "firm" for "legal entity". Removes the phrases "exemption under AS 08.04.421, and "under the permit exemption" as that statute is repealed. Section 16. AS 08.04.426(a) Quality review.  Adds that the board may require that an applicant who is seeking a license renewal or permit "provide evidence of enrollment in" a peer review program approved by the board by regulation. Deletes the term "quality" review and inserts the term "peer" review. Substitutes the phrase "program approved" for the phrase "conducted as required". 1:45:00 PM Section 17. AS 08.04.426(c) Quality review. References new subsection "(f)" which directs that the Board shall require a peer review of a firm that has in its employ an applicant scheduled for renewal of a permit in that firm. *[See Section 19. New subsection on (f)]. Section 18. AS 08.04.426(d) Quality review. References new subsection "(f)" for the Board's quality review regulations. Amends Section AS. 08.04.426(d)(1-3) by replacing the term "quality" review with the term "peer" review. Deletes the phrase "quality reviews" and inserts the phrase "administration of a peer review". The term "oversight" replaces the term "supervision". 4 Deletes the term "operated" and replaces it with "performed". Amends Section 08.04.426(d)(4) by striking current text and replacing it with text to clarify that organizations who administer peer review programs must provide information requested by the board. Section 19. AS 08.04.426 Quality review. Adds a new subsection (f). This subsection sets the guidelines that the board must follow to conduct peer reviews by regulation. Section 20. AS 08.04.440 Effect of failure to obtain  license or permit. Deletes the terms "partnership", "limited liability company", "corporation", "or other legal entity" and replaces them with the term "firm". Deletes the paragraph that defines the calculated fee for penalty of an untimely renewal of license with the phrase "the department shall determine" the fee. Section 21. AS 08.04.450(a) Revocation or suspension  of license, practice privilege permit. Eliminates the "out-of-state exemption" license holder status. Adds a clause that the board may require peer reviews or continuing education courses. Cleans up the language in this section by substituting "comply with the peer" review for the phrase "satisfactorily complete a quality" review. Deletes the word "committing" an act and replaces with "commission of" an act. Adds subsections (12-15) as additional board findings for possible revocation or suspension of licenses. Section 22. AS 08.04.450(c) Revocation or suspension  of license, practice privilege permit. Adds a new subsection (c) that states that the board may hold a disciplined license holder to bear the costs of any disciplinary proceedings. 1:47:55 PM Section 23. AS 08.04.470 Revocation of "firm" permit. Deletes the terms "of partnership", "limited liability company", "corporation", "or other legal entity", and "it" and replaces the terms with the word "firm". Section 24. AS 08.04.480 Grounds for censure of, or  the revocation, suspension, or refusal to renew a  permit for a "firm". Uses the term "firm" to replace the terms "of partnership", "limited liability company", "corporation", "or other legal entity". Amends AS 08.04.480(1) by adding the "refusal to renew" as 5 an additional cause for suspension or revocation. Replaces the terms "a partner", "a member", "a shareholder", "or if the permittee is a legal entity other than a partnership, corporation or limited liability company", "an owner of the permittee" with the phrase ""an owner of the firm in this state or in another state". AS 08.04.480(3) adds refusal to renew the "permit or authority of the firm" to replace the terms cited above. Section 25. AS 08.04.500(a) Individual posing as a  certified public accountant. Delineates the statutes required to be met to use the CPA title. Specifically, AS 08.04.360 and AS 08.04.370. 1:49:32 PM Section 26. AS 08.04.505 Issuance of reports. Deletes  the term "out-of-state exemption". Replaces the term "financial statements" with on "behalf" of. Replaces the terms "sole proprietorship", "partnership", "corporation", "limited liability company", "or other legal entity" with the term "firm". Section 27. AS 08.04.510(a) Partnership, limited  liability company, corporation, or other legal entity  posing as a certified public accountant. Uses the term "firm" to replace "partnership", "corporation", "limited liability company", "or other legal entity". Section 28. AS 08.04.520 Individual posing as a public  accountant. Delineates the statutes that are required to be met to use the title of public accountant. Those statutes are AS 08.04.360 and AS 08.04.370. Deletes AS 08.04.380. Section 29. AS 08.04.530 "Firm" posing as a public accountant. Replaces the terms "partnership", "corporation", "limited liability company", "or other legal entity" with the term "firm". 1:50:59 PM Section 30. AS 08.04.540 Use of deceptive title or  abbreviation. Replaces the terms "partnership",  "corporation", "limited liability company", "or other  legal entity" with the term "firm". Deletes the phrase "out-of-state exemption". Delineates the statutes that are required to be met and maintained by individuals or firms whose offices are in this state. If requirements are met, they may use the titles public accountant or auditor. Those statutes are AS 08.04.360 and AS 08.04.370. Section 31. AS 08.04.560 Individual may not assume title. Deletes the phrase "on any accounting or financial statement" as it relates to reports. Deletes the phrase that refers to individual's offices in this state for the practice of public accounting. 6 Section 32. AS 08.04.565 Prohibited acts. Replaces the terms "partnership", "corporation", "limited liability company", "or other business entity" with the term "firm". Section 33. AS 08.04.600 Disclosure of lack of license  or permit. Replaces the terms "partnership",  "corporation", "limited liability company", "or other  entity" with the term "firm". Deletes "or a current out-of-state exemption" from the list of individuals or firms holding licenses, practice privileges or permits. 1:52:28 PM Section 34. AS 08.04.610 Deceptive use of title or  designation by "firm". Replaces the terms  "partnership", "corporation", "limited liability  company", "or other legal entity" with the term  "firm". Deletes "or a current out-of-state exemption" as a holder of a permit. Section 35. AS 08.04.620(1) Exceptions. Replaces terms  "partnership", "corporation", "limited liability  company", "or other legal entity" with the term  "firm". Deletes the phrase "or a current out-of-state exemption so long as". Amends AS 08.04.620(3) by inserting new language to describe the requirements that entitles a holder to a certificate, license, or degree from a foreign country. Deletes previous language used. Section 36. AS 08.04.662(a) Confidential  communications. Deletes "(an) out-of-state exemption  holder". Replaces the term "quality" review with "peer" review. 1:53:41 PM Section 37. AS 08.04.680(1)(E) Definitions. Adds a qualifier under the definition of attest function that clarifies accepted examinations. Section 38. AS 08.04.680(4) Definitions. Clarifies the definition of "compilation service". Deletes the subsection in AS 08.04.680(4)(B). Section 39. AS 08.04.680(14) Definitions. Delineates AS 08.04.240 as the sole statute to issue a permit under; thereby deleting AS 08.04.421(a). Section 40. AS 08.04.680(15) Definitions. Deletes the phrase "on financial statements" as pertains to issuing reports. Section 41. AS 08.04.680(19) Definitions. Updates the  definition of "report" to include an "attest  function". Amends AS 08.04.680(19)(A)(i) by adding the phrase "the attested information or compiled" to describe the financial statements. Amends AS 08.04.680(19)(B)(ii) by deleting "or an out-of-state exemption". 7 Section 42. AS 08.04.680(20) Definitions. Adds clarifying language, "Commonwealth of the" Northern Mariana Islands. Section 43. AS 08.04.680 Definitions. Adds new definitions for (21) "firm", (22) "peer review" and (23) "preparation of financial statements". Section 44. Repeals statutes 1:56:31 PM CHAIR COSTELLO observed that the bill appears to remove the out- of-state exemption to practice accountancy in Alaska and instead allows a person to practice in an Alaskan firm if an Alaska certified manager oversees the CPAs. She asked the sponsor if that was accurate. REPRESENTATIVE THOMPSON said he believes so but he would defer to the subject matter experts for clarification. CHAIR COSTELLO asked if HB 44 allows anyone to practice public accountancy without either Alaska certification or under the oversight of a certified accountant with an office in Alaska. REPRESENTATIVE THOMPSON deferred the question to either Ms. Bergh or one of the subject matter experts who were online. CHAIR COSTELLO said her final question related to Section 14, page 6, line 10. It is amended to remove reference to AS 08.04.420(b) for those individuals who may engage in the practice of public accountancy. Then it says those individuals are not required to provide notice to the board. She asked why that language is included and how onerous it might be for somebody to have to notify the board that they are practicing accountancy in Alaska. 1:58:34 PM SENATOR GRAY-JACKSON said the chair articulated the questions she had related to out-of-state exemptions. SENATOR STEVENS asked when these statutes were last amended. REPRESENTATIVE THOMPSON said he did not know. SENATOR STEVENS said he would like someone to provide an answer. 1:59:29 PM MS. BERGH explained that the accountancy statutes were modified in 2006 when Representative Hawker carried the bill in the 24th legislature. That bill changed the language to talk about practice privilege for out-of-state applicants and had regulations relating to the test function and licenses for individuals to practice as public accountants. Some definitions were also changed. The statutes were revisited again in 2010 in the 26th legislature when Representative Kurt Olsen carried the bill. That bill addressed the concept of mobility for accountants, out-of-state exemptions, and practice privileges. The statutes were visited again in 2018 in the 30th legislature when Representative Steve Thompson carried the bill. That bill addressed the national standards in the first half of the accountancy statutes and HB 44 addresses the second part of that effort. 2:01:18 PM CHAIR COSTELLO turned to invited testimony and asked the individuals to respond to the questions that were asked earlier in the hearing. 2:01:37 PM CRISTA BURSON, President and CEO, Alaska Society of CPAs (AKCPA), Anchorage, Alaska, stated that AKCPA has worked collaboratively with the State Board of Public Accountancy on the changes proposed in HB 44. On behalf of the more than 600 AKCPA members in public and private practice, educators, and students she was speaking in support of HB 44. 2:02:54 PM At ease 2:03:20 PM CHAIR COSTELLO reconvened the meeting and asked the individuals invited to testify to talk about whether or not HB 44 addresses the out-of-state exemption that is being removed. 2:03:55 PM KAREN BREWER-TARVER, Member, Alaska Society of CPAs, Juneau, Alaska, stated that she is a CPA and partner at the Juneau-based accounting firm Elgee Rehfled LLC, and in 2020 she completed eight years on the Board of Accountancy. In 2018, the board reviewed the accountancy statutes and HB 44 reflects the subsequent four-year review the board worked on in collaboration with NASBA and AICPA. Responding to earlier questions, she said the board compared the Alaska statutes to the model licensing law in the Uniform Accountancy Act (UAA) that provides a uniform approach to the regulation of the accounting profession. That model law is modified as needed for each jurisdiction. MR. BREWER-TARVER addressed the out-of-state exemption. She explained that current statute requires a firm that does not have an office in Alaska but wants to provide services to a client in Alaska to obtain a firm permit. HB 44 eliminates that requirement if the out-of-state firm meets certain statutory criteria and understands that the board has oversight of their work when they are serving an Alaska-based business. If the out- of-state firm does not meet the criteria they would be required to apply for a firm permit. CHAIR COSTELLO referenced the list of criteria in Section 10 and the language in Section 14 that says an individual who may practice public accounting in the state is not required to provide notice to the board. She asked how the board would be aware that an individual has met the criteria and is practicing. MS. TARVER replied that an out-of-state firm that meets the criteria does not have to apply for a permit or provide notice. Board oversight only occurs if an issue is brought to the board or investigator's attention. 2:08:09 PM THOMAS G. NEILL, Chair, Uniform Accountancy Act Committee of the American Institute of Certified Public Accountants, stated that he is speaking in support of HB 44, which modernizes the Alaska accountancy statutes. He explained that UAA is model legislation whose goal is to provide the 55 licensing jurisdictions in the United States a consistent framework for regulation of the CPA profession. He relayed that the accounting profession has faced challenges the last few years that has affected businesses' access to needed professional services. The mobility provision in HB 44 addresses this challenge. He explained that when the concept of mobility was first contemplated 20 years ago, a concern was that businesses licensed in Alaska would lose work to out-of-state firms. That has not proved to be the case in either Alaska or other states. Another concern related to the potential loss of revenue but that, too, has not been the case. When a firm crosses a state line it may have to file and pay occupation and individual taxes or taxes for staff that worked in that state. To date, 31 states have enacted mobility statutes and two others, and Alaska, are in the process. He reported having received no negative feedback from states, firms, or clients. A key advantage to firm mobility is that Alaska businesses will have more access to these professional services, which may help them grow and thrive. 2:11:03 PM LESLIE SCHMITZ, Member and past Chair, Alaska Board of Public Accountancy, Anchorage, Alaska, stated that the board has been working on this legislation for several years and is in full support. She explained that the board worked with the State Society of CPAs (AKCPA) to assure a transparent process. They sought assistance from the American Institute of CPAs (AICPA) to help with the technical edits to bring Alaska practices and terminology to current industry standards. The board also reached out to interested parties throughout the process. She related that the Uniform Accountancy Act is an "evergreen" model licensing law developed to provide a uniform approach to regulation of the accounting profession. The board believes HB 44 will enhance public protection and modernize terminology referenced in the law. Despite the length, she advised that HB 44 addresses just a few main topics. These include updates in the definition of "firm," updated terminology from "quality review" to "peer review," and updating the law to allow firm mobility. SENATOR STEVENS asked if she could say that this in no way harms Alaska CPAs and businesses. MS. SCHMITZ replied the bill will provide mobility for Alaska CPAs to do business in other states, which will open new markets. Thus, she did not believe it would harm Alaska CPAs or businesses. She deferred further comment to Mr. Neill. SENATOR STEVENS said it makes sense but he would like to hear from Mr. Neill as well. 2:14:17 PM MR. NEILL explained that HB 44 allows Alaska accountancy firms to work in Washington and other states and firms from Washington and other states to work in Alaska. He offered his belief that the bill would not harm Alaska CPAs or Alaska accountancy businesses. CHAIR COSTELLO noted that Sara Chambers was available to answer questions about licensing. SENATOR GRAY-JACKSON asked if out-of-state accountants need a sponsor to work in Alaska. 2:15:51 PM MR. NEILL answered that sponsorship would not be required. For example, as a Washington accountant he could serve a client in Alaska through the mobility statute. His main concern would be to ensure compliance with any taxation laws that might apply. 2:16:36 PM CHAIR COSTELLO opened public testimony for HB 44; finding none, she closed public testimony. She noted that she worked with the sponsor on a [conceptual] amendment. 2:17:10 PM SENATOR STEVENS moved Conceptual Amendment 1 to HB 44. CONCEPTUAL AMENDMENT 1 Page 4, lines 23-24: Delete: applies to the board as a firm of certified public accountants and CHAIR COSTELLO objected for discussion purposes. She related that she worked with the sponsor on the amendment. The intent of the legislation is that a firm will not apply to the board, but instead meet certain requirements. The amendment aligns with the intent. She asked the sponsor to comment. REPRESENTATIVE THOMPSON agreed with the characterization. The board identified this language as a problem and requested the committee pass the amendment. CHAIR COSTELLO read Conceptual Amendment for the listening public. 2:18:53 PM CHAIR COSTELLO removed her objection. Seeing no further objection, Conceptual Amendment 1 to HB 44 passed. She asked the will of the committee. 2:19:14 PM SENATOR REVAK moved to report CSHB 44, work order 32-LS0302\I, as amended, from committee with individual recommendations and attached fiscal note(s). CHAIR COSTELLO found no objection and SCS CSHB 44(L&C) was reported from the Senate Labor and Commerce Standing Committee. SENATOR STEVENS offered his assumption that this was the only committee of referral. REPRESENTATIVE THOMPSON said he believed that was accurate.