Report Title:

Accountancy

 

Description:

Updates education and examination requirements of certified public accountants.

THE SENATE

S.B. NO.

2963

TWENTY-FIRST LEGISLATURE, 2002

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to accountancy.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The legislature finds that the profession of public accounting has developed and changed in the decades since the state law relating to licensing of certified public accountants (CPA) was originally written. The range of services offered by CPAs has expanded beyond "traditional" CPA services, into such areas as information technology, financial planning, business valuation, investment advice, and management consulting. This range of services, coupled with the complexity of today’s business environment, makes it desirable for CPAs to have a broad education in business-related areas, as well as specific technical training in accounting.

The market for CPA services is also changing. Modem technology has made it both possible and necessary for Hawaii-based CPAs to participate in the global economy.

At the same time, however, any change to the existing law should reflect the need to minimize disruption, and allow students and educators adequate time to plan to meet the requirements of the law. Certain portions of the AICPA/NASBA model, relating to educational requirements, have already been adopted in Hawaii, but the legislature is informed that some students, particularly on the neighbor islands, are having difficulty finding educational programs that enable them to meet the requirements. Similar educational requirements were adopted in the State of New York with an effective date of December 31, 2009, and the legislature finds that time frame to be reasonable, given the need to develop curriculum, establish courses and programs, and prepare to meet the educational requirements. Also, the State of California has adopted the educational requirements but with an alternative allowed. Thus, certain portions of this Act, relating to educational requirements, are effective after December 31, 2009. This is not intended to be a defective date; it is chosen to match the schedule enacted in the State of New York and to allow ample time for planning.

SECTION 2. Chapter 466, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"466-A Issuance and renewal of certificates and maintenance of competency. (a) The board shall grant or renew certificates to persons who make application and demonstrate that their qualifications, including where applicable the qualifications prescribed by section 466-5, are in accordance with the following subsections of this section. The holder of a certificate issued under this section may only provide attest services, as defined, if the holder also holds a permit issued under section 466-7.

(b) The board shall issue a certificate to a holder of a certificate, license, or permit issued by another state upon a showing that:

(1) The applicant passed the examination required for issuance of the applicant’s certificate with grades that would have been passing grades at the time in this State;

(2) The applicant had one year of experience outside of this State of the type described in section 466-5(e) or meets equivalent requirements prescribed by the board by rule, after passing the examination upon which the applicant’s certificate was based; and

(3) If the applicant’s certificate, license, or permit was issued more than four years prior to the application for issuance of an initial certificate under this section, that the applicant has fulfilled the requirements of continuing professional education that would have been applicable under subsection (c).

(c) For renewal of a certificate under this section, each certificate holder shall participate in a program of learning designed to maintain professional competency. Such program of learning must comply with rules adopted by the board. The board may by rule create an exception to this requirement for certificate holders who do not perform or offer to perform for the public one or more kinds of services involving the use of accounting or auditing skills, including issuance of reports on financial statements or of one or more kinds of management advisory, financial advisory, or consulting services, or the preparation of tax returns or the furnishing of advice on tax matters. Certificate holders granted such an exception by the board must place the phrase "inactive" adjacent to their certified public accountant title or public accountant title on any business card, letterhead, or any other document or device, with the exception of their certified public accountant certificate or public accountant registration, on which their certified public accountant or public accountant title appears.

(d) The board shall charge a fee for each application for initial issuance or renewal of a certificate under this section in an amount prescribed by the board by rule.

(e) Applicants for initial issuance or renewal of certificates under this section, in their applications, shall list all states in which they have applied for or hold certificates, licenses, or permits and list any past denial, revocation, or suspension of a certificate, license, or permit, and each holder of, or applicant for a certificate under this section shall notify the board in writing, within thirty days after its occurrence, of any issuance, denial, revocation, or suspension of a certificate, license, or permit by another state.

(f) The board shall issue a certificate to a holder of a substantially equivalent foreign destination; provided that:

(1) The foreign authority which granted the designation makes similar provision to allow a person who holds a valid certificate issued by this State to obtain such foreign authority’s comparable designation; and

(2) The foreign designation:

(A) Was duly issued by a foreign authority that regulates the practice of public accountancy and the foreign designation has not expired or been revoked or suspended;

(B) Entitles the holder to issue reports upon financial statements; and

(C) Was issued upon the basis of educational, examination, and experience requirements established by the foreign authority or by law; and

(3) The applicant:

(A) Received the designation, based on educational and examination standards substantially equivalent to those in effect in this State, at the time the foreign designation was granted;

(B) Completed an experience requirement, substantially equivalent to the requirement set out in section 466-5(d), in the jurisdiction which granted the foreign designation or has completed four years of professional experience in this State; or meets equivalent requirements prescribed by the board by rule, within the ten years immediately preceding the application; and

(C) Passed a uniform qualifying examination in national standards acceptable to the board.

(g) An applicant under subsection (f), in the application, shall list all jurisdictions, foreign and domestic, in which the applicant has applied for or holds a designation to practice public accountancy, and each holder of a certificate issued under this subsection shall notify the board in writing, within thirty days after its occurrence, of any issuance, denial, revocation, or suspension of a designation or commencement of a disciplinary or enforcement action by any jurisdiction.

(h) The board has the sole authority to interpret the application of subsections (f) and (g).

(i) The board, by rule, shall require as a condition for renewal of a certificate under this section, by any certificate holder who performs compilation services for the public other than through a CPA firm, that such individual undergo, no more frequently than once every three years, a peer review conducted in such manner as the board, by rule, shall specify, and the review shall include verification that the individual has met the competency requirements set out in professional standards for such services."

SECTION 3. Chapter 466, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"466-B Additional provisions regarding peer review. (a) The board may establish procedures to perform the following functions:

(1) Review of financial statements and the reports of certificate holders thereon, to assess their compliance with applicable professional standards;

(2) Improvement of reporting practices of certificate holders through educational and rehabilitative measures;

(3) Referrals to the board of cases requiring further investigation by the board or its designees;

(4) Verification that individuals in the firm responsible for supervising compilation or attest services and signing the accountants’ report on financial statements on behalf of the firm meet the competency requirements set out in applicable professional standards;

(5) Verification that a certificate holder who performs compilation services for the public other than through a CPA firm, who supervises such services or signs the compilation report on such financial statements, meets the competency requirements set out in applicable professional standards; and

(6) Such other functions as the board may assign to its designees.

(b) Each applicant for renewal of a certificate in the case of a certificate holder who provides compilation services to the public other than through a CPA firm and each applicant for renewal of a CPA firm permit to practice shall furnish in connection with their application, with respect to each office maintained by the applicant in this State, one copy of each of the following kinds of reports, together with their accompanying financial statements, issued by the certificate holder or office during the twelve month period next preceding the date of application, if any report of such kind was issued during such period:

(1) A compilation report;

(2) A review report;

(3) An audit report; and

(4) A report of the examination of prospective financial information.

(c) The board, in its discretion and to the extent that the board chooses to do so, may review, inspect, or examine any report or statement submitted hereunder. Nothing herein shall be construed as imposing any duty on the board to review or examine any report or statement submitted.

(d) The board may also solicit for review reports of certificate holders and related financial statements from clients, public agencies, banks, and other users of financial statements.

(e) Any documents submitted in accordance with subsection (b) may have the name of the client, the client’s address and other identifying facts omitted; provided that the omission does not render the type or nature of the enterprise undeterminable. The identities of the sources of financial statements and reports received by the board from other than the certificate holders who issued the reports shall be preserved in confidence. Reports submitted to the board pursuant to subsection (b), and comments of reviewers and of the board on such reports or workpapers relating thereto, also shall be preserved in confidence except that they may be communicated by the board to the certificate holders who issued the reports.

(f) The review of financial statements and reports of the certificate holders thereon shall be directed toward the following:

(1) Presentation of financial statements in conformity with generally accepted accounting principles;

(2) Compliance by certificate holders with generally accepted auditing;

(3) Compliance by certificate holders with other professional standards; and

(4) Compliance by certificate holders with the rules of the board and other regulations relating to the performance of compilation and attest services as herein defined.

In gathering information about the professional work of certificate holders, the board may make use of investigators, either paid or unpaid, who are not members of the board.

(g) In any instance where the board finds a deficiency in the professional work of a certificate holder, it shall advise the certificate holder in writing of the deficiency. The board may request the certificate holder to meet with it to discuss deficiencies. If the board determines that a report is substandard or seriously questionable, the board may direct that a review of the workpapers be conducted by an independent reviewer other than the person who performed the review of the report. The findings of any such review of the workpapers shall be transmitted by the reviewer to the board.

(h) A peer review oversight committee may be appointed by the board to monitor the equivalent programs and report to the board that the programs meet the requirements set out in these rules. The oversight committee, if appointed, shall:

(1) Be composed of individuals who are not members of the board;

(2) Have full access to the peer review process, which is subject to oversight;

(3) Provide the board with the names of those certificate holders and firms which have undergone and have had accepted a peer review as well as whether such certificate holders and firms are meeting the terms, conditions, and remedial actions, if any, required by the reviewing organization; and

(4) Along with the board, establish procedures designed to ensure confidentiality of documents furnished or generated in the course of the review.

(i) The board shall establish rules and procedures and take all action necessary to ensure that the above materials remain privileged as to any third parties."

SECTION 4. Chapter 466, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§466-C Commissions and contingent fees.

(a) (1) A certificate holder shall not for a commission recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, when the certificate holder also performs for that client:

(A) An audit or review of a financial statement;

(B) A compilation of a financial statement when the certificate holder expects, or reasonably might expect, that a third party will use the financial statement and the certificate holder’s compilation report does not disclose a lack of independence; or

(C) An examination of prospective financial information.

This prohibition applies during the period in which the certificate holder is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in such listed services.

(2) A certificate holder who is not prohibited by this section from performing services for or receiving a commission and who is paid or expects to be paid a commission shall disclose that fact to any person or entity to whom the certificate holder recommends or refers a product or service to which the commission relates;

(3) Any certificate holder who accepts a referral fee for recommending or referring any service of a certificate holder to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client.

(b) (1) A certificate holder shall not:

(A) Perform for a contingent fee any professional services for, or receive such a fee from a client for whom the certificate holder or the certificate holder’s firm performs:

(i) An audit or review of a financial statement;

(ii) A compilation of a financial statement when the certificate holder expects, or reasonably might expect, that a third party will use the financial statement and the certificate holder’s compilation report does not disclose a lack of independence; or

(iii) An examination of prospective financial information; or

(B) Prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client; provided that a certificate holder may charge and receive a contingent fee when the certificate holder represents a client in a litigated tax case in any federal or state court, if the rules of such court so allow.

(2) The prohibition in paragraph (1) applies during the period in which the certificate holder is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in any such listed services.

(3) A contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service."

SECTION 5. Chapter 466, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"466-D Confidential communications. Except by permission of the client for whom a certificate holder performs services or the heirs, successors, or personal representatives of such client, a permit holder under this chapter, shall not voluntarily disclose information communicated to the permit holder by the client relating to and in connection with services rendered to the client by the permit holder. Such information shall be deemed confidential, provided that nothing herein shall be construed as prohibiting the disclosure of information required to be disclosed by the standards of the public accounting profession in reporting on the examination of financial statements or as prohibiting disclosures in court proceedings, in investigations or proceedings under section 466-9.1 or 466-9.2, in ethical investigations conducted by private professional organizations, or in the course of peer reviews, or to other persons active in the organization performing services for that client on a need to know basis or to persons in the entity who need this information for the sole purpose of assuring quality control."

SECTION 6. Section 466-1, Hawaii Revised Statutes, is amended to read as follows:

"§466-1 Purpose. It is the policy of this State, and the purpose of this chapter to promote the reliability of information that is used for guidance in financial transactions or for accounting for or assessing the financial status or performance of commercial [and], noncommercial, and governmental enterprises[, whether public or private]. The public interest requires that persons professing special competence in accountancy or offering assurance as to the reliability or fairness of presentation of such information shall have demonstrated their qualifications to do so, and that persons who have not demonstrated and maintained such qualifications not be permitted to [hold] represent themselves [out] as having such special competence or to offer such assurance; that the [professional] conduct of persons licensed as having special competence in accountancy be regulated in [a manner consistent with nationally recognized standards of professional conduct;] all aspects of their professional work; that a public authority competent to prescribe and assess the qualifications and to regulate the [professional] conduct of [practitioners of public accountancy] certificate holders be established; and that the use of titles [relating to the practice of public accountancy] that [are likely to mislead] have a capacity or tendency to deceive the public as to the status or competence of the persons using such titles be prohibited.

SECTION 7. Section 466-2, Hawaii Revised Statutes, is amended to read as follows:

"§466-2 Short title. This chapter may be cited as the "Public Accountancy Law [of 1973]."

SECTION 8. Section 466-3, Hawaii Revised Statutes, is amended to read as follows:

"§466-3 Definitions. When used in this chapter, the following terms have the meanings indicated:

"Attest" means providing the following financial statement services:

(1) Any audit, examination, or other engagement to be performed in accordance with the Statements on Auditing Standards or the Statements on Standards for Attestation Engagements;

(2) Any review of a financial statement to be performed in accordance with the Statements on Standards for Accounting and Review Services; and

(3) Any examination of prospective financial information to be performed in accordance with the Statements on Standards for Attestation Engagements.

The statements on standards specified in this definition shall be adopted by reference by the board pursuant to rulemaking and shall be those developed for general application by recognized national accountancy organizations and governmental organizations.

"Board" means the state board of [public] accountancy established under section 466-4.

"Certificate" means a certificate as "certified public accountant" issued under section 466-5 or corresponding provisions of prior law, or a corresponding certificate as certified public accountant issued after examination under the law of any other state. Nothing in this chapter shall be construed to state or imply that the holder of a certificate may lawfully engage in the practice of public accounting without holding a current permit to practice.

["Certified public accountant" means the designation given to a person recognized under section 466-5 or the law of any other state or foreign country.]

"Client" means a person or entity that agrees with a certificate holder or certificate holder’s employer to receive any professional service.

"Compilation" means providing a service to be performed in accordance with Statements on Standards for Accounting and Review Services (SSARS) that is presenting in the form of financial statements, information that is the representation of management or owners without undertaking to express any assurance of the statements.

"CPA firm" means a sole proprietorship, a corporation, a partnership, a limited liability company, or any other form of entity or organization practicing or organized for the purpose of practicing public accounting using the designation "Certified Public Accountant" or "CPA".

"Department" means the department of commerce and consumer affairs.

"Director" means the director of commerce and consumer affairs.

["Firm" means a sole proprietorship, a corporation, or a partnership.]

"Manager" means a manager of any limited liability company or foreign limited liability company.

"Member" means a member of any limited liability company or foreign limited liability company.

"Partner" means a partner in any general partnership, foreign partnership, limited liability partnership, or foreign limited liability partnership.

"Partnership" means any general partnership, foreign general partnership, limited liability partnership, or foreign limited liability partnership.

"Peer review" means a study, appraisal, or review of one or more aspects of the professional work of a certificate holder or CPA firm that performs attest or compilation services, by a person or persons who hold certificates and who are not affiliated with the certificate holder or CPA firm being reviewed.

"Permit" means a permit to [actively practice public accountancy issued under section 466-7.] practice issued under section 466-7 or corresponding provisions of prior law.

"Practice of public accountancy" means the performance or the offering to perform, by a person or firm holding itself out to the public as a certificate holder or using the designation "Certified Public Accountant" or "CPA" for a client or potential client of one or more kinds of services involving the use of accounting or auditing skills, including the issuance of reports on financial statements, or of one or more kinds of management advisory or consulting services, or the preparation of tax returns or the furnishing of advice on tax matters.

"Professional" means arising out of or related to the specialized knowledge or skills associated with CPAs.

"Public accountant" means the designation given to a person [licensed] registered under section 466-6, or the law of any other state or foreign country.

"Report," when used with reference to financial statements, means an opinion, report, or other form of language that states or implies assurance as to the reliability of any financial statements, and that also includes, or is accompanied by any statement or implication that the person or firm issuing it has special knowledge or competence in accounting or auditing. Such a statement or implication of special knowledge or competence may arise from use by the issuer of the report of names or titles indicating that the person or firm is an accountant or auditor, or from the language of the report itself. The term "report" includes any form of language which disclaims an opinion when such form of language is conventionally understood to imply any positive assurance as to the reliability of the financial statements referred to or special competence on the part of the person or firm issuing such language; and it includes any other form of language that is conventionally understood to imply such assurance or such special knowledge or competence.

"Rule" means any rule, regulation, or other written directive of general application duly adopted by the board.

"State" means any state [territory, or insular possession] of the United States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, and Guam; except that "this State" means the State of Hawaii.

SECTION 9. Section 466-4, Hawaii Revised Statutes, is amended by amending the title and subsection (a) to read as follows:

"§466-4 [Board] State board of [public] accountancy. (a) There shall be a board of public accountancy to be known as the state board of [public] accountancy, which shall consist of nine members. All members of the board shall be citizens of the United States and residents of this State. Seven members thereof shall hold current [licenses] certificates issued under this chapter, of which six of the seven members shall hold current permits to practice public accountancy and be in active practice; and two shall be public members."

SECTION 10. Section 466-5, Hawaii Revised Statutes, is amended to read as follows:

"§466-5 [License of] Qualifications for a certificate as a certified public accountant. [(a) A license and a permit are required to practice public accountancy. The board may license and grant the designation of "certified public accountant" to any person who has met the following:

(1) Attained eighteen years of age;

(2) Possesses a history of competence, trustworthiness, and fair dealing;

(3) Educational requirements of this section or section 466-5.5;

(4) Experience requirements of subsection (d);

(5) Examination requirements of subsection (e); and

(6) Paid the appropriate fees and assessments.

(b) The educational requirement for a license shall include a baccalaureate degree conferred by a college or university recognized by the board and:

(1) Completion of not less than thirty semester hours of study in addition to those semester hours required for a baccalaureate degree. The baccalaureate degree and the thirty semester hours of additional study shall include a minimum of eighteen semester hours of upper division or graduate level accounting or auditing subjects. The content of the additional qualifying hours of study shall be determined by rules adopted by the board pursuant to chapter 91; or

(2) If the applicant has a minimum of eighteen semester hours of upper division or graduate level accounting and auditing subjects, the applicant may elect to replace the thirty semester hours with an additional thirty months of professional experience in a public accounting practice. This experience shall not be credited toward the experience requirements in subsection (d).

(c) A person shall be exempt from the requirements in subsection (b) or section 466-5.5 if that person:

(1) Holds a current license as a public accountant under section 466-6; or

(2) Holds, and has continued to hold, a valid comparable certificate, registration, or license of certified public accountant of another state for a period of not less than ten years preceding the date of the person's application under this section, and has been in active practice of public accountancy in one or more states for a period of not less than five years preceding the date of the application.]

(a) The certificate of "certified public accountant" shall be granted to persons of good moral character who meet the education, experience, and examination requirements of the following subsections of this section and rules adopted thereunder and who make application therefor pursuant to section 466-A.

(b) Good moral character for purposes of this section means a history of competence, trustworthiness, and fair dealing. The board may refuse to grant a certificate on the ground of failure to satisfy this requirement only if there is a substantial connection between the lack of good moral character of the applicant and the professional responsibilities of a certificate holder and if the finding by the board of lack of good moral character is supported by clear and convincing evidence. When an applicant is found to be unqualified for a certificate because of a lack of good moral character, the board shall furnish the applicant a statement containing the findings of the board, a complete record of the evidence upon which the determination was based, and a notice of the applicant’s right of appeal.

(c) The education requirement for a certificate shall be as follows:

(1) A baccalaureate degree or its equivalent conferred by a college or university acceptable to the board, with an accounting concentration or equivalent as determined by board rule to be appropriate; plus an additional two and one-half years (thirty months) of full-time experience in public accounting, which must be verified by written certification by the holder of a permit to practice, issued under this chapter or under the law of another state, which additional two and one-half years shall not count toward the two years of experience required by subsection (e); or

(2) At least one hundred fifty semester hours of college education including a baccalaureate or higher degree conferred by a college or university acceptable to the board, and an accounting concentration or its equivalent as specified in the rules of the board;

provided that after December 31, 2009, paragraph (1) shall no longer be allowed and all applicants must meet the requirement set forth in paragraph (2).

(d) Any person who has begun, but not completed, the two and one-half years of experience described in subsection (c)(1) as of December 31, 2009, and who has met all other requirements for a certificate as of that date, and who completes the two and one-half years not later than June 30, 2012, shall be eligible for a certificate upon completion of the two and one-half years of experience.

[(d)] (e) Each applicant shall present satisfactory evidence in the form of a certified statement from present or former employer(s) that the applicant [has met one of the following experience requirements for license:

(1) Completion of one thousand five hundred chargeable hours in the performance of audits involving the application of generally accepted accounting principles and auditing standards earned while in public accounting practice; or

(2) Completion of two years of professional experience in public accountancy practice as defined in section 466-3. Completion of experience in private or government accounting or auditing work, deemed by the board to be equivalent to professional experience in public accountancy practice as defined in section 466-3, may be substituted for all or part of the two years of professional experience in public accounting practice. The nature, variety, and depth of acceptable private or government accounting or auditing experience shall be defined by the board in its rules.]

has had one year of experience for initial issuance of a certificate under this section. This experience shall include providing any type of service or advice involving the use of accounting, attest, compilation, management advisory, financial advisory, tax or consulting skills all of which was verified by a certificate holder, meeting requirements prescribed by the board by rule. This experience would be acceptable if it was gained through employment in government, industry, academia, or public practice.

[(e)] (f) The examination required to be passed [shall be in writing,] as a condition for the granting of a certificate shall be held at least twice a year, and shall test the applicant's knowledge of the subjects of accounting [theory, accounting practice,] and auditing, and such other related subjects as the board may specify by rule[.], including but not limited to business law and taxation. The time for holding the examination shall be [fixed] determined by the board and may be changed from time to time. The board shall prescribe by rule the methods of applying for and conducting the examination, including methods for grading [papers] and determining a passing grade required [by] of an applicant for a [license] certificate; provided that the board shall, to the extent possible, see to it that the examination itself, grading of the examination, and the passing grades are uniform with those applicable in all other states. The board may make such use of all or any part of the Uniform Certified Public Accountant Examination and Advisory Grading Service of the American Institute of Certified Public Accountants, and may contract with third parties to perform the administrative services with respect to the examination as the board deems appropriate to assist it in performing its duties herein.

[(f)] (g) The board [may] shall allow an applicant to sit for the Uniform Certified Public Accountant Examination, if the applicant has demonstrated good character and met at least one of the following:

(1) Baccalaureate degree in accounting conferred by a college or university acceptable to the board; [or]

(2) Baccalaureate degree with a major in a subject other than in accounting, plus eighteen semester hours of upper division or graduate level accounting or auditing subjects, conferred by a college or university acceptable to the board; or

(3) Baccalaureate degree or its equivalent in accounting, conferred by a college or university outside of the United States, and submission of a letter of acceptance from an accredited United States college or university to its advanced degree program or an educational equivalency report prepared by an evaluator approved by the board.

[(g)] (h) The board shall prescribe the terms and conditions under which an applicant who has taken the examination prescribed in subsection (e), but who has not satisfactorily completed the examination, may be given credit for any part thereof that the applicant has satisfactorily completed. The board may also provide a specific length of time for an applicant to apply for reexamination.

[(h) A person who passed the Uniform Certified Public Accountant Examination under the laws of another state may be exempted from taking the examination required pursuant to subsections (a)(5) and (e). The board shall prescribe the methods and requirements for exemption from examination requirements. The board shall prescribe the methods and requirements for exemption for the holder of a valid comparable certificate, registration, or license and a degree from a foreign country.

(i) A person who, on January 1, 1974, holds a license of certified public accountant issued under the laws of this State theretofore existing shall not be required to obtain an additional license of certified public accountant under this chapter, but shall otherwise be subject to all the provisions of this chapter; and the license theretofore issued shall, for all purposes, be considered a license issued under this chapter and subject to the provisions herein.

(j) Licenses shall be effective for a period not exceeding two years and shall be renewable biennially on or before December 31 of every odd-numbered year upon application to the board.

(k) The board may renew the license of a certified public accountant who completes a renewal application and fulfills the following requirements:

(1) Holds a valid and current license; and

(2) Paid appropriate fees and assessments.

(l) Failure to renew a license on or before December 31 of every odd-numbered year, shall constitute a forfeiture of license. Continued practice in public accountancy without renewing or restoring a license and permit shall constitute unlicensed activity. Any person engaged in unlicensed activity shall be subject to sections 466-9, 466-11, 487-13, and 26-9.

(m) The board shall specify the method and requirements of application for restoration of a forfeited license. The date of restoration of the license shall be the date of board approval of the restoration. Restorations shall not be retrospective.]

(i) The board may charge, or provide for a third party administering the examination to charge, each applicant a fee, in an amount prescribed by the board by rule."

SECTION 11. Section 466-6, Hawaii Revised Statutes, is amended to read as follows:

"§466-6 [License of public accountant.] Public accountants and firms of public accounts. [(a) A license and a permit are required to actively practice public accountancy. A person:

(1) Who has attained eighteen years of age;

(2) Who possesses a history of competence, trustworthiness, and fair dealing;

(3) Who was serving in the armed forces of the United States on June 15, 1955;

(4) Who was a resident of the Territory of Hawaii at the time of entering such service in the armed forces; and

(5) Who at the time of entering such service, met the requirements set forth in subparagraph (A), (B) or (C) of this subsection, shall, upon application to the board within six months after honorable discharge or release from such service, be licensed by the board as a "public accountant":

(A) Any person who held oneself out to the public as being engaged in the practice of public accountancy and who was engaged in the practice of public accountancy as the person's principal occupation, either on the person's own account or as a member of a firm, or as an employee of a certified public accountant, or public accountant, and was regularly assigned to accountancy engagements;

(B) Any person who was engaged in accounting or auditing work in the Territory of Hawaii as an employee of the United States, of the Territory, or of any county, in a position in grade GS-9 under the territorial classification schedule in effect on March 1, 1955, or the equivalent or higher grade; or

(C) Any person who was engaged in private accounting or auditing who has had not less than three years of experience in such work, or in public accounting, or both, and whose experience was of such a character and for a length of time sufficient in the opinion of the board to be substantially equivalent to three years of public accounting experience.

(b) Licenses shall be effective for a period not exceeding two years and shall be renewable biennially on or before December 31 of every odd-numbered year upon application to the board.

(c) A person who, on January 1, 1974, holds a license of public accountant under the laws of this State theretofore existing, shall not be required to obtain an additional license under this chapter, but shall otherwise be subject to all the provisions of this chapter; and such previous license shall, for all purposes, be considered a license under this chapter and subject to the provisions herein.] Persons who on July 1, 2002, hold certificates and permits as public accountants issued under prior law of this State shall be entitled to have such certificates and permits renewed upon fulfillment of the continuing professional education requirements for renewal of certificates set out in section 466-A, and on the renewal cycle and payment of fees there prescribed for renewal of certificates. Any such license not resulting in the issuance of a registration shall expire on July 1, 2003.

Firms of public accountants holding permits to practice as such issued under prior law of this State shall be entitled to have their permits to practice renewed pursuant to the procedures, and subject to the requirements for renewal of permits to practice for firms of certified public accountants, set out in section 466-7, except that firms of public accountants shall not be required to undergo peer review.

So long as such public accountant certificate holders hold valid certificates and permits to practice, they shall be entitled to perform attest and compilation services to the same extent as holders of certificates, and other holders of permits, and in addition they shall be entitled to use the title "public accountants" and "PA", but no other title. The holder of a registration issued under this section may only perform attest services in a firm that holds a permit issued under section 466-7."

SECTION 12. Section 466-7, Hawaii Revised Statutes, is amended to read as follows:

"§466-7 Permits to practice[.], attest, compilation competency, and peer review. [(a) A license and permit are required to actively engage in the practice of public accountancy. The board may grant or renew a permit to actively engage in the practice of public accountancy. Permits shall be initially issued and renewed for periods of two years but in any event shall expire on December 31 of every odd-numbered year. The board shall prescribe the methods and requirements for application.

(b) An applicant for the initial issuance or renewal of a permit shall have:

(1) A valid license;

(2) Completed continuing professional education hours, the content of which shall be specified by the board which may provide for special consideration by the board to applicants for permit renewal when, in the judgment of the board, full compliance with all requirements of continuing education cannot reasonably be met;

(3) Completed an application; and

(4) Paid appropriate fees and assessments.

(c) The board may grant a temporary permit to actively engage in the practice of public accountancy to any person who:

(1) Has attained eighteen years of age;

(2) Possesses a history of competence, trustworthiness, and fair dealing;

(3) Holds a valid license of certified public accountant or of public accountant issued under the laws of another state, or who holds a valid comparable certificate, registration, or license or degree from a foreign country determined by the board to be a recognized qualification for the practice of public accountancy in such other country;

(4) Incidental to the person's practice in such other state or country, desires to practice public accountancy in this State on a temporary basis; and

(5) Has completed an application.

Such permit shall be effective for a period not exceeding three months, and shall specify the nature and extent of the practice so permitted.

(d) All firms shall obtain a permit to practice. The board may issue or renew a permit to actively engage in the practice of public accountancy to any firm which submits a completed application and demonstrates qualifications as prescribed by the board.

(e) Failure to submit the required fees, continuing education hours, or other requirements for renewal as specified in this section by December 31 of every odd-numbered year, shall constitute forfeiture of the permit. Continued performance in the practice of public accountancy without a permit shall constitute unlicensed activity and the individual or firm shall be subject to sections 466-9, 466-11, 487-13, and 26-9.

(f) The board may restore forfeited permits to the individual or firm which satisfies the following:

(1) The requirements of subsection (a), (b), (c), or (d) of this section; and

(2) Payment of required fees.]

(a) The board shall grant or renew permits to practice to persons or entities that make application and demonstrate their qualifications therefor in accordance with the following subsections of this section or to CPA firms originally licensed in another state that establish an office in this State. A CPA firm must hold a permit issued under this section in order to provide attest services as defined or to use the title "CPAs" or "CPA firm". An individual certificate holder may participate in the practice of public accounting in a CPA firm, under the supervision of a permit holder, but may not use the title "Certified Public Accountant" or "CPA" unless the individual obtains a permit under this section.

(b) A CPA firm applicant for initial issuance or renewal of a permit to practice under this section shall be required to show that:

(1) Notwithstanding any other provision of law, at least two-thirds of the ownership of the firm, in terms of financial interests and voting rights of all partners, officers, shareholders, members, or managers, belongs to holders of a certificate who are licensed in some state, and such partners, officers, shareholders, members, or managers, whose principal place of business is in this State, and who perform professional services in this State hold a valid certificate issued under section 466-A or the corresponding provision of prior law or are public accountants registered under section 466-6. Although firms may include non-certificate holder owners the firm and its ownership must comply with rules promulgated by the board. For firms of public accountants, at least a simple majority of the ownership of the firm, in terms of financial interests and voting rights, must belong to holders of registrations under section 466-6.

(2) Any CPA or PA firm as defined in this chapter may include non-certificate holder owners; provided that:

(A) The firm designates a permit holder of this State, who is responsible for the proper registration of the firm and identifies that individual to the board;

(B) All non-certificate holder owners are active individual participants in the CPA or PA firm or affiliated entities; and

(C) The firm complies with such other requirements as the board may impose by rule;

(3) Any individual certificate holder who is responsible for supervising attest or compilation services and signs or authorizes someone to sign the accountant’s report on the financial statements on behalf of the firm, shall meet the competency requirements set out in the professional standards for such services; and

(4) Any individual certificate holder who signs or authorizes someone to sign the accountants’ report on the financial statements on behalf of the firm shall meet the competency requirement of the prior subsection.

(c) A CPA firm applying for initial issuance or renewal of a permit to practice under this section shall be required to register each office of the firm within this State with the board and to show that all attest and compilation services as defined herein rendered in this State are under the charge of a person holding a valid certificate issued under section 466-A or the corresponding provision of prior law or some other state.

(d) The board shall charge a fee for each application for initial issuance or renewal of a permit under this section in an amount prescribed by the board by rule.

(e) An applicant for initial issuance or renewal of permits under this section, in their application, shall list all states in which they have applied for or hold permits as CPA firms and list any past denial, revocation, or suspension of a permit by any other state, and each holder of or applicant for a permit under this section shall notify the board in writing, within thirty days after its occurrence, of any change in the identities of partners, officers, shareholders, members, or managers whose principal place of business is in this State, any change in the number or location of offices within this State, any change in the identity of the persons in charge of such offices, and any issuance, denial, revocation, or suspension of a permit by any other state.

(f) Firms which fall out of compliance with this section due to changes in firm ownership or personnel, after receiving or renewing a permit, shall take corrective action to bring the firm back into compliance as quickly as possible. The board may grant a reasonable period of time for a firm to take such corrective action. Failure to bring the firm back into compliance within a reasonable period as defined by the board shall result in the suspension or revocation of the firm permit.

(g) The board by rule shall require as a condition to renewal of permits under this section, that CPA firm applicants undergo, no more frequently than once every three years, peer reviews conducted in such manner as the board shall specify, and such review shall include a verification that individuals in the firm who are responsible for supervising attest and compilation services and sign or authorize someone to sign the accountant’s report on the financial statements on behalf of the firm meet the competency requirements set out in the professional standards for such services; provided that any such rule:

(1) Shall be promulgated reasonably in advance of the time when it first becomes effective;

(2) Shall include reasonable provision for compliance by an applicant showing that it has, within the preceding three years, undergone a peer review that is a satisfactory equivalent to peer review generally required pursuant to this subsection (g);

(3) Shall require, with respect to peer reviews contemplated by paragraph (2), that they be subject to oversight by an oversight body established or sanctioned by board rule, which body shall periodically report to the board on the effectiveness of the review program under its charge, and provide to the board a listing of firms that have participated in a peer review program that is satisfactory to the board; and

(4) Shall require, with respect to peer reviews contemplated by paragraph (2), that the peer review processes be operated and documents maintained in a manner designed to preserve confidentiality, and that neither the board nor any third party (other than the oversight body) shall have access to documents furnished or generated in the course of the review.

(h) An individual person who wishes to obtain a permit as a CPA firm may do so upon fulfillment of the requirements of this chapter. An individual may also obtain a permit, but not become a CPA firm as defined, upon meeting the requirements of this chapter, subject to the following modifications:

(1) If an individual person seeks a permit, the experience required under section 466-5(e) must consist of two years of experience in the practice of public accounting, which must be verified by written certification by the holder of a permit to practice issued under this chapter or under the law of another state; provided that an individual who held a permit on or before December 31, 2002, shall be deemed to have satisfied this requirement; and

(2) An individual person may satisfy the peer review requirement of section 466-7(g) by showing that the person was within the past three years, employed by, or an owner of a CPA firm that met the peer review requirement, at the time such peer review was completed.

(i) The board may grant a temporary permit to actively engage in the practice of public accountancy to any person who:

(1) Has attained eighteen years of age;

(2) Possesses a history of competence, trustworthiness, and fair dealing;

(3) Holds a valid license of certified public accountant or of public accountant issued under the laws of another state, or who holds a valid comparable certificate, registration, or license or degree from a foreign country determined by the board to be a recognized qualification for the practice of public accountancy in such other country; and

(4) Incidental to the person’s practice in such other state or country, desires to practice public accountancy in this State on a temporary basis; and

(5) Has completed an application.

Such permit shall be effective for a period not exceeding three months, and shall specify the nature and extent of the practice so permitted."

SECTION 13. Section 466-8, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) An application for admission to the examination described in [section 466-5(e)] this chapter shall be accompanied by the application and examination fees. The board may prescribe by rule the terms and conditions upon which an applicant who is unable to attend the examination may receive a credit in the amount of the fee paid toward a subsequent examination."

SECTION 14. Section 466-9, Hawaii Revised Statutes, is amended by amending the title and subsection (a) to read as follows:

"§466-9 [Disciplinary action.] Enforcement against holders of certificates, permits, and registrations. (a) In addition to any other actions authorized by law, in accordance with chapter 91, the board may take the following action:

(1) Cancel or revoke any license or permit issued under section 466-5, 466-6, or 466-7, or corresponding provisions of prior law;

(2) Suspend a license or permit for a period of not more than two years;

(3) Refuse to renew a license or permit for a period of not more than two years;

(4) Reprimand, censure or limit the scope of practice of any licensee or firm;

(5) Impose an administrative fine not exceeding $1,000;

(6) Place a licensee or firm on probation;

(7) Require a firm to have a peer review or quality review conducted in the manner specified by the board; or

(8) Require a licensee to attain satisfactory completion of additional continuing professional education hours as specified by the board."

SECTION 15. Section 466-10, Hawaii Revised Statutes, is amended to read as follows:

"§466-10 [Prohibited] Unlawful acts. [(a) Use of title "certified public accountant":

(1) Except as otherwise provided in subsection (d) of this section, no person shall assume or use the title or designation "certified public accountant" or the abbreviation "CPA" or any other title, designation, words, letters, sign, card, or device likely to be confused with "certified public accountant" or "CPA" or tending to indicate that the person is a certified public accountant, unless the person holds a current license of certified public accountant issued under this chapter and a current permit to practice issued under this chapter;

(2) No partnership or corporation shall assume or use the title or designation "certified public accountant" or the abbreviation "CPA" or any other title, designation, words, letters, abbreviation, sign, card, or device likely to be confused with "certified public accountant" or "CPA" or tending to indicate that such partnership or corporation is composed of certified public accountants, unless each of the partners of the partnership who are in the practice of public accountancy in this State, or each of the shareholders of the corporation who are in the practice of public accountancy in this State, holds a current license of certified public accountant issued under this chapter and a current permit to practice issued under this chapter; and

(3) No person shall assume or use the title or designation "certified public accountant" or the abbreviation "CPA" or any other title, designation, words, letters, abbreviation, sign, card, or device likely to be confused with "certified public accountant" or "CPA", in conjunction with names indicating or implying that there is a partnership or corporation, or in conjunction with the designation "and Company" or "and Co." or a similar designation if, in any case, there is in fact no bona fide partnership or corporation existing under the laws of this State.

(b) Use of title "public accountant":

(1) Except as otherwise provided in subsection (d) of this section, no person shall assume or use the title or designation "public accountant" or the abbreviation "PA" or any other title, designation, words, letters, sign, card, or device likely to be confused with "public accountant" or "PA" or tending to indicate that the person is a public accountant unless the person holds a current registration of public accountant issued under this chapter and a current permit to practice issued under this chapter;

(2) No partnership or corporation shall assume or use the title or designation "public accountant" or the abbreviation "PA" or any other title, designation, words, letters, abbreviation, sign, card, or device likely to be confused with "public accountant" or "PA" or tending to indicate that the partnership or corporation is composed of public accountants, unless each of the partners of the partnership who are in the practice of public accountancy in this State, or each of the shareholders of the corporation who are in the practice of public accountancy in this State, holds a current license of public accountant issued under this chapter and a current permit to practice issued under this chapter; and

(3) No person shall assume or use the title or designation "public accountant" or the abbreviation "PA" or any other title, designation, words, letters, abbreviation, sign, card, or device likely to be confused with "public accountant" or "PA", in conjunction with names indicating or implying that there is a partnership or corporation, or in conjunction with the designation "and Company" or "and Co." or a similar designation if, in any case, there is in fact no bona fide partnership or corporation existing under the laws of this State.

(c) Representation of special knowledge:

(1) No person shall sign or affix the person's name or any trade or assumed name used by the person in the person's profession or business with any wording indicating, suggesting, or implying that the person is an accountant or auditor, or with any wording indicating, suggesting, or implying that the person has special knowledge in accounting or auditing, to any opinion or certificate attesting in any way to the reliability of any representation or estimate in regard to any person or organization embracing:

(A) Financial information, or

(B) Facts respecting compliance with conditions established by law or contract, including but not limited to statutes, ordinances, regulations, grants, loans, and appropriations, unless the person holds a current license and a current permit to practice issued under this chapter.

(2) No person shall sign or affix a partnership or corporate name with any wording indicating, suggesting, or implying that it is a partnership or corporation composed of accountants or auditors or persons having special knowledge of accounting or auditing, to any opinion or certificate attesting in any way to the reliability of any representation or estimate in regard to any person or organization embracing:

(A) Financial information, or

(B) Facts respecting compliance with conditions established by law or contract, including but not limited to statutes, ordinances, regulations, grants, loans, and appropriations,

unless each of the partners of the partnership who are in the practice of public accountancy in this State or each of the shareholders of the corporation who are in the practice of public accountancy in this State holds a current license of certified public accountant or of public accountant issued under this chapter and a current permit to practice issued under this chapter.

(d) Nothing contained in this chapter shall prohibit any person:

(1) Who holds a current license of certified public accountant issued under this chapter from assuming and using the title and designation "certified public accountant" or "CPA"; provided that if the person does not also hold a current permit to practice issued under this chapter, the person shall clearly indicate in assuming and using said title that the person does not hold the person's self out to be in the practice of public accountancy;

(2) Who holds a current license of public accountant issued under this chapter from assuming and using the title and designation "public accountant" or "PA"; provided that if the person does not also hold a current permit to practice issued under this chapter, the person shall clearly indicate in assuming and using the title that the person does not hold the person's self out to be in the practice of public accountancy;

(3) Who holds a temporary practice permit issued under this chapter from using the title and designation under which the person is generally known in the state or country from which the person received a valid comparable certificate, registration, or license for the practice of public accountancy;

(4) Who is not a certified public accountant or public accountant from serving as an employee of, or an assistant to, a certified public accountant or public accountant; provided that the employee or assistant works under the control and supervision of a person who holds a current license of certified public accountant or of public accountant and a current permit to practice issued under this chapter; and provided further that the employee or assistant does not issue any statement or report over the person's name except office reports to the person's employer as are customary, and that the employee or assistant is not in any manner held out to the public as a certified public accountant or public accountant;

(5) Who is an officer, employee, partner, or principal of any organization from signing or affixing the person's name to any statement or report in reference to the affairs of that organization; provided that in so signing or affixing the person's name the person shall clearly indicate that the person is an officer, employee, partner, or principal of the organization, and the position, title, or office which the person holds therein;

(6) Who is a public official or public employee from the performance of the person's duties as such; or

(7) Who is an attorney at law from engaging in practice as such.]

(a) Only certificate holders may issue a report on financial statements of any person, firm, organization, or governmental unit or offer to render or render any attest or compilation service, as defined herein. This restriction does not prohibit any act of a public official or public employee in the performance of that person’s duties as such; or prohibit the performance by any non-certificate holder of other services involving the use of accounting skills, including the preparation of tax returns, management advisory services, and the preparation of financial statements without the issuance of reports thereon. Non-certificate holders may prepare financial statements and issue non-attest transmittals or information thereon which do not purport to be in compliance with the Statements on Standards for Accounting and Review Services (SSARS).

(b) Certificate holders performing attest or compilation services must provide those services in accordance with professional standards.

(c) A person not holding a valid certificate shall not use or assume the title "certified public accountant", or the abbreviation "CPA" or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that such person is a certified public accountant.

(d) No firm shall provide attest services or assume or use the title "certified public accountants", or the abbreviation "CPAs", or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that such firm is a CPA firm unless:

(1) The firm holds a valid permit issued under section 466-7; and

(2) Ownership of the firm is in accord with this chapter and rules promulgated by the board.

(e) No person shall assume or use the title "public accountant", or the abbreviation "PA", or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that such person is a public accountant unless that person holds a valid registration issued under section 466-6.

(f) A firm not holding a valid permit issued under section 466-7 shall not provide attest services or assume or use the title "public accountant", the abbreviation "PA", or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that such firm is composed of public accountants.

(g) A person or firm not holding a valid certificate, registration, or permit issued under section 466-5.1, 466-6, or 466-7 shall not assume or use the title "certified accountant", "chartered accountant", "enrolled accountant", "licensed accountant", "registered accountant", "accredited accountant", or any other title or designation likely to be confused with the titles "certified public accountant" or "public accountant", or use any of the abbreviations "CA", "LA", "RA", "AA", or similar abbreviation likely to be confused with the abbreviations "CPA" or "PA." The title "enrolled agent" or "EA" may only be used by individuals so designated by the Internal Revenue Service.

(h) (1) Non-certificate holders may not use language in any statement relating to the financial affairs of a person or entity which is conventionally used by certificate holders in reports on financial statements. In this regard, the following safe harbor language, and such other safe harbor language as the board may provide by rule, may be used by non-certificate holders in connection with such financial information:

(I/we) have prepared the attached financial statement (or other financial information as applicable) but (I am/we are) NOT licensed by the State of Hawaii to express any form of opinion or assurance regarding financial statements or other financial information.

Such language shall appear in a typeface or font at least as large as other typeface or font used anywhere in the document.

(2) No person or firm not holding a valid certificate, registration, or permit issued under section 466-A, 466-6, or 466-7 shall assume or use any title or designation that includes the words "accountant", "auditor", or "accounting", in connection with any other language (including the language of a report) that implies that such person or firm holds such a certificate, permit, or registration or has special competence as an accountant or auditor, provided that this subsection does not prohibit any officer, partner, member, manager, or employee of any firm or organization from affixing that person's own signature to any statement in reference to the financial affairs of such firm or organization with any wording designating the position, title, or office that the person holds therein nor prohibit any act of a public official or employee in the performance of the person’s duties as such.

(i) No person holding a registration or certificate or firm holding a permit under this chapter shall use a professional or firm name or designation that is misleading about the legal form of the firm, or about the persons who are partners, officers, members, managers or shareholders of the firm, or about any other matter; provided that names of one or more former partners, members, managers, or shareholders may be included in the name of a firm or its successor.

(j) None of the foregoing provisions of this section shall have any application to a person or firm holding a certification, designation, degree, or certificate granted in a foreign country entitling the holder thereof to engage in the practice of public accountancy or its equivalent in such country, whose activities in this State are limited to the provision of professional services to persons or firms who are residents of, governments of, or business entities of the country in which the person holds such entitlement, who performs no attest or compilation services as defined and who issues no reports with respect to the financial statements of any other persons, firms, or governmental units in this State, and who does not use in this State any title or designation other than the one under which the person practices in such country, followed by a translation of such title or designation into the English language, if it is in a different language, and by the name of such country.

(k) No holder of a certificate issued under section 466-A or a registration issued under section 466-6 shall perform attest services through any business form that does not hold a valid permit issued under section 466-7.

(l) No individual certificate holder shall issue a report in standard form upon a compilation of financial information through any form of business that does not hold a valid permit issued under section 466-7 unless the report discloses the name of the business through which the individual is issuing the report, and the individual:

(1) Signs the compilation report identifying the individual as a CPA or PA;

(2) Meets the competency requirement provided in applicable standards; and

(3) Undergoes no less frequently than once every three years, a peer review conducted in such manner as the board by rule shall specify, and such review shall include verification that such individual has met the competency requirements set out in professional standards for such services.

(m) Nothing herein shall prohibit a practicing attorney or firm of attorneys from preparing or presenting records or documents customarily prepared by an attorney or firm of attorneys in connection with the attorney’s professional work in the practice of law.

(n) (1) A certificate holder shall not for a commission recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, when the certificate holder also performs for that client:

(A) An audit or review of a financial statement; or

(B) A compilation of a financial statement when the certificate holder expects, or reasonably might expect, that a third party will use the financial statement and the certificate holder’s compilation report does not disclose a lack of independence; or

(C) An examination of prospective financial information.

This prohibition applies during the period in which the certificate holder is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in such listed services;

(2) A certificate holder who is not prohibited by this section from performing services for or receiving a commission and who is paid or expects to be paid a commission shall disclose that fact to any person or entity to whom the certificate holder recommends or refers a product or service to which the commission relates;

(3) Any certificate holder who accepts a referral fee for recommending or referring any service of a certificate holder to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client.

(o) (1) A certificate holder shall not:

(A) Perform for a contingent fee any professional services for, or receive such a fee from a client for whom the certificate holder or the certificate holder’s firm performs:

(i) An audit or review of a financial statement;

(ii) A compilation of a financial statement when the certificate holder expects, or reasonably might expect, that a third party will use the financial statement and the certificate holder's compilation report does not disclose a lack of independence; or

(iii) An examination of prospective financial information; or

(B) Prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client;

(2) The prohibition in paragraph (1) applies during the period in which the certificate holder is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in any such listed services; or

(3) Except as stated in the next sentence, a contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service. Solely for purposes of this section, fees are not regarded as being contingent if fixed by courts or other public authorities, or, in tax matters, if determined based on the results of judicial proceedings or the findings of governmental agencies. A certificate holder’s fees may vary depending, for example, on the complexity of services rendered."

SECTION 16. Section 466-12, Hawaii Revised Statutes, is amended to read as follows:

"§466-12 [Ownership of accountant's] Certificate holders' working papers[.]; clients' records. [All] (a) Subject to section 466-D, all statements, records, schedules, working papers, and memoranda made by the [licensee,] certificate holder or a partner, shareholder, officer, director, member, manager, or employee of a certificate holder incidental to, or in the course of, rendering services to a client [in the practice of public accountancy,] while a certificate holder, except the reports submitted by the [licensee] certificate holder to the client and except for records that are part of the client’s records, shall be and remain the property of the [licensee] certificate holder in the absence of an express agreement between the [licensee] certificate holder and the client to the contrary. No statement, record, schedule, working paper, or memorandum shall be sold, transferred, or bequeathed, without the consent of the client or the client’s personal representative or assignee, to anyone other than one or more surviving partners [or], stockholders, members or new partners [or], new stockholders, or new members of the [licensee] certificate holder, or any combined or merged firm or successor in interest to the [licensee or operation of law.] certificate holder. Nothing in this section shall be construed as prohibiting any temporary transfer of workpapers or other material necessary in the course of carrying out peer reviews or as otherwise interfering with the disclosure of information pursuant to section 466-D.

(b) A certificate holder shall furnish to a client or former client, upon request and reasonable notice:

(1) A copy of the certificate holder’s working papers, to the extent that such working papers include records that would ordinarily constitute part of the client’s records and are not otherwise available to the client; and

(2) Any accounting or other records belonging to, or obtained from or on behalf of, the client that the certificate holder removed from the client’s premises or received for the client’s account; the certificate holder may make and retain copies of such documents of the client when they form the basis for work done by the certificate holder.

(c) Nothing herein shall require a certificate holder to keep any workpaper beyond the period prescribed in any other applicable statute."

SECTION 17. Section 466-5.5, Hawaii Revised Statutes, is repealed.

["[§466-5.5] Educational requirements for examination and licensure effective December 31, 2000. (a) Effective December 31, 2000, an applicant for the Uniform Certified Public Accountant Examination shall have at least one-hundred-fifty semester hours of college education. Within the one-hundred- fifty semester hours, the applicant shall have:

(1) A baccalaureate or higher degree conferred by a college or university acceptable to the board; and

(2) An accounting concentration or its equivalent as specified in the rules of the board;

except that examination applicants holding conditional credit for the Uniform Certified Public Accountant Examination before December 31, 2000, may continue to meet the educational requirements provided in section 466-5(f) until such time as the conditional credit expires.

(b) Effective December 31, 2000, an applicant shall meet the educational requirements of subsection (a) to obtain a certified public accountant license, except that applicants for licensure who have successfully completed the Uniform Certified Public Accountant Examination before December 31, 2000, or held conditional credit before December 31, 2000, and subsequently completed the examination before the conditional credit expired, may continue to meet the educational requirements of section 466-5(b)."]

SECTION 18. Section 466-13, Hawaii Revised Statutes, is repealed.

["§466-13 Quality review committee. The board may appoint a quality review committee to review the publicly available professional work of firms on a random basis, without any requirement of a formal complaint or suspicion of impropriety on the part of any particular firm. The identity of the person for whom the professional work is done shall be preserved in confidence. In the event the review discloses information that a firm has not met the appropriate professional standards, the board may require further investigation of the firm. Neither the proceedings nor the records of the quality review committees shall be subject to discovery. Except as hereinafter provided, no person in attendance at a meeting of the committee shall be required to testify as to what transpired at the meeting; provided that the statements made by any person in attendance at the meeting who is a party to an action or proceeding the subject matter of which was reviewed at the meeting, shall be subject to discovery."]

SECTION 19. In codifying the new sections added by sections 2, 3, 4, and 5 of this Act, and referred to in other sections of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 20. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 21. This Act shall take effect on July 1, 2002, except that the amendments made to section 466-7(g), Hawaii Revised Statutes, by section 12 of this Act relating to peer review shall be effective on January 1, 2004.

INTRODUCED BY:

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