California Enacts New Laws Affecting Accountants

On August 23, 2002, California Governor Gray Davis signed three bills that affect accountants doing business in the state.

Key provisions of the new laws:

  • Accountants cannot accept positions with companies they have audited within the last year.
  • Auditors' workpapers must be kept for seven years before they are destroyed.
  • The California state Board of Accountancy must be composed of a majority of non-accountants starting in January 2003.

An announcement was also made that the state board is trying to take action to suspend Andersen's license to practice. Media accounts say Gov. Davis hopes to gain political leverage from these steps, combined with an advertising campaign focused on the business practices of his opponent in the upcoming gubernatorial election.

Gov. Davis's campaign advertisements blast his opponent, Bill Simon, for participating in an offshore tax shelter now under investigation by the IRS. This matter became public knowledge after the Justice Department released the names of accounting firm KPMG's tax clients. A Treasury spokesperson later admitted the IRS erred in failing to protect the confidentiality of these clients.

During the bill-signing ceremony, Gov. Davis is quoted as having remarked, "A free market does not mean free from ethical standards."

-Rosemary Schlank