7 PROPOSED ADMINISTRATIVE RULES

 

SOAHR 2006-067

 

DEPARTMENT OF LABOR AND ECONOMIC GROWTH DIRECTORS OFFICE

ACCOUNTING GENERAL RULES

Filed with the Secretary of State on These rules become effective March 1, 2008.

(By authority conferred on the department of labor and economic growth by sections 308 and 721 of 1980 PA 299, MCL 339.308 and 339.721, and Executive Reorganization Order No.1996-2 and 2003-1,

MCL 445.2001 and MCL 445.2011.

 

Draft August 2, 2007

 

R 338.5101, R 338.5103, R 338.5114, R 338.5140, R 338.5145, R 338.5210, and R 338.5405 of the

Michigan Administrative Code are amended; R 338. 5102, R 338.5104, R 338.5501 and R 338.5503 are added as follows:

 

PART 1. GENERAL PROVISIONS

 

R 338.5101 Definitions.

Rule 101. (1) As used in these rules:

(a)           "Act" means Act No. 1980 PA 299,   of the Public Acts of 1980, as amended, being §MCL

339.101 to MCL 339.2919 et seq. of the Michigan Compiled Laws, and known as the occupational code.

(b)           "Audit" or "examination" means an examination applying generally accepted auditing standards, including any procedure undertaken to verify or test the reasonableness of financial information presented in financial statements with a view of expressing an opinion or commenting on the fairness of the presentation.

(c) "Attest services" means an audit, review, or agreed upon procedures engagement performed in accordance with applicable professional standards pursuant to R 338.5101(k), R 338.5101(l), R 338.5102, and R 338.5103.

(c)   (d) "Board" means the Michigan state board of accountancy.

(d)   (e) "Client" means the person or persons or entity that retains a licensee for the performance of professional services.

(e)   (f) "Continuing education period" means all or part of a year beginning July 1 and ending June 30.

(f)   (g) "CPA" or "certified public accountant" means a person holding a certificate of certified public accountant granted by the department.

 

 

(g)   (h) "Disclose" means to provide a written communication from a CPA or a CPA firm informing the client, prior to making a recommendation or referral, that the CPA or CPA firm will receive a commission, referral fee, or contingency fee from a third party for recommendations or referrals of products and/or services. May 27, 1999

(h)    (i) "Enterprise" means a person, persons, or entity for which a licensee performs professional services.

(i)    (j) "Financial statements" means statements and related footnotes that show financial position, results of operations, and cash flows on the basis of generally accepted accounting principles or another comprehensive basis of accounting. The term does not include incidental financial data included in management advisory services reports to support recommendations to a client and does not include tax returns and supporting schedules of tax returns.

(j)      (k) "Generally accepted accounting principles" means accounting principles of professional conduct related to individual accounting engagements. or standards generally accepted in the United States, including accounting principles board opinions, accounting research bulletins, and statements on  standards for accounting and review services published by the American institute of  certified public accountants and statements of financial accounting standards published by the financial accounting standards board and its predecessors Copies of accounting principles, board opinions, accounting research bulletins, and statements of financial accounting standards may be obtained from the Board of Accountancy, Department of Consumer and Industry Services,P.O. Box 30018  Lansing, MI 48909-7518, at a cost of $85.00 as of the time of adoption of these rules, and from Harcourt Brace, 6277 Sea Harbor Drive, Orlando, FL 32887, at a cost of $69.00 as of the time of adoption of  these rules.

(k)   (l) "Generally accepted auditing standards" means auditing standards published by the American institute of certified public accountants the standards of professional conduct related to individual audit engagements. Copies of the standards may be obtained from the Board of Accountancy, Department of Consumer   and   Industry Services, P.O. Box 30018 Lansing, MI 48909, at  a  cost of

$85.00 as of the time of adoption of these rules, and from Harcourt Brace, 6277 Sea Harbor Drive, Orlando, FL 32887 at a cost of $69.00 as of the time of adoption of these rules.

(l)   (m) "Professional engagement" means an agreement between a client and a licensee relative to the performance of professional services.

(m)   (n) "Professional services" means any services performed or offered to be performed by a licensee for a client in the course of the practice of public accounting, pursuant to MCL 339.720.

(n)   (o) "Qualifying hours" means continuing education hours that comply with part 2 of these rules.

(o)   (p) "State" means the 50 states of the United States of America, Washington, D.C., Puerto Rico, Guam, and the Virgin Islands and the Commonwealth of the Northern Mariana Islands.

(2)   Terms defined in the act have the same meanings when used in these rules.

 

R 338.5102 Standards of professional practice adopted by reference.

Rule 102. (1) The following standards specified in this rule are adopted in these rules by reference and are available at a cost as of the adoption of these rules:

(a)   “AICPA Professional Standards as of June 1, 2006.” The publication is available from the American Institute of Certified Public Accountants (AICPA) at 1-888-777-7077, 220 Leigh Farm Road, Durham, NC 27702-8110. Cost: $119.00 for members; $148.75 for non-members.

(b)    The accounting principles defined by the AICPA in AU Section 411. AU Section 411 is available for download at no charge at www.pcaobus.org.

(c)      The auditing standards issued by the Public Company Accounting Oversight Board (PCAOB) in the publication entitled “PCAOB Standards and Related Rules, as of December

 

 

2006.” The publication is available for download at no charge at www.pcaob.org.  A copy of the publication may be purchased from the AICPA pursuant to subdivision (a) of this subrule.  Cost:

$85.50 for members; $106 for nonmembers.

(d)   The auditing standards published by the Government Accounting Office in the publication entitled “Government Auditing Standards,” effective January 2007. The publication is available for download at no charge at http://www.gao.gov/govaud/ybk01.htm.

(e)    The auditing standards published by the International Auditing and Assurance Standards Board (IAASB). The standards are available for download at no charge at www.iaasb.org.

(f)          For peer reviews, the “Standards for Performing and Reporting on Peer Reviews,” promulgated by the AICPA, effective January 1, 2005. The standards are available from the AICPA pursuant to subdivision (a) of this subrule. Cost: $299 for members; $373.75 for nonmembers.

(2)       The accounting, auditing and peer review standards adopted by reference in subdivisions (a), (d), and (f) of this subrule are available for inspection at the Department of Labor and Economic Growth, Bureau of Commercial Services, 2501 Woodlake Circle, Okemos, Michigan 48864-5955, 517-241-9228.

(3)    Copies of the standards adopted in subdivisions (a) to (f) of this subrule may be obtained from the department at the cost specified in subdivision (a) to (f) of this subrule, plus $20.00 for shipping and handling.

(4)   A downloaded copy of the standards adopted in subdivisions (b) to (e) of this subrule may be obtained from the department for a cost of 51.6 cents per image image.

 

R 338.5103    Performance of compilation and review services.

Rule 103. Pursuant to the definition of the practice of public accounting in section 702 720 of the act, in the performance of compilation and review services, a licensee shall adhere  to  the  standards  set forth in the publication of the American institute of  certified  public  accountants entitled “Statements on Standards for Accounting and Review Services.” Nos. 1 through 7.” The standards are adopted by reference in these rules. Copies of the adopted standards may be purchased from the Board of Accountancy, Department of Consumer and Industry Services, P.O. Box 30018, Lansing,  MI 48909-7518, at a cost of $30.00 as of the time of adoption of these rules, or from the American Institute of Certified Public Accountants,  Harborside Financial Center, 201 Plaza Three, Jersey City,  NJ 07311, at a cost of $19.00 as of the time of adoption of these rules. The following standards are adopted by reference:

(a)    The “Statements on Standards for Accounting and Review Services” are provided in the publication “AICPA Professional Standards as of June 1, 2006,” and adopted by reference pursuant to R 338.5102(1)(a).

(b)     The “Statements on Standards for Accounting and Review Services” are available for purchase and inspection pursuant to R 338. 5102(1)(a), R 338.5102(3) and R 338.5102(4).

 

R 338.5104 Retention of documents

Rule 104. (1) With the exception of documents related to a peer review, all registered firms and licensed individuals shall retain sufficient documentation, in any form, with regard to services performed while engaged in the practice of public accounting, as well as evidence obtained and conclusions reached, for a period of not less than 5 years.

(2)     Documents related to a peer review shall be retained in accordance with the AICPA's retention policies pursuant to R 338.5102(1)(f) or until final adjudication of a complaint related to a peer review, whichever is later.

 

 

(3)      Documentation shall be consistent with that required by professional standards or promulgated by the applicable nationally recognized professional standards setting organizations.

 

PART 2.  EXAMINATIONS LICENSURE REQUIREMENTS

 

R 338.5114    Credit hour requirements for concentration in accounting.

Rule 114. (1) The department shall consider a person as having met the concentration in accounting requirements of section 725(1)(e) of 1980 PA 299,

MCL 339.725, if the person provides proof of having completed 150 semester hours of academic credit at an accredited college or university, including either of the following:

(a)       A graduate master's degree in accounting or a master of business administration degree that that includes not fewer than 12 semester hours of graduate level accounting courses. The 12 semester hours of accounting courses shall not include tax or information systems courses.

(b)    An academic program consisting of both of the following:

(i)          Thirty semester hours of accounting subjects, including not more than 6 semester hours of taxation. Additional semester hours in accounting subjects may be applied toward the general business subject requirements of subdivision (b) (ii) and (iii) of this subrule.

(ii)    Thirty-nine additional semester hours, including a minimum of 3 semester hours each in business communications. A business communications course shall include all of the following: improving business writing skills, improving presentation skills, and effective listening skills. and computer technology

(iii)    and a A minimum of 3 semester hours, but not more than 12 semester  hours,  in not fewer than 5 of the following areas:

(A)  Business law.

(B)  Economics.

(C)  Ethics.

(D)  Finance.

(E)  Management.

(F)   Marketing.

(G)  Taxation.

(H)  Statistics.

(I)    Business policy.

(2) Credit may be earned only once for an accounting or general business topic. If the department determines that 2 courses are duplicative, then only the semester hours of 1 course shall be counted toward the semester hour requirement.

 

R 338.5140    Permit for temporary practice.

Rule 140. (1) An accountant shall obtain a permit and pay the appropriate fee for each engagement in this state by an accountant, or on behalf of his or her firm, who does not hold a license to practice public accountancy in this state. The applicant shall hold a license as a certified public accountant of another state, or hold a title from a foreign country, recognized by the board as comparable to the Michigan certificate of certified public accountant and shall be practicing public accountancy under the certificate or license in the grantor state or country.

(2)    If approved by the department, the term of the permit shall begin on the date approved unless otherwise specified and shall be for a specified period, but shall not be for more than 1 year.

 

 

(3)    The temporary practice shall be performed by, or under the direct supervision of, a licensed certified public accountant or the holder of a title from a foreign country who is recognized under subrule (1) of this rule.

(4)   A temporary permit is not required if the work relates to a Michigan-based division or subsidiary of an firm entity, if the parent firm entity is located in another state or foreign country and is a client of the certified public accountant, firm, or foreign accountant, and if a separate rendering presentation of financial statements with a related independent auditor’s report or review report,  or accounting reports or attesting an attestation regarding to the reliability of a representation or estimate is not made for the division or subsidiary on a stand-alone basis.

(5)   A temporary permit is not required if the work is to be performed through the applicant’s employer who presently holds the license to practice public accountancy in this state.

(6)   A temporary permit issued to an accountant shall also constitute a temporary permit for his or her firm, if his or her firm is not presently licensed in this state.

(5) (7) If another state or foreign country charges a fee for providing an affidavit or certificate of professional standing for determining whether the applicant is qualified to practice public accountancy temporarily in this state, then the applicant shall pay the fee.

 

R  338.5145  Adoption  of  accreditation  standards  by  reference;  board  recognition  of  educational institutions; requirements for concentration in accounting.

Rule 145. (1) For the purpose of identifying the educational institutions that meet the educational standards required by the board to satisfy section 725 of the act, both all of the following provisions apply:

(a)      The board adopts the criteria for accreditation of the north central association of colleges and schools, commission on institutions of higher education, included in the publication entitled "Handbook of Accreditation, Second Third Edition." Accreditation by the north central association of colleges and schools or an affiliated association is prima facie proof of having met the criteria. Copies of the criteria are available for inspection and purchase at the Board of Accountancy, Consumer and Industry  Services, P.O.Box 30018, Lansing, MI 48909-7518, at a cost of $25.00 as of the time of adoption of  these rules, or may be purchased. from the North Central Association of Colleges and Schools, Commission on Institutions of Higher Education The Higher Learning Commission, 30 N. La Salle Street, Suite 2400, Chicago IL 60602-2504, at a cost of $18.00 $33.50 as of the time of adoption of these rules.

(b)   The criteria may be downloaded for no charge at www.ncahlc.org/. A downloaded copy may be purchased from the department pursuant to R 338.5102(4).

(c)    The criteria are available for inspection and purchase from the Department of Labor and Economic Growth, Bureau of Commercial Services, 2501 Woodlake Circle, Okemos, Michigan 48864 at a cost of $33.50 as of the time of adoption of these rules.

(b) (d) The department may recognize an educational institution which demonstrates that the curricula required for its degrees are the equivalent of the curricula required for degrees granted by institutions accredited under subdivision (a) of this sub rule subrule.

(2) A concentration in accounting shall include the following accounting and general business subjects, for which credit is  transferable  to  any baccalaureate degree-granting institution recognized by the department:

 

Semester hours

 

The accounting principles shall include study in each of the following areas:

(a)    Financial accounting and accounting theory.

(b)    Managerial accounting, including cost accounting.

(c)    Accounting systems and controls

(d)    United States federal taxation.

(e)    Governmental/fund accounting.

 

PART 3. CONTINUING EDUCATION

 

R 338.5210 Continuing education requirements; reporting; qualifying hours.

Rule 210. (1) A licensee shall earn qualifying hours annually within the continuing education period and shall report the hours, and may be required to report the courses, biennially on a form prescribed by the department.

(2) A licensee shall earn not fewer than 8 of the minimum qualifying hours annually in auditing and accounting, and not fewer than 2 of the minimum qualifying hours annually in ethics. The study of ethics may include, but is not limited to, the study of the code of conduct, ethical reasoning, ethics enforcement, non-attest services, and independence.

(3) The form and content of continuing education courses shall be acceptable to the department.

 

PART 4. PROFESSIONAL CONDUCT

 

R 338.5405    Independence rule; adoption by reference.

Rule 405. (1) A licensee, including a firm, may express an opinion on financial statements of an enterprise only if the licensee is independent from the enterprise. For the purpose of defining the impairment of independence, the board adopts the American institute of certified public accountants AICPA rule on independence contained in the publication entitled "Code of Professional Conduct."  dated January 2006. Copies of the code are available for inspection at the board of accountancy 2501 Woodlake Circle, Okemos, Michigan and may be purchased from the American Institute of Certified Public Accountants, Harborside Financial Center, 201  Plaza  Three, Jersey City NJ 07311, at a cost of

$5.50 as of the time of adoption of these rules.   Copies  are  also

(a)        The code is available for download at no charge on the AICPA web site:  http://www.aicpa.org/about/code/sec100.htm., and may be downloaded without charge.

(b)    The code is available for purchase and inspection in the publication “AICPA Professional Standards as of June 1, 2006,” pursuant to R 338.5102(1)(a), R 338.5102(3) and R 338.5102(4).

 

Rule 338.5501 Peer review

Rule 501. (1) Each firm or sole practitioner required to participate in a peer review program, pursuant to MCL 339.729(2), shall enroll in the program of a qualified sponsoring organization within 1 year of the earlier of the following:

(a)   Its initial licensing date.

(b)   The performance of services that require a peer review.

(2) Proof of a peer review shall not be required to be submitted to the department until the second renewal following initial licensure or the performance of services requiring a peer review.

(3)     Qualified sponsoring organizations shall include the center for public company audit firms (CPCAF) peer review program, the american institute of certified public accountants (AICPA) peer

 

 

review program, national conference of CPA practitioners (NCCPAP) peer review program, and such other entities that adhere to the peer review standards defined in

R 338.5102(1)(f).

(4)    A licensee subject to peer review shall not be required to become a member of any sponsoring organization.

(5)   A firm or sole practitioner who has not performed services as described in MCL 339.729 during the preceding 3 years shall submit a request for exemption with its license renewal application. The request may be submitted on a form provided by the department or in a manner otherwise acceptable to the department. The board and the department may extend the due date for the requirement for peer review upon a showing by the licensee that to comply with the requirement would present an undue hardship.

 

Rule 338.5503 Peer review standards; change in sponsoring organization; adverse peer review reports; documentation.

Rule 503. (1) If a firm is merged, otherwise combined, dissolved, or separated, the sponsoring organization shall determine which firm is considered the succeeding firm. The succeeding firm shall retain its peer review status and the review due date.

(2)   A firm choosing to change to another sponsoring organization may do so provided that the firm authorizes the previous sponsoring organization to communicate to the succeeding sponsoring organization any outstanding corrective actions related to the firm's most recent review.

(3)   The department may rely on an adverse peer review report or a second consecutive modified peer review report as prima facie evidence of a violation of professional standards.

(4)   Each peer review and reviewer must comply with the applicable review standards in place at the time of the review. The following apply:

(a)     Documents related to a peer review shall be retained in accordance with the AICPA's retention policies pursuant to R 338.5102(1)(f), or until final adjudication of a complaint related to a peer review, whichever is later.

(b)   The documents described in subdivision (a) of this subrule shall be available for inspection by the department during regular business hours with reasonable notice.