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California CPAs Report Few Restatements But Many Are Not Reportable

California's Accountancy Act requires licensees to report to the California Board of Accountancy, among other things, "Any restatement of a financial statement and related disclosures by a client audited by the licensee".  Cal. Bus. & Prof. Code § 5063(b)(1).  This report must be made within 30 days of the date on which the licensee "has knowledge" of the event. 

When originally enacted in 2002, the statute required that all restatements be reported to the CBA.  2002 Cal. Stat. c. 231 (AB 270 (Correa)).   In the ensuing nine years, the CBA received more than 2,300 reports of restatements.  Approximately 56% of that total were also reported to the Securities and Exchange Commission.  During that same period, the CBA did not take even one enforcement action based on a reported restatement.  In 2011, the legislature exempted from the reporting requirement restatements included in reports filed with the Securities and Exchange Commission.  Cal. Bus. & Prof. Code § 5063.10 added by 2011 Cal. Stat. c. 448 (SB 543 (Steinberg)) effective January 1, 2012.

Recently, I checked with the CBA regarding the number of restatements noticed in the last five years pursuant to Section 5063(b)(1).  The following chart summarizes the data provided by the CBA:

restatement graph

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...