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Substitute Senate Bill No. 376

Public Act No. 00-42

An Act Concerning The Regulation Of Fees Charged By Licensed Public Accountants.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. Section 20-281l of the general statutes is repealed and the following is substituted in lieu thereof:

(a) [A licensee] Except as expressly permitted by this section, a licensee shall not: (1) Pay a fee or commission to obtain a client; or (2) accept a fee or commission for [a referral of] referring a client to the products or services of [others] a third party. [; (3) accept a commission, while holding himself out as a licensee, in connection with any transaction in which there is a likelihood that a party to the transaction would be influenced with respect to the transaction by the licensee's status as a licensee. This section shall not prohibit payments for the purchase of all, or a material part, of an accounting practice, or retirement payments to persons formerly engaged in the practice of public accountancy, or payments to heirs or estates of such persons.]

(b) A licensee, who is not performing any of the services set forth in subsection (c) of this section and who complies with the provisions of subsection (d) of this section, may accept a fee or commission for referring a client to the products or services of a third party if such referral is made in conjunction with professional services provided to the client by such licensee making such referral. Nothing in this subsection shall be construed to permit the solicitation or acceptance of a fee or commission solely for the referral of a client to a third party.

(c) A licensee shall not perform services for a client for a commission and shall not accept a commission from a client during the period that the licensee is performing for such client any of the following services or during the period that is covered by any historical financial statements that are involved in any of the following services: (1) An audit or review of a financial statement; (2) a compilation of a financial statement if the licensee expects or has reasonable cause to expect that a third party will use the financial statement, and the compilation report does not disclose a lack of independence; or (3) an examination of prospective financial information.

(d) A licensee who is not prohibited under this section from performing services for a fee or commission or from accepting a fee or commission and who is paid or expects to be paid a fee or commission shall disclose such payment or expectation to any client or other person to whom such licensee recommends or refers a product or service to which the fee or commission relates.

(e) As used in this section, "fee" includes, but is not limited to, a commission, rebate, preference, discount or any other consideration.

(f) This section does not prohibit payments for the purchase of all, or a material part, of an accounting practice, or retirement payments to individuals who are or were formerly engaged in the practice of public accountancy, or payments to the heirs or estates of such individuals.

(g) Nothing in this section shall be construed to relieve a licensee from any requirement under federal or state law that obligates such licensee to obtain a license or authorization prior to referring a client to the products or services of a third party, including, but not limited to, any license requirements under federal or state securities or insurance laws.

Sec. 2. Section 20-281m of the general statutes is repealed and the following is substituted in lieu thereof:

[A licensee shall not offer to perform professional services for a fee which is contingent upon the findings or results of such services. This section shall not apply to professional services involving federal, state or other taxes in which the findings are those of the tax authorities and not those of a licensee, nor does it apply to professional services for which the fees are to be fixed by courts or other public authorities and which are, therefor, indeterminate in amount at the time the professional services are undertaken.]

(a) A licensee shall not, during any period in which the licensee is engaged to perform any of the services listed in this subsection or during any period covered by any historical financial services involved in any of such services: (1) Perform for a contingent fee any of the following professional services, or accept a contingent fee from a client for whom the licensee performs any of the following services: (A) An audit or review of a financial statement; (B) a compilation of a financial statement if the licensee expects or has reasonable cause to expect that a third party will use the financial statement and the licensee's compilation report does not disclose a lack of independence; or (C) an examination of prospective financial information, or (2) prepare an original or amended tax return or claim for a tax refund for a contingent fee for any client.

(b) As used in this section, "contingent fee" means a fee for the performance of a service that will not be charged unless a specified finding or result is attained or in which the amount of the fee is dependent on a specified finding or result of such service. "Contingent fee" does not include: (1) A fee fixed by courts or other public authorities; (2) a fee in a tax matter that is based on the results of judicial proceedings or the findings of governmental agencies; or (3) a fee that varies based solely on the complexity of the services rendered.

(c) A contingent fee arrangement between a licensee and a client shall be in writing and shall state the method by which the fee is determined.

Sec. 3. Subsection (g) of section 20-280 of the general statutes is repealed and the following is substituted in lieu thereof:

(g) The board may adopt rules, in accordance with chapter 54, governing its administration and enforcement of sections 20-279b to 20-281m, inclusive, as amended by this act, and the conduct of licensees and registrants, [in accordance with chapter 54,] including, but not limited to:

(1) Regulations governing the board's meetings and the conduct of its business;

(2) Regulations concerning procedures governing the conduct of investigations and hearings by the board;

(3) Regulations specifying the educational qualifications required for the issuance of certificates under section 20-281c, the experience required for initial issuance of certificates under section 20-281c and the continuing professional education required for renewal of licenses under subsection (e) of section 20-281d;

(4) Regulations concerning professional conduct directed to controlling the quality and probity of the practice of public accountancy by licensees, and dealing among other things with independence, integrity, objectivity, competence, technical standards, responsibilities to the public and responsibilities to clients;

(5) Regulations specifying actions and circumstances that shall be deemed to constitute holding oneself out as a licensee in connection with the practice of public accountancy;

(6) Regulations governing the manner and circumstances of use by holders of certificates who do not also hold licenses under sections 20-279b to 20-281m, inclusive, as amended by this act, of the titles "certified public accountant" and "CPA";

(7) Regulations regarding quality reviews that may be required to be performed under the provisions of sections 20-279b to 20-281m, inclusive, as amended by this act; [and]

(8) Regulations implementing the provisions of section 20-281l, as amended by this act, including, but not limited to, specifying the terms of any disclosure required by subsection (d) of said section 20-281l, the manner in which such disclosure is made and any other requirements the board imposes with regard to such disclosure. Such regulations shall require that any disclosure: (A) Be in writing and signed by the recipient of the product or service; (B) be clear and conspicuous; (C) state the amount of the commission or the basis on which the commission will be calculated; (D) identify the source of the payment of the commission and the relationship between such source and the person receiving payment; and (E) be presented to the client at or prior to the time the recommendation of the product or service is made; and

[(8)] (9) Such other regulations as the board may deem necessary or appropriate for implementing the provisions and the purposes of sections 20-279b to 20-281m, inclusive, as amended by this act.

Approved May 3, 2000