AAA-CPA reps comment at LA hearings

WARNING! All Attorney-CPAs, including employees of non-lawyer controlled firms, may be affected by the American Bar Association's contemplated ethical rule changes.

If you are engaged in activities consisting of law, accounting, financial advice, consulting, counseling, management, insurance, real estate or any other ancillary related activity, you may have to modify your practice procedures.

The ABA's concern with lawyers working for international accounting firms (i.e. Ernst & Young employs over 1,000 lawyers!) has caused the ABA Commission on Multidisciplinary Practice to consider Rule changes which will affect individuals as well as firms. The issues under review include partnerships with nonlawyers, fee-splitting, confidentiality, independence, attorney-client and attorney work-product privileges, imputation of knowledge within a firm, malpractice, discipline, regulation, etcetera.

At its February 1999 Midyear Meeting in Los Angeles, the American Bar Association Commission on Multidisciplinary Practice continued the hearings it began last October in Washington, D.C., when Professor Harold Levinson of Vanderbilt School of Law testified before the committee. (See story, The AttorneyCPA, Volume XXXIV, Number 4, 1998).

On February 5, three members of the Dual Rights Committee testified at the invitation of the Commission in Los Angeles on behalf of AAA-CPA. They were Past Presidents Sydney S. Traum, of Counsel to Zack Kosnitzky, P.A., Miami, Florida, David Ostrove of Ostrove, Krantz & Ostrove, Los Angeles, California and Philip D. Brent of Philip D. Brent Professional Corporation, Encino, California. On February 6, 1999, Jay Foonberg, another Past President of AAACPA and currently a member of the ABA House of Delegates, addressed the Commission on his own behalf.

Each of the three speakers representing AAA-CPA introduced himself and made opening remarks. These were followed by questions from the Commission.

Sydney Traum: Level The Playing Field

Syd Traum began by acquainting the Commission with the unique make up of the American Association of Attorney-Certified Public Accountants. He indicated that some of our members practice only law, some practice only accounting, some practice both, and some practice neither law nor accounting. This last category includes professors, people in the financial services industry, retirees, etc. Because its members are in both law and accounting, the AAA-CPA is uniquely qualified to assist in identifying some of the problems of multidisciplinary practice and suggesting methods of dealing with such problems. He pointed out that the AAA-CPA has not yet taken any position on the multidisciplinary practice issue.

Traum stated his own opinion, "that the question is not whether to allow MDP's but how to regulate them for the protection of the public at large and the users of those services".

Existing Trends

Traum commented that the medical and health care professions are controlled in large part by insurance companies, not by persons qualified in medicine. In the accounting profession, ownership of accounting firms is no longer limited to persons holding a CPA certificate. The Uniform Accountancy Act, promulgated by the American Institute of CPAs and the National Association of State Boards of Accountancy (NASBA), would permit non-CPAs to own just under one half (1/2) of an accounting firm. Florida Statutes have been amended to permit non-CPAs to own just under one third (1/3) of an accounting firm. American Express is actively engaged in purchasing accounting practices (other than the audit function) from CPAs. Accounting firms are hiring lawyers in unprecedented numbers. He concluded that the only thing that is constant is change.

Blurring of Lines:

Traum also pointed out the blurring of definitions relating to the practice of law and accounting. In accountancy, other than the audit function, non-CPAs are permitted to perform most functions that CPAs normally do in their practices. For example, tax services and appearances before the Internal Revenue Service do not require a CPA certificate or an admission to the bar.

Similarly, other than appearing in Court, many functions performed by lawyers (e.g. tax and business advice) are also performed by non-lawyers. He stressed that in the multidisciplinary practice arena, there probably should be different rules for audits than for other accounting services as well as different rules for appearing in Court than for other legal services.

Suggestions

"We need to revise how we look at the law practice" Traum commented. Some rules will need to be changed. Specifically, rules regarding advertising and solicitation of business will need to be changed in order to allow lawyers to be competitive with non-lawyers in offering services that both are permitted to render. He stressed the "level-playing field" concept.

He also pointed out that any rules revisions should encourage competition rather than stifling it. He pointed out that anti-trust laws prevent the American Bar Association and other organizations such as the American Institute of CPAs from promulgating rules that restrict competition. If such rules are necessary, they should be enacted by state agencies in order to avoid violating anti-trust laws. Anti-trust laws do not normally apply to states, whereas they do apply to professional organizations such as bar associations.

David Ostrove: Problems Arise

David Ostrove, having practiced in both accounting and law for a number of years, was able to give the commission insight into some of the problems that arise in the practice of the accounting and law professions from the same office.

He commented that, "in order to protect the public, if accounting firms will be permitted to own, control, or merge with law firms, then important ethical safeguards must be put in place, so as to adequately protect the public". Ostrove pointed out the conflicts that might arise from the lawyer's role as advocate and a CPA's need for "independence" and full disclosure. He discussed anecdotal situations in which the practitioner sometimes had to decline an engagement.

Philip Brent: Core Values Differ

Philip Brent attempted to touch upon issues that he felt had not been fully addressed. He identified himself as the "personification of the multidisciplinary practitioner" during his 47 years of active practice. He stated that he had, on behalf of AAA-CPA, met with the ABA Wright Committee that replaced the Canons of Ethics with the Model Rules of Professional Responsibility, had communicated with chairman Kutak when the Rules of Professional Responsibility were changed into the Model Rules of Conduct, met with the National Conference of Attorneys and Certified Public Accountants, and had several meetings with American Institute of CPAs representatives. Accordingly, he was sensitive to the multidisciplinary issues as viewed by both professions.

Brent's comments concentrated on the following:

1. The concern of AAA-CPA for solo practitioners and small firms engaged in multi-disciplinary practice.

2. The AICPA has already anticipated public ownership of professional firms in its February 1999 ethics interpretation regarding the effect of alternative practice structures on the applicability of independence rules. The AICPA model has separate subsidiaries for brokerage services, an insurance company, a bank, and a professional service subsidiary owning less than 50% of sub-subsidiaries engaged in audit services. The subsubsidiaries engaging in audit services would be owned more than 50% by CPAs.

3. Consideration of views of the American Law Institute pending restatement on attorney law with regard to the attorney-client relationship including issues of confidentiality, privilege, conflicts, and imputation of knowledge to other members of the firm.

4. Differences in core values involving attorneys and CPAs and the need for separate rules for litigators just as AICPA has proposed separate rules for auditors.

5. A comparison of ABA and AICPA codes of professional ethics.

6. The need to educate clients and attorneys as to the differences in core values between the two professions so that the clients would be better informed as to whether they were waiving any rights by engaging a multidisciplinary firm.

Brent's Conclusions

Brent pointed out the need for greater liaison among the American Bar Association, the American Institute of CPAs, and the AAA-CPA.

In his opinion, we must adapt to the realities of the market place and the fact that multi-disciplinary firms already exist. Brent believes that we need to be alert in protecting the rights of our members (most of whom practice in small firms) since the concerns of the large international firms that prompted the Commission's initial inquiries are significantly different from those of the smaller firms. Brent pointed out that the restrictive rules that should apply in the litigator-adversary practice of law should be different from those applying to the lawyer-business consulting activity. He believes that we should join with Commission members in finding ways to disseminate information to the public and to practitioners regarding the differences in the functions of accountants and lawyers, emphasizing differences in the core values of each profession. He also believes that retainer agreements should not only specify the nature of the services being rendered, but should also state whether clients are waiving conflicts of interest. Clients should be advised to consider having another attorney review the retainer agreement.

What Now

Harold Levinson is leading a group in preparing a document that will compare the ethics rules of the accounting profession promulgated by the American Institute of CPAs with the Model Rules of the American Bar Association. This document will be submitted to the ABA Commission as soon as possible. The Dual Rights Committee's Task Force on MDP will continue its efforts to draft a position for our Association on this issue. Any proposed position would be submitted to the Executive Committee, the Board of Directors, and the general membership before it is released to the public.

Copyright American Association of Attorney-Certified Public Accountants 1999
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