North Carolina, Texas scrutinize accounting firms,
address possible unauthorized practice issues
The world's largest accounting firms are under scrutiny because of possible unauthorized practice of law in Texas and North Carolina.
While a complaint was filed by a Texas lawyer against Arthur Andersen last year, the North Carolina Bar Association has been talking with major accounting firms that offer legal services to clients.
The issue is whether nonlawyers in the certified public accounting firms are providing legal services to clients in violation of state UPL statutes, and questions involve conflicts of interest and fee sharing for lawyers employed by nonlawyer-owned CPA firms that offer legal services.
"The accountants feel as though they need to offer one-stop shopping," says Allan Head of Raleigh, executive director of the voluntary North Carolina bar, noting that the recent trend among CPA firms is to provide integrated business services beyond accounting to consumers.The Texas case
In Dallas, a complaint against Arthur Andersen was filed last June with the Texas Supeme Court Unauthorized Practice of Law Committee by a member of the State Bar of Texas Taxation Section. However, the complaint remains confidential unless a lawsuit is filed, says Jim Blume of Dallas, chair of the UPL Committee which has subpoena powers to request documents and seek an injunction, if necessary.
The investigation of Arthur Andersen continues and the committee has the ultimate authority to determine whether the complaint has validity. (Calls to the law firm which represents Arthur Andersen were not returned.)
In Texas, UPL rules specify that lawyers who are hired in house by a CPA firm can provide legal advice to their corporate client body, but staff lawyers cannot render legal services to the public. That is because lawyers must exercise independent judgment, according to Antonio Alvarado of Austin, executive director of the State Bar of Texas.
North Carolina discussions
After hearing about the Texas experience, North Carolina bar leaders met with managing partners of the Big Six accounting firms and a CPA association leader last December. The Big Six are Ernst and Young, Arthur Andersen, Deloitte and Touche, Coopers and Lybrand, Price Waterhouse and KPMG Peat Marwick. These firms have offices in nearly every state and are, therefore, subject to unauthorized practice of law statutes or regulations."We were able to express our concerns that we see disturbing national trends in the proposed delivery of legal services by these accounting firms," Head says.
Bar leaders want to clearly define the role of CPA firms based on North Carolina's UPL rules, which state that nonlawyers cannot prepare such documents as wills and settlement agreements--which some accountants allegedly have done. No formal action has been taken against these accountants because the two professions are attempting to work together to resolve their differences, notes Head.
"We're trying not to destroy our working relationship with our sister profession. We hope we can resolve these problems without going to war on a few examples that we know have occurred," Head adds.Also, North Carolina's UPL rules state that nonlawyers (such as CPAs) cannot hire lawyers to perform legal services for the company's clients. Staff lawyers--or corporate counsels--within the CPA firm can only represent the firm in disputes and other legal actions.
Head admits that the practices of law and accounting may change in the future. While the CPA firms are establishing integrated business services, law firms are forced to find ways to stay competitive.
"Lawyers must maintain their place in the marketplace. These law firms have to think bigger and also offer integrated business services so people can get non-lawyer help in related areas," Head explains. For example, where such expertise is needed, some law firms have staff nurses for medical cases, and nonlawyer mediators and family counselors for family law cases. "(The CPAs') concern is the efficient delivery of services to their clients. They say they understand our position, and they share the same ideas we do. But business today is not the way we'll do business in five or 10 years from now. This leads us to believe that the climate in the workplace is going to change," Head adds.The accountants and the lawyers hope to educate each other about their professions by writing articles for each other's publications and providing state laws and professional rules. Also, a joint statement of principals that would encompass both professions is being explored, says Jim Ahler of Raleigh, executive director of the North Carolina Association of Certified Public Accountants, who attended the bar meetings with the Big Six firms. Ahler describes the discussions as being "a very spirited exchange."
In 10 years of leading the association, Ahler says unauthorized practice of law by CPAs is a recent issue.
"It's only been in the last few months that it seemed to emanate on the radar screen," he adds, referring to the bar association's invitation and also news accounts of the Big Six merging with law firms outside the United States.For example, Price Waterhouse of New York opened an office with lawyers in Moscow last June and has other such offices in Britain, France and the Netherlands. Also, Deloitte and Touche merged with a law firm in France last September.
The National Conference of Lawyers and Certified Public Accountants (a standing committee of the American Bar Association) has been watching these developments. One of its goals is to provide a definition of the practice of law and accountancy that is acceptable to both professions, according to Co-chair Irwin Treiger of Seattle.
This committee is addressing the application of the Model Rules of Professional Conduct to lawyers who are employed by or have equity positions in accounting firms, but are not CPAs; conflicts of interest (which, with the consolidation taking place in the accounting field, has become more difficult to avoid); and fee sharing with non-lawyers, explains Treiger.
"There are those who suggest that the bar is behind the times and must adapt its rules to meet the circumstances of the global economy," Treiger says.Also, Treiger has been appointed by the ABA Board of Governors to chair the Working Group on Lawyers and Accountants. Since February, the task force has been selecting its members. In May, the group will meet in Santa Fe, N.M., to begin to identify the various issues and concerns involving the two professions, provide recommendations, and submit a report to the board.
-- Anna Marie Kukec
