A rose by any other name? 'accountant' versus 'CPA.' (opinion on restrictions imposed on unlicensed public accountants)

What's in a name? Physicians don't unsheathe their scalpelsevery time some English professor is called "Doctor" (and theyare even learning to tolerate chiropractors). Lawyers also callthemselves attorneys or counselors-at-law and, these days, seldom twitch when non-lawyers offer to provide wills, deeds, divorce kits ordo-it-yourself bankruptcy filing (with paralegal assistance). Likewise,the clergy always have had to allow the use of the title"Reverend" by those whose seminary was a post office box, whowere self-ordained or who gave graduate degrees in divinity from Ivyleague schools.

But CPAs, Johnny-come-lately upstarts among the learned professions, have yet to achieve the permissive tolerance of more established fellow professionals. Perhaps that is because being a CPA entitles you to so little. Physicians have their hospitals, attorneys their courts, the clergy their churches and synagogues (even ethical culture societies for those who are not theistic). But, like dispossessed European royalty, CPAs have only their title.

Shakespeare's Iago lamented in Othello that "he who filches from me my good name robs me of that which not enriches him, and makes me poor indeed." In California, as in most or all states, there are as many practice units that describe themselves as "accountants" or "independent accountants" as there are CPA practice units. To some CPAs, the very existence of these practice units under the title "accountant" is an affront -- and seems to rob them of some part of the meaning and value of their CPA title. They believe that the non-CPA practice units confuse and deceive the public -- which, it is suspected, perceives that the terms "CPA" and "accountant" are synonyms.

The California Situation

Yet California, as is the case with all states with CPA legislation, does not prohibit unlicensed persons from doing bookkeeping work for one or more clients. Nor does it bar them from presenting financial statements, audits or similar reports as a product of that work, as long as no designation or term that is used to describe the provider of these services is "likely to be confused with 'certified public accountant' or 'public accountant.'" Unlike most state boards of accountancy, the California Board of Accountancy had long ago (1948) issued a regulation that held that the use of the title "accountant" by an unlicensed person, or the description of services as "accounting," was a violation of the law because it was inherently misleading. As far as I know, the only other state that currently holds to this position is Texas.

Enter Bonnie Moore

Bonnie Moore, who owned "The Accounting Center, Inc.," used the terms "accountant" and "accounting" to describe herself and her services in 90% of her advertising -- which included the office building directory, telephone directory, radio and television. In due course, she received a letter from the California State Board of Accountancy suggesting that she was in violation of the law as interpreted by the board. She went to court to enjoin the board from enforcing its regulation; the board countered with a request for a permanent injunction.

Moore vs. State Board

The case ultimately came to the California Supreme Court on Moore's appeal from the trial court's order enjoining her from using the disputed title of "accountant" and the description of her work as "accounting" (Bonnie Moore, et al. vs. California State Board of Accountancy, 1992 Ca. Lexis 3044 (July 2, 1992)).

The California Supreme Court decided that the state board was basically right but that the injunction went too far. "In order to satisfy the First Amendment," concluded the court, "appellants must be permitted to use the terms 'accountant,' 'accounting,' or 'accounting services,' if the use of those terms is further qualified by an explanation, disclaimer or warning stating that the advertiser is not licensed by the state, or that the services being offered do not require a state license, thereby eliminating any potential or likelihood of confusion regarding those terms."

Regulatory States Versus Title States

Discussions of state regulation of CPA practice sometimes classifyjurisdictions into "title states" and "regulatorystates." This is because many states, like California, limit theperformance of the attest function (audit, review and compilation) toCPAs and PAs (public accountants) -- the latter usually being a dyingclass. Other states, such as Arizona and North Carolina ("title" states) do not even attempt to limit who can do what,but only deal with the use of titles and the regulation of theactivities of those who are registered to use the CPA and PA titles.

The California board succeeded in having the trial court also enjoin Moore, et al., from preparing audit, review or compilation reports. The California Supreme court, however, concluded that the injunction cannot go that far, because the California law allows any type of report as long as it is a by-product of a bookkeeping service.



The practical reality of small-business client practice in both regulatory and title states is that unlicensed accountants do prepare financial statements for their clients and these statements are submitted to banks, credit grantors and others. These "users" usually are sophisticated enough to distinguish CPAs from unlicensed accountants. Although they occasionally require that a CPA firm get involved, they usually find that the work of an unlicensed accountant is adequate for their needs.

If unlincensed accountants are required by law to state that they are unlincensed, as under the California injunction, there seems to be little more to be gained by attempting to restrict the kinds of services they can render. However, the Uniform Accountancy Act (now being promoted by the National Association of State Boards of Accountancy and the AICPA), while not otherwise limiting the right of unlincensed persons to perform accounting services for the public, does attempt to limit the ability of unlicensed accountants to issue reports on the financial statements they prepare if those reports use "any form of language conventionally used by licensees" with respect to an audit, a review or a compilation. The rationale underlying this restriction is protection of the public, which presumably could be confused if a bookkeeper's transmittal letter sounded like a CPA's audit report.

Those who specialize in "write-up" work for small businesses, whether CPAs or unlicensed practitioners, may well find that their biggest competition today and for the immediate future is not with one another but the proliferation of low-price software tempting the business operator to "do-it-yourself" with an in-house personal computer.

Nothing in any accountancy law will deter this trend. This, in turn, should increase the number of engagements for do-it-yourself clients, which will consist solely of year-end preparation of financial statements and tax returns. The number of practitioners who specialize in both installing and debugging such in-house systems likewise will increase.

National Society of Public Accountants

The National Society of Public Accountants (NSPA), which started out in 1945 as an organization of and for licensed public accountants, has over the years become a representative of the unlicensed accountants (although its membership includes PAs and CPAs). Many CPAs find themselves aggrieved, and some state boards might take the position that their laws are violated, by unlicensed accountants who prominently display on their letterheads that they are members of NSPA and hang their NSPA membership shingles on their office walls. They reason that this is holding out to the public that this person, being a member of the NSPA, is perforce Wayne Lippman a public accountant.

At the 1992 NSPA convention, held this year in Philadelphia, the question of the NSPA's name came before the National Council of Delegates. Names that have been mentioned as substitutes would replace "Public Accountants" with "Practicing Accountants," "Practitioner Accountants," "Professional Accountants," "Independent Accountants" and "Small Business Accountants." Noticeably absent from the list is "Unlicensed Accountants" -- perhaps because both licensed and unlicensed are members (although most are unlicensed).

A Poll's Evidence

The California board determined in 1948 that the terms "accountant" and "accounting" were misleading. Once it became clear that the Moore lawsuit was going to go to trial, the "reasonableness" of that determination became an issue. In January 1987, the board initiated a public opinion research project through an independent research firm to determine the public's perception of "accountants" and "accounting" vis-a-vis licensing. Two questions were asked:

* Do you think that persons who refer to themselves as accountants in advertising to the public are required to be licensed by the state of California?

* Do you think persons who advertise accounting services to the public are required to be licensed by the state of California to offer such services?

Results? Fifty-five percent answered "yes" to the first question, and 53% answered "yes" to the second question. Only 26% answered "no" to the first question and 29% answered "no" to the second question.

"We do not," says the Supreme Court opinion, "mean to suggest that the response to a public opinion poll is itself an appropriate basis for 'deciding an issue of statutory construction.' ...what must be determined is whether the Board could reasonably conclude that use of the unmodified terms...is misleading or potentially misleading to the public's determent. The survey evidence" is relevant to that question.

Justice George was one of three dissenters. He views the questions asked in the poll as of no help in resolving the issue before the court. They "shed no light" on whether the title "accountant" is apt to be confused with the titles "certified public accountant" or "public accountant," he points out. Confusion over those titles is what the statute prohibits. "It is beyond dispute that no license is required to perform certain types of accounting. The circumstance that a majority of the public believes otherwise is irrelevant."

Conclusion

It seems well-established that states can restrict the use of the CPA title. The degree to which they can restrict a CPA's behavior may be clearer after the U.S. Supreme Court decides Edenfiield vs. Fane.

The decision in Bonnie Moore, however, settles very little, even for California accountants. Moore (who, reportedly, is attending law school) can continue to use the title of "accountant" if she pleases, but she must qualify that title with a notation along the lines of "not licensed by the State of California." She also can use a whole variety of other titles without the California State Board of Accountancy having much say about it, although other organizations may be able to enjoin her unauthorized use of specific ones. These would include such impressive tax-related titles as "certified tax practitioner," "certified financial planner" and "accredited tax specialist."

I would nevertheless personally applaud if either Moore or the Accountancy Board appealed the California decision to the U.S. Supreme Court and it granted certiorari. I think that the High Court might well take issue with the California opinion and decide that there is no demonstrable public interest to be served by any state restricting the use of the title of "accountant," even though there is a substantial public interest to be served by restricting use of the title of "CPA."

We then could get on with the business at hand. The task before the CPA profession is not to limit competition from non-CPAs by legislative or regulatory means. That is either unnecessary or futile, laying aside the question of its legality. Laws limiting competition are unnecessary when the attestation function -- the profession's sole monopoly -- is considered. When attestation of matters of great financial significance are involved, an unlicensed accountant is no threat to a CPA. Even within the CPA profession, for example, a CPA firm that is not one of the "BigSix" is highly unlikely to get to be the auditor of any major multinational corporation.

In tax practice, the CPA has no monopoly, and restriction of the use of the title "accountant" accomplishes nothing. The challenge is to retain the preeminent preference for CPA tax services demonstrated by most significant subsets of the taxpaying public. Competence, client service and aggressive public relations will get that job done.

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