Cpas And Legal Practice: Exploring The Boundaries

The relationship between law and accounting is a complex one, with CPAs and lawyers historically operating in distinct professional spheres. However, the landscape is changing, and there is a growing trend of multidisciplinary practices (MDPs) where accounting and legal services are offered together. This evolution has led to questions about the definition of the practice of law and how it applies to CPAs, especially in the context of tax-related services. While there are challenges, such as cultural differences between the professions and regulatory barriers like the American Bar Association's (ABA) rules prohibiting fee-sharing with non-lawyers, there is a push for change. Proponents of MDPs argue that these issues can be addressed, and the success of such practices in other countries is noted. As the lines between law and accounting blur, the traditional boundaries of professional practice are being re-examined, creating a dynamic environment where new paths to CPA licensure and expanded service offerings are being explored.

CPAs are prohibited from sharing fees with lawyers

Certified Public Accountants (CPAs) are prohibited from sharing fees with lawyers due to the American Bar Association (ABA) ban on fee-sharing with non-lawyers, which effectively prohibits lawyers from forming multidisciplinary practices (MDPs). MDPs are firms in which attorneys would share ownership with CPAs or members of other professional groups. While the ABA has considered reversing this ruling, it has not yet done so.

The ABA's rule-making body, the house of delegates, has discussed dropping the ethics rule prohibiting lawyers from sharing fees with other professionals. However, the proposal was rejected pending further study, and the matter of fee-sharing remains unresolved. The ABA's concern is that lawyers in MDPs could be pressured by non-attorneys to act against the best interests of their clients. Additionally, the ABA/MDP commission's proposed definition of the practice of law in an MDP environment was criticized by the American Institute of CPAs (AICPA) as being too broad and encompassing activities that accountants have historically and properly performed, such as tax consulting and estate planning.

CPAs must adhere to the AICPA's Code of Professional Conduct, which includes guidelines on fee-sharing and other ethical practices. While there are no specific rules prohibiting CPAs from sharing fees with lawyers, the AICPA Code of Professional Conduct emphasizes maintaining independence and objectivity in professional engagements. CPAs are expected to act with integrity, objectivity, and professional competence, avoiding any conflicts of interest or situations that may compromise their professional judgment.

It is worth noting that CPAs are not completely barred from providing legal services. In some states, CPAs may offer certain legal services, particularly in the areas of tax law and estate planning. However, they must carefully navigate the boundaries between providing accounting services and practicing law. CPAs who provide legal services must ensure that their services do not constitute the unauthorized practice of law and comply with the regulations and guidelines set forth by their state boards and professional organizations.

CPAs can provide informal tax advice

CPAs, or Certified Public Accountants, are not legally permitted to practice law. However, they can provide informal tax advice to their clients. This is a grey area, as the line between tax advice and legal advice can sometimes be blurry. CPAs must be careful to follow the guidance of the SSTSs (Statement on Standards for Tax Services) and consider documenting these conversations through follow-up letters, emails, or notes.

The types of tax-related services offered by CPAs have expanded significantly over the years, and now include significant consultative and planning services. This evolution of tax services has created an enhanced scope of ethical inquiry by CPAs. For example, a CPA can advise a client on the tax ramifications of buying versus leasing a car, but this conversation must be followed up with documentation to ensure it adheres to the SSTSs.

CPAs must also be mindful of the potential risks involved in their work. For instance, their work product may be related to representing a taxpayer in a particular tax matter, and the IRS has authority under Circular 230 over all matters under laws or regulations it administers. This means that CPAs who represent taxpayers in payroll tax matters, Medicare filings, or unemployment tax filings, among others, may be exposed to Circular 230.

While CPAs cannot practice law, there is a growing trend of multidisciplinary practices (MDPs) where accounting firms are acquiring law firms. This has raised questions about how lawyers practicing in accounting firms will be regulated and whether they will be held to the same standards as lawyers in traditional practice settings. The American Bar Association (ABA) has shown a willingness to consider MDPs, but the AICPA (American Institute of Certified Public Accountants) has objected to how the ABA defines the practice of law in this context, as it may encompass activities that accountants have historically performed, such as tax consulting and estate planning.

Proposed changes to the Uniform Accountancy Act (UAA) could enable states to adopt a third licensure pathway for CPAs, allowing them to practice in other states with just one license. This shift to an "individual-based" mobility model may further blur the lines between accounting and legal practices, and it remains to be seen how the profession will adapt to these changes.

CPAs can serve as a trustee, executor, or executrix for family members

When a CPA acts as a trustee, they take on the role of holding legal title to property for the benefit of another individual, following the terms of the trust. Trustees are fiduciaries, and as such, they have a responsibility to act in the best interests of the beneficiaries. This can include making investment decisions while considering the purpose, terms, distribution requirements, and circumstances of the trust. CPAs should be aware of potential conflicts of interest and perform due diligence to ensure they can provide services objectively.

Similarly, when a CPA acts as an executor or executrix, they are responsible for settling the estate of the deceased according to the terms of the will or, in the absence of a will, in accordance with the laws of intestacy. Executors are also considered fiduciaries and are tasked with gathering assets, settling business affairs, paying debts, filing necessary tax returns, and distributing assets as directed by the deceased. CPAs in this role should be mindful of potential disputes among beneficiaries and carefully document all discussions and instructions.

While CPAs can legally serve as trustees, executors, or executrices for family members, it is important to approach these roles with caution. CPAs should carefully evaluate the risks and consider the potential for conflicts of interest before agreeing to take on such responsibilities. By being diligent and proactive in addressing these concerns, CPAs can effectively navigate these roles while maintaining their professional integrity.

CPAs must adhere to laws and regulations to avoid professional misconduct

Certified Public Accountants (CPAs) have a responsibility to uphold the law and adhere to a strict code of ethics and professional conduct. While the specific laws and regulations may vary depending on the jurisdiction, there are several key principles that CPAs must follow to maintain their professional competence and avoid misconduct.

One of the fundamental principles for CPAs is to maintain independence and objectivity, free from any conflicts of interest. CPAs should not allow their personal interests or relationships to influence their professional judgement or the quality of their services. They must also be vigilant in avoiding potential conflicts and maintaining the required levels of privacy and nondisclosure related to client information.

CPAs are also expected to possess the necessary skills, knowledge, and experience to perform their tasks effectively and efficiently. This includes staying up to date with relevant laws and regulations and ensuring their services comply with these standards. CPAs must exercise sensitive professional and moral judgement in all their activities, especially when it comes to adhering to technical standards and guidelines set by accounting bodies.

In addition, CPAs should prioritize ethical behaviour and transparency in their practices. This involves maintaining integrity, honesty, and respect for others in their decision-making processes. CPAs must refrain from improper practices such as insider trading or improper billing, even under financial pressures or time constraints. They should also avoid any conduct that could discredit their firm or the accounting profession as a whole.

To maintain their professional standing, CPAs must also be mindful of the specific regulations and requirements in their jurisdiction. For example, in the state of New York, CPAs must satisfy registration requirements, including paying fees and completing continuing professional education (CPE) to maintain their active status. CPAs who teach college-level accounting or review courses must also comply with CPE requirements and maintain active registration.

CPAs can teach college-level accounting courses

CPAs are accounting experts with advanced mastery of specific skills. They are in high demand, with employers struggling to source high-level accounting professionals. CPAs can teach college-level accounting courses, and doing so can help them obtain teaching experience, improve communication skills, and enhance their résumé.

CPAs interested in teaching college-level accounting courses should assess their educational background and professional experience and prepare an updated résumé. They should identify the college or university where they might like to teach and visit the college's website to become familiar with its accounting program, including the curriculum, course offerings, faculty, and chairperson. They should then arrange a meeting with the chairperson to determine their needs and if the college is the right fit.

There is an acute shortage of accounting faculty, and CPAs can fill this gap by becoming qualified adjunct faculty members. They can offer to make a presentation to the accounting society or teach a class or two to get a feel for the role. CPAs can teach a variety of accounting courses, including tax, auditing, and accounting information systems (AIS). Compensation for teaching college-level accounting courses can be higher than at the community college level, with a range of $1,500 to $18,000 per course, depending on the candidate's qualifications, the type of institution, its accreditation, and the course discipline.

To teach college-level accounting courses, CPAs should have recent, substantial professional experience in terms of duration and level of responsibility. They should also be prepared to engage in ongoing scholarly research to augment their experience. By teaching college-level accounting courses, CPAs can make positive contributions to the accounting profession and help develop the next generation of accounting professionals.

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