Summary of the Testimony of L. Harold Levinson
Before the Multidisciplinary Practice Commission
Professor L. Harold Levinson of Vanderbilt University School of Law spoke to the Commission on behalf of the American Association of Attorney-Certified Public Accountants, each member of which is dually licensed as an attorney and a CPA. He is an active member of the AAA-CPA and has written articles in the area of lawyers and accountants. He said all AAA-CPA members were keenly aware of the triple regime to which they are subject: lawyer standards (primarily state supreme court), CPA standards (state statutes and rules of the state boards of accountancy) and federal law (pre-emption of state standards by federal law or agency rules such as the Internal Revenue Service and the Securities and Exchange Commission). The group met the weekend before (November 8) in Atlanta but took no position on issues facing the Commission, as there was no consensus. The professor consequently offered the Association’s assistance to help the legal and the public accounting professions talk through the issues and raised concerns expressed by various members of the Association. He urged that representatives of the public accounting profession participate in the Commission’s proceedings in order that the Commission be fully informed. During the past few years the public accounting profession has, in its own words, reinvented itself. It has held retreats, adopted a vision project and pushed very aggressive legislative programs through state legislatures for tort reform and through Congress with the Private Securities Litigation Act of 1995 (where the accounting profession lobbied Congress to override a Presidential veto) and with the recent Tax Preparer Privilege Statute. Preconceptions about the accounting profession must be discarded in light of its current and projected direction.
In discussing amendment to Model Rule 5.4, Professional Independence of a Lawyer, Professor Levinson presented various views that had been expressed at the AAA-CPA meeting. 1) Some members wished to preserve the Rule unchanged (American legal profession should retain its special characteristics such as caliber of performance resulting from three years of post-baccalaureate professional education and training to recognize constitutional problems, client protection of confidentiality and privilege, single set of professional standards, zealous representation from independent law firms, public role of lawyers to support the judicial function and government in general and protect against tyranny, pro bono services and unpopular clients accepted); 2) No AAA-CPA members at the meeting favored outright repeal of MR 5.4; and 3) Some members favored a reasonable amendment of MR 5.4 (on condition that only CPAs may be nonlawyer partners because of relative affinity between lawyers and CPAs). The lawyer-CPA partnership would require analysis of i) identification of firm, ii) types of services offered to clients (full range or reserve audit function to CPAs and litigation to attorneys), iii) limitation on services offered to same client (not serve as auditor and litigating counsel for the same client), iv) limitation on services to clients with differing interests (litigation opponents, competitors in same line of business - a focus on the distinction between lawyer and accountant conflict of interest rules), v) limitation on services offered to clients related to firm (CPA rules on independence prohibit ownership in client if firm proposes to conduct an audit), vi) engagement agreements (pre-engagement discussion and whether privilege would apply if both lawyer and accountant involved and who would explain and accept waiver, as well as staffing, and letter to include type of service, consult if change in type of service, performance in accordance with applicable professional standards, billing records separation), vii) engagement management (who and how), viii) practice management (joint ethics committee to decide issues of professional conduct, system to identify CPAs’ lack of independence and attorneys’ conflicts of interest and to set up screens, same profession or joint committee to decide hiring, promoting, terminating and other personnel issues as well as pro bono, community involvement, continuing education issues and network arrangements). He speculated that a merged lawyer/CPA firm would be burdened with more complicated and, thus, more expensive regulation resulting from court regulation of attorneys and legislative regulation of CPAs and more complex management requirements.
Professor Levinson commented that accountants have benefited from the SEC and New York Stock Exchange requirements of independent audits. Accounting firms have used these requirements to develop credibility and networks of clients. Because of high malpractice costs the audit function became a loss leader, but was still useful to maintain credibility and clients. The independence tenet (can’t have an ownership interest in a client) is the accountant’s only source of conflict rules. The professor said that accountant rules outside the audit function are ill developed. He expressed his opinion to Professor Haddon that applying the highest standard of either profession to a firm's enterprise would be uncomfortable as everyone would need to know both ethics rules and enforcement would be confusing. Asked whether the legal and accounting professions could get together about what both agree is in the best interest of clients, Professor Levinson said that the accounting profession is ready to air this issue but the legal profession is not.
Questioned about the possibility of separating the audit function from the remainder of an MDP, he expressed concern that, even after separation, the auditors might retain a close relationship with other members of the MDP, involving reciprocal influences; the separation might therefore be a matter of form rather than substance. He also observed that one approach would be to maintain three sets of rules in an MDP: one for auditing, another for litigation, and a third for other services, such as business consulting. As regards the function of the engagement agreement in informing the client about what the firm offers and what rules would apply, he noted that main street clients might need this information more than sophisticated clients. Finally, he shared with the Commission a recent article in an English professional journal, reporting that a number of prominent European lawyers had left MDPs and returned to traditional law firms, finding the MDP culture disappointing.