October 05, 2011

Remarks of L. Harold Levinson on Behalf of American Association of Attorney-Certified Public Accountants - Center for Professional Responsibility

Remarks of L. Harold Levinson on Behalf of American Association of Attorney-Certified Public Accountants

Thank you for inviting the American Association of Attorney-Certified Public Accountants to designate one of its members to speak during your deliberations on the vital topic of multidisciplinary practice. The Association has given me the privilege of serving as its designated speaker. After identifying myself, I will identify the Association.

My name is Harold Levinson. I am a professor of law at Vanderbilt University School of Law. My current teaching areas are Accounting, Comparative Law, and Professional Responsibility. I am writing a law review article on One-Stop Shopping for Legal and Accounting Services. I have previously written in this general area; see At Issue: Law Firm Partnerships: Should Non-Lawyers Be Admitted as Partners? No: Keep the Profession Distinctive, ABAJ, May 1990, at 39; Independent Law Firms That Practice Law Only: Society's Need, the Legal Profession's Responsibility, 51 Ohio St. L. J. 229 (1990). I am an attorney and a Certified Public Accountant, and have practiced each profession.

The American Association of Attorney-Certified Public Accountants

I am an active member of the American Association of Attorney-Certified Public Accountants, in which every member is dually qualified as an attorney and a CPA. Some members practice primarily as CPAs, others as attorneys, and others as dual practitioners. Some members practice in related fields, such as financial planning.

All members are keenly aware that we are governed by three sets of standards.

First, as attorneys, we are governed by the standards of professional conduct promulgated by state supreme courts, supplemented by federal court standards and, in some jurisdictions, by state statutes.

Second, as CPAs, we are governed by state statutes on the practice of accountancy, supplemented by the rules of state boards of accountancy.

And, third, some of the state standards for each profession are superseded by federal law, including Acts of Congress, rules of agencies such as the Internal Revenue Service and the Securities and Exchange Commission, and the decisions of the courts.

As attorney-CPAs, we have had to learn how to accommodate the sometimes inconsistent demands of these three sets of standards. We have also learned to respect the spirit and the purposes of the standards, as well as the missions and aspirations of each profession.

I have participated in the Association's continuing efforts to protect the rights of dual licensees to practice either or both professions, and to communicate truthful information about their credentials. In this connection, I participated in writing the Association's brief, as amicus curiae, in support of the prevailing party in Ibanez v. Florida, Department of Professional Regulation, Board of Accountancy, 512 U.S. 136 (1994). In that case, the Supreme Court applied the commercial speech doctrine to uphold the right of an attorney-CPA to list both credentials when identifying her practice. The Association sponsors continuing education programs for its members. Members of the Association also support a foundation which engages in many other activities, including scholarships for students and a student essay contest. This year I am chair of the essay contest committee.

American Association of Attorney-CPAs Is Available to Assist, But Has Not Taken A Position on Issues Facing This Commission

May I make two points at the outset. First, the American Association of Attorney-CPAs is available to assist both the legal profession and the public accounting profession to talk through the issues facing both professions. The Association has not yet taken any position on the issues facing this Commission. The Association has had serious discussions, and may develop a consensus at some future time. At present, all I can do is to share with you some of the concerns expressed by various members of the Association at our meeting on this very topic just a few days ago, on November 8.

Public Accounting Profession Should Provide Input

My second point is to express the hope that representatives of the public accounting profession will participate in this Commission's proceedings, and will share relevant information and ideas with you. Their input is obviously essential if the Commission is to be fully informed. Members of the American Association of Attorney-Certified Public Accountants are aware of the dynamic changes taking place in the public accounting profession. During past few years, under vigorous leadership, that profession has, in its own words, reinvented itself. Old preconceptions about the public accounting profession must be discarded in light of the current and projected direction of the profession.


Without input from the public accounting profession, it is difficult to frame the issues. Nevertheless, in view of the Commission's agenda and the circumstances which led to its formation, I assume that the basic issue facing the Commission is whether to advise the ABA to amend Model Rules of Professional Conduct, Rule 5.4, Professional Independence of a Lawyer. (The public accounting profession, of course, may perceive other issues.) In summary:

ABA Rule 5.4(a) places tight limits on fee-sharing between lawyers and nonlawyers.

Rule 5.4(b) prohibits a lawyer from entering into a partnership with a nonlawyer if any activities of the partnership consist of the practice of law.

Rule 5.4(c) prohibits a lawyer from allowing a third party to direct or regulate the lawyer's professional judgment in rendering legal services to a client.

Rule 5.4(d) prohibits a lawyer from practicing in a firm in which a nonlawyer has an ownership interest, or is a director or officer, or has the right to direct or control the lawyer's professional judgment.

In addition, ABA Rule 5.7 may be germane to the Commission's work.

Rule 5.7, Responsibilities Regarding Law-Related Services, deals with the provision of law-related (or "ancillary") services through an entity separate from the law firm. Arguably, a nonlawyer manager of a successful law-related business could become a de facto partner in the law firm, with as much influence over the law firm as if he or she were formally admitted to partnership.

To keep my remarks reasonably brief, I will focus on the question of whether the Commission should advise the ABA to amend Rule 5.4(b) and (d). I would be pleased to submit an additional memorandum on any other topic the Commission requests.

May I emphasize again that the American Association of Attorney-CPAs has not developed a position on any of the issues facing the Commission. All I can do is to share with you some concerns expressed by members of the Association, including myself.

Some Members Insist on Preserving Rule 5.4 Unchanged

Some members of the American Association of Attorney-CPAs feel strongly that Rule 5.4 should remain unchanged. The general view of these members is that Rule 5.4 is the best means of assuring that the legal profession of the United States will retain its special characteristics, which distinguish this profession from nonlawyers, and which also distinguish American lawyers from lawyers in some other countries. The special characteristics of American lawyers include the following:

* Candidates for the bar examination must first earn an advanced degree, based on three years of post-baccalaureate professional education.

* Lawyers are trained to recognize constitutional problems, and to weigh the risk of litigation on constitutional or other issues, even in apparently routine transactions.

* Lawyers are best able to discern and protect clients' needs for the privileged and confidential treatment of information.

* Lawyers are trained to represent clients zealously.

* Lawyers are governed by a single set of rules of professional conduct (with relatively minor variations from one state to another), which have been developed over the centuries to protect the rights of all parties.

* Lawyers are expected to provide pro bono services and to accept unpopular or unattractive clients.

* Law firms are, in general, independent institutions, which can provide zealous representation for the client and in the public interest.

* Lawyers help to defuse social tensions and to confront arbitrary government.

* Lawyers take an oath as officers of the court, are regulated primarily by the courts, and are held to rigorous standards of professional and personal conduct.

Any relaxation of Rule 5.4 would, according to some members, allow nonlawyers, sooner or later, to influence the culture of law firms and the direction taken by the legal profession, the judiciary, the law schools, and the legal system. This influence, even if well intentioned, would impair the ability of lawyers to function effectively. The ultimate losers would be the lawyers' clients, and society in general.

Other risks could also attend any relaxation of Rule 5.4. For example, a large, combined law/accounting firm could face antitrust problems, and could be subject to complex regulation, with courts regulating the attorneys in the firm, while the legislature regulates the CPAs in the same firm. Further, relaxation of Rule 5.4 could ultimately lead to a division of the American legal profession between barristers, who might retain their independence, and solicitors, who might enter into combined practices with accounting firms.

No Members Favor Outright Repeal of Rule 5.4

No members of the American Association of Attorney-CPAs, at our November 8 meeting, advocated outright repeal of Rule 5.4. Some members noted that outright repeal would allow ownership of law firms, not only by CPA firms, but also by financial services companies, publicly traded corporations, department stores, or foreign investors. While takeovers of law firms might yield one-time gains to the current owners, these takeovers would seriously impair the public interest by undermining the independence of the legal profession.

Some Members Would Consider Reasonable Amendment of Rule 5.4

Some members of the American Association of Attorney-CPAs would be willing to consider a reasonable amendment of Rule 5.4, in response to competitive pressures and client preferences. In determining what types of amendment would be reasonable, members expressed the following concerns:

Limits on who may be nonlawyer partners

Would CPAs be the only acceptable nonlawyer partners? Some members support this limitation, in view of the relative degree of affinity between lawyers and CPAs, as well as the risks associated with other types of partners.

In the interests of brevity, the remaining remarks assume that CPAs would indeed be the only acceptable nonlawyer partners. Any other assumption would require additional levels of analysis.

Identification of firm

Would the firm name, advertisements, Internet home pages, etc. clearly indicate its multidisciplinary nature, for the information of potential clients and the public?

Types of service offered to clients

Would the firm offer a full range of legal and accounting services, including the audit function (now reserved to CPAs) and the litigation function (now reserved to attorneys), as well as other functions which are not as clearly reserved to one profession or another?

Limitation on services offered to same client

Would the firm limit the range of services offered to any one client for example, would the firm decline to serve as auditor and litigating counsel for the same client?

Limitation on services offered to clients with differing interests

Would the firm limit the range of services offered to two or more clients whose interests differed in various ways -- ranging from opponents in litigation to "friendly" competitors in the same line of business? Some members pointed out the sharp distinction between the lawyers' and the CPAs' rules on conflicts of interest.

Limitation on services offered to clients related to firm

Would the firm limit the range of services offered to clients who are related to the firm, for example if the firm has a substantial ownership interest in the client? Some members pointed out that the CPAs' rules on independence require some limitations, if the firm proposes to conduct an audit engagement.

Engagement agreements

Who would conduct pre-engagement discussions with a potential client -- an attorney, a CPA, or a committee consisting of at least one of each?

Who would advise the client whether the engagement should be staffed by attorneys, CPAs, both, or neither, and who would advise the client to seek independent advice before deciding to waive the services of either or both professions?

Would the engagement letter state:

* whether the engagement involves accounting, legal, both, or neither type of service;

* that the firm will consult with the client if the type of service required appears to change during the engagement;

* that the engagement will be performed in accordance with the applicable standards of professional conduct;

* that the firm is responsible for the proper performance of the entire engagement;

* that billing records and billing statements will maintain a clear separation between time and charges attributable to CPAs, attorneys, and individuals who hold neither license;

* whether the firm expects to receive, from any third party, any commissions, fees for services, referral fees, or other revenue?

If the proposed engagement involves a combination of accounting and legal services, and the professional standards of CPAs and attorneys are in irreconcilable conflict on a material aspect of the engagement, would the firm decline to enter into the engagement?

Engagement management

Would each professional person working on the engagement be supervised by a member of the same profession? Would senior members of the firm monitor the performance of the engagement to assure compliance with the engagement letter, and would they consult promptly with the client if it appeared that the engagement letter needed revision?

Practice management

* Would the firm maintain a professional ethics committee consisting of CPAs and attorneys to decide issues of professional conduct?

* Would the firm maintain systems for identifying CPAs' lack of independence and attorneys' conflicts of interest, and for establishing screening systems when appropriate?

* Would the firm maintain systems for protecting privileged and confidential information as required by the applicable standards of professional conduct and other law?

* In making decisions about hiring, promoting, or terminating professional personnel, would the firm rely on recommendations made by members of the firm who are licensed in the same profession as the person under consideration?

* Would the partnership agreement (or equivalent document) provide for the removal or suspension of a firm member for a serious violation of the applicable standards of professional conduct?

* In developing the following policies and in monitoring compliance with them, would the firm rely on a management committee consisting of appropriate numbers of CPAs and attorneys:

Personnel policy

Policy regarding staff manuals, library and research services, and administrative support for professional staff

Marketing policy

New client selection policy

Policy regarding public service, including pro bono, controversial or unpopular clients

Strategic planning

Policy regarding continuing education, including cross-training professional personnel in the rules of professional conduct of the other profession

Policy regarding activity in professional associations

Policy regarding participation in programs with educational institutions

Policy regarding participation in community projects

Policy regarding professional liability insurance (or self-insurance)

Policy regarding participation in network arrangements, strategic alliances or informal understandings with other firms involving mutual referrals, referral fees, cost sharing, personnel sharing, or outsourcing.


The American Association of Attorney-Certified Public Accountants has consistently supported full disclosure of professional credentials, for the benefit of consumers in a competitive market. Some of our members anticipate that any relaxation of Rule 5.4 would increase competition. For example, if an amended version of Rule 5.4 allowed a complete merger between a law firm and an accounting firm, the merged firm would be in competition with independent law firms and independent CPA firms.

The merged attorney/CPA firm would face the burden of more complicated regulation, resulting from court regulation of the attorneys in the firm and legislative regulation of CPAs in the same firm. The merged firm might also have to incur additional expense to satisfy the complex regulatory requirements, and to provide effective management while respecting the standards of professional conduct of each profession. Finally, the merged firm might have some difficulty in recruiting and retaining the most accomplished practitioners, who might prefer to practice in independent firms.

The independent firms might engage in vigorous marketing, including advertising by associations of independent firms to point out to consumers the advantages offered by independent firms, as well as vigorous recruiting campaigns aimed at the most accomplished practitioners. Thus the independent firms might survive and even flourish in the market for professional services.

On the other hand, the concentration of legal and accounting services in a few large attorney/CPA firms could have an anticompetitive effect, forcing a gradual decrease in the number of firms and in the options available to consumers.


In conclusion, I repeat that the American Association of Attorney-Certified Public Accountants stands ready to provide any type of assistance this Commission requests. The Association has not reached a consensus position. I personally urge this Commission to reach out to the public accounting profession and to exchange information and ideas with its members.

I will do my best to answer any questions from the Commission.



The views expressed herein have not been approved by the House of Delegates or the Board of Governors of the American Bar Association and, accordingly, should not be construed as representing policy of the American Bar Association.