Oral Remarks of Sidney Traum,
a Miami lawyer-CPA practitioner
Sidney Traum, a Miami lawyer-CPA practitioner, was the principal in a trio of witnesses representing the American Association of Attorney-CPAs (AAA-CPAs) that included David Ostrove and Philip Brent. All three are past presidents of the AAA-CPAs and are both licensed lawyers and licensed CPAs. Pointing to the Uniform Accountancy Act that proposes non-CPA ownership of just under 50% of an accounting firm Mr. Traum said this trend toward multidisciplinary practice can’t be stopped; delivery of legal services can merely be shaped to protect the client and the public. He agreed that tax is the practice of law but it is the authorized practice of law by accountants. He thinks the legal and accounting professions, in conjunction with the states, should work together to resolve the MDP issue. Just as accountants now have different rules for those who perform audits and those who don’t, he suggests lawyers might want to consider different rules for litigators and those who don’t appear in court. Mr. Ostrove, who has been extremely active in both lawyer and accountant malpractice issues, spoke to the increase in civil and criminal liability when a single practice is converted into a multidisciplinary one. It took years for practitioners who wanted to perform both legal and accounting services to obtain adequate malpractice coverage. He gave examples of the imputation problem and liability triggered by the difference between the accountant’s and the lawyer’s definition of independence. Mr. Brent called the Commission’s attention to the official release published in the February 1999 issue of the Journal of Accountancy that presents Alternative Practice Structures (APS) Independence Rules for Persons and Entities other than a Member. The release develops application of the independence rule to the APS model (Proposed Interpretation under Rule 101, 4/15/98) wherein the publicly owned company (Public Co.) with subsidiaries such as an insurance company, bank, or broker/dealer has a professional service company subsidiary that offers nonattest services contemplated in the practice of public accounting, provided by owners and employees of Oldfirm, and a new CPA firm (Newfirm) formed as a subsidiary of the professional service company, owned by CPAs including the former owners of Oldfirm, that provides attest services. Only the sub-subsidiary Newfirm would require majority ownership by CPAs. Mr. Brent said the bulk of the dual practitioners are small firms. He urged the Commission to consider: 1) public ownership of law firms, 2) different rules for the distinguishing function of the profession - court appearances/litigation for lawyers and the attest function for accountants, and 3) treatment of conflicts by the ALI Restatement of the Law Governing Lawyers to be coordinated with the Commission’s MDP recommendation.
Mr. Traum urged that any lawyer rules not penalize lawyers for being a lawyer, that is, they should allow a level playing field in the marketplace for services so a lawyer can get business in the same way other people can get business. Upon questioning Mr. Brent emphasized the need for education of the client to ensure he or she understands the capacity in which the professional is acting. He suggests his retainer agreement be reviewed by another attorney. When Ms. Lamm asked him what he did when the ethical obligations of the two professions conflicted Mr. Brent said he would withdraw. Mr. Traum reminded the Commission that if a CPA is one of the many who do not do auditing work he does not have to be independent. In discussing the level playing field the presenters told Mr. Nelson that lawyers’ prohibition against solicitation for business type services should be adjusted to allow for consumer protection but better reflect the market realities as all three witnesses said that the Commission should remember that the market will regulate service providers that do not perform their jobs well. Professor Hazard raised the issue of whether accountants could work on matters involving confidential information for direct competitors as long as an insulation wall was maintained between the accounting teams; the presenters believed that AICPA rules require the clients be told of the competing work so they have the option of consent (if the audit function is not involved) or withdrawing. The presenters were asked to submit to the Commission a writing on this information as well as a list of malpractice carriers who provide coverage for lawyer-CPAs. Most small CPA practitioners in the U.S., even if they do compilations or reviews, do not perform audits, so it would not be an issue for most if the Commission advocated changing the rules to allow MDPs but prohibit them from doing audit work. The presenters confirmed to the Chair that, in their experience, if accountants received a summons or subpoena to produce client records or their work papers, they produced them immediately as there exists no accountant privilege to shield production; they were surprised by the E&Y representative’s statement of initial noncompliance with the demand unless there was client consent or a court order.