Are Accountants Practicing Law?

By Baker, Jack; Hanson, Randall et al. | The National Public Accountant, September 1998 | Go to article overview
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Are Accountants Practicing Law?

Baker, Jack, Hanson, Randall, Smith, James, The National Public Accountant


Have accountants strayed too far from their traditional role as providers of accounting, tax and auditing services? Accountants now consult with their clients on matters such as human resources, retirement plans, stock-option plans, appraisals, financial planning, litigation support and alternative dispute resolution. In some cases they represent their clients before regulatory boards and tax courts and draft tax opinions. Are accountants engaged in the unauthorized practice of law? Some lawyers think so. Accountants say they are providing "legal consulting services" not practicing law.

The accounting profession and the legal profession have had a stormy relationship for many years. The legal liability crisis has had a significant monetary impact on the accounting profession and has left accountants with the feeling they have been unfairly treated by attorneys. Lawyers in turn are concerned and angered by the recent expansion of accountants' activities which move into areas previously exclusively rendered by the legal profession. Both professions appear to be headed on a collision course and the outcome may well dictate the nature of accounting and law services in the next century.

Two current issues appear to further exacerbate the problem between the professions. One issue is whether accountants should be granted a confidential communication privilege under a proposed bill before Congress. The potential "privilege" has rallied attorneys to take a closer look at accountants' activities including the expansion of activities into new service areas. Some attorneys loudly assert that some of the new services have crossed over into the illegal category of practicing law without a license. The second issue is that some of the larger accounting firms have significantly increased the numbers of attorneys in their U.S. firms and are actively forming and acquiring law firms in Europe where the unauthorized practice of law rules are significantly less stringent. These factors have created a sense of urgency for attorneys. Bar associations across the country are receiving an increasing number of allegations that accountants are engaging in the unauthorized practice of law.

Accountants likely see these challenges as "turf" battles which must be vigorously fought to protect the accounting profession. The practice of accounting has changed significantly over the last decade and the profession has moved from merely providing auditing and tax services into new and diverse service areas. Accountants feel they are capable and professionally qualified to provide these expanded services to their clients. However, with the expansion of services, the potential for engaging in the unauthorized practice of law increases. Accountants need to be aware of this significant problem.

The Unauthorized Practice of Law Without a License

All states have statutes which provide that no one may practice law without first being licensed by the applicable state bar association. The justification for the licensing requirements is to protect consumers from incompetent practitioners. Most states require graduation from an approved law school and passage of a bar exam to acquire a license. Professional responsibility rules govern the activities of all attorneys and continuing education requirements must be met. States all have statutes that provide for sanctions if these statutes are violated. The sanctions range from bar association discipline to criminal prosecution. Contempt powers are available for violators and fines and jail time are common sanctions. Some state statutes categorize the unauthorized practice of law as a misdemeanor criminal act. Most states have bar association standing committees which investigate alleged violations. Matters can be referred to state attorneys general or local district attorneys. Often violators are not aware that their activities may constitute the unauthorized practice of law and when notified, the individuals simply stop the activity being investigated.

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