The Ban on Commissions and Fees ... Revisited

By Sager, William H. | The National Public Accountant, February 1993 | Go to article overview

The Ban on Commissions and Fees ... Revisited


Sager, William H., The National Public Accountant


It's been several years since we last wrote about the settlement between the American Institute of Certified Public Accountants (AICPA) and the Federal Trade Commission (FTC). To refresh your memory, the settlement stipulation between AICPA and FTC was finalized in August, 1989. For settlement purposes with FTC, AICPA agreed to cease and desist from actions and practices the FTC alleged to be anticompetitive. AICPA agreed to change its ethical rules on commissions and contingent fees to conform to the settlement stipulation.

In May, 1991, AICPA initiated changes in its Code of Ethics whereby its members were permitted to accept commissions and contingent fees but not in those instances where the member performs an audit, review or compilation engagement for the client, including the period of time covered by any historical financial statements involved while performing an audit, review or compilation engagement. In addition, members were prohibited from accepting contingent fees for the preparation of an original or amended tax return or a claim for a tax refund.

So far so good. The AICPA member can now ethically accept commissions and contingent fees on a wide variety of engagements for the client, but not when an audit, review or compilation service is performed.

Prior to the finalized AICPA/FTC agreement of August, 1989, five states permitted licensees of the state accountancy board to accept commissions. Those states were Texas, Oklahoma, South Dakota, Maryland and West Virginia. On the other hand, a number of states since 1989 have amended their accountancy laws to specifically prohibit a CPA or an LPA from accepting a commission under any circumstances.

As we have repeated on other occasions, it is one thing for the FTC to take on the AICPA, which is a voluntary membership professional association. It's another matter for the FTC to challenge a state accountancy board, whose regulations are approved by a legislative committee, thus invoking the state-action immunity doctrine whereby the FTC's antitrust enforcement powers become ineffective against the state agency.

Whether the state action immunity doctrine (first enunciated in the 1943 U.S. Supreme Court in the case of Parker v. Brown, 317 U.S. 341), applies to an accountancy board's regulations depends mostly on the extent of the state legislature's involvement. Parker v. Brown was the case that created the so-called state action immunity doctrine whereby the action by a state government was declared exempted from the Sherman Antitrust Act under which the FTC receives its authority to litigate professional organizations and societies whose code or rules are alleged to restrict competition.

There are numerous instances, however, where the board's regulations do not come within the purview of the state action immunity doctrine because the board's action is not state action, despite the fact that the board is an administrative agency of the state. There are other instances where a board's regulations must be reviewed or approved by a legislative committee, and in such cases the state action immunity doctrine may very likely apply since the resulting state action is legislative as well as administrative.

As mentioned previously, a number of states have amended their accountancy laws since the AICPA/FTC settlement stipulation of August 1989 to specifically prohibit commissions (as contrasted with the five states that specifically permit the licensee to accept commissions). …

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