OPINION 97-103

SUBJECT: Concerning the Unauthorized practice of law by public and certified public accountants and other persons not licensed to practice law in the creation of associations, as defined in Title 15, Pennsylvania Consolidated Statutes Annotated, and the advertisement of those Associations as required by law.

It is the OPINION of the Unauthorized Practice of Law Committee of the Pennsylvania Bar Association that persons not authorized to practice law are not permitted to form Associations as that term is defined in Title 15 Pennsylvania Consolidated Statutes Annotated which includes corporations, partnerships, limited liability companies, business trusts and limited liability partnerships and to advertise such formation in either newspapers of general circulation in the county in which the Corporation was formed or in local County Legal Records.

BRIEF IN SUPPORT OF OPINION 97-103:

It has been brought to the attention of the Committee that Associations, as that terms is defined in Title 15 Pennsylvania Consolidated Statutes Annotated to include corporations, partnerships, limited liability companies, business trusts and two (2) or more persons associated in a common enterprise or undertaking, are being allegedly formed by persons not licensed to practice law in the Commonwealth of Pennsylvania who are also advertising the formation of those associations in the various newspapers of general circulation and in the local Legal Records as required by the various laws set forth in Title 15 Pennsylvania Consolidated Statutes Annotated.

15 Pa. C.S.A. Section 512 pertaining to the Standard of Car and Justifiable Reliance by directors provides in Subsection (a) that "a director of a domestic corporation shall stand in a fiduciary relationship to the corporation and shall perform his duties as a director, including his duties as a member of any committee of the board upon which he may serve, in good faith, in a manner he reasonably believes to be in the best interest of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his duties, a director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any one of the following: ... (2) Counsel, Public Accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such person...".

The vast majority of the cases brought to the attention of the Committee involve Public or Certified Public Accountants and "Paralegals."

The decision to create, or not to create, a Corporation, (or association as above defined) whether for profit or not-for-profit, involves myriad legal issues including, but not limited to, the choice of legal form i.e. sole proprietorship, partnership, limited partnership, limited liability partnership, registered partnership, corporation (whether Subchapter C or Subchapter S), limited liability corporation, business trust, etc.

Tax and accounting issues comprise only a small portion of the total overall analysis required to determine the type of organization that is best suited for the particular client under the particular set of circumstances. Other issues involve the estate planning aspects which require knowledge of the Pennsylvania Probates, Estates & Fiduciaries Code, Federal Estate Tax Law, Pennsylvania Inheritance Tax and Estate Law, The Law of Trusts, and various Rules and Regulations as well as various programs available for minority-owned organizations, to name a few.

A. UNAUTHORIZED PRACTICE OF LAW BY ACCOUNTANTS

The CPA Law as amended 1966, Dec. 4, P.L. 851 No. 140, is found in 63 P.S. ' 9.1 etc.

The term "public accounting" is defined in ' 9.2 as "offering to perform or performing for a client or potential client: (1) Attest activity. (2) Other professional services involving the use of accounting skills, including, but not limited to, management advisory or consulting services, business valuations, financial planning, preparation of tax returns or furnishing of advise on tax matters by a person holding out as a certified public accountant, public accountant or firm."

Section 9.3(a) pertaining to the "Examination and Issuance of Certificate" provides that the written examination by an individual for their obtention of a certificate of certified public accountant must cover business law and professional responsibilities, auditing, accounting, reporting and financial accounting and reporting.

Section 9.4 entitled "Education Requirements" provides that an individual is permitted to take the examination provided that he has graduated with either a Baccalaureate Degree from an approved college or university and has completed courses in accounting, auditing, business law, finance and tax subjects of a content satisfactory to the State Board of Accountancy, as well as other courses.

Section 9.4(a) entitled "Experience Requirements" sets forth the amount of experience that is required which must be in public accounting or as an internal auditor or an auditor with a unit of Federal, Sate or Local government and must include a minimum number of hours of Attest Activity.

The term "Attest Activity" is defined in ' 9.2 to mean "an examination, audit, review, compilation or other agreed-upon procedure with respect to financial information, together with the issuance of a report expressing or disclaiming an opinion or other assurance on the information."

Section 9.8(b) provides for the issuances of biennial licenses to engage in the practice of public accounting.

Section 9.9(a) entitled "Grounds for Discipline" in ' (a)(16) provides for discipline for those engaging in unprofessional conduct.

Section 9.9(a)(c) defines "unprofessional conduct" to mean the undertaking to perform professional services and that the certified public accountant, public accountant or firm cannot reasonably expect to complete with professional competence, failure to exercise due to professional care in the performance of professional services, failure to adequately plan and supervise the performance of professional services, the failure to obtain sufficient data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed, or failure to comply with any standard promulgated by any recognized public or private standard-setting body that is applicable to the professional service being performed.

49 Pa. Code ' 11.1 etc. contains the Rules and Regulations of the State Board of Accountancy.

Section 11.1 entitled "Definitions" defines the following:

(1) Attest Function - A written communication that expresses a conclusion about the reliability about a written assertion which may take the form of an audit, review or copulation of a financial statement or an examination of perspective financial information.

(2) Client - The person or entity which retains a licensee for the performance of professional services.

(3) Financial Statement - A statement and footnotes related to the statement that purport to show a financial position which relates to a point in time or changes in financial position which relate to ta period of time. The term includes statements which use a cash or other incomplete basis of accounting. The term also includes balance sheets, statements of income, statements of retained earnings, statements of changes in financial position and statements in changes in owner's equity. The term does not include incidental financial data included in management advisory services reports to support recommendations to a client, tax return or supporting schedules.

(4) Practice of Public Accounting - The offering to perform, or the performing, for a client or potential client services involving the use of accounting or auditing skills, management advisory or consulting services, preparation of tax returns or furnishing of advice on tax matters, while holding ones self in a manner that states of implied that one is a licensee.

(5) Professional Service - A service performed or offered to be formed by a licensee for a client in the course of the practice of public accounting.

Section 11.8 entitled "Use of the Designation `Certified Public Accountant'" and the abbreviation "CPA" in the practice of public accounting indicates that only the identified individuals may use the designation Certified Public Accountants, the abbreviation CPA, and other designations which suggest that the user is a Certified Public Accountant in the practice of public accounting.

Section 11.7 entitled "Use of the Designation `Public Accountant'" and the abbreviation "PA," provides that only the identified individuals and entities may use the designation Public Accountant, the abbreviation PA and other designations which suggests that the user is a public accountant.

Section 11.23 entitled "Competence" provides that a licensee may not undertake any engagement for the performance of professional services which he cannot reasonably expect to complete with due professional competence including compliance, when applicable, with ' 11.27 and ' 11.28 (relating to auditing standards and other technical standards; and accounting principles).

Section 11.26 entitled "Incompatible Occupations", provides that a licensee may not concurrently engage in the practice of public accounting and in another business or occupation which impairs his independence or objectivity in rendering professional services.

Section 11.32 entitled "Acting Through Others" provides that a licensee may not permit others to carry out on his behalf, either with or without compensation, acts which, if carried out by the licensee, would place him in violation of this Chapter or of the Act.

Section 11.53 entitled "Classification of Candidates" provides that the candidates who hold either Baccalaureate Degrees of Master Degrees must have minimum semester credits in accounting subjects and qualified experience in public accounting or as an auditor with a unit of government.

Section 11.5 entitled "Qualified Experience" provides that minimum of 800 hours of total qualified experience must be obtained in (1) audits of financial statements in accordance with GAAS, (2) reviews of financial statements in accordance with SSARS, (3) compilations of financial statements with complete disclosure in accordance with SSARS, (4) internal audits in an established internal auditing department which meet accepted standards, (5) training sessions on the attest function, (6) other auditing in accordance with accepted standards which leads to the expression of a written opinion, including: (i) reviews internal control, (ii) government audit agencies rendering an opinion and report, (iii) operations audit review, (iv) compliance audits and (v) expressing an opinion on financial forecasts and projections.

Section 11.55 provides that the remaining hours of qualified experience may be obtained in one (1) or more of the following: (1) preparation of income and non-profit tax returns, (2) tax research which is properly documented, (3) representation before a government agency on a tax matter, (4) financial forecasts, analysis and projections, (5) management advisory services which meet AICPA standards, (6) management and supervision of accounting functions and preparing financial statements for profit or not-for-profit entities, and (7) professional accounting-related work in an accounting firm.

Section 11.63 "Continuing Education Subject Areas" identifies acceptable areas for continuing education to be (1) accounting and auditing, (2) advisory services, (3) management, (4) professional skills development, (5) specialized knowledge and applications, (6) taxation.

Section 11.65 entitled "Criteria for Continuing Education Programs" provides that in order to qualify as a continuing education program, a program shall be a program of learning which contributes directly to the maintenance of professional competence of a certified public accountant or public accountant or other subject matter enumerated in ' 11.63.

A review of all of the above unequivocally indicates that the Profession of Accountancy is confined to those matters set forth in ' 11.55 as matters customarily undertaken by accountants, whether public or certified public accountants. There is nothing in either the Licensing Act or the rules and regulations of the Sate Board of Accountancy, which suggest that a public accountant or a certified public accountant is authorized or qualified to provide legal advice to clients with regard to any matters concerning the creation of associations for the conduct of business other than those matters relating to the tax and accounting aspects of that business.

Consequently, it is the OPINION of the Pennsylvania Bar Association Unauthorized Practice of Law Committee that the creation of associations, as defined in Title 15, Pennsylvania Consolidated Statutes Annotated, of whatever nature, by any person not licensed to practice law, constitutes the Unauthorized Practice of Law.