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Bonnie Moore and CAIA vs. the State Board of Accountancy.

Bonnie Moore and CAIA vs. the State Board of Accountancy

Bonnie Moore and the California Association of Independent Accountants (CAIA) initiated their litigation against the State Board of Accountancy in 1986. A number of NSPA's affiliated state organizations have supported CAIA by making voluntary contributions to CAIA's litigation war chest. The Board of Governors of the National Society has also made substantial financial contributions to the costs of the litigation from the NSPA Restricted Legal Reserve Fund. Additionally, the National Society has furnished technical assistance and has been recognized by the court to file briefs as a "friend of the court" in support of CAIA.

Many NSPA members, especially those who have joined the National Society since the litigation was commenced in 1986, have little or no knowledge of the background of the Bonnie Moore/CAIA case. Recently, Ralph Alldredge, the Lead attorney for Bonnie Moore and CAIA, prepared a synopsis or summary of the litigation which appeared in the CAIA Newsletter "The Networker" in June 1990. Mr. Alldredge's summary is reproduced below in order to update recent National Society members on the significance of the litigation that NSPA's affiliated state organization is engaged in.


There are estimated to be more than 50,000 unlicensed accountants in California. Many have college degrees in accounting; some have graduate degrees as well. A few are in the process of gaining the necessary work experience and preparing to take the examination required for them to obtain certified public accountant certifications. Many remain unlicensed, however, either because they are unable to obtain the necessary work experience to qualify for the CPA examination (CPA firms employ less than half of the accounting graduates produced each year by California colleges and universities) or because they have no interest in the specialized audit and financial certification work for publicly traded companies which is the exclusive domain of licensed accountants. For the most part, unlicensed accountants either work as employees of public agencies or private business, or they act as independent contractors providing tax, accounting and bookkeeping services to the many individuals and businesses who do not need the services of a CPA.

In 1945, the California Legislature created a new class of public accountants empowered to perform all of the functions of a CPA, but not required to pass any examination or satisfy the other educational and experience requirements for becoming a CPA. Approximately 25,000 of these "public accountants" (PAs) were granted permits to practice as a result of the legislation. As a concession to the CPA lobby, however, such enrollment was only available during a six-month period. The public accountants thus became what is known as a "dying class" who presently number less than 1,500. Since nearly all public accountants are beyond normal retirement age, only a small fraction of that number maintain an active practice.

The California State Board of Accountancy is made up of eight licensed accountants (CPAs and PAs) and four public members, none of whom are unlicensed accountants. In the guise of protecting the public against false advertising, the board has adopted a regulation which serves to insulate its licensees against their closest competition by prohibiting unlicensed accountants from using the generic term "accountant" to refer to themselves, or the generic term "accounting" to refer to the services they offer. The board's underlying anticompetitive motive is revealed by the fact that its regulation is only applied to unlicensed accountants in their own private practice. Unlicensed accountants who are employees of public agencies, private business and CPA firms are all permitted to use the terms "accountant" or "accounting" without restriction. The board has enforced its regulation by sending out "cease and desist" letters to unlicensed accountants in private practice threatening criminal prosection against those who have used the terms they have deemed prohibited.

One of the people who received such a letter was Bonnie Moore, an unlicensed accountant with a college degree in accounting. In 1986, Ms. Moore and the California Association of Independent Accountants brought a declaratory relief action challenging the validity of the board's regulation on the grounds it is contrary to California law and a violation of state and federal rights to free commercial speech.

The CAIA was organized in 1985 to represent unlicensed accountants engaged in their own private practice. It is the California affiliate of the National Society of Public Accountants (NSPA) which represent some 23,000 licensed and unlicensed accountants throughout the United States.


California Business and Professions (B&P) Code Section 5058 prohibits unlicensed persons from using certain terms which might suggest that they are licensed by the state. The enumerated terms include "registered accountant", "licensed accountant", and "chartered accountant", but the term "accountant" by itself is not prohibited. In fact, if the legislature intended to prohibit use of the generic term "accountant", it would have been unnecessary to enumerate any of the specific titles prohibited by Section 5058.

Other sections of the Accountancy Act explicitly recognize that unlicensed persons can work as independent contractors on behalf of their own clients to perform what are commonly understood to be accounting functions such as keeping books, preparing financial statements and reports, and making non-certified audits as long as they do not purport to perform such services as a licensed accountant (B&P Code 5052).

Beginning in the late 1970s, the United States Supreme Court decided a number of cases holding that constitutional free speech protections applied to "commercial speech", such as advertising or use of professional titles, as well as political or artistic expressions. The basic rule developed in such cases prohibits any restriction on commercial speech which is not false and misleading. That rule has been applied by at least one state supreme court (Maryland) to invalidate legislation which prohibited unlicensed accountants from using the term "accountant".

The board defends its regulation as a proper "interpretation" of Business and Professions Code Section 5058 by reference to a 1977 California appellate court decision which upheld a preliminary injunction against an unlicensed person using the term "accountant" on the grounds that there may have been a violation of the general provisions of the Accountancy Act. That case (People vs. Hill), however, was decided before commercial free speech principles were developed; it did not address the board's regulation OR the constitutional arguments which have been presented by CAIA, and since it merely dealt with a preliminary injunction, it did not decide ANY issue on the merits. Even if People vs. Hill was controlling precedent, it reaches an untenable result by recognizing on the one hand that unlicensed persons can legally perform what are commonly understood to be "accounting" services, but then finding that it would be misleading for such persons to call themselves "accountants".

The Pending Litigation

The Moore case was tried in San Francisco Superior Court in late 1988. Believing that he was bound by the decision in People vs. Hill, the trial judge found in favor of the State Board of Accountancy and entered an injunction against CAIA (and all of its past, present or future members) prohibiting use of the terms "accountant" or "accounting" in any of their advertising or in their practice. In describing the scope of his decision, the Superior Court judge even stated that it would be illegal for an unlicensed accountant to inform the public of the true fact that he or she had a degree in accounting or is a member of an organization such as the National Society of Public Accountants. CAIA and Ms. Moore have filed an appeal with the same appellate court which decided People vs. Hill. A number of associations, including the University of San Diego Center for Public Interest Law, the California Society of Enrolled Agents and the National Society of Public Accountants, have filed amicus curiae briefs in support of the appeal. The appellate court has received all briefs and a decision is expected in the fall of 1990.
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Article Details
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Title Annotation:California Association of Independent Accountants
Author:Sager, William H.
Publication:The National Public Accountant
Article Type:column
Date:Aug 1, 1990
Previous Article:Accounting for changes in shareholder equity.
Next Article:Forms over substance.

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