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The "A" word in Texas.

The "A" Word in Texas (unlicensed) Accountant

In 1972 the Texas State Board of Public Accountancy filed a suit asking that I, an enrolled agent, "be enjoined from holding myself out as a public accountant and engaging in the business of public accountancy until I complied with the provisions of the act."(1)

The court, in rendering a decision partly for the state board and partly for the defendant, opined:

The Texas statute, as we construe

it, does not prohibit an

unlicensed accountant from practicing

accountancy or doing accounting

work. We hold that it

only prohibits an unlicensed accountant

who practices public

accounting from holding himself

out as an accountant.(2)

In reading the decision, it did not seem consistent with the First Amendment to say one could practice accountancy and do accounting work yet not be able to tell someone that it what is being done. Besides, the injunction was very specific. It only prohibited unlicensed accountants from using the word "accountant."

So in 1976 I found myself back in court for using that term. Under Texas "case law," it is unlawful for an enrolled agent or unlicensed accountant to use the word "account," "accounting," or any abbreviation or derivation thereof in connection with an unlicensed accountant's or enrolled agent's business, until or unless the accountant or agent becomes licensed as a certified public accountant.(3)

Generally, an opinion of a trial court is binding only on parties to the suit or perhaps others within the jurisdiction of that court, usually the county within which the court is situated. However, once a case in state court has been appealed, the decision of the last appeals court to hear the case becomes state law, binding on everyone residing within the state. This is known as case law.

Political speech has long been protected by law. More recently, commercial speech has come under the protection of the First Amendment, so long as it is not misleading. Although the appeals court in Fulcher II recognized that truthful commercial advertising was in 1978 protected, it determined that the use of "accountant" or "accounting" by unlicensed accountants was misleading. The U.S. Supreme Court in Bates, while mandating that truthful commercial advertising was protected, conceded: "Advertising that is false, deceptive or misleading of course is subject to restraint."(4)

The previously cited paragraph from Fulcher I doesn't say unlicensed accountants have the right to practice accountancy or the right to do accounting work. It simply says that the statute, as the court construed it in 1974, "does not prohibit an unlicensed accountant from practicing accountancy or doing accounting work."


A true professional would not think of sending out a financial statement without some kind of report attached. However, restrictions on practitioners in this area vary by state.

In Louisiana, the Louisiana Board of Accountancy a few years ago issued regulations that only CPAs should be able to prepare audit or review reports.

The NSPA Louisiana affiliate challenged the regulation on the grounds that the accountancy law did not include "review" reports and the Court of Appeals construed the statute to include review reports. Subsequently, the Louisiana affiliate renewed their challenge on constitutional grounds that the statute was invalid as a denial of due process and commercial free speech. Again, the court ruled in favor of the board of accountancy. Therefore, an unlicensed accountant in Louisiana may not prepare a report indicating the accountant has performed an audit or a review.(5)

Texas law doesn't prevent an unlicensed accountant from performing an audit, a review or a compilation. It just prevents one from stating in the report that the accountant has expert knowledge in accounting or auditing.(6) However, in the Opella settlement, members of NSPA's affiliate, TAPA, were given "safe harbor" language to make sure the wording in compilation reports would not indicate the TAPA member had engaged in the practice of public accountancy in Texas.(7)

Apparently, the Texas State Board of Public Accountancy realized that the settlement might not be binding on TAPA members who were not a party to the suit or on non-TAPA members and though that perhaps the conservative Thirteenth Court of Civil Appeals in Corpus Christi might follow the Louisiana decision or the Opella settlement, thereby expanding the case law in Fulcher I and Fulcher II to restrict unlicensed accountants from signing any kind of a report (other than that provided for in the safe harbor language of the Opella settlement) or at least prevent unlicensed accountants from performing audits or reviews of financial statements.

In February 1989, the Texas State Board of Public Accountancy filed another suit against me in response to a compilation report that I issued containing the word "accounting" and the fact that calls to my office on occasion were answered, "accounting offices." Later that year this suit was dropped; however in March 1990, the board filed two enforcement actions for violating the Opella settlement and the injunction from Fulcher II.(8)

Since the enforcement actions were filed, the Colorado Court of Appeals struck down a board regulation that attempted to prohibit unlicensed practitioners in Colorado from performing review reports because the Colorado statute itself did not prohibit review reports.(9)

The Colorado court decided that "audits are separate and distinct from reviews" and would not allow the board by regulation to expand the statute to prevent reviews. The Colorado statute prohibits unlicensed accountants from performing audits but remains silent on reviews. The Colorado law states that certain accounting services are restricted to CPAs, while other accounting services may be performed by unlicensed accountants.

Thus, Colorado law does not prohibit the performance by persons other than certified public accountants of other services involving the use of accounting skills, including the preparation of tax returns and the preparation of financial statements without the expression of opinions or assurances thereon.(10)

The Colorado court did not think that performing a review was the same as performing an audit or even consisted of "the expression of opinions or assurances." Apparently the Colorado State Board of Accountancy hoped the court would follow the Louisiana decision discussed infra.

Texas, Colorado and

Louisiana Distinguished

In Texas the statute does not actually prohibit an unlicensed accountant from performing an audit. It merely states:

No person shall sign or affix his

name or any trade name or assumed

name used by him in his

profession or business with any

wording indicating that he is an

accountant or auditor or with any

wording indicating that he has

expert knowledge in accounting

or auditing, to any accounting or

financial statement or to any

opinion on, report on, or certificate

to, any accounting or financial

statement, unless he has complied

with the applicable provisions

of this act.

Note that the Texas statute doesn't prohibit the unlicensed accountant from signing the report. It prohibits him (or her) from signing the report with certain wording.

Thus far, the Texas courts have indicated that only the use of the words "accounting" or "accountant" including abbreviations or derivations thereof (and by implication, the words "audit," "auditor" or "auditing") would indicate that one had "expert knowledge in accounting or auditing." The action filed against me may give more insight on what an unlicensed accountant or enrolled agent may or may not put in a report.(11)

While the Texas statute doesn't prohibit the performance of audits, reviews or compilations by unlicensed accountants, the Opella settlement prohibits all three and, apparently, like the Colorado regulation, goes beyond what the statute requires.

The Louisiana statute, which was upheld by the courts, was construed to prohibit the performance of audits and reviews by unlicensed accountants. Therefore an unlicensed accountant cannot do a review in Louisiana.

The Colorado statute only prohibits the performance of audits by unlicensed accountants. The court prohibited the Colorado accountancy board from adding reviews to the list of prohibited acts by regulation, even though the giving of assurances by unlicensed accountants was barred by the act.

"Accountant" and

"Accounting" in Texas

There are some encouraging signs that injunctions and settlements prohibiting the unlicensed accountant's use of "accountant" or "accounting" may soon be struck down in Texas. The courts in only two states - Texas and California - have upheld complete restrictions on the use of "accountant" or "accounting." And the California courts have apparently just changed their mind.

The highest court in the state of Maryland refused to follow Fulcher I or Fulcher II in 1979 and stated:

To prevent the possibility of

public confusion and deception,

the legislature cannot consistent

with the First Amendment

choose the most drastic remedy

- the complete suppression of

certain words to describe the lawful

activity of non certified accountants.(12)

The only state where the courts followed Fulcher I and upheld a prohibition against the use of "accountant" and "accounting" was California in Hill,(13) which was cited by the appeals court as precedent for upholding its decision in Fulcher II.

In August 1990, a division of the same intermediate level appeals court that decided Hill, stated that while California could prohibit the unmodified use of the words "accountant" and "accounting," the state could not completely suppress the modified use of "accountant," i.e., "unlicensed accountant," when the word "accountant" was used with modifiers so that it would not be misleading.

Unlicensed accountant Bonnie Moore and NSPA's affiliate, the California Association of Independent Accountants, were not satisfied with that opinion and petitioned the California Supreme Court to strike down any prohibition against the use of "accountant" or "accounting". The California Supreme Court, in a surprise move, has agreed to hear the case despite strenuous objections from the attorney general.(14)

The Corpus Christi appeals court, upheld the trial court judge in Fulcher II in 1978, claimed the use of "accountant" or "accounting" by unlicensed accountants was misleading.

Protected Speech

Since Fulcher II, the U.S. Supreme Court has determined that it is not inherently misleading for a lawyer to state he is "licensed to practice before the Supreme Court"(15) and that it is not inherently misleading to truthfully state that a lawyer has been certified by a private organization.(16) The Supreme Court decided that the use of the word "specialist" is not inherently misleading and that if the word has a dictionary definition that fits the situation, it is not inherently misleading.(17)

The dictionary clearly defines bookkeeping as the recording of financial transactions, i.e., keeping a simple journal and payroll ledger. Accounting, on the other hand, consists of analyzing and classifying the information and using it to prepare reports and tax returns, deciding whether the transaction was the acquisition of an asset or expense and to what account it should be posted).

In 1982, the U.S. Supreme Court decided that, even if potentially misleading, the communication was protected speech if the advertising could be corrected with a disclaimer.(18) This is the basis of the Bonnie Moore appeal to the California Supreme Court.

Misleading Advertising

Words expressing quality of services such as "good," "super" or "best" are inherently misleading because they are difficult to verify. Trade names used by a professional are inherently misleading because a client might expect anyone in the office using the trade name to possess the same skills. Direct, uninvited solicitation has also been determined to be misleading.(19)

The above cited U.S. Supreme Court decisions and cases are not squarely on point because they involve licensed lawyers and other licensed professionals rather than unlicensed accountants. The favorable cases involving accountants are from decisions of state courts.

The Texas courts are not bound by decisions of out-of-state courts other than the U.S. Supreme Court. However, these cases make excellent precedent for a decision striking down the current restrictions prohibiting the use of "accountant" and "accounting" in Texas by enrolled agents and unlicensed accountants.

A motion has been filed in the 107th Judicial District Court in Brownsville, Cameron County, Texas, to dissolve the injunction in Fulcher II, and, if pursued, hopefully will produce just that result. Organizations are encouraged to contact an attorney at law in regard to filing "friend of the court" briefs in the Cameron County litigation.


(1) Texas State Board of Public Accountancy v. Fulcher, 515 S.W.2d 953, at page 952, (September 19, 1974, Court of Civil Appeals, Corpus Christi) hereinafter cited as Fulcher I. (2) Fulcher I, at page 957. (3) Fulcher v. Texas State Bd. of Public Accountancy, 571 S.W.2d 366, (August 29, 1978, Court of Civil Appeals, Corpus Christi) hereinafter cited as Fulcher II, at page 367. (4) Bates v. State Bar of Arizona, 433 U.S. 350, 383; L.Ed.2d. 810, 835; 97 S.Ct. 2691, (1977). Unfortunately Bates offered few guidelines that might give much of an idea about what types of communications the Court would consider to be "misleading" or what the Court might refuse to consider "misleading" and thereby protected. (5) Accountants Association of Louisiana v. State, 487 So.2d. 155 (1986) 533 So.2d 1251 (1988), Cert. denied, U.S. Supreme Court, Oct 2, 1989, No.88-1918. (6) Texas Public Accountancy Act of 1979, Section 8(f). (7) The Opella settlement was a settlement of litigation reached between private plaintiffs including NSPA's affiliate, the Texas Association of Public Accountants (now known as TAPA) in September 1986, terminating litigation brought against the Texas State Board of Accountancy alleging unconstitutionality of Section 8(f) of the Texas accountancy law. This was the same Section of the law involved in Fulcher I and II, cited supra. (8) The disadvantage of class action suits or in being an actual party to the suit is that in the event of an unfavorable decision or settlement the court has already determined one should be bound by the suit and an enforcement action is instituted which could result in contempt of court penalties, which are usually harsher than the result of an action to show one should be bound by case law created by a previous court decision or an existing statute. (9) William H. Sager, "Victory in Colorado," National Public Accountant, July, 1990, pp. 38-42. (10) Ibid, p. 41. (11) It is interesting to note that the Texas State Board of Public Accountancy, at its meeting November 16, 1990, concluded that the Board could not prevent the use of "CTP" or "certified tax professional" under the act. (12) Comprehensive, Etc. v. Maryland State Board, 397 A.2d. 1019 (1979) at pages 1026-1027. (13) People v. Hill, 66 Cal.App.3d 320. (14) NSPA Washington Reporter, Vol. 32, No. 11, p.4. (15) In re R.M.J., (1982) 455 U.S. 191, 71 L.Ed.2d 64, 102 S.Ct. 929. (16) Peel v. Attorney Disciplinary Committee, (1990) 110 L.Ed.2d. 83. (17) Ibid, at Page 103. (18) In re R.M.J., 455 U.S. 191, 202, (1982). (19) Federal regulations prohibit enrolled agents from using misleading advertising and from engaging in direct uninvited solicitation. Section 10.30, Treasury Department Circular 230, (Revised 3-86) p. 18.

William L. Fulcher is a partner in the firm of Fulcher & Buitureida and has been a practicing accountant in Brownsville, Texas, since 1968. An enrolled agent having passed the 1971 Special Enrollment Exam in the top 20 nationwide, he has been a member of NSPA since 1971 and is also a life member of TAPA. He received his bachelors degree in accounting (magna cum laude) at Pan American University in 1979 and his MBA degree in 1983. He has published numerous articles in a number of professional publications including the National Public Accountant.
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Title Annotation:unlicensed accountancy laws in Texas
Author:Fulcher, William L.
Publication:The National Public Accountant
Date:Aug 1, 1991
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