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There's no accounting how far the Board of Accountancy will go.

There's No Accounting How Far The Board Of Accountancy Will Go

The California State Board of Accountancy licenses certified public accountants (CPAs). It is comprised of eight practicing Board licenses and four public (nonlicensee) members. Over the past two decades, the Board has not distinguished itself as a source of meaningful professional standards, or as a force disciplining dishonest or incompetent accounting practice. It has been effectively moribund in both capacities, remaining in a limacine stupor as the profession it regulates has failed to sound the warning call in the face of the largest series of accounting frauds in American financial history: the savings and loan debacle. During this profession's torpid somnolence, more damage has been done to more people and is causing more economic harm than all of the previous chicanery in our nation's history combined. The Board's energies, however, have historically been directed at keeping out the infidels, i.e., new competing CPAs. In this area, it has managed to flunk in its examinations 70-90% of those who attempt them.

More recently, this sad excuse for a profession, and sadder excuse for a regulatory body, has stirred from its lethargy in a burst of cartel energy. Controlled by CPAs, it has decided that it will simply prohibit non-CPA accountants -- who have practiced lawfully for decades under section 5052 of the California Business and Professions Code -- from using the terms "accounting" or "accountant" to describe their services. This is a neat trick. Since many individuals and businesses need an accountant but not necessarily a CPA, there is fierce competition among CPAs and other accountants for a significant amount of accountancy business. What better way to remove competition than to prevent those opening the phone book from finding a listing for them? What better trick than to preclude them from using the only words which accurately describe their services? And then the Board used a 1986 law to adopt rules so it could directly cite nonlicensees and impose fines on them--for using a term they have used for decades to describe their services.

This issue is in litigation, and the California Supreme Court recently granted -- unanimously -- a petition to review the First District Court of Appeal's regrettable decision in Moore v. California State Board of Accountancy,(1) a case challenging the Board's authority to impose its proprietary will through the vehicle of the state of California. To fully appreciate the absurdity of this Board's attempt to privatize our State for the narrow aggrandizement of the interest group controlling it, one must review the applicable law and its history in some detail, as well as the constitutional concepts here relevant.

In the California Accountancy Act,(2) the legislature has provided that a limited number of accounting tasks (specifically, the preparation of a formal audit with an accompanying certified opinion of soundness) may be performed only by a CPA. In section 5052, it has carved out a significant portion of what can only be characterized as accountancy and expressly allowed non-CPAs to engage in it.

In section 5058, the legislature has specified that only CPAs may use the title "certified public accountant" and a large number of other enumerated accounting titles and abbreviations. On the three occasions the legislature has amended section 5058 in the past 45 years, it has never prohibited the use of the unmodified term "accountant" by nonlicensee independent accountants engaged in accounting activities expressly permitted in section 5052.

In 1948, the Board of Accountancy adopted "Rule 2",(3) which bars non-CPAs engaged in lawful accounting activity under section 5052 from using the terms "accountant" or "accounting" to describe themselves or their services. The Board has generally failed to enforce Rule 2 until recent years -- that is, until the fees for CPA services have soared, putting them out of the reach of the small business owner, the farmer, the sole practitioner, and the individual consumer who needs general accounting services but not the auditing expertise reserved to CPAs by the legislature.

As the volume of accounting business diverted from CPAs to unlicensed accounting practitioners has ballooned, so has the CPA profession's desire to put unlicensed accountants out of business, or at least severely restrict their advertising ability. In particular, CPAs desire to prevent unlicensed accountants from advertising in telephone directories under the heading "Accountant". Rule 2 -- adopted and now sought to be enforced by a Board dominated by CPAs -- fulfills this desire.

Aside from the obvious statutory interpretation and commercial speech issues, we would urge consideration of a significant due process issue: where a rulemaking and adjudicatory body consists primarily of licensees belonging to a specific economic grouping (e.g., one type of accountant) in competition with other similar practitioners, is it constitutional for those Board members to use the power of the State to adopt and enforce rules of practice to their economic advantage against groups not represented in the relevant tribunal?

The Center for Public Interest Law (CPIL) believes that the answer is "no." As discussed below, in Gibson v. Berryhill,(4) the U.S. Supreme Court found that the Alabama Board of Optometry (consisting entirely of private-practice licensed optometrists) was an unfair tribunal for purposes of instituting adjudicatory proceedings against competitor licensed optometrists employed by corporations. Similarly, California courts have invalidated portions of the New Motor Vehicle Board Act, the California Forest Practice Act, the Dry Cleaners' Act and the Barber Act due to the very infirmity present here; the inherent, due process-violative unfairness of an industry-dominated regulatory agency improperly attempting to limit competition and further its own profit-stake interests.(5)

The pending Moore case is not solely concerned with rulemaking by a state agency controlled by those with an impermissible pecuniary interest in the proceedings; for the CPA-dominated Board of Accountancy has also attempted to enforce its rulemaking through its adjudicatory authority. Although dormant for many years, the Board's recent enforcement of Rule 2 has taken the form of "cease and desist" letters to unlicensed practitioners, ordering them to refrain from using the terms "accountant," "accounting" or "accountancy" in their advertising, business cards, letterhead or elsewhere to describe themselves or their work. The Board of Accountancy -- which, like other occupational licensing/regulatory agencies, functions as investigator, prosecutor and judge in adjudicatory proceedings -- has aimed its prosecutorial threats at individual unlicensed practitioners, such as plaintiff Bonnie Moore, who provide accounting services to small businesses and individuals. The "cease and desist" letter sent to Moore in the currently pending case included the threat of criminal prosecution. The Center contends that the Board has formulated and applied this rule for cartel enhancement purposes, and that the action of this unrepresentative, conflict-laden Board are unconstitutional.

Unconstitutional Rulemaking

CPIL believes that the Board is constitutionally disqualified from adopting Rule 2. As noted above, the Board of Accountancy is currently comprised of six certified public accountants, two public accountants and four public members (none of whom are unlicensed accounting practitioners). When the Board adopted Rule 2 in 1948, it consisted of five licensed accountants.

Rule 2 purports to clarify Business and Professions Code section 5058, which prohibits the use of modified titles likely to be confused with "certified public accountant," and "public accountant":

No person or partnership shall

assume use the title or

designation "chartered accountant,"

"certified accountant," "enrolled

accountant", "registered

accountant" or "licensed accountant," or

any other title or designation

likely to be confused with

"certified public accountant" or

"public accountant," or any of the

abbreviations "CA," "EA," "RA,"

or "LA," or similar abbreviations

likely to be confused with "CPA,"

or "PA;" provided, that any

person qualified as a certified public

accountant under this chapter

who also holds a comparable title

granted under the laws of

another country may use such title

in conjunction with the title of

"certified public accountant" or


Rule 2 -- as adopted in 1948 and currently--prohibits non-CPAs from using the unmodified terms "accountant," "auditor," "accounting," and "auditing" as well as "any other titles or designations which imply that the individual is engaged in the practice of public accountancy" as "likely to be confused with" the restricted titles. The adoption of this rule by a Board dominated by persons with a pecuniary stake in the rulemaking decision, and which is adverse to the interests of unregulated competitors, violates the due process rights of unlicensed accountants who compete with CPAs for accountancy business in the marketplace. Numerous cases illustrate the principle that members of a multi-member governmental entity may not abuse their agency rulemaking authority to promote their own pecuniary interests.

Unconstitutional Enforcement

Whereas California courts have previously considered issues of unfair agency rulemaking due to an improperly-constituted board, other courts have focused on issues of unfair agency adjudication/enforcement action by boards controlled by members of the very industry being regulated. In Gibson v. Berryhill,(7) the U.S. Supreme Court found that the Alabama Board of Optometry was an unfair tribunal for purposes of instituting adjudicatory proceedings against competitor licensed optometrists. The Board, which consisted exclusively of private-practice optometrists, instituted disciplinary actions against several licensed optometrists who were employed by business corporations. The respondent corporate optometrists filed a civil rights action in federal court in an attempt to enjoin the Board's disciplinary proceedings. The district court halted the Board's action on two grounds:

1. Pre-judgment (the Board had

previously fled a complaint in

state court against these same

corporate optometrists

respondents, alleging unlawful

practice of optometry and

unprofessional conduct); and 2. Pecuniary interest (the court

found that the respondent

corporate optometrists accounted for

nearly half the practicing

optometrists in Alabama; if the

licenses of these optometrists were

revoked, the private practitioner

board members would

personally benefit).(8)

In enjoining the Board's license revocation action, the Supreme Court held: "arguably, the District Court was right on both scores, but we need reach, and we affirm, only on the latter ground of possible personal interest."(9) Citing the landmark cases of Tumey v. Ohio(10) and Ward v. Village of Monroeville,(11) the Court stated that "it is sufficiently clear from our cases that those with substantial pecuniary interest in legal proceedings should not adjudicate these disputes." Further, the Supreme Court cited the district court's reasoning that "the inquiry was not whether the Board members were |actually biased but whether in the natural course of events, there is an indication of a possible temptation to an average man sitting as a judge to try the case with bias for or against any issue presented to him'".(12)

The Board of Accountancy has argued in Moore that the mere presence of industry members on a board empowered to both adopt rules and adjudicate does not rise to the level of a constitutional violation, and that a disqualifying bias may not be inferred from the mere circumstance of the adjudicator's private life.

Due Process Principles Compel the Invalidation of Rule 2

The Board of Accountancy in 1948 -- comprised of five licensed accountants, no public members and no members representing unlicensed accountant practitioners lawfully rendering services under Business and Professions Code section 5062 (now 5052) -- conducted formal rulemaking proceedings and adopted a regulation with the force of law which prohibits another kind of accountant from using the term "accountant" or "accounting" to describe his/her services.

The Board then abused its enforcement powers by issuing cease and desist letters and threatening criminal prosecution. It further has the statutory authority to levy citations and fines against licensees and nonlicensees who violate Board statutes or regulations.(13) As testified to at the Moore trial, that rule and its enforcement has a detrimental impact on the ability of non-CPA accounting practitioners to advertise their services to those most in need of them through the usual means of advertising -- the telephone directory under the heading "Accountant".

There is no question that Bonnie Moore (who has a college degree in accounting and 20 years' experience in the accounting field) and the other plaintiffs perform only the acts allowed them in section 5052 of the Business and Professions Code; there is also no question that the term which most accurately and truthfully describes those lawfully-performed acts is "accounting" or "accountant." The Board does not contend that Bonnie Moore or the other plaintiffs have ever represented themselves to be "certified public accountants" or "public accountants." They seek only to render the services permitted them under section 5052 of the Business and Professions Code, and to exercise constitutionally protected commercial speech rights by truthfully advertising the availability of those services in the manner most familiar to those who would be their customers. Yet their competitors -- CPAs who dominate the Board of Accountancy, who have a substantial pecuniary interest in preventing independent accountants from advertising in the usual manner and providing those services, and who stand to gain from that inability to so advertise and so practice -- have adopted and are attempting to enforce a rule which stands to wipe out the practice of unlicensed accountancy expressly permitted by legislature.

Rule 2 is Anti-competitive and Harms the Public Interest

The formal audit, with its accompanying certified opinion of soundness, is the only accounting function reserved exclusively to Board licensees.(14) However, less than 20% of CPA firms perform these audits as their main source of income.(15) Most certified public accountants compete with unlicensed individuals and firms for the wide range of overlapping accounting services sought by consumers. That is, CPAs and unlicensed accountants directly compete for at least 80% of the accounting business in the marketplace; both licensees and nonlicensees seek to perform the identical services. By excluding independent accountants from advertising or describing themselves as "accountants," the Board has effectively limited competition for non-audit clients. The industry-dominated Board has allowed its substantial pecuniary interest to outweigh the strong policy against anti-competitive agency conduct.

That the Board's Rule 2 harms Bonnie Moore and other independent accountants, to the benefit of CPAs permitted to easily and accurately advertise those same services, is clear. But it also harms the general public, the small business, the farmer, the sole practitioner, the individual in need of the accounting services described in Business and Professions Code section 5052 but without the wherewithal (or need) to pay a CPA. This interest should be recognized by the Supreme Court in Moore.

Under section 5052, unlicensed accounting firms may lawfully perform the services usually required by the general public. These services are available from licensee accounting firms which may readily advertise in an accessible manner, but the hourly fee may be more than double that of Bonnie Moore and other plaintiffs. While licensees must be qualified to perform highly technical audits, the usual individual or small business has no need for those sophisticated skills (and they clearly should not be required to pay for them, or for the substantial overhead costs incurred by licensed CPA firms).

Unlicensed firms such as Bonnie Moore's Accounting Center are not permitted to and do not perform at that technical and complex level, yet they are restricted from truthfully reaching those consumers most in need of their services. When consumers who require accounting services are prevented from locating an entire class of providers, it is they who suffer irreparable harm -- not the Board licensed CPAs who adopted Rule 2 and have threatened criminal prosecution to enforce it.

The Board contends that the use of the term "accountant" or "accounting" by nonlicensees is deceptive and misleading; however, it is the Board's restriction of the use of that term which is shamefully misleading. Under the Board's Rule 2, only Board licensees are "accountants" and may legally advertise "accounting" services. The Board ignores the fact that the legislature has reserved a wide range of accounting services for nonlicensees, and has not precluded nonlicensees from using the term "accountant" or "accounting".

The Board's message to the public -- that only Board-licensed CPAs are "accountants" -- is legally erroneous, factually inaccurate and a regrettable but all too common reflection of cartel self-interest. Most troublesome, this cartel is operating in the garb of a state agency with an obligation to protect the public. The question is, how do we hold a accountable a state agency of accountants expropriating public power for private self-aggrandizement?


(1)Moore v. California State Board of Accountancy, 222 Cal. App 3d 919, 272 Cal. Rptr. 108 (Aug. 1, 1990), pet'n for rev. granted, No. S017399(Oct. 18, 1990). (2)Business and Professions Code Sec. 5000 et. seq. (3)Section 2, Chapter 1, Title 16, California Code of Regulations. (4)411 U.S. 564(1973). (5)See, e.g., State Board of Dry Cleaners v. Thrift-D-Lux Cleaners, 40 Cal. 2d 436(1953); Nissan Motor Corp. v. New Motor Vehicle Board, 153 Cal. App. 3d 109 (1984); Chevrolet Motor Division v. New Motor Vehicle Board, 146 Cal. App. 3d 533 (1983); American Motors Sales Corp. v. New Motor Vehicle Board, 69 Cal. App. 3d 983 (1977); Allen v. California Board of Barber Examiners, 25 Cal. App. 3d 1014 (1972); Bayside Timber Company, Inc. v. Board of Supervisors of San Mateo, 20 Cal. App. 3d 1 (1971). (6)Business and Professions Code Sec. 5058. (7)411 U.S. 564 (1973). (8)Id. at 578. (9)Id. at 579. (10)273 U.S. 510 (1927) (mayor-judge with personal pecuniary interest in outcome of liquor law violation cases ruled unfair tribunal for such cases). (11)409 U.S. 57 (1972) (mayor-judge with only indirect pecuniary interest in convictions resulting in fines ruled unfair tribunal). (12)Gibson, 411 U.S. at 571. (13)Sections 125.9 and 125.95 of the Business and Professions Code permit the Board of Accountancy to establish by regulation a system for issuance of citations and fines to licensees and nonlicensees which violate the Board's statutes or regulations. In February 1990, new section 95.6 of the Board regulations became effective. Under this section, the Board's Executive Officer is permitted to issue citations containing orders of abatement and administrative fines up to $2,500 investigation against unlicensed persons who are performing acts for which licensure is required. (14)Business and Professions Code Sec. 5051 (d); see also officially recorded comments of James R. Sullos, Jr., CPA Member, State Board of Accountancy Meeting at Oxnard, California (Jan. 27-28, 1989), Board's minutes at 4420. (15)California Society of Certified Public Accountants' (CSCPA) Task Force on Certification Requirements, presented to State Board of Accountancy at Oxnard, California (Jan. 27-28, 1989).

Julianne B. D'Angelo is the managing editor of The California Regulatory Law Reporter based at The Center for Public Interest Law of the University of San Diego School of Law in San Diego, California.
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Title Annotation:an abridgement and reprint The California Regulatory Law Reporter
Author:D'Angelo, Julianne B.
Publication:The National Public Accountant
Date:Dec 1, 1991
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