In 1997, the Louisiana Legislature adopted a claims review panel procedure involving “claims” against certified public accountants and firms.  “Claims” as contemplated by the Act are broadly defined as:

(1) "Claim" means any cause of action against a certified public accountant or firm, regardless of the legal basis of the claim, including but not limited to tort, fraud, breach of contract, or any other legal basis, arising out of any engagement to provide professional services, including but not limited to the following:

(a) The providing of attest services as defined in R.S. 37:73(1)(a).
(b) The providing of business or financial advice.
(c) Advice relative to plans or actions to qualify for tax benefits or otherwise reduce the amounts of
tax owed.
(d) Advice relative to the structuring of pension or retirement or insurance plans or other employee
benefits.
(e) The provision, including design, of computer software for accounting or bookkeeping functions.
(f) Any other advice relative to the conduct of any business whether conducted for profit or not.
 

The request for review by a claimant shall be in writing and must contain a short concise statement of the material facts that give rise to the dispute. The Society is empowered to dismiss the claim if the claimant fails to take the necessary timely steps to secure the appointment of the attorney chairman of the panel and in the event that the parties are unable to agree on an attorney chairman, the law provides for the involvement of the Louisiana Supreme Court in the selection process.

The panel is composed of three CPAs, who have practiced in Louisiana for more than ten years, with the claimant and the respondent each having the right to chose one CPA panelist, and one attorney. There are provisions in the law for the qualifications and duties of the panelists. The attorney member of the panel acts in an advisory capacity and administrative capacities and has no vote.

Although there is an opportunity for certain pre-hearing discovery, the panel may only consider written evidence. The panel has the authority to request and procure “all necessary information” in making its decision. The panel’s sole duty is to express its opinion as to whether or not the evidence supports the conclusion that the defendant or defendants acted or failed to act within the appropriate standard or care or whether there is a material issue of fact, not requiring expert opinion, bearing on liability for consideration by the court.

The role of the panel does not include the factual determination of whether damages were sustained and, if so, the amount of the damages, as those are issues for a subsequent judge or jury to decide. The panel’s opinion is admissible, but not conclusive, in any subsequent court proceeding.

The “Standard of Care” and Other Issues Involved in Claims Against Accounts

As noted, in exercising its’ function, a review panel determines whether the accountant met the “applicable standard of care.” That conduct is generally contrasted to “malpractice”, which is defined as:

“Malpractice. Professional misconduct or unreasonable lack of skill. This term is usually applied to such conduct by doctors, lawyers and accountants. Failure of one rendering professional services to exercise that degree of skill and learning commonly applied under all the circumstances in the community by the average prudent reputable member of the profession with the result of injury, loss or damage to the recipient of those services or to those entitled to rely upon them. It is any professional misconduct, unreasonable lack of skill or fidelity in professional or fiduciary duties, evil practice, or illegal or immoral conduct."

Under this standard, the accountant is not required to exercise perfect judgment in every instance. However, it recognizes that the accountant’s license to practice and contract for employment holds out to the client that the accountant possesses certain minimal skills, knowledge and abilities.

A related state law issue involves who has a right to make a claim against an accountant for alleged malpractice. In the limited number of cases applying Louisiana law, it appears that with regard to malpractice the courts limit such malpractice liability to clients and nonclients whom the attorneys know will rely upon their legal work product.

The time within which to bring a claim against an accountant has also been subject to legislation and judicial discussion. The time periods that govern actions for professional accountant liability are set forth in Louisiana Revised Statute 9:5604, which generally provides that no action for damages against any accountant duly licensed under the laws of this state, whether based upon tort, or breach of contract, or otherwise, arising out of an engagement to provide professional accounting service shall be brought unless filed in a court of competent jurisdiction and proper venue within one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered; however, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect. There are exceptions for cases of fraud and proceedings initiated by the State Board of Certified Public Accountants of Louisiana.

Conclusion

Accountants, like physicians and lawyers, owe a duty to perform their services with a degree of skill and competence reasonably expected of persons in their profession in the community. Hence, the Louisiana legislature has enacted a comprehensive regulatory scheme governing both practice requirements as well as the consequences of falling below the standard of care expected. It is suggested that both the State Board of Certified Accountants of Louisiana and the Society of Louisiana Certified Public Accountants have performed commendably in carrying out their responsibilities under the Louisiana Accountancy Law.

This is the third, and final part, of a series of articles discussing the regulation and liability of accountants pursuant to Louisiana law. This part focuses on the standards adopted by the Louisiana Legislature and courts involving claims of substandard performance. A complete version of the article, including relevant references, is available on the LCPA’s website, www.lcpa.org.  The first two portions of the article can also be found on the Louisiana Law Blog here:  Part 1, Part 2.

The declared purpose of the Louisiana Accountancy Law, is to promote the reliability of information that is used for guidance in financial transactions or for accounting for or assessing the financial status of private and public clients. To that end, the Louisiana Legislature has decided that it is in the public interest to regulate the qualifications and conduct of those with special competency and skill in the field of accounting and has created the State Board of Certified Public Accountants of Louisiana and given it the responsibility to regulate entry into the practice, the continuum of practice and enforce the provisions of the law with respect to violations of the various prohibitory provisions. In addition to the statutory grants of authority, in carrying out its duties, the Board has promulgated an extensive set of regulations.

Enforcement powers with regard to holders of certificates and permits also are within the jurisdiction of the Board.  The Board is entitled to revoke a certificate, permit or privileges, following notice and a hearing, for any one or more of the following reasons:

(1) Fraud, perjury, or deceit in obtaining or in renewing a certificate, permit, or privilege.

(2) Cancellation, revocation, suspension, or refusal to issue or renew a certificate, license, or privileges for disciplinary reasons in any other state for any cause, including other restrictions imposed by such licensing authority.

(3) Revocation or suspension of, or a voluntary consent decree concerning, the right to practice
before any state or federal agency.  Unlike attorney disciplinary proceedings, where the Supreme Court has exclusive original jurisdiction concerning a member of the bar, review of decisions of the Board and appeals are tried by a district court of proper jurisdiction and venue.

(4) Dishonesty, fraud, or gross negligence in the performance of services while holding a certificate, license, or privilege in the filing or failure to file that individual’s own income tax returns.

(5) Violation of any provision of this Part or rule adopted by the board in accordance with the provisions of this Part or violation of professional standards or rules of professional conduct adopted by the Board.

(6) Entry of a plea of guilty or nolo contendere or conviction of a felony, or of any crime an element of which is dishonesty or fraud, under the laws of the United States, this state, or any other state.

(7) Performance of any fraudulent act while holding a certificate, permit, or privilege.

(8) Conduct reflecting adversely upon the licensee’s or privilege holder’s fitness to perform services while a licensee.

(9) Making a false or misleading statement or verification in support of an application for a certificate, permit, or privilege filed by another person.

(10) Providing false testimony before the board.

(11) Engaging in efforts to deceive or defraud the public.

(12) Professional incompetency.

(13) Rendering, submitting, subscribing, or verifying false, deceptive, misleading, or unfounded opinions, reports, or audits.

Pursuant to its rule making authority, the Board has adopted Rules of Professional Conduct, which supplement the statutory enforcement provisions. These rules generally cover “Independence” obligations, “Integrity and Objectivity” requirements, “Competence and Professional Standards” and responsibilities to clients.  There are also provisions spelling out other responsibilities and practices, including general conduct, the use of the “CPA” designation, firm names, and advertising.

The investigatory and hearing requirements and procedures are also provided by statute2 and supplemented by administrative rules.3 The Board is authorized to appoint, or engage an investigative officer and investigators and experts, and the investigative officer may informally settle matters that are deemed not to rise to the level requiring a formal disposition. However, if the investigating officer determines that there is “probable cause” that a violation exists and warrants further action, the respondent is notified, given an opportunity to respond.  In the event that formal charges are filed, the Board then conducts an administrative hearing in closed session.  There is limited pre-hearing discovery, subpoena power, motion practice and an actual hearing, with witnesses testifying under oath.  Significantly, “The board shall not be bound by technical rules of evidence in such hearing.”

Unlike attorney disciplinary proceedings, where the Supreme Court has exclusive original jurisdiction concerning a member of the bar, review of decisions of the Board and appeals are tried by a district court of proper jurisdiction and venue.  In interpreting these provisions, the courts have found that an agency which attempts to control the behavior of individuals who are members, must be governed by standards for decision which are stated in advance and that there is no violation in the Board’s rules for conduct not proscribed.  The Board is afforded broad discretion in the imposition of an administrative sanction, as it is in the nature of a disciplinary measure.  In deciding what, if any, discipline to impose, the Board may be strict, moderate or lenient.  The findings of the Board are given great weight by a reviewing court.
 

This is the second of a three part article related to Louisiana law and regulations pertaining to the accounting profession. This part focuses on the Louisiana law and regulations pertaining to licensing and enforcement by the State of Louisiana.  To read the first part of the article, click here.

This is the first of a three-part series related to Louisiana law and regulations pertaining to the accounting profession. This part focuses on the historical licensing and regulation of the profession by the State of Louisiana.

The Louisiana statutes and regulations governing accountants have become much more sophisticated and comprehensive through the years. In the early 1900s the State’s emphasis was on the qualifications and admission to the practice of public accounting. This continues to be a focus of the state¹s efforts; however, like other learned professions, the Louisiana legislature has adopted additional provisions recognizing the inevitable fact of life that: "Professions once seemingly inviolate from litigation are no longer sacrosanct. The age old axiom that physicians bury their mistakes, while attorneys and accountants file theirs away, has little relevance in modern day America.”

The purpose of this article is to provide an analysis of Louisiana statutes, regulations and jurisprudence regarding the accounting profession, as accountants, like others who practice skilled professions, are now full members of the “Krewe of Defendants” in the Louisiana litigation parade. The article does not include an analysis of other state or federal jurisdictions, regulatory bodies or professional standards and requirements.
 

In 1908, the Louisiana legislature passed the first law regulating the practice of public accounting. The legislation established a State Board of Accounting, fixed fees and prohibited the unauthorized use of any letters, abbreviations or words to indicate that an unauthorized person was a certified public accountant. The Board was authorized to revoke the certificate of any person for “unprofessional conduct...or for other Cause...” upon notice and an administrative hearing. Additionally, the law provided that it would be a misdemeanor to fraudulently use the abbreviation “CPA.”

In 1923, the Louisiana Supreme Court upheld the constitutionality of the 1908 act in a case involving a defendant who had been charged with unlawfully holding himself out as having received a certificate from the state board of accountants to practice as an “expert accountant” and having improperly used the designation “CPA.” The Court recognized the practice of public accounting as a profession of skill and science and the importance of having placed proper safeguards to maintain its dignity. In so holding, the Court reasoned that while neither morals, health, nor safety of anyone is jeopardized by the practice of this profession, the power of the state is not confined to professions involving such consequences. It may also act whenever the general welfare requires to protect the public in the skilled trades and professions against ignorance, incompetence and fraud.

The 1908 law was revised in 1924 in order to place the practice on a higher plane of professional dignity and to impose more rigid qualifications on those desiring to be called a certified public accountant. While continuing the State Board of Accountants, the act included a much more comprehensive definition of a “Certified Public Accountant” and their employees and enhanced enforcement provisions.

The 1924 state accounting regulatory provisions came under scrutiny again in 1930 in a case involving a non-Louisiana licensed Texas CPA, who attempted to collect a fee for Louisiana work. The court rejected the claim by the accountant for fees under a contract as being an agreement in violation of statute; however, the court also rejected a claim by the client for the return of money paid for an “erroneous and worthless audit” holding that there was “no culpable malpractice” because the court recognized the profession’s appreciation in the difference in the scope of work, skill and independent verification involved in a “balance sheet audit” and a “detailed audit.” However, the validity of the State’s interest in regulating the accounting profession was recognized.

The various statutory provisions in the 1924 Act were carried forth in the 1950 Louisiana Revised Statutes. There were substantive amendments and re-enactments of the legislation in 1979, 1997 and 1999. The legislation is designated as Louisiana Revised Statutes 37:71, et seq, and known as the “Louisiana Accountancy Act”. One of the results of the 1997 legislation, was assigning the responsibility to the State Board of Certified Public Accountants of Louisiana for the licensing, regulatory and enforcement functions and the enactment of a “Review Panel” procedure for claims against certified public accountants or firms, which is administered by the Society of Louisiana Certified Public Accountants. While the scope of who is within the ambit of the accountancy statutes and accompanying regulations have been considered by Louisiana courts from time to time, it is clear that the purpose of the statutes is to protect the public from expressions of opinion by persons unqualified in the highly technical profession of accounting. This is a legitimate state objective, as the United States Supreme Court has long recognized. States have the power to regulate professionals in such a way as will protect the general public from, “(T)he consequences of ignorance and incapacity as well as deception and fraud.”