When AICPA rules and state regulations conflict.

State Laws Trump AICPA Regs

As executive director of the Tennessee State Board of Accountancy, it is my task to know if someone is violating our state's accountancy laws. That's why "Ethics Keeps Up With New World Order" (JofA, Feb.99, page 12) caused me some concern. While the AICPA's ethics may be changed at the whim of the members, state laws may not.

The practice structure model illustrated is in direct violation of the Tennessee Accountancy Act of 1998, and your article may prompt licensees of this state to violate our law. The Journal placed no warning in the article or on the model that said, while ethical for AICPA members, such a structure may not be ethical or legal under the laws of the state that issued their licenses.

The model indicates that a public company may own an attest firm. To my knowledge, that is not yet possible in any state. It is a direct violation of our state law: Only nonlicensed individuals who participate in the firm may own up to 49% of a CPA firm in Tennessee. In all states where there are proposed changes of this ownership law, a similar rule, I believe, is being proposed.

No professional services subsidiary of a public company may own an attest firm. They may have a relationship with the entity, as long as the CPAs can maintain independence, but the public company cannot model own the attest firm. Your illustrates ownership of the attest firm by the public company, and so does the written article. This cannot occur in Tennessee as it would be a direct violation of our accountancy law.

We would appreciate a correction to the article and an indication in the future that all licensees must first obey state law before embarking on any change in ethics that would be contrary to the laws governing their license. I know you are trying to make AICPA members aware of important changes occurring in the profession. However, please make sure that all Institute members (of which I am one) are aware that they must first obey the laws of their state licensing board before attempting to apply any new ethics guidelines.

Darrel E. Tongate, CPA
Executive Director
Tennessee State Board of Accountancy

Author's reply: The introduction to the AICPA Code of Professional Conduct says, "A member should also consult, if applicable, the ethical standards of his state CPA society, state board of accountancy, the SEC, and any other governmental agency which may regulate his client's business or use his report to evaluate the client's compliance with applicable laws and related regulations."


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