Right to Practice
CSATP, originally called CAIA (California Association of Independent Accountants), was established in 1985 with a mission to serve independent accountants by protecting their right to practice their profession. This right was being severely threatened at the time by the California Board of Accountancy (BOA). The BOA was enforcing a recently enacted regulation which prohibited any use of the words "accounting" or "accountant" by anyone other than a CPA. This enforcement took the form of "cease and desist" letters demanding that a certain practice (i.e., using the "A" word) cease under threat of referral to District Attorneys for possible criminal action, plus citations and/or fines of up to $2,500. One of our members was convicted on a criminal charge of misleading the public for having the words "Member of the National Society of Public Accountants" on his business card!
The Bonnie Moore Case
On August 21, 1986 CAIA filed suit against the California Board of Accountancy ("Moore vs State Board of Accountancy) on the grounds that the constitutional rights of its members to use the terms "accountant" and "accounting" were being violated by certain enforcement activities of the CBA. The National Society of Public Accountants (NSPA), now called the National Society of Accountants (NSA), and the California Society of Enrolled Agents supported CAIA with funds, support and amicus briefs to the Court.
The case eventually reached the California Supreme Court which issued its decision on July 2, 1992. The court upheld Ms Moore's right to perform certain audit and report writing functions and said she could continue to call herself an accountant as long as she described her accounting services as being work which does not require licensure by the state. The reason for the modifier was to reduce the likelihood of the public mistaking her for a licensed accountant. The case was appealed to the US Supreme Court which declined to hear the case.
Using Modifiers
There are several ways to use the modifiers. An asterisk can be place by the "A" word and by the modifier "No state license required." Without the asterisk, a more complete modifier is probably called for: "The accounting services provided by this firm do not require a state license." Or the Accountancy Act could be cited: "Accounting services are provided under the authority of Section 5052 of the California Accountancy Act for which a state license is not required."
The modifier must appear wherever the word "accountant" or "accounting" appears: financial statements, reports, letterhead, business cards, directory listing in your building, advertisements, signs, etc. The modifier need not be the same in every situation.
The Uniform Accountancy Act
Another issue threatening our right to practice surfaced in the late 1990s, this time in the form of the Uniform Accountancy Act (UAA). This was Model legislation developed by the AICPA (American Institute of Certified Public Accountants) and NASBA (National Association of State Boards of Accountancy) ostensibly to promote uniformity in the governance of accountancy work. However, it included several provisions that again threatened our right to practice. Specifically, it made compilation a part of the attest function, like audits and reviews. This would mean that only CPAs could prepare financial statements. In at least one state, this was carried a step further to suggest that in that case, only CPAs could prepare business tax returns since the tax forms for partnerships and corporations include an income statement and balance sheet, the preparation of which would now be considered an attest function. The UAA also included a safe harbor letter for non-licensed accountants that was very negative.
CSATP, with help from NSA, closely monitored the meetings and proposed legislation concerning the UAA in California. Eventually, the Board of Accountancy decided not to include compilation as an attest function. In 2001 we also got an acceptable safe harbor letter approved by the Board of Accountancy.
The Future
A new version of the UAA has recently surfaced, this time to facilitate the mobility of CPAs between states. Although the mobility of CPAs does not concern us, we are nevertheless monitoring the Act through NSA as it moves through the various state legislatures, and we will closely scrutinize any legislation in California. CSATP is looking out for the interests of the independent accountant!
The "A" Word
Did you know that if you are not a CPA licensed in California, you may not hold yourself out to the public as an accountant? In fact, you may not use the words "accounting" or "accountant" unless you modify them to say that a state license is not required.
In the 1980s, the California State Board of Accountancy enacted regulations and then strictly enforced them, issuing "cease and desist" letters to anyone using the word "accounting" or "accountant" in their business name or on their business cards or letterhead unless they were CPAs. They even went after non-CPAs if they were listed in the yellow pages under "Accountants."
CSATP, then named CAIA (California Association of Independent Accountants), sued the Board of Accountancy in a case that eventually went to the State Supreme Court. (See Bonnie Moore Case) The court ruled that while unlicensed accountants may perform accounting functions, they can only use the words "accounting" or "accountant" if they modify them with a qualifier or disclaimer that eliminates the potential likelihood that the public will confuse them with CPAs.
The Court did not prescribe specific language for the modifier or disclaimer, but suggested two that would meet the Court's standard: "unlicensed accountant" and "the services being offered do not require a state license." The Board of Accountancy suggests similar language: a qualification or disclaimer 'stating that the advertiser is not licensed by the state or that the services being offered do not require a state license.'
Safe Harbor Letter
When issuing financial statements to our clients, the preferred practice is to include a report letter or transmittal letter that defines the scope of the engagement, the guidelines followed, and whether or not the statements have been reviewed or audited. This letter informs the recipient of the nature of the statements and helps shield the preparer from liability.
CSATP, together with the National Society of Accountants (NSA), negotiated with the California Board of Accountancy regarding a safe harbor letter for those who are not CPAs licensed by the California Board of Accountancy. In 2001, the Board of Accountancy sent CSATP a letter informing us that the following Safe Harbor Language could be utilized by non-licensees and would not be deemed the practice of public accounting:
I (we) have prepared the accompanying financial statements of (name of entity) as of (time period) for the (period) then ended. This presentation is limited to preparing in the form of financial statements information that is the representation of management (owners).
I (we) have not audited or reviewed the accompanying financial statements and accordingly do not express an opinion or any other form of assurance on them.
Frequently Asked Questions
What is the difference between CSATP and the other tax and accounting societies in California?
CSATP is the only organization that includes both accounting and tax, and is the only association for independent accountants. In California, there are two associations for CPAs, one for Enrolled Agents, and one for tax preparers. CSATP is the only association to include all accounting and tax professionals.
I have a degree in accounting. Why can't I call myself an accountant?
The California Supreme Court ruled in Moore vs Board of Accountancy that unlicensed accountants must use a modifier so the public will not confuse an unlicensed accountant with a licensed account, i.e., a CPA.
What do I have to add if I use the word "accounting"?
The suggested modifier is "Services provided do not require a state license." See Using Modifiers for more ideas.
What language can I put in my transmittal letter?
You may say you have "prepared" (not "compiled") the financial statements. See Safe Harbor Letter for the approved language.
If I use the safe harbor letter approved by the California Board of Accountancy, do I still have to use the modifier for the word "accounting"?
Yes, you must use the modifier everywhere the word "accounting" appears, regardless of your use of the safe harbor letter.
Can I still put "See Compilation Report" on each page of the financial statements?
It is suggested that you use "See Transmittal Letter" instead. The safe harbor letter will double as the transmittal letter.
