22 TAC §501.26
The Texas State Board of Public Accountancy adopts new rule
§501.26 concerning Incompatible Occupations, without changes to the proposed
text as published in the December 4, 1998, issue of the
Texas Register
(23 TexReg 12077).
The new rule allows for a clear understanding by CPA's and consumers that
CPA's are not allowed to engage in incompatible occupations if they are to
review independent and objective.
The new rule will function by clarifying that engaging in an incompatible
occupation may compromise a CPA's independence and objectivity that these
incompatible occupations are prohibited.
The Board received only one comment regarding adoption of this new rule
from a CPA. The CPA objected to the proposed rule, said it was harmful to
small firms and practitioners and that it provided no additional protection
to the public. His objections fall into three categories:
(1) The rule is ambiguous because it does not state who will determine
whether independence or objectivity is impaired and it does not state the
criteria to be applied. He questions whether a board's perspective might change
as individual board members' background and income changes.
(2) The rule is unnecessary because of other board rules on Standards that
adequately regulate this area.
(3) The rule is inequitable because it allows non-CPA firms to avoid the
application of rules applicable to individual CPAs and small practitioners.
In response to Objection 1: The Rule is not ambiguous. It plainly states
that the criteria are whether the business or occupation impairs independence
or objectivity or is conducted so as to augment or benefit the practice without
complying with the Board's Rules. Board Rules are regularly interpreted, applied
and enforced by the Board.
Each board member was appointed by the Governor and confirmed by the Senate
to represent all of the people of the State of Texas and not a particular
group. Future board members will be appointed with the same mandate.
In response to Objection 2: The restrictions imposed by the proposed rule
are not expressly stated elsewhere in the Rules. Ethical CPAs should already
be self-imposing the restrictions in the proposed Rule. The Board cannot legally
enforce unwritten Rules. Both CPAs and consumers deserve to have this prohibition
clearly stated in the Rules, which makes it enforceable.
In response to Objection 3: A rule is not inequitable simply because it
applies only to CPAs. Receipt of a CPA certificate carries with it the simultaneous
imposition on a CPA of all of the Board's Rules, the Public Accountancy Act
and professional standards that are not applicable to non-CPAs.
In addition, the Board in its own research determined that Louisiana, a
neighboring state, has adopted a rule similar to the rule the Board has proposed
for Texas. The Louisiana Board has interpreted its rule to prohibit a CPA
licensed in Louisiana from acting as a stockbroker. The state courts in Louisiana
have upheld the Louisiana Board's interpretation of its rule, Earles v. State
Board of Certified Public Accountants, 665 So.2d 1288 (La.Ct.App. 1995), writ
denied, 669 So.2d. 397 (La. 1996), and federal challenges have been unsuccessful.
Earles v. State Board of Certified Public Accountants, 146 F.3d 869 (5th Cir.
1998) cert. denied ---U.S.---- (1998).
In adopting this rule, the Texas State Board of Public Accountancy, however,
is not also adopting the Louisiana's Board's interpretation of the Louisiana
Rule. The Texas Board believes that its Texas rules, including the Texas rule
concerning the receipt of commissions and other compensation, provide protection
to the public. Therefore, the Texas rule on incompatible occupations does
not declare stockbrokering by a CPA to be per se illegal.
The new rule is adopted under Texas Civil Statutes, Article 41a-1,
Section 6, which provide the Texas State Board of Public Accountancy with
the authority to make such rules as may be necessary or advisable to effectuate
the Public Accountancy Act.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on February
1, 1999.
TRD-9900615
William Treacy
Executive Director
Texas State Board of Public Accountancy
Effective date: February 21, 1999
Proposal publication date: December 4, 1998
For further information, please call: (512) 305-7848