Rhode Island Board of Accountancy

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IN THE MATTER OF RHODE ISLAND BOARD OF ACCOUNTANCY CONSENT ORDER, ETC. , IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT !Jacket 9181. Complaint, July 10, 1984-Decision, Feb. , 1986 This consent order requires the Rhode Island Board of Accountancy, the sale licensing authority for CPAs and PAs in the state, among other things, to cease prohibiting accountants in the state from seeking business by truthful arlvertisments or other non-deceptive forms of solicitation. Respondent may continue to impose restrictions authorized by the state legislature against dishonest or fraudulent practices and against persons who falsely identify themselves as accountants. Appearances For the Commission: Rendell A. Davis, Jr. For the respondent: Linda Buffardi Providence, R.I. and Christo- Collins Graham pher H. Little and Steven E. Snow, Tillinghast, Providence, R.I.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act as amended, 15 U. C. 41 et seq. and by virtue ofthe authority vested in it by said Act, the Federal Trade Commission, having reason to believe that the Rhode Island Board of Accountancy has violated Section 5 ofthe Federal Trade Commission Act, and that a proceeding by it in respect thereof would be in the public interest, hereby issues this complaint stating its charges as follows: I. DEFINITIONS 1. For purposes of this complaint, the following definitions shall apply:

(a) Board means the respondent named above, the Rhode Island Board of Accountancy;

(b) Rhode Island means the State of Rhode Island and Providence Plantations;

(c) CPA means certified public accountant; (d) PA means public accountant; and (e) encroachment means the endeavor of a CPA or P A to provide Complaint 107 F.

services to persons or entities that are the clients of other CPAs or PAs.

II. RESPONDENT 2. The Board is organized, exists, and transacts business under the laws of Rhode Island (R.I. Gen. Laws 3) with its principal offce at 100 North Main Street, Providence, Rhode Island. The Board is subject to the Commission s jurisdiction under the Federal Trade Commission Act.

3. Three of the five members ofthe Board are required by R.I. Gen. Laws 5-3-4 to be in "active practice" in Rhode Island as CP As and one member of the Board is required to be in "active practice" as a PA.

4. Compensation for serving on the Board for each Board member is limited to no more than thirty dollars ($30) per meeting ofthe Board and such compensation cannot exceed seven hundred fifty dollars ($750) per year for anyone Board member.

5. The Board members are appointed by the Governor of Rhode Island.

6. The Board is the sole licensing authority ofCPAs in Rhode Island. It administers written examinations and otherwise supervises the qualification, certification, and licensing of CP As for practice within Rhode Island.

7. Upon payment of fees, the Board issues annual permits to practice to properly qualified CP As and PAs.

8. It is unlawful for individuals to practice as CP As or PAs in Rhode Island unless they hold permits to practice issued by the Board. 9. Pursuant to R.I. Gen. Laws 3-4(f)(2), the Board may prescribe rules and regulations concerning professional conduct for CPAs and PAs in Rhode Island. The Board is authorized by R.I. Gen. Laws 12(d) to take disciplinary action against any CPAs or PAs in Rhode Island who violate any of the Board's regulations concerning professional conduct.

III. STATE REGULATION OF ADVERTISING, SOLICITATION, AND ENCROACHMENT BY ACCOUNTANTS 10. Rhode Island has no articulated or expressed state policy of restricting truthful advertising or prohibiting solicitation or encroachment by CPAs and PAs. The laws of Rhode Island are silent as to the form of, or content of, the Board's rules and regulations concerning professional conduct, except for instructions that the Board may issue "(rJules and regulations of professional conduct for establishing and maintaining high standards of competence and integrity in the profession of public accounting.

293 Complaint IV. BOARD CONDUCT 11. The Board has restrained competition among CPAs and PAs in Rhode Island by combining or conspiring with its members or others or by acting as a combination of its members or others, (a) to prohibit advertising and solicitation by CPAs and PAs in Rhode Island and (h) to prevent Rhode Island CPAs and PAs from endeavoring to provide any services to persons or entities that are the clients of other CP As or PAs, unless such clients request such services or unless the auditing of a subsidiary, branch, or other component of such clients is necessary to express an opinion on the combined or consolidated financial statements of the clients.

12. In furtherance of this combination or conspiracy, the Board has promulgated Regulations 4.1 and 5.2 of its Regulations Concerning Professional Conduct of Holders ofa Certificate to Practice as a Certified Public Accountant or of an Authority to Practice as a Public Accountant. Appendix A, attached to this complaint, sets forth the text of those regulations.

v. TRADE ANP COMMERCE 13. Except to the extent that competition has been restrained as alleged below, and depending on their specialties and geographic location, CP As and PAs in Rhode Island compete with each other and with the accountants serving on the Board.

14. Milions of dollars are spent each year on the services of the hundreds ofCPAs and PAs practicing in Rhode Island. 15. The services provided by Rhode Island CPAs and PAs involve and affect individuals, corporations, and other business entities throughout the United States. Those services facilitate, direct, and shape the conduct of interstate business and contribute to the flow of persons, money, goods, and services into and out of Rhode Island. In the course of rendering services, many CP As and PAs located in Rhode Island travel to states other than Rhode Island and make substantial use of interstate mail and telephone services in the transport of funds, financial statements, and other communications. Some Rhode Island CP As are in partnership with CP As practicing in states other than Rhode Island. The acts and practices described below are in interstate commerce, or affect the interstate activities of CP As and PAs in Rhode Island and of persons who pay for their services, and are in or affecting commerce within the meaning of Section 5(a)(1) of the Federal Trade Commission Act, 15 U. C. 45(a)(1). Complaint 107 F.

VI. EFFECTS 16. The effects ofthe combination or conspiracy described above are and have been to restrain competition and injure consumers in the following ways, among others:

(a) competition in the sale ofthe services ofCPAs and PAs has been unreasonably restricted;

(b) consumers of the services ofCPAs and PAs have been deprived of information as to such services and ofthe benefits of free and open competition in the sale of such services; and (c) CPAs and PAs have been unreasonably restrained in their ability to make their services readily and fully known and available to consumers requiring such services.

VII. VIOLATION 17. The combination or conspiracy and the acts and practices described above constitute unfair methods of competition or unfair or deceptive acts or practices that violate Section 5 of the Federal Trade Commission Act. This combination or conspiracy, or the effects there- , are continuing and wil continue or reoccur unless the Commission enters appropriate relief against the Board. APPENDIX A Excerpts from the "Regulations Concerning Professional Conduct of Holders ofa Certificate to Practice as a Certified Public Accountant or of an Authority to Practice As a Public Accountant" promulgated by the Board: 1 Encroachment: A Certified Public Accountant or Public Accountant shall not endeavor to provide a person or entity with a professional service which is currently provided by another Certified Public Accountant or Public Accountant except: 1. He may respond to a request for a proposal to render services and may furnish service to those who request it. However, if an audit client of another Certified Public Accountant or Public Accountant requests a different Certified Public Accountant or Public Accountant to provide professional advice on accounting or auditing matters in connection with an expression of opinion on financial statements, the accountant to whom the request has been made must first consult with the accountant currently engaged to ascertain that the accountant is aware of all the available relevant facts. 2. Where a Certiied Public Accountant or Public Accountant is required to express an opinion on combined or consolidated financial statements which include a subsidiary, branch or other component audited by another independent Public Accountant he may insist on auditing any such component which in his judgment is necessary to warrant the expression of his opinion.

A Certified Public Accountant or Public Accountant who receives an engagement for services by referral from another Certified Pubhc Accountant or Public Accountant shall not accept the client's request to extend his service beyond the specific engage. ment without first notifying the referring accountant, nor shall he seek to obtain any additional engagement from the client.

293 Decision and Order 2 Solicitation and Advertising: A Certified Public Accountant or Public Accountant shall not seek to obtain clients by solicitation. Advertising is a form of solicitation and is prohibited.

DECISION AND ORDER The Commission having heretofore issued its complaint charging the respondent named in the caption hereof with violation of Section 5 of the Federal Trade Commission Act, as amended, and the respondent having been served with a copy of that complaint, together with a notice of contemplated relief; and The respondent, its attorney, and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondent of jurisdictional facts, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s Rules; and The Secretary ofthe Commission having thereafter withdrawn this matter from adjudication in accordance with Section 3.25(c) of its Rules; and The Commission having considered the matter and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 3.25(f) of its Rules, the Commission hereby makes the following jurisdictional findings and enters the following order:

1. Respondent Rhode Island Board of Accountancy is organized exists, and does business under and by virtue of the laws ofthe State of Rhode Island and Providence Plantations, with its offce and principal place of business located at 100 North Main Street, Providence Rhode Island.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER For purposes of this order, the following definitions shall apply: A. Board means the Rhode Island Board of Accountancy, its mem- Decision and Order 107 F. bers, committees, representatives, agents, employees, successors, and assigns.

B. Person means any natural person, corporation, partnership, governmental entity, association, organization, or other entity. C. Encroachment means the endeavor of a person to provide services to the client of another person.

D. Reasonably believes refers only to that which a reasonable person would believe after having considered all relevant facts and legal precedent.

E. Accountancy License means any certificate, authority, registration, permit, or license issued by the Board, including, but not limited to, 1. a certificate of certified public accountant 2. the authority to practice as a public accountant, 3. registration as an accountant licensed by a foreign country, 4. a permit to practice as a certified public accountant or public accountant, and 5. a limited permit to engage in the practice of accounting. II.

It is ordered That the Board, in or in connection with its activities in or amecting commerce, as "commerce" is defined in Section 4 of the Federal Trade Commission Act, shall cease and desist from, directly or indirectly, or through any device:

A. Prohibiting, restricting, impeding, or discouraging any advertising, solicitation, or encroachment by any person. Such conduct includes, but is not limited to:

1. Adopting or maintaining any rule, regulation, policy, or course of conduct that prohibits, restricts, impedes, or discourages any advertising, solicitation, or encroachment;

2. Taking or threatening to take disciplinary action against any person for advertising, soliciting, or encroaching; and 3. Declaring any practice of advertising, solicitation, or encroachment to be ilegal, unethical, unprofessional, or otherwise improper. B. Inducing, urging, assisting, or encouraging any person to take any action prohibited by this Part.

Provided, that nothing in this order shall prevent the Board from taking any action authorized by Chapter 5-3 other General Laws of Rhode Island against those advertising, solicitation, or encroachment practices that respondent reasonably believes are dishonest or fraudulent within the meaning of Section 5- 12(b) of those Laws, or 293 Decision and Order that respondent reasonably believes are unlawful under Section 5- 16 of those Laws, as those statutes are limited by the First and Fourteenth Amendments to the United States Constitution. It is further ordered That this order shall not be construed to prevent the Board from petitioning for or seeking legislation concerning the profession of accountancy.

IV.

It is further ordered That the Board shall: A. Distribute by first-class mail an announcement in the form shown in Appendix A, and a copy of this order: 1. Within thirty (30) days after this order becomes final, to each person who, at the time this order becomes final, has an Accountancy License;

2. Within thirty (30) days after this order becomes final, to each person who, at the time this order becomes final, has an application for, or a request for reinstatement of, an Accountancy License pending before the Board; and 3. For a period offive (5) years after this order becomes final, to each person who applies for an Accountancy License, within thirty (30) days after he or she applies for such a license; B. Within ninety (90) days after this order becomes final, submit a written report to the Federal Trade Commission setting forth in detail the manner and form in which the Board has complied and is complying with this order;

C. For a period of five (5) years after this order becomes final maintain and make available to the Federal Trade Commission staff for inspection and copying, upon reasonable notice, records adequate to describe in detail any action taken in connection with any activity covered by Part II of this order, including any written communications and any summaries of oral communications, and any records of rulemaking and enforcement proceedings, regarding advertising, solicitation, or encroachment;

D. In addition to the report required by Section IV.B. of this order annually for a period of five (5) years on or before the anniversary of the date on which this order becomes final, and at such other times as the Commission may by written notice to the Board require, fie a written report with the Federal Trade Commission setting forth in Decision and Order 107 F. detail the manner and form in which the Board has complied and is complying with this order; and E. Notify the Federal Trade Commission at least thirty (30) days in advance if possible, or otherwise as soon as possible, of any change in the Board's authority to regulate the profession of accountancy that may affect compliance obligations arising out of this order. APPENDIX A IDate) ANNOUNCEMENT As you may be aware, the Rhode Island Board of Accountancy has entered into a consent agreement with the Federal Trade Commission that became final on (date J. The order issued pursuant to the consent agreement provides that the Board may not prohibit, restrict, impede, or discourage any (1) advertising, (2) solicitation, or (3) endeavor of a person to provide services to the client of another person, a practice also known as "encroachment."

However, the order does not prevent the Board from prohibiting those advertising, solicitation, or encroachment practices that violate statutory prohibitions against dishonesty and fraud.

In particular, this means that as long as you do not engage in dishonesty or fraud neither the Board nor any member of the Board can prevent or discourage you from engaging in the following practices: (a) in-person solicitation, (b) self-laudatory advertising, (c) comparative advertising, (d) endorsement or testimonial advertising, and (e) advertising that would have violated previously-imposed standards or rules, such as rules requiring that accountant advertising be "dignified" or "professional." For more specific information, you should refer to the FTC order itself. A copy of the order is enclosed.

Chairman Rhode Island Board of Accountancy ( U-"ITfi U ::TAT :: ::T.l. jL LU1tr. .r1 .tLJ. 301 Modifying Order