Request By:
Mr. James T. Ahler, Executive Director
State Board of Accountancy
322 West Broadway, Suite 310
Louisville, Kentucky 40202
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Martin Glazer, Assistant Attorney General
You seek an official opinion concerning the statutory authority of the State Board of Accountancy to enter into a proposed Quality Enhancement Program.
Your proposal, while it has not been formalized into a specific regulation (its terms may affect certain aspects of its legality) , envisions an evaluation system of all licensees and temporary permittees who do either auditing, compilation, and/or review.
It is contemplated that each office of the aforesaid will submit one copy of an audit, a review, and a compilation report which it issued during the 12-month period preceding the time the firm renews its registration. Sole proprietors will do likewise for the 12-month period preceding the time the individual renews his permit to practice. Each office selects the reports to be submitted to the Board and such shall be filed on or before July 1 of each year.
Out-of-state firms practicing in Kentucky who register every six months will be required to submit such reports annually. If an office or sole proprietor does not issue a report for each type during the preceding 12-month period, such office or sole proprietor will not be required to submit such to the Board.
Confidential client information may be masked to protect the licensee's client identification.
The Board intends to refuse to renew the registration and/or permit to practice of firms, offices, and sole proprietors failing to provide the reports. The entity so failing to furnish the required reports will be notified and given a right to a hearing as set out in KRS Chapter 325.
The submitted reports will undergo several levels of review and the firms advised of deficiencies that may be discovered. The purpose is primarily educational, but formal disciplinary action may be taken where the entity fails to undertake remedial action following discovery of material deficiencies.
Basically, you want to know whether the Board can legally engage in such a program and can refuse to permit registration of those offices or firms and sole proprietorships who refuse or fail to furnish the reports when seeking to register the firm or sole proprietor, as the case may be.
The firm of Brown, Todd & Heyburn has forwarded its memorandum concerning the legality and statutory authorization of the proposed program.
The State Board of Accountancy has been created by the Kentucky General Assembly to license those public accountants and certified public accountants who have demonstrated special competence and qualifications as P.A.s and C.P.A.s. [Paraphrased from the Declaration of Purpose adopted by the Kentucky State Board of Accountancy March 16, 1984.]
Such purpose is mirrored in KRS 325.380, which forbids others not so licensed from using the term, C.P.A. or P.A., or any similar term which might be confused with a public accountant or certified public accountant.
The Board's raison d'etre is to protect the public in ensuring that only competent, properly educated, and trained persons hold themselves out and are licensed as P.A.s and C.P.A.s. Initially, this was accomplished by requiring the passage of a comprehensive examination after two years of experience in the employ of a P.A. or C.P.A.
Subsequent statutory amendments permitted candidates to take examinations (after completing required courses in accounting) before the experience was obtained. Yet, the permit to practice was not given until the experience requirement was met. (KRS 325.261).
The legislative recognition for the need for additional education and proof of competence is illustrated by the amendment to KRS 325.330 in 1982 (Kentucky Acts, H.B. 55, Sec. 1(2)) requiring completion of 20 hours of continuing professional education courses prior to permit renewal, beginning July 1, 1985.
Therefore, it is seen, both by legislative history and by reason for the existence of the Board, that the proposed Quality Enhancement Program is in concurrence with the purpose for which the Board was created -- to protect the public and ensure that those persons licensed as P.A.s and C.P.A.s are competent to hold themselves out as such.
Thus, the statutes and history indicate that the Board is concerned not only with the competency of those entering the profession but also with the continued competency of those who renew their licenses after first entering the profession.
KRS 325.330 authorizes permit holders "in good standing" to renew their permits.
KRS 325.321 requires the Board to promulgate administrative regulations for prescribing "the procedures to be followed in effecting such registration. "
The Board has the power in issuing licenses and renewal registration to establish that the licensee is in "good standing. " (KRS 325.330; KRS 325.261(1))
KRS 325.360 permits the Board to conduct investigations of suspected violations and to determine whether there is probable cause to institute proceedings.
It is contemplated that persons failing or refusing to provide the reports will be given an opportunity for a hearing thereon. With that in mind, licensees' due process rights are protected through the hearing procedure.
Therefore, it is our Opinion that the proposed Quality Enhancement Program as described meets both constitutional and statutory requirements and is within the purposes of the legislative mandate given to the Board by the Kentucky General Assembly to ensure the competency and proper qualifications of those it licenses and to protect the citizens of Kentucky in carrying out its mandate.