Texas State Board Report, Volume 67, January 1999 Page: Page2
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Opinion
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suiting and business advisory services for clients
as employees of the support company, and the
administrative and professional staff of the support
company perform attest services under the super-
vision of the owners of the CPA firm.
Statutory requirements.
The Act limits the client practice of public ac-
countancy in Texas to registered accounting firms
owned by CPAs. While Board regulations permit
CPAs to offer a range of services in non-traditional
business entities, including tax, management con-
sulting, and financial planning, only registered ac-
counting firms wholly owned by CPAs may perform
attest work in Texas under the provisions of Sec-
tion 501.40 (Registration Requirements) of theBoard's rules.
"The Board's role in
regulating the profes-
sion is not to design
or dictate the structure
of new business mod-
els, but only to insure
that the profession
continues to meet its
high standards and
that the pressures of
the market do not
overwhelm the pro-
fession 's obligations
to the public."CPA firm mus
The ownership requirement insulates
the professional judgment crucial
to the attest function from the
pressures of the marketplace by
insuring that those ultimately re-
sponsible for the professional de-
cisions of any CPA firm are them-
selves licensed professionals.
An ABS complies with
the Act only if the CPA firm con-
tinues to be a separate entity and
the professional judgement of the
CPA firm essential to the attest
function is separated from the
pressures of the marketplace.
Because the owners of the CPA
firm in the ABS are simulta-
neously employees of the support
company, the ABS puts some
pressure on their business judg-
ment. Additionally, the staffing ar-
rangements make the CPA firm
more vulnerable to the influence
of the support company. To com-
ply with Texas law, however, the
t in fact and in appearance maintainits integrity, both as a business entity separate from
the support company and as a licensed professional
entity under the Act. This is accomplished by es-
tablishing the following requirements:
+ The support company must neither di-
rectly nor indirectly control the profes-
sional decisions of the CPA firm. This re-
quirement is not satisfied by mere recitations
in the initial documents, but is instead an
ongoing requirement of independent manage-
ment of the CPA firm by licensed profession-
als. Among the areas in which the ABS
places extreme pressure is the hiring and fir-
ing of CPAs. If employment decisions at the
CPA firm are effectively being made by thesupport company, the CPA firm may not be
independent. The professional judgment of
any individual CPA regarding attest work that
must be performed only in the CPA firm may
be unfairly pressured by fear that he or she
may be fired by the support company.
*The CPA firm must register with the
Board and maintain a current license.
Each CPA working for the CPA firm must main-
tain a current license. The CPA firm must
meet the Board's quality review requirements,
and the CPA firm, its members, and employ-
ees must comply with the Board's rules.
+ All attest work, including but not limited
to compilations and reviews, must be per-
formed only by the CPA firm and must
meet professional standards. The sup-
port company may not perform any at-
test work.
* The CPA firm and the support company
should present themselves to the public
as separate entities. Each entity should
have a separate name, letterhead, and logo.
Each entity should have a separate engage-
ment letter with its clients and bill its clients
separately. The marketing materials of each
entity should reflect that separation. CPAs
associated with the support company must
comply with the disclaimer requirement of
Section 501.40 of the Board's rules.
* The fiscal relationship between the two
entities must reflect the integrity of the
CPA firm. The income streams of the two
entities must be proportional to the work per-
formed by the entities. The CPA partners
may be compensated by the support com-
pany only at the fair value of the services they
actually perform. The CPA firm should pay
only the fair market value of the services which
it receives.
+ Other than insurance arrangements common
in a CPA practice, the CPA firm should bear
financial responsibility for the consequences
of its actions. The support company may
not indemnify the CPA firm for violations of
professional standards.
Implementing standards of conduct in
the ABS.
When the CPA firm establishes itself as a sepa-
rate entity with sufficient autonomy to meet the
statutory standards, the CPA firm and its associ-
ated CPAs must comply with the Board's rules.
The close affiliation between the support company
and the CPA firm requires careful analysis, and of-
ten particular application, of the rules to protect the
public. Therefore, in order for the public to be as-
sured that CPAs will continue to adhere to high
standards of professional conduct, even in an ABS,Page 2 Texas State Board Report January 1999
Texas State Board Report
January 1999
Page 2
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Texas State Board of Public Accountancy. Texas State Board Report, Volume 67, January 1999, periodical, January 1999; Austin, Texas. (https://texashistory.unt.edu/ark:/67531/metapth1033234/m1/2/?q=Lamar+University: accessed June 8, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting UNT Libraries Government Documents Department.