State Board Report

November 2009

NASBA’s Legal Counsel Noel Lee Allen has submitted amicus briefs in support of the Texas State Board of Public Accountancy and the Public Company Accounting Oversight Board (see NASBA Web site for complete text of both). The major issue in the Texas case was the Board’s ability to discipline CPAs for violations of GAAP and GAAS without direct evidence of fraud or gross negligence and the case has been settled in the Board’s favor. The PCAOB’s case is set to be heard by the US Supreme Court early in December, with a central issue being if the appointments process for members of the PCAOB violates the Appointments Clause of the U.S. Constitution.

In the case of John W. Beakley and Beakley & Associates, P.C. v. Texas State Board of Public Accountancy, the plaintiffs argued that the Board’s authority to discipline a CPA for a violation of professional standards is limited to conduct constituting “fraud, dishonesty, or gross negligence.” NASBA’s brief stated: “This contention is totally at odds with the plain meaning of the statute,” which contains 12 independent grounds for discipline. Violating professional standards is one of those grounds for discipline.

Beakley contended the standards were vague: “…the constitutional infirmity of reinforcing GAAS and GAAP as strict liability disciplinary rules stems from the fact that an interpretation of these complex rules requires the exercise of professional judgment.” Citing numerous cases, the NASBA brief states: “Because of the expertise of occupational licensing board members courts will defer to their discretion in matters of professional practice.”

In the PCAOB case, Free Enterprise Fund and Bekstead and Watts, LLP, v. Public Company Accounting Oversight Board and United States of America, the NASBA amicus underscores the valuable protection of U.S. financial markets provided by the PCAOB, including its charge to refer appropriate cases to State Boards. In addition, the brief points out: “Allowing Petitioners to proceed with their claims [against the PCAOB] without utilizing the administrative review process could provide a precedent for similar lawsuits against State Boards of Accountancy. Such lawsuits could prove disruptive to the orderly progression of disciplinary cases before the State Boards of Accountancy.” The brief further states that, similar to the appointment of members of many State Boards, as long as the appointing authority, in the PCAOB’s case the SEC, “retains some removal power, there is no violation of the separation of powers doctrine.”

The brief explains: “The structure of the PCAOB is similar to that of many State Boards of Accountancy and PCAOB board members are similar to members of State Boards of Accountancy in the sense many State Boards of Accountancy are agencies with quasi?judicial powers that perform functions similar to those of the PCAOB.”

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