State Board Report

July 2017

Although reported case law involving State Boards and artificial intelligence or data analytics is right now sparse, Boards can anticipate ethical and competency issues by looking at some private litigation relating to these areas, NASBA Legal Counsel Noel Allen explained. He summarized two recent cases that may foreshadow public protection challenges in this area: Welgus v. Trinet Grp., Inc. (2017) and Sabine Oil & Gas Co. (2016).

In the Welgus case allegations were made in a federal court in California that Trinet and its auditor had failed to detect material weaknesses related to internal controls because of the false claims about the capabilities of “breakthrough data analytics.” The court concluded that the facts “only plausibly show that falsity may be conferred by hindsight and there are no allegations that the statements were false when made.”

In Sabine Oil & Gas, a non-CPA expert’s data analytics work was rejected by a federal bankruptcy court because the expert failed to provide the court with any “of the actual data analytics” that the expert reviewed.

Three cases directly related to Accountancy Boards that Mr. Allen called to the Boards’ attention were: Baisden v. Bowers (No.1:16-CV-01651-AWI-SAB, 2016 U.S. Dist. LEXIS 154422); Kim v. Virginia Board of Accountancy (No. 0288-16-4, 2016 Va. App. LEXIS 312); and Judicial Review of Final Agency Decision of the NC Bd. of CPA Examiners in the Matters of Belinda L. Johnson (Wake Cnty.Super. CT. May 1, 2017). Johnson had been disciplined by the NC Board and maintained that because the Board was primarily composed of private actors who were competitors in the marketplace, their order did not constitute state action. The NC Business Court found that exclusive jurisdiction for Sherman Act antitrust claims was to be found in the federal courts and there was no evidence to support Johnson’s contention that the Board’s order impacted competition among CPAs in the state of North Carolina

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