The Kentucky Accountancy Law and Administrative Regulations, specifically
201 KAR 1:300 - Rules of Conduct provide guidelines for CPAs in the performance of their services to the consuming public. It is the Board's mission to protect the public and provide guidance to CPAs.
CPAs are not allowed to disclose client information obtained while performing professional services. The CPA shall disclose information to comply with a validly issued subpoena or summons, request for disclosure under peer review, or when responding to a Board investigation. 201 KAR 1:300, Section 7 states that, "A licensee shall comply with the requirements of
KRS 325.440 relating to the disclosure of confidential client information." For more information about the confidentiality statute, review KRS 325.440.
A commission means any item of value given by a CPA to a third-party in return for suggesting the purchase of any product or service. The Kentucky Rules of Professional Conduct have permitted the acceptance of commissions by CPAs in certain instances for several years.
The acceptance of commissions is governed by 201 KAR 1:300, Section 10, which states:
(1) A licensee shall not recommend or refer to a client any product or service in exchange for a commission, recommend any product or service to be supplied by his client to a third party, or receive a commission when the licensee or the licensee's firm also performs for that client:
(a) An audit or review of a financial statement;
(b) A compilation of a financial statement when the licensee expects or reasonably might expect that a third party will use the financial statement and the licensee's report does not disclose a lack of independence; or
(c) An examination of prospective financial information.
(2) The prohibition of subsection (1) of this section applies during the period in which the licensee is engaged to perform any of the services listed in subsection (1)(a), (b), and (c) of this section and the period covered by any historical financial statements involved in the listed services.
(3) A licensee who is not prohibited from receiving a commission and who is paid or expects to be paid a commission shall disclose that fact in writing to any person or entity to whom the licensee recommends or refers a product or service to which the commission relates.
(4) A licensee who accepts a fee for recommending or referring any service of another licensee to any person or entity or who pays a fee to obtain a client shall disclose the receipt or payment of the fee to the client.
(5) This rule shall not prohibit:
(a) Payments for the purchase of an accounting practice; or
(b) Retirement payments to individuals, and their heirs or estates, who were formerly engaged in the practice of public accounting.
Contingent Fees
A contingent fee is one established for the performance of any public accounting services pursuant to a written or oral agreement in which no fee will be charged unless a specified finding or result is obtained. Contingent fees are governed by 201 KAR 1:300, Section 12, which states:
(1) A licensee shall not accept or perform any public accounting services for a contingent fee or receive a contingent fee from a client for whom the licensee or the licensee's firm performs:
(a) An audit;
(b) A review;
(c) A compilation of a financial statement when the licensee expects or reasonably might expect that a third party will use the financial statement and the licensee's report does not disclose a lack of independence; or
(d) An examination of prospective financial information.
(2) The prohibition of subsection (1) of this section applies during the period of time in which the licensee is engaged to perform those services and the period covered by any historical financial statements involved in those services.
(3) A licensee in public practice shall not prepare for a contingent fee:
(a) An original or amended tax return or claim for a tax refund. Preparation of an original or amended tax return or claim for tax refund includes giving advice on events which have occurred at the time the advice is given if that advice is directly relevant to determining the existence, character, or amount of a schedule, entry, or other portion of a return or claim for refund; or
(b) An amended federal or state income tax return for a client claiming a refund of taxes because a deduction was inadvertently omitted from the return originally filed when there is no question as to the propriety of the deduction, rather the claim is filed to correct an omission.
(4) The following are examples of circumstances where a contingent fee would be permitted regardless of whether the licensee or licensee's firm is performing the services specified in subsection (1) of this section:
(a) Representing a client in an examination by a revenue agent of the client's federal or state income tax return;
(b) Filing an amended federal or state income tax return claiming a tax refund based on a tax issue that is either the subject of a test case by a different taxpayer or with respect to which the taxing authority is developing a position;
(c) Filing an amended federal or state income tax return or refund claim which claims a tax refund in an amount greater than the threshold for review by the Joint Committee on Internal Revenue Taxation ($1,000,000 at March, 1991) or state taxing authority;
(d) Requesting a refund of either overpayments of interest or penalties charged to a client's account or deposits of taxes improperly accounted for by the federal or state taxing authority in circumstances where the taxing authority has established procedures for the substantive review of such refund requests;
(e) Requesting, by means of protest or similar document, consideration by the state or local taxing authority of a reduction in the assessed value of property under an established taxing authority review process for hearing all taxpayer arguments relating to assessed value; or
(f) Representing a client to obtain a private letter ruling or influencing the drafting of an administrative regulation or statute.
(5) Fees shall not be considered as contingent:
(a) If fixed by courts or other public authorities; or
(b) In tax matters if determined based on the results of judicial proceedings or the findings of governmental agencies. A fee is considered determined based on the findings of governmental agencies, if the licensee can demonstrate a reasonable expectation at the time of the fee arrangement, of substantive consideration by an agency with respect to the licensee's client. The expectation is deemed not reasonable in the case of preparation of original tax returns.
(6) Fees may vary depending on the complexity of services rendered.
Obtaining a Board Opinion
Many Kentucky CPAs ask the Board to issue opinions or interpretations of the public accountancy law. These interpretations apply the law and regulations to specific fact situations. The Board encourages its licensees to seek guidance in any situation prior to taking action and will consider and respond to these requests if a letter outlining the situation is submitted. The letter should be very specific, giving the Board as much detailed information as possible so that an informed decision can be reached. The letter must be submitted at least 7 working days prior to a scheduled Board meeting.
Unauthorized/Unlicensed Practice
Persons who are not licensed as certified public accountants are prohibited from issuing audited or reviewed financial statements. They are also prohibited from issuing compiled statements in which language used refers to CPA professional standards. The Board has approved safe harbor language for use by unlicensed persons when issuing compiled statements. This language is found in
201 KAR 1:180. Unlicensed individuals are also prohibited from holding themselves out as a certified public accountant or public accountant in any setting. If the Board receives information about unlicensed practice, a written request to cease and desist for such activity will be sent. If no response is received or the behavior continues, the Board has the authority to proceed to court and obtain an injunction against the individual. Penalties for unauthorized/unlicensed practice can include fines of up to $500, or imprisonment for up to 1-year, or a combination of both fine and imprisonment.
In certain circumstances, out-of-state CPAs or CPA firms may enter the state to perform work without a Kentucky license. KRS 325.301(11) governs this practice as states as follows:
"Nothing contained in this chapter shall require a certified public accountant or firm of certified public accountants licensed by another state or foreign country to obtain a license to practice in this Commonwealth if the certified public accountant or firm of certified public accountants enter this Commonwealth solely to:
(a) Conduct a peer review of a firm; or
(b) Perform attestation work, incidental to an engagement which was initiated with a client located outside of the Commonwealth and has extended into the Commonwealth due to common ownership or existence of a subsidiary, assets, or other operations located within the Commonwealth."
Client Records
One of the most frequent areas of dispute between CPAs and their clients, or former clients, is over client records. When the Board receives a request from a consumer, the person is referred to the Consumer Guide section of this site, which contains information regarding how to obtain their records from the CPA. CPAs are encouraged to review
KRS 325.420 for detailed information concerning their responsibility regarding client records. Sometimes these situations involve disputes beyond the state statute on client records. When this occurs contact an attorney for guidance.