From CPABC’s Ethics Department
Since CPABC became a combined entity in 2015, the ethics department has dealt with a broad and diverse range of issues, inquiries, and complaints from the public and from members of the profession. And even though these are still early days, some trends are emerging. One issue that has cropped up several times is that of CPAs dabbling in public practice without being licensed to do so. The purpose of this article, therefore, is to reiterate the licensing requirements and provide additional guidance.
“Public Practice” is a broad term
CPABC Bylaw 100 defines public practice as “…offering to provide public accounting or other regulated services to the public.” This is a broad definition that includes assurance and compilation engagements, as well as other regulated services such as summarization, advice, analysis, and counsel. Also included are taxation-related and statutory filing services, with examples of the latter including GST, PST, and payroll withholding services. For a complete list of “other regulated services,” see the Bylaw definitions (under Regulatory in the Members section of the bccpa.ca website).
If you use the full wording “Chartered Professional Accountant” as either part of your firm name or as a descriptor of your business services, you are deemed to be carrying on the practice of public accounting as per Rule 402.1 of the CPABC Code of Professional Conduct, and this means you require licensing. And even if you do not use the words “Chartered Professional Accountant” to describe your services, what matters most are the services you offer or actually provide. You cannot take off your “CPA hat” as a means of avoiding licensing requirements.
Some of the cases of unauthorized practice we’ve dealt with thus far started when CPAs found themselves between jobs, or in need of extra work. Wanting to stay productive and earn some extra income, they offered their services to a small number of people, sometimes just starting with family and friends. Over time, that commitment can grow; for example, by the time we became involved, one unlicensed individual had nearly 100 clients and their work had evolved into a full-blown business practice, with an office location, a community profile, and advertising in local newspapers and the telephone directory.
Ultimately, whether you’re providing public practice services for one client or 100 clients, licensing is required. The only exception to this rule is discussed in the next section.
Pro-bono work and “CFO-for-hire” services also fall under the umbrella of public practice
Although there are different categories of licensing depending on the services performed, there is no volume or pricing requirement needed to meet the definition of public practice—in other words, “dabbling” in public practice also requires licensing, and it doesn’t matter whether you charge a fee for services. Even if you provide services on a pro-bono basis or as a personal favour to someone else, you’re engaged in public practice!
Another situation we’ve seen arise is one in which individual CPAs act as chief financial officers for multiple clients. New start-up ventures seldom have the resources needed to employ a full-time CFO, so they often seek out CFOs “for hire.” The issue here is that when a CPA acts as a CFO for multiple clients (rather than for one client only), they are likely to be determined as being in the business of providing public practice services, which requires the appropriate licensing.
Proper licensing means proper insurance
CPABC takes the issue of unlicensed practice very seriously—both because of its mandate to protect the public and because of its mandate to support and educate members. When an unlicensed, unauthorized member provides public accounting or other regulated services, there is significant exposure to the public. One of the most important public protections is professional liability insurance coverage, which is a requirement of proper licensing. This has a significant bearing if you make a mistake in your work and are sued for negligence—without insurance, any court awards against you will have to be borne out of your own pocket. Court awards can be financially ruinous for CPAs who don’t have insurance coverage.
Considering retirement? Your exposure to claims doesn’t retire with you
Many CPAs transition into retirement gradually. During that transition process, those who continue to practice public accounting—operating part-time practices, for example—must remain licensed.
Insurance is another important factor for those retiring from public practice (or leaving public practice to work in another field). Even if you decide to retire from public practice now, your exposure to civil liabilities will usually last for several more years. Retiring from or leaving public practice doesn’t mean you’re off the hook when it comes to any claims that may be made against you for prior work. That’s why CPABC Bylaw Regulation 1301/1 requires that you maintain adequate coverage for a minimum of six years after leaving public practice.
The consequences of unlicensed public practice
Penalties assessed on CPAs vary depending on the specific circumstances of each case. In three recent cases, penalties included fines ranging from $1,000 to $5,000, plus CPABC’s investigation costs (these often exceed the fines).
There’s also the possibility of suspension and expulsion. One particularly serious case has resulted in a member being suspended for one year, during which they must not use their CPA designation in any manner.
Think you might be offside?
The good news is that CPABC has professional standards advisors who are here to help. You can contact them at ProfessionalAdvisory@bccpa.ca to ensure that you stay onside of our licensing requirements, and for advice on setting up a practice, including how to obtain liability insurance.
You can also get detailed information about the licensing process from our website at bccpa.ca, under Members> Public Practice> CPABC Public Practice Licensing or by calling Karen Fiorini, CPA, CGA, CPABC’s director of public practice licensing, at 604-730-6231.
In addition, CPA Canada provides valuable resources and advice in its “Practitioner’s Toolkit,” which is available for download at castore.ca/updates/practool. This toolkit is designed not only for CPAs who are currently in public practice, but also for those who are contemplating starting out in this area, as it details what’s involved in setting up a small practice.
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