Whether to be a CPA and an Attorney (#402)
/If an accounting major decides to pursue the practice of law, which areas of law would be most suitable for them, and is this even a sensible idea? Furthermore, is it possible to hold both a CPA and a J.D. and offer both services concurrently?
First, a story. I looked into this when I was in grad school at Babson College, and I did the obvious thing, which was to talk to one of the professors about it, who happened to have a J.D. I thought he was such an asshole that, just based on my opinion of him as a person, I decided not to pursue a J.D. Which is not entirely rational, but there you go.
So, let’s deal with this in a more rational manner. Assuming that you’re either an accounting major or already have your CPA, would law school be a logical next step?
There is certainly some overlap between the two professions, since accounting standards are essentially rule-based, and law is based on, well, rules. Therefore, if you’re good at following accounting standards, there’s a good chance that you’ll be able to pick up a law degree. That being said, it will take you three more years of schooling to earn a law degree, which involves a pretty significant financial investment. And on top of that, there’s the risk of not passing the state bar exam at the end of it all. In short, you can probably do it, but there are both financial and time investments.
Areas of Legal Specialization
Given the size of these investments, is there an area of the law where your accounting background will give you a better foundation for success? In other words, what legal areas call for a background in financial statements, business entities, taxation, and so forth?
Probably the most obvious specialty is tax law. Tax attorneys advise clients on all types of tax matters, such as international tax issues, estate planning, and disputes with tax authorities. If, as a CPA, you already have a background in things like taxable income, deductions, and basis, then it’s easier to become a competent tax attorney.
Another possibility is corporate law. Business attorneys deal with things like contracts, acquisitions, and financing arrangements, where it doesn’t hurt to already have a background in accounting. Someone who understands the financial consequences of these types of transactions might identify issues that a lawyer without a financial background would have to research separately.
For example, think about the sale of a business. The legal documents probably include things like working capital requirements, purchase price adjustments, and earnouts. A CPA who becomes an attorney already understands what working capital means, what issues can alter a purchase price, and why earnout calculations are important.
Estate and trust law is another logical area of specialization. Estate planning involves all kinds of issues with gift taxation, estate taxation, and the transfer of wealth. As a CPA, if you already provide tax or financial planning services, you may find that legal training expands the range of services that you can provide to clients.
Let’s try another one – bankruptcies and restructurings. Bankruptcy attorneys have to analyze cash flows, asset values, debt structures, and financial projections. All of which are second nature to a CPA. In short, understanding the numbers can be just as important as understanding the Bankruptcy Code.
Securities law is another possibility, especially for you’re interested in public companies, capital raising, or SEC regulations. Securities attorneys routinely deal with financial statements and at a very detailed level with disclosures. As a personal aside, this is the area where I picked up a lot of legal knowledge as a CFO. I was helping to run a public company, and we were constantly consulting with securities attorneys about things like stock issuances and Form 8-K disclosure filings.
Finally, there’s litigation support. Accountants who become attorneys can work on a whole range of issues. For example, fraud cases, calculating damages, and disputes over business valuations. If you already understand the underlying accounting, then you’re in a good position to create some winning legal arguments.
Whether It Makes Sense
So, I’ve outlined some options. Does it actually make sense to do any of this? Consider the decision in terms of incremental gain or loss. You’re going to spend three years and a lot of money to get through law school when you would otherwise already be working in the accounting field and earning an income.
When you get out of law school and hopefully pass the bar exam, what is the incremental increase in income that you’ll be making? Well, it had better be a lot, because you’re already behind on three years of lost wages, plus the cost of the degree. Realistically, I would say that it’s tough to justify from a purely analytical perspective.
However, there’s more to the decision. If you really want to work in one of the areas that I’ve just mentioned, then having both a CPA and a J.D. might be the only way to be assured of getting just the right job. If so, my only advice is that you know in advance that this is the type of work for you – which means getting an internship to get a better perspective on the job. Otherwise, you’re going to spend a lot of time and money to become an expert in a highly specialized area, and then maybe find out that you don’t like the job.
Dual Credential Issues
Okay, so let’s get back to the second part of the question, which was, is it possible to hold both a CPA and a J.D. and offer both services concurrently? Sure. There’s no general rule requiring you to surrender one professional credential simply because you’ve obtained another one. But operating in both capacities creates some complications.
First, you have to be very clear with clients about which service is being provided. The American Bar Association’s rules cover what they call "law-related services." Under Rule 5.7, a lawyer providing services closely related to legal services can become subject to the professional conduct rules governing lawyers, especially when the services are not clearly separated or when the client has not been informed that a nonlegal service does not carry the protections of an attorney-client relationship.
Why does this matter? Because accounting services and legal services do not always carry the same professional obligations or protections. A client should not have to guess whether you’re acting as the client's accountant or attorney.
For example, an attorney who is also a CPA prepares a business valuation for a client who’s considering the purchase of a company. If the attorney is acting only as an accountant, the engagement letter should state that the valuation is an accounting service, not legal representation, and that attorney-client privilege does not automatically protect the communications. If the client later asks the attorney to draft the acquisition agreement, the attorney should state that the engagement has shifted to legal services. This separation helps the client understand which professional rules and protections apply to each part of the engagement.
The biggest practical problem, though, arises when you, in your role as a CPA, are auditing a client. An auditor is supposed to be independent of the client. An attorney, on the other hand, represents and advocates for the client's interests. Those roles are fundamentally different.
For SEC audit clients, there’s an explicit restriction. SEC auditor-independence rules treat legal services as prohibited services. The SEC believes that the advocacy role of an attorney is fundamentally inconsistent with the independence expected of an auditor.
Even outside the SEC environment, CPAs performing audit work have to evaluate legal services for independence implications. The AICPA says that providing additional services to an audit client can create independence problems, especially when the CPA becomes too closely associated with the client.
In short, a CPA-attorney could operate a tax and legal practice much more easily than a combined audit and legal practice. Preparing tax returns and providing tax advice are a natural fit. Acting as both the independent financial statement auditor and the client's attorney is much more difficult.