Missouri quietly adopts ethics rules for accountants, lawyers

Michael Downey is an attorney at Fox Galvin LLC in St. Louis. His practice includes advising accountants and lawyers on professional ethics and defending class action, environmental and product liability claims. This column is made available by The Missouri Bar as part of Law Day.

The collapse of Enron and revelation of numerous other corporate frauds has dominated business news the past 30 months. Similarly, when it appeared accountants and lawyers allowed or aided such frauds, the federal response including passage of the Sarbanes-Oxley Act and prosecution of accounting firm Arthur Andersen has attracted much of the attention.

Publicly traded companies constitute less than 1 percent of all American businesses, and the federally mandated changes directly impact only a small portion of the accountants and lawyers who serve those companies. But in the shadow of these dramatic federal changes, Missouri is significantly overhauling its regulation of public accountants and lawyers.

Accountants. Missouri's adoption of the Uniform Accountancy Act in July 2001 occasioned a wholesale review of the state's public accounting licensure program and its regulation of certified public accountants. The act and accompanying regulations, which are expected to become final in July 2004, rework the educational requirements and professional code for Missouri's CPAs. If the proposed rules take effect, Missouri will require all CPAs to receive annual ethics education hours and allow a nonaccountant to own a minority share of an accounting practice.

The state will also replace its unique professional code with the American Institute of Certified Public Accountants Code of Professional Conduct. The AICPA Code provides more specific guidance on when an accountant may audit a business in which the accountant or accountant's relatives have employment, financial or other interests. Adoption of the code would also allow CPAs to practice under the same code they study in school and in preparation for the CPA ethics exam. Finally, a broader array of resources is available to help CPAs interpret and comply with the AICPA Code.

Lawyers. The Missouri Supreme Court the entity responsible for establishing professional rules of conduct for lawyers adopted the American Bar Association's Model Rules of Professional Conduct more than 15 years ago. The ABA has recently made two sets of changes to the rules, and the Missouri Supreme Court is currently examining how Missouri's rules should be changed to reflect the ABA's amendments.

The most recent set of amendments are a direct response to the perceived role of lawyers in recent corporate scandals and would make significant changes to a lawyer's duty of confidentiality. Currently, a Missouri lawyer may only disclose information related to the representation of a client when the client consents, when the client engages in fraudulent or criminal acts that may cause death or serious bodily harm, or in certain civil and criminal proceedings. Missouri is considering a change that also would allow a lawyer to disclose when a client is engaging in criminal or fraudulent activity that has or may cause substantial injury to a financial interest and uses the lawyer's services.

Another recent ABA amendment seeks to clarify that a lawyer for an entity such as a corporation but also including a trade association or even a Scout troop represents the entity itself and not the officers or agents who hire and work with the lawyer. This amendment would also require a lawyer for an entity to report to the entity's highest authority (for example, a corporation's board of directors) when a person working for the entity has violated the law. Finally, if that highest authority does not react properly, the lawyer may report the violation of law to persons outside the entity, presumably law enforcement, shareholders, or the like.

In addition to these recent changes, the ABA conducted an extensive review of its Model Rules from 1998 to 2002. Missouri is currently considering adoption of many of the resulting amendments. Some will simply clarify the proper way lawyers should interact with clients, such as recommending that all fee agreements should be in writing and requiring that all waivers of conflict also must be in writing. The ABA also has supported abolishing the provision that prevents a lawyer from speaking with former employees of an opposing party when that party is represented by a lawyer.

Finally, Missouri may clarify when a partner or shareholder may limit liability for malpractice committed by other lawyers at the partner's firm. This change was proposed prior to the Enron revelations, but its importance has increased after a prominent Illinois law firm, Kirkland & Ellis, was sued when the Illinois Supreme Court's rules did not permit Illinois partners to limit their liability through the use of a limited partnership or limited liability company.