FTC Staff Comment to the Hon. Jim Hill Concerning Oregon H.B. 2785 to Propose Certain Restrictions on Competition Among Accountants

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,, UNI1 :.V 51 ATES OF AMERICA
FEDERAL TRADE COMMISS: JON
WASHINGTON, D.C. 20580
BUREAU O~ COMPETITION
Senator 	Jim 	Hill
Oregon Senate
Chair, 	Committee 	on 	Business,
Housing 	and 	Finance
453-0 	State 	Capitol
Salem, 	Oregon 	97310
Dear 	Sen. 	Hill:
\'890073
COMMISSION AUTHORIZED
May 	19, 	1989
We 	are 	pleased 	to 	respond 	to 	your 	request 	for 	our views 	on
Oregon House 	Bill 	No. 	2785, 	presently before 	the 	Oregon 	Senate;
which 	proposes 	certain 	restrictions 	on 	competition 	among
accountants. 1 	This 	bill 	would prohibit 	accountants' 	use 	of
referral 	fees 	and 	commissions. 	We 	believe 	that 	H.B. 	No. 	2785
would 	reduce 	competition 	among 	accountants 	and 	restrict 	the
dissemination 	to 	consumers 	of 	information 	about 	accounting
services, 	thereby 	adversely 	affecting 	consumers' 	ability 	to
obtain 	accounting 	services 	on 	terms 	they want.
Interest 	and Experience of
the 	Federal 	Trade Commission
The 	Commission 	has 	recently considered 	the 	validity 	under
the 	federal 	antitrust 	laws 	of 	restrictions, 	similar 	to 	those
proposed 	in H.B. 	No. 	2785, 	that 	had 	been 	imposed 	by 	a 	private
group of 	accountants 	on 	its 	members. 	On March 	28, 	1989, 	the
Commission 	announced 	that 	it 	had 	accepted 	for 	public 	comment,
Commissioner Azcuenaga 	dissenting, 	a 	consent 	agreement 	in 	which
the 	American 	Institute 	of 	Certified 	Public 	Accountants 	agreed 	not
to 	impose 	similar 	restrictions 	on 	its 	members.
Since 	the 	early 	1970's, 	the 	Federal 	Trade 	Commission 	staff
has 	been 	studying 	the 	effects 	of 	restrictions 	on 	the 	business
practices 	of 	licensed 	professionals, 	including 	accountants,
lawyers, 	physicians 	and 	others. 	Our 	goal 	has 	been 	to 	identify
restrictions 	that 	harm 	consumers 	by 	reducing 	competition without
producing 	any 	countervailing 	benefits, 	such 	as 	higher 	quality
services 	or 	enhanced 	consumer 	choice 	among 	service 	options. 	In
general, 	we 	have 	concluded 	that 	certain 	kinds 	of 	restrictions 	on
1 	• 	These 	comments 	represent 	the 	views 	of 	the 	staff 	of 	the
Federal 	Trade 	Commission's 	Bureau 	of 	Competition, 	and 	not
necessarily 	those 	of 	the 	Commission 	itself 	or 	any 	individual
Commissioner.

Senator Jim Hill 	Page 	2
the ways 	in which 	professionals 	can market 	their 	services 	and 	set
their prices 	are 	likely 	to 	lead 	to 	higher 	prices 	without 	offering
any offsetting benefits 	to 	consumers. 2 	We 	believe 	this 	is 	true
of 	accountants, 	also.
The PrQposed Legislation
H.B. 	No. 	2785 	appears 	intended 	to 	eliminate 	any 	potential
for 	conflicts 	of 	interest 	arising 	from 	accountants' 	financial
arrangements 	with 	third 	parties 	that 	may 	affect 	their 	clients, 	or
with their 	clients 	that 	may 	affect 	third parties. 	The 	avoidance
of 	conflicts 	of 	interest 	is 	particularly 	important 	in 	the
accounting 	profession because 	of 	the 	role 	accountants 	play 	in
promoting the 	reliability of 	financial 	reporting. 	But
restricting 	the 	dissemination 	of 	information 	about 	accounting
services, 	and denying 	consumers 	pricing 	terms 	and 	service 	options
that 	they want, 	may 	limit 	consumer 	choice more 	severely 	than 	is
reasonably 	necessary 	to 	address 	potential 	conflicts 	of 	interest.
There 	are 	less 	restrictive means 	of 	assuring 	the 	independence 	of
auditors 	and 	the 	availability 	of 	objective 	financial 	advisors.
Several 	state 	boards 	of 	accountancy 	and 	the 	American
Institute 	of 	Certified Public 	Accountants 	have 	abandoned 	their
prohibitions 	of 	referral 	fees 	and 	commissions. 3 	Some 	have
replaced 	them with 	the 	less 	restrictive 	alternatives 	of
(1) 	requiring 	that 	referral 	fees 	and 	commissions 	be 	disclosed,
and 	(2) 	limiting 	accountants' 	use 	of 	commissions 	to 	services 	for
2 	Numerous 	reports 	and 	articles 	have 	addressed 	the
effects 	that 	various 	restrictions 	on 	professionals 	have 	on market
performance. 	See, 	e.g., 	Calvani, 	Langenfeld, 	and 	Shuford,
Attorney Advertising and Competition 	at 	the 	Bar, 	41 	Vande 	L. 	Rev.
761 	(1988): 	Jacobs 	et 	al., 	Improving 	Consumer 	Access 	to 	Legal
Services: 	The 	Case 	for 	Removing 	Restrictions 	on 	Truthful
Advertising, 	Cleveland 	Regional 	Office 	and 	Bureau 	of 	Economics,
Federal 	Trade 	Commission 	(1984): 	Bond, 	Kwoka, 	Phelon, 	and
Whitten, 	Effects 	of Restrictions 	on 	Advertising 	and Commercial
Practice 	on 	the 	Professional: 	The 	Case 	of Optometry, 	Bureau 	of
Economics, 	Federal 	Trade 	Commission 	(1980): 	Muris 	& McChesney,
Advertising and 	the 	Price 	and Ouality 	of Legal 	Services: 	The 	Case
for 	Legal 	Clinics, 	1979 	Am. 	B. 	Found. 	Research 	J. 	179 	(1979);
McChesney 	& Muris , 	The 	Effects 	of Advertising on 	the 	Ouality 	of
Legal 	Services, 	65 	A.B.A. 	J. 	1503 	(1979): 	Cady, 	Restricted
Advertising and Competition: 	The 	Case 	of Retail 	Drugs 	(1976);
Benham 	and 	Benham, 	Regulation 	Through 	the 	Professions: 	A
Perspective 	on 	Information 	Control, 	18 	J.L. 	& Econ. 	421 	(1975).
3 	Indeed, 	only 	two 	states, 	California 	and 	Iowa, 	have
statutory prohibitions 	on 	referral 	fees 	and 	commissions.

Page 	3
The
approved
Senator Jim Hill
clients 	for 	whom 	they 	do 	not 	provide 	attest 	services. 4
National 	Association 	of 	State 	Boards 	of 	Accountancy 	has
a 	Model 	Code 	for 	adoption 	by 	its 	member 	s;ate 	boards 	of
accountancy 	that 	takes 	the 	same 	approach.
We 	believe 	that 	prohibiting 	the 	use 	of 	referral 	fees 	and
commissions 	by accountants 	would 	not 	be 	in 	the 	public 	interest.
These 	prohibitions 	would 	be more 	restrictive 	of 	competition 	than
is 	reasonably 	necessary 	to 	protect 	consumers 	against 	conflicts 	of
interest. 	We 	believe 	that 	the 	less 	restrictive 	alternative 	of
requiring 	that 	referral 	fees 	and 	commissions 	be 	disclosed 	is 	a
preferable 	means 	of 	ensuring 	that 	consumers 	have 	sufficient
information 	to 	protect 	themselves 	against 	conflicts 	of 	interest.
Also, 	limiting the 	use 	of 	commissions 	to 	nonattest 	clients 	is 	a
less 	restrictive, 	and 	therefore 	preferable, 	means 	of 	ensuring
that 	accountants 	remain 	independent 	when 	they provide 	attest
services.
Referral 	Fees
H.B. 	No. 	2785 	would 	prohibit 	accountants 	from 	paying 	"a
commission 	to 	obtain 	a 	client." 	This 	provision would 	prevent
accountants 	from 	using 	a 	potentially effective means 	of 	making
consumers 	aware 	of 	their 	services. 	Some 	accountants, 	for
example, 	would 	like 	to 	pay 	referral 	fees 	to 	marketing 	firms 	to
disseminate 	information 	about 	their 	services. 	Other 	accountants
would 	like 	to 	pay 	referral 	fees 	in 	the 	form 	of 	discounts 	to
clients 	for 	referring 	new 	clients.
We 	believe 	that 	referral 	fees, 	like 	expenditures 	for
advertising, 	are 	likely 	to 	increase 	competition 	among 	accountants
by 	increasing 	the 	dissemination 	of 	information 	about 	accounting
services 	to 	consumers. 	By making more 	information 	about
accountants 	available 	to 	consumers, 	referral 	fees 	may 	reduce
consumers' 	costs 	of 	searching 	for 	accountants 	whose 	services 	are
4 	By 	"attest 	services," 	we 	mean 	an 	accountant's 	report
that 	states 	or 	implies 	some 	degree 	of 	assurance 	as 	to 	the
reliability of 	any 	financial 	statement; 	such 	services 	include
audits, 	reviews 	and 	some compilations. 	"Nonattest 	services"
refers 	to 	all 	other 	services 	offered by 	accountants, 	including
tax, 	management 	advisory, 	reimbursement, 	and 	financial 	planning
services.
5 	Although many 	state 	accountancy boards 	still 	restrict
accountants' 	use 	of 	referral 	fees 	and commissions, 	these
restrictions 	are 	subject 	to 	scrutiny under 	the 	antitrust 	laws
unless 	the 	state 	legislature 	has 	clearly 	articulated 	and
affirmatively 	expressed 	the 	intent 	to 	supplant 	competition 	of
this 	nature.

Senator Jim Hill 	Page 	4
appropriate 	to 	their 	particular 	needs. 	This 	in 	turn places
competitive pressure 	on 	accountants 	to 	provide 	the 	services
consumers 	want 	at 	prices 	they 	are 	willing 	to 	pay. 	Banning
referral 	fees, 	therefore, 	may 	lead 	to 	increased prices 	and
reduced 	quality of 	accounting 	services, 	with 	reduced 	satisfaction
of 	consumer needs 	and preferences.
Proponents 	of 	a 	ban on 	referral 	fees 	argue 	that 	accountants
who pay them will 	have 	to 	increase 	their 	fees 	in order 	to 	pass 	on
the 	cost 	of 	referral 	fees. 	We 	do 	not 	believe 	this 	is 	a 	valid
concern. 	First, 	referral 	fees, 	like 	any marketing expenditure,
are 	intended 	to 	build 	a 	larger 	client 	base 	and 	thus 	to 	reduce 	the
cost 	of 	serving each 	client. 	To 	the 	extent 	that 	the 	cost 	per
client 	can be 	reduced, 	accounting 	fees 	are 	likely 	to 	decline
rather 	than to 	increase. 	Second, 	prohibiting the 	payment 	of
referral 	fees 	is 	likely 	to 	cause 	accountants 	to 	use 	other, 	less
efficient means 	of 	promoting 	their 	practices. 	To 	the 	extent 	that
this 	happens, 	the 	cost 	of 	serving each 	client will 	be 	higher 	than
it would 	with more 	efficient marketing methods, 	and 	accountants
will 	therefore 	be 	likely 	to 	charge 	higher 	fees. 	Finally, 	if
accountants 	refer 	clients 	to 	other 	accountants 	with 	greater
expertise 	in 	the 	services 	desired, 	the 	time 	necessary 	to 	provide
such 	services 	may be 	reduced, 	and 	accordingly 	the 	total 	fees 	may
be 	lower.
Supporters 	of 	a 	ban on 	referral 	fees 	also 	assert 	that 	such
arrangements 	may 	deceive 	consumers. 	That 	is, 	the 	payment 	of 	a
referral 	fee 	may 	provide 	the 	incentive 	for 	an 	inappropriate
referral, 	not 	to 	the 	most 	appropriate 	accountant, 	but 	rather 	to
the 	accountant 	who 	pays 	(or 	pays 	the 	highest) 	referral 	fees. 	The
fact 	that 	a 	referral 	fee 	is 	paid may 	therefore 	be 	material 	to 	a
consumer's 	assessment 	of 	the 	appropriateness 	of 	a 	referral, 	and
withholding 	this 	material 	fact 	may 	amount 	to 	deception.
A ban 	on 	referral 	fees, 	however, 	is 	more 	restrictive 	of
competition than 	is 	reasonably 	necessary 	to 	prevent 	any 	deception
that 	might 	otherwise 	occur. 	The 	less 	restrictive 	alternative 	of
requiring 	disclosure 	of 	referral 	fee 	arrangements 	to 	consumers
would enable 	them 	to make 	informed 	choices. 	If 	for 	any 	reason 	a
consumer 	preferred to 	deal 	with 	an 	accountant 	who 	does 	not 	pay
referral 	fees, 	disclosure 	would 	preserve 	that 	option. 	Accounting
regulators 	increasingly 	appear 	to 	favor 	this 	approach. 	State
accountancy boards 	in Maryland, 	Oklahoma, 	Texas, 	and West
Virginia, 	and 	the American 	Institute 	of 	Certified 	Public
Accountants 	permit 	disclosed 	referral 	fees, 	and 	the 	National
Association of 	State Boards 	of 	Accountancy 	has 	approved 	a 	Model
Code 	permitting disclosed 	referral 	fees 	for 	adoption by 	its

Senator 	Jim Hill 	Page 	5
member 	state 	boards 	of 	accountancy.6 	We 	therefore 	believe 	that 	a
ban on 	referral 	fees, 	as 	proposed 	in H.B. 	No. 	2785, 	would 	be
likely 	to 	result 	in 	a 	smaller 	net 	benefit 	for 	consumers 	than
would permitting accountants 	to 	use 	referral 	fees, 	subject 	to 	an
appropriate 	disclo~ure requirement.
Ca.missions
H.B. 	No. 	2785 	would 	prohibit 	accountants 	from 	receiving 	"a
commission 	for 	a 	referral 	to 	a 	client 	of 	products 	or 	services 	of
others. M 	This 	restriction 	would 	prevent 	an 	accountant 	and 	his
client 	from 	agreeing 	that 	the 	accountant's 	only 	compensation 	for
preparing 	a 	financial 	plan will 	be 	the 	commissions 	received 	if
the 	client 	decides 	to 	purchase 	any 	recommended 	investments. 	It
would 	also 	prevent 	an 	accountant 	and 	client 	from 	agreeing 	that
the 	accountant's 	only compensation 	for 	recommending 	necessary
computer equipment 	and 	software 	comprising 	a 	financial 	reporting
system will 	be 	the 	commissions 	paid on 	the 	sale 	of 	the 	computer
products.
A ban 	on commissions 	would 	inhibit 	competition 	among
accountants. 	Since 	tax 	services 	constitute 	a 	substantial 	portion
of 	the 	business 	of 	many 	accounting 	firms, 	activities 	aimed 	at
securing 	tax 	business 	are 	an 	important 	means 	of 	competition 	among
accountants. 	And 	because 	financial 	planning 	services 	may
sometimes 	be 	supplied most 	efficiently 	if 	they 	are 	provided
together 	with 	tax 	services, 	accountants 	can 	compete 	to 	obtain 	tax
business 	by offering 	to 	provide 	financial 	planning 	services 	at
little 	extra 	cost. 	However, 	under 	the 	bill's 	restriction 	on
commissions, 	this 	might 	not 	be 	economically 	feasible.
We 	have 	learned 	in 	the 	course 	of 	our 	investigation 	leading
to 	the 	AICPA 	consent 	order 	that 	some 	consumers 	want 	to 	be 	able 	to
obtain 	commission-based 	financial 	planning 	services. 	In 	states
where 	accountants 	are 	permitted 	to 	accept 	commissions, 	some
accountants 	have 	attracted 	new 	tax 	clients 	from 	other
accountants 	by offering 	commission-based 	financial 	planning, 	and
they 	now 	provide 	all 	of 	their 	new 	clients' 	financial 	planning,
tax, 	and 	other 	accounting 	services. 	Other 	accountants 	believe
that 	if 	they 	did 	not 	provide 	commission-based 	financial 	planning
services, 	many of 	their 	existing 	clients 	would 	take 	their 	tax 	and
other 	business 	to 	another 	accountant 	who 	would 	do 	so. 	As 	the 	use
of 	commission-based 	financial 	planning 	increases, 	accountants 	who
provide 	financial 	planning 	services 	on 	a 	fee 	basis 	may 	be 	forced
6 	National 	Association of 	State 	Boards 	of 	Accountancy,
Model 	Code 	of 	Professional 	Conduct, 	Rule 	104 	(April 	1989). 	The
state 	accountancy 	boards 	in Maryland 	and West 	Virginia 	do 	not
have 	any 	restrictions 	on 	referral 	fees.

Senator 	Jim Hill 	Page 	6
to 	reduce 	their 	fees 	in 	response 	to 	competition 	from 	accountants
who provide 	commission-based 	financial 	planning.
Direct 	consumer 	benefits 	can 	result 	when 	accountants 	are
allowed 	to 	receive 	commissions 	on, 	for 	example, 	the 	sale 	of
financial 	products 	to 	clients. 	A consumer may 	desire 	an
accountant's 	assistance 	in 	preparing 	a 	financial 	plan, 	but 	wish
to 	pay 	for 	it 	only 	if 	he 	believes 	it will 	be 	useful. 	If 	the
accountant 	is 	willing 	to 	undertake 	preparation of 	a 	plan 	in 	the
eXPectation 	of 	being compensated 	only 	through commissions 	on 	the
sale of 	investments, 	and 	the 	commission 	arrangement 	is 	disclosed
to 	the 	client, 	the 	accountant 	communicates 	to 	the 	client 	his
belief 	that 	the 	plan will 	be 	useful. 	Commissions 	also 	allow 	the
accountant 	to 	shoulder the 	risk 	that 	the 	client may 	not 	be
persuaded 	the 	plan 	is 	useful, 	since 	the 	accountant 	will 	not 	be
compensated unless 	the 	client 	decides 	to 	implement 	the 	plan.
Moreover, 	the 	better 	the 	financial 	plan 	(as 	measured by 	the
client's 	decision 	to 	implement 	its 	recommendations), 	the 	more
likely 	it 	is 	that 	the 	accountant 	will 	receive 	commissions. 	Thus,
the 	commission 	arrangement 	provides 	an 	incentive 	for 	the
accountant 	to provide 	higher 	quality 	services.
Consumers 	enjoy 	an 	additional 	benefit 	where 	accountants 	can
use commissions: 	the 	option 	of 	one-stop 	shopping 	for 	financial
planning 	services. 	Some consumers 	prefer 	to 	have 	their
accountant 	both 	prepare 	a 	financial 	plan 	and 	implement 	it 	by
recommending 	and 	arranging 	the 	purchase 	of 	investments. 	The 	ban
on 	accountants' 	receipt 	of 	commissions 	proposed 	in H.B. 	No. 	2785,
however, 	would 	prevent 	accountants·who 	have 	prepared 	financial
plans 	from 	implementing 	them. 	Preparation 	of 	financial 	plans,
which 	generally 	provide 	an 	outline 	of 	the 	steps 	necessary 	to
achieve 	the 	client's 	goals, 	requires 	considerable 	research 	and
analysis. 	If 	accountants 	are 	prohibited 	from 	accepting
commissions, 	the 	only way 	they can be 	adequately 	compensated 	for
preparing 	financial 	plans 	is 	by charging 	a 	substantial 	fee.
Consumers 	would 	either 	have 	to 	forego 	using 	an 	accountant's
financial 	planning 	services 	or both 	bear 	the 	cost 	of 	financial
planning 	services 	and 	pay commissions 	to 	broker-dealers 	on
purchases 	of 	investments. 	In 	addition, 	consumers 	would 	lose 	the
convenience 	of 	dealing with 	only one 	professional, 	which 	saves
the 	time 	and 	effort 	that 	are 	necessary 	to 	establish
knowledgeable, 	trusting 	relationships 	with 	multiple 	advisors.
The 	bill's 	restriction on commissions 	is 	thus 	likely 	to
reduce 	competition 	am6ng 	accountants; 	increase 	consumer costs,
because 	consumers 	would 	receive 	less 	information about 	accounting
services 	and 	assume 	greater 	risks; 	and 	eliminate 	an 	incentive 	for
accountants 	to 	provide 	higher 	quality 	services. 	The 	result 	is
likely 	to 	be 	an 	increase 	in 	the 	price 	and 	a 	reduction 	in 	the
quality of 	accounting 	services, 	with 	a 	reduction 	in 	the
satisfaction of 	consumer 	needs 	and preferences.

·- -
Senator 	Jim Hill 	. Page 	,
Proponents 	of 	a 	ban on commissions 	argue 	that 	prohibition
is 	necessary 	to 	preserve 	accountants' 	independence. 	Our view 	is
that 	independence 	concerns 	are 	met 	by 	permitting 	accountants 	to
receive 	commissions 	only 	for 	services 	provided 	to 	nonattest
clients. 	The 	state boards 	of 	accountancy 	in Oklahoma 	and 	Texas,
the Model 	Code 	approved 	by 	the 	National 	Association of 	State
Boards 	of Accountancy,' 	and 	the 	American 	Institute 	of 	Certified
Public 	Accountants 	permit 	accountants 	to 	receive 	commissions 	in
connection with 	services 	provided 	to 	a 	clien~ 	for 	whom 	the
accountant 	performs 	only 	nonattest 	services.
It 	has 	also 	been 	argued 	that 	prohibiting 	the 	receipt 	of
commissions 	for 	recommending 	products 	or 	services 	to 	nonattest
clients 	is 	justified because 	commissions 	can create 	a 	conflict 	of
interest 	and 	loss 	of 	objectivity. 	The 	concern 	is 	that
accountants 	might 	recommend 	services 	or products 	that 	clients 	do
not 	need 	or 	that 	are 	less 	valuable 	to 	consumers 	than 	other
services 	or 	products 	that 	would 	produce 	lower 	commissions.
We 	believe 	that 	commissions 	need 	not 	be 	banned 	in 	order 	to
prevent 	such 	abuse. 	During 	the 	course 	of 	our 	investigation 	that
led to 	the 	AICPA 	consent 	order, 	we 	learned 	that 	accountants 	who
wish 	to 	respond 	to 	consumer 	demand 	for 	commission-based 	financial
planning 	services 	are 	likely 	to 	promote 	their 	services 	by
informing 	consumers 	that 	they 	receive 	commissions. 	We 	also
learned 	that 	accountants 	who 	provide 	financial 	planning 	services
on 	a 	fee 	basis 	are 	likely 	to 	inform 	consumers 	through 	their
advertising 	that 	fee-based 	financial 	planning 	is 	an 	alternative
to commission-based 	financial 	planning. 	Consumers 	are 	therefore
likely 	to 	become 	aware 	of 	their 	options 	and 	to 	question 	their
accountant 	about 	his 	method of 	compensation. 	Businesses 	that
purchase 	products 	recommended 	by 	accountants 	are 	likely 	to 	be
aware 	of 	their 	options. 	Thus, 	consumers 	who 	prefer 	to 	deal 	with
an 	accountant who 	does 	not 	accept 	commissions 	will 	have 	the
opportunity 	to 	do 	so.
The 	state 	boards 	of 	accountancy 	in Oklahoma 	and 	Texas
require 	accountants 	to 	disclose, 	when 	they 	recommend 	products 	or
services, 	that 	they 	accept 	commissions 	from 	third 	parties. 	The
7 	National 	Association of 	State 	Boards 	of 	Accountancy,
Model 	Code 	of 	Professional 	Conduct, 	Rule 	lOl(b)(3) 	(April 	1989).
8 	The 	Texas 	Board of 	Public 	Accountancy 	permits
accountants 	to 	receive 	commissions 	in connection with 	nonattest
services 	provided 	to 	an 	attest 	client, 	if 	the 	amount 	of 	the
commissions 	is 	not 	material 	with 	respect 	to 	the 	total 	fees 	from
the 	client. 	The 	state 	accountancy board 	in Maryland 	does 	not
have 	any 	restriction on 	commissions, 	and 	the 	state 	accountancy
board 	in South 	Dakota 	permits 	accountants 	to 	receive 	commissions
in 	some 	circumstances.

Senator Jim Hill 	Page 	8
National 	Association of 	Stat~ Boards 	of 	Accountancy's 	Model 	Code
takes 	this 	approach 	as 	well. 	This 	approach 	also 	affords
consumers 	the 	opportunity 	to make 	an 	informed 	choice between 	fee-
based 	and commission-based 	financial 	planning 	services.
Accordingly, 	we 	believe 	that 	consumers 	would 	be 	better
served 	if 	accountants 	are 	permitted 	to 	use 	commissions 	in
connection with 	services 	provided 	to 	nonattest 	clients. 	If 	the
Committee 	believes 	mandatory disclosure 	is 	needed, 	it may 	want 	to
consider 	amending H.B. 	No. 	2785 	by 	adding 	an 	appropriate
disclosure 	requirement.
Conclusion
In 	summary, 	we 	believe 	that 	H.B. 	No. 	2785 	in 	its 	present
form 	would 	impose 	restrictions 	on competition among 	accountants
and on 	the 	dissemination 	to 	consumers 	of 	information 	about
accounting 	services 	that 	are 	likely 	to 	reduce 	consumers' 	ability
to 	obtain 	accounting 	services 	on 	terms 	they want, 	without
providing any countervailing 	benefits. 	The 	Committee 	may
therefore 	want 	to 	consider 	amending 	the 	bill 	so 	as 	to 	permit
accountants 	to 	pay 	referral 	fees, 	with 	appropriate 	disclosure,
and 	allow consumers 	to 	enjoy 	the 	benefits 	of 	using 	appropriately
disclosed commissions 	as 	methods 	of 	payment 	for 	accounting
services.
We 	hope 	that 	our 	comments 	will 	be 	helpful 	to 	you 	and 	other
Committee members. 	We 	appreciate 	the 	opportunity 	to 	present 	our
views 	and would 	be 	happy 	to 	provide 	any 	further 	assistance 	you
might 	request.
9 	National 	Association of 	State 	Boards 	of 	Accountancy,
Model 	Code 	of 	Professional 	Conduct, 	Rule 	103 	(April 	1989).
Competition 	also 	provides 	a 	significant 	disincentive 	for
exploitive behavior by accountants. 	Since 	accountants 	depend
heavily on client 	referrals 	as 	a 	method of 	obtaining new 	business
and on 	repeat 	business 	from 	existing clients, 	there 	are 	strong
incentives 	for 	them to make 	appropriate 	recommendations 	to 	their
clients. 	State 	licensing 	board discipline 	and 	potential 	law
suits 	by 	injured 	clients 	provide 	further 	incentives 	to make
appropriate 	recommendations.