TO BE PUBLISHED
Bernard W. Gratzer
Kentucky Society of
Certified Public Accountants
310 West Liberty
Louisville, Kentucky 40202
Dear Mr. Gratzer:
On behalf of the membership of the Kentucky Society of Certified Public
Accountants, you have requested an opinion regarding an interpretation of the conflict
of interest laws governing CPA firms conducting school board audits.
You state that the State Committee for School Board Audits has not
allowed a CPA's firm to audit a school board if a spouse or family member of the CPA
is employed in any capacity by the school district. You contend that the Committee's
prohibition is too far-reaching and restrictive.
In support of your position you have quoted the professional standard on CPA independence set forth by the American Institute of CPAs (AICPA), the national association for the public accounting profession. This standard states the general rule that a CPA or his spouse may not be financially interested in a client's business when conducting an audit. However, there is an exception if the CPA's spouse is employed by the client in a position that does not allow significant influence over the client's operating, financial, or accounting policies. You believe that this standard is a fair treatment of the conflict question regarding a CPA firm auditing a local school board.
You explain that accountancy is a licensed profession in Kentucky and
CPAs must comply with established rules of professional conduct referred to as the
Code of Ethics. 201 KAR 1:095. The Code of Ethics requires that the CPA firm be
independent in relation to an audit client. For example, you explain, a CPA firm may
not have a direct, material interest in the financial affairs of the school district itself, or
a direct, financial relationship with an officer or employee of the school board.
Kentucky law requires that local school boards shall be audited not less
than once every two fiscal years. KRS 156.265(2). The State Committee for School
District Audits must select accountants to audit the local school district who "have no
personal interest in the financial affairs of the board or of any of its officers or
employees." KRS 156.275(1).
KRS 156.480 provides that no employee of the school district may have
any pecuniary interest either directly or indirectly in an
amount exceeding twenty-five dollars ($25.00) per year either
at the time of or after his appointment to office, in supplying
any goods, services, property, merchandise or services, except
personal services which are in addition to those required by
contract for employment, of any nature whatsoever for which
school funds are expended . . . .
We do not agree with your conclusion that the CPA regulations take
precedence over the school law statutes governing school district audits. It is an
established rule of statutory construction that when two statutes deal with the same
subject matter, one in a general way and the other in a more specific manner, the
specific statute prevails. Land v. Newsome, Ky., 614 S.W.2d 948, 949 (1981). In this
situation the specific statute on school board audits prevails over the general laws on
the conduct of CPAs.
It is the Opinion of the Attorney General that pursuant to KRS 156.275(1) a
CPA firm conducting a school board audit may not have a personal financial interest
in the financial affairs of the school board or any of its employees. We believe that a
CPA has a personal financial interest in the financial affairs of the board if the CPA's
spouse or dependent is employed by the school district.
Additionally, KRS 156.480 prohibits a school district employee from being
directly or indirectly interested in a contract with the school district in an amount
exceeding $25. This statute prohibits an employee or employee's spouse from entering
into a contract with the school system. Thus, notwithstanding the wording of KRS
156.275(1), the CPA with a spouse employed by the district would be prohibited from
contracting with the school system by virtue of KRS 156.480. OAG 78-832 and OAG
In conclusion, KRS 156.275(1) prohibits the State Committee for School
District Audits from selecting a CPA firm to perform a school board audit if the CPA
has a spouse or dependent employed by the school district. Additionally, KRS 156.480
prohibits a CPA with a spouse employed by the school district from entering into a
contract with the school system.
Assistant Attorney General