Could a CPA firm audit a Kentucky school district if a CPA's spouse or dependent worked for the district?

Plain-English summary

Kentucky's State Committee for School District Audits was asked whether it could select a CPA firm to audit a district when a CPA's spouse or dependent worked there. The AG concluded that KRS 156.275(1) barred that selection because it treated the family employment as a personal financial interest in the school board's affairs. It also read KRS 156.480 as barring a CPA whose spouse worked for the district from contracting with the school system. The opinion rejected the proposed reliance on a more permissive professional independence standard because it viewed the school audit statute as the more specific rule.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

CPA firms seeking school district audit work

The requester described an accounting profession standard that could allow an audit when a CPA's spouse had a role without significant influence over the client. The AG said the specific Kentucky school audit statute governed the committee's selection instead. Its stated conclusion addressed a spouse or dependent employed by the district; it did not analyze every type of family relationship mentioned in the request.

State Committee for School District Audits

The AG read KRS 156.275(1)'s no-personal-interest condition to prevent selecting a firm in the spouse-or-dependent circumstance. It treated that employment as a personal financial interest in the board's affairs.

School district employees and contracts

The opinion separately read KRS 156.480's restriction on an employee's direct or indirect interest in a district contract to cover a CPA whose spouse was a district employee. Its contract conclusion was specifically framed around that spousal relationship.

Common questions

Could a CPA audit a district if the CPA's spouse had a school job with no policy influence?

The AG said the school audit statute controlled even though the professional standard described by the requester had an exception for some spouses' jobs. It concluded the committee could not select the firm when the spouse worked for the district.

Did the AG apply the same conclusion to every family member of a CPA?

No such broad holding appears in the opinion. The request described the committee's policy concerning spouses or family members, but the AG's conclusion named spouses and dependents under the audit statute and spouses under the contract statute.

Why did the school audit rule prevail over the general CPA standard?

The AG invoked the rule that a statute addressing a subject specifically prevails over a more general rule on the same subject. It treated the school audit statute as the specific direction for the selection decision.

Background and statutory framework

KRS 156.265(2) required recurring district audits, and KRS 156.275(1) required the committee to select accountants with no personal interest in the board's or its employees' financial affairs. The requester pointed to the accountancy Code of Ethics in 201 KAR 1:095 and a professional independence standard. The AG gave priority to the school audit provision and also applied KRS 156.480 to district contracting. The original text described a $25 threshold in that 1993 statute; it is historical context rather than a current contracting limit.

Citations and references

• KRS 156.265(2): school district audit frequency stated in the opinion.
• KRS 156.275(1): committee selection and personal-interest condition.
• KRS 156.480: district employee's interest in a school contract.
• 201 KAR 1:095: accountancy conduct rule described by the requester.
• Land v. Newsome, Ky., 614 S.W.2d 948, 949 (1981): specific-versus-general rule cited by the AG.

Source

• Landing page: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG93-016.htm

Original opinion text

TO BE PUBLISHED

OAG 93-16

February 22, 1993

Bernard W. Gratzer

Executive Director

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 79-269.

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.

Sincerely yours,

CHRIS GORMAN

ATTORNEY GENERAL

Ross Carter

Assistant Attorney General

(502) 564-7600

RC/VLS:v