May 10, 1982

Mr. Jim W. Pfeiffer 
Executive Secretary 
South Dakota Board of Accountancy 
1501 South Prairie Avenue 
Sioux Falls, South Dakota 57101

Official Opinion No. 82-27

Licensure of Accountants

Dear Mr. Pfeiffer:

You have requested an official opinion from this office in regard to the following factual situation:

FACTS: 

A Denver, Colorado-based accounting firm is conducting audits of public housing authorities under contracts with the Federal Department of Housing and Urban Development.  As a result of these federally authorized audits, the Colorado accounting firm is performing auditing services in the state of South Dakota.

Based on the above facts, you have asked the following question:

QUESTION: 

Are out of state accounting firms performing audits in the state of South Dakota under federal contracts required to be licensed and regulated by the South Dakota Board of Accountancy?

SDCL 36-20-10 states: 

It is a Class 2 misdemeanor for any person to engage in the practice of public accounting in this state without having first secured a license issued by the board, and no person so engaged in the practice of public accounting shall be entitled to collect any fees or compensation for work or services performed by him without first having complied with the provisions of this  chapter.

SDCL 36-20-10.1 states: 

Except as provided in § §  36-20-17 and 36-20-17.1 a person is engaged in the practice of public accounting within the meaning and intent of his chapter if he: 

(1)  Holds himself out to the public in any manner as one skilled in the knowledge, science and practice of accounting, and as qualified and ready to render professional service as a public accountant for compensation; or 

(2)  Maintains an office for the transaction of business as a public accountant; or 

(3)  Offers to perform or performs for compensation professional services that involve or require an expression of an opinion, an audit, examination, verification, investigation, certification, presentation or review, of financial transactions and accounting records; or 

(4)  Prepares or certifies for clients reports on audits or examinations of books or records of account, balance sheets and other financial, accounting and related schedules, exhibits, statements or reports which are to be used for publication or for the purpose of obtaining credit or for filing with a court of law or with any governmental agency or for any other purpose; or 

(5)  Renders professional services to clients for compensation in any or  all matters relating to accounting procedure and to the recording, presentation or certification of financial information or data.

The State of South Dakota has under SDCL 36-20-17 and 36-20-17.1 exemptions for employees who are assistants under the control or supervision of a certified public accountant or public accountant and an exemption for contractual bookkeeping services.  In addition SDCL 36-20-26 provides that certified public accountants and public accountants certified or licensed by another state may temporarily practice in this state on professional business incident to their regular practices outside of this state.  This provision, however, still requires that the person involved in a temporary practice conduct himself in conformity with the regulations and rules promulgated by the South Dakota Board of Accountancy.

Based upon the above statutory provisions it is my opinion, that unless an accounting firm, whether out-of-state or in-state, falls within one of the statutory exemptions under SDCL 36-20, that accounting firm or accountant must be licensed in the State of South Dakota.

Based upon your factual situation, an accounting firm, unless the practice in the State of South Dakota is only incidental to his audits in other states, must be licensed in order to perform public audits under a contract with the federal government.  A private firm is a separate and distinct entity from the federal government. Merely because an accounting firm has entered into a  contract with the federal government does not remove the state's licensing requirements.  Thus, the Colorado accounting firm must be licensed to perform audits of South Dakota's Public Housing authority.

As for the regulating authority the Board has over a private firm performing a public audit pursuant to a federal contract, the South Dakota Board of Accountancy has power to regulate the private auditing firm under SDCL 36-20 to the extent that its regulations are not in direct conflict with the federal contract or federal regulations governing audits.

Nothing in this opinion shall be construed as to mandate federal employees or federal agencies to be licensed by the State of South Dakota in order to perform their own internal or program audits.

Respectfully submitted,

Mark V. Meierhenry
Attorney General