BILL ANALYSIS



C.S.H.B. 505
By: Brimer
5-1-95
Committee Report (Substituted)


BACKGROUND

Certified Public Accountants (CPAs) licensed by the State of Texas
perform tax, attest, consulting, and other public accountancy
services for clients and issue reports on such services.  Under
current Texas law, a client is entitled to seek recovery from a CPA
for economic loss due to reliance on the CPA's services and
reports. This allows third parties to seek damages against a CPA
for services rendered even though there is no contractual
relationship. Therefore, a CPA becomes potentially liable to any
person who receives the work. Other states have passed laws
limiting those eligible to seek damages against a CPA for services
to contracted clients and third parties that the CPA was aware of
at the time the service was performed.

PURPOSE

The bill provides public accountants with limited liability for
their services.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency or institution.

SECTION BY SECTION ANALYSIS

     SECTION 1.     Amends Title 4, Civil Practice and Remedies
Code, by adding a new Chapter 91.

     Sec. 91.001 (1) Defines "accountant" as a person or firm
holding a certificate or registration issued by the Texas State
Board of Public Accountancy. (2) Defines "claimant" as a party,
including a plaintiff, counterclaimant, cross-claimant or third
party claimant seeking to recover damages. (3) Defines "client" as
the party that directly engages an accountant to provide public
accountancy services.

     Sec. 91.002 Sets forth limits of an accountant's liability on
an negligence with respect to act or omission in connection with
providing public accounting services to the claimant, except as
provided in Section 91.003.

     Sec. 91.003 The liability limits in Sect. 91.002 do not apply:
     (1) where the claimant is the client; or
     (2) where the accountant:
           (A) was aware at the time the services of the accountant
           were engagement, or agreed with the client after the
           time of the engagement, that the financial statements
           or other information were to be made available for use
           in connection with a specified transaction by the
           claimant who was specifically identified to the
           defendant accountant;
           (B) communicated directly with the claimant concerning
           such financial statement or other information; and
           (C) was aware that the claimant intended to rely upon
           such financial statements or other information in
           connection with the specified transaction and
           communicated that awareness by words or conduct; or
     (3) to acts or omissions by an accountant involving fraud.

     Section 2. Effective Date - September 1, 1995. Applies only to
a cause of action that accrues on or after the effective date.

     SECTION 3. Emergency Clause

COMPARISON OF ORIGINAL TO SUBSTITUTE

The original added Chapter 86, while the substitute adds Chapter
91. Sect. 91.001 includes a definition of "claimant" and "client"
which were not included in the original.

Sect. 91.002 clarifies the limits of an accountant's liability.

Sect. 91.003 regarding exceptions uses the term "claimant" as
opposed to "plaintiff" in the original. The substitute deleted
Sect. 86.004 (A)(1) regarding the exception for plaintiffs who
issued or was a successor of the person that issued such financial
statements or information. The substitute also required the
claimant to have "directly" engaged the accountant in the practices
of certain accounting services.

SUMMARY OF COMMITTEE ACTION

H.B. 505 was considered by the Civil Practices Committee in a
public hearing on March 1, 1995. The following persons testified in
support of the bill: Fred Nemec, representing himself and Texas
Society of Certified Public Accountants (CPAs); Robert Arms,
representing himself and Texas Society of CPAs; S. Ike Guest,
representing himself and the Texas Society of CPAs; Glen Whitley,
representing himself and the Texas Society of CPAs; and R.C. Mann,
representing himself. No one testified in opposition to the bill.
The bill was referred to a subcommittee consisting of
Representatives Moffat (chair), Culberson and Tillery. H.B. 505 was
considered by the subcommittee in a formal meeting on March 7,
1995. The subcommittee considered a complete committee substitute
for the bill. The substitute was adopted without objection. The
bill was reported favorably as substituted to the full committee by
a record vote of two ayes, zero nays, one present not voting. After
suspending the 48-hour layout rule, the full Civil Practices
Committee considered the subcommittee report on the bill on March
8, 1995. The bill was recommitted back to subcommittee. After being
recalled from subcommittee, the bill was considered by the Civil
Practices Committee in a public hearing on April 19, 1995. The
committee considered a complete substitute for the bill and one
amendment was offered to the substitute. That amendment was
withdrawn. The substitute was withdrawn. The bill was left pending.
On April 24, 1995, the chair referred the bill to a subcommittee
consisting of Representatives Hilbert (chair), Sadler and Alvarado.
By a record vote of five ayes, two nays, zero pnv and two absent,
the bill was recalled from subcommittee in a formal meeting on
April 27, 1995. The committee considered a complete substitute for
the bill and one amendment was offered to the substitute. The
substitute and amendment were adopted by a record vote of five
ayes, two nays, zero pnv and two absent. The chair directed the
staff to incorporate the amendment into the substitute. The bill
was reported favorably as substituted, with the recommendation that
it do pass and be printed by a record vote of five ayes, one nay,
one pnv and two absent.