Moodys Tax Advisors LLP

Originally published in The Lawyers Weekly

The following words from Jim Peacock, president of the Alberta Law Society, might strike many lawyers as odd: “Nothing in our rules prevents a law firm from taking an ownership interest in an accounting firm.”

Why would Peacock even need to make such a statement? Why would a law firm own part of an accounting firm?

The question isn’t that odd to people like chartered accountant Kim Moody, the co-managing partner and co-founder of Moodys LLP Tax Advisors. Moody launched his eponymous Calgary firm with business law firm Shea Nerland Calnan LLP as part owner.

Moody understands why his tactic raised eyebrows. “The idea of a multi-disciplinary practice is not new,” he explained, “but the implementation of it is very rare.”

Perhaps that’s the case in North America, but Moody’s own research turned up different environments elsewhere. “Multi-disciplinary practices are very common in Europe and they’re hotly debated in the U.S. because client demand is sparking the trend,” Moody explained.

Also, his experience told him that it’s natural for lawyers and accountants to work together on issues like taxation. “When I was in accounting firms, I used to hire lawyers,” he said.

“We’ve both always been in the tax game,” explained Dennis Nerland, partner at Shea Nerland Calnan LLP. “I’m a legally trained tax person. He’s an accounting trained tax person. We think about tax problems differently. If you marry the two, you get more ways of looking at problems, a greater range of solutions, more depth in thinking.”

Moodys’ case is unusual in that the relationship is formalized. Debacles like the Enron scandal, which sank former accounting powerhouse Arthur Anderson, have resulted in reams of roadblocks that impede both multi-disciplinary practices and thoughts of creating them. “Current ethics rules on both sides don’t allow for mergers between law and accounting firms,” said Moody, adding that in today’s business and regulatory environment, having one firm provide many services would be “hugely problematic.”

To cleanly stickhandle through professional regulations toward the goal of a new business model, Moody made a bold move: he chose to not offer accounting services like auditing. He thus prevented potential conflicts of interest, such as a client buying both legal and audit services from one firm.

As a result, Moodys LLP got a favourable ruling from the Institute of Chartered Accountants of Alberta and Shea Nerland Calnan LLP received written comfort for this arrangement from the Law Society of Alberta. “This matter came to us because the law firm contacted our practice adviser to discuss the structure of this proposed entity, to see if this arrangement would offend any of our rules,” said Peacock.

In Ontario, multi-disciplinary practice guidelines from the Law Society of Upper Canada do not preclude setups like the Moody/Shea relationship.

The firm’s focus, said Moody, is providing tax planning and strategy. “Many accountants and lawyers have a working knowledge of tax planning, but we have a specialized knowledge. We’re very aggressive about keeping up to date,” he said.

He offered October’s federal government economic statement as a case in point. Once Jim Flaherty, Canada’s Minister of Finance, announced changes to Canadian tax rules, Moody said he and his team of six tax specialists immediately set to work updating their clients’ plans, whether they involved buying or selling businesses, expanding businesses into the U.S., setting remuneration packages that help businesses retain employees, or handling disputes with the CRA.

Moodys also advises small- to mid-size legal and accounting firms on how to best serve their clients. Nerland said this is their largest group of clients. “Moodys acts as an outsourced tax department,” he said.

Many of these services call for legal opinions, so Moodys works with Shea and other law firms to provide what Moody calls “one-stop shopping.”

“When it comes to taxation services, there’s no clear line between what accountants and lawyers should practise,” he said

There are certain very clear regulatory lines, though. Peacock noted Alberta Code of Conduct regulations regarding referrals to a business in which a lawyer has an interest: “We would expect Shea to disclose to clients that it refers to Moodys that it has an interest in that entity,” he said.

Can an investment like this turn out to be sound? Based on his first month in operation, Moody’s answer is a resounding “yes.”

“We’ve had an unbelievable amount of attention over this,” he said. “There aren’t enough tax specialists out there to do this type of work. Clients are interested and we’re busy. That tells me the model’s right.”

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