2014 Tennessee Ethics - Wild Apricottngfoa.wildapricot.org/Resources/Documents/2014...CPE must be...

2014 Tennessee Ethics: Dr. Perry Moore, CPA 1

October 16, 2014 TGFOA Fall Conference

Tennessee Government

Finance Officer’s Association

2014 Fall Conference

October 16, 2014

2014 Tennessee Ethics

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Today’s speaker Dr. Perry Moore

– Lipscomb University• Professor of Accounting, CPA, CIA,

CRMA, CGMA

– Tennessee Society of CPAs

• Chair, Professional Ethics Committee

• Director, Accounting Academy

– Delta Mu Delta (int’l business honor society)

• President

[email protected]

(615) 966 – 5795 @MoorePhone (on Twitter)

Learning objectives

Define professional ethics

Review Tennessee’s state specific ethical rules and regulations, taught through the context of the AICPA’s Code of Professional Conduct

Read and respond to several ethical cases used throughout the presentation. Such cases reinforce, highlight, and provide for additional discussion on important topics.

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What is ethics?

One definition– Set of moral principles or

values recognized by an individual or group of individuals

Why do people act wrong?

Is any type of behavior ‘ethical’ as long as it does not violate a law or rule of one’s profession?

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Business vs. personal ethics

Why is it that some people will act one way on Sunday and another way on Monday?– That’s “just business”

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Steps involved in making a decision 1) Define the facts and

circumstances

2) Identify the people involved in the situation or affected by the situation

3) Identify and describe the stakeholders’ rights and obligations

4) Specify the major alternative decision actions and their consequences

5) Find someone to talk to about the situation

6) Select the best course of action



Scenario 6 – intimate conflictsYou’ve seen it. Now what do you do?

1: “Judson should make an appointment with the bank President and explain what he has seen. Judson recognizes that by taking this action he might precipitate his own dismissal.”

2: “Judson should do nothing, on the grounds that he really should not have ‘observed’ the loan officer in the way that he did.”

3: “Judson should go to the Chairman of the Board and explain the problem. Because the Chairman and the bank President have been good friends, Judson regards this as a risky course.”

4: “Judson should deal with this directly and personally. He should approach the senior loan officer, tell her what he saw, and insist that she break off the relationship or resign from her position at the bank, or both.”

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The Tennessee Accountancy Act

Legislative intent:– To promote the reliability

of information that is used for guidance in financial transactions or for accounting for or assessing the financial status or performance of commercial, noncommercial, and governmental enterprises.

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TN State Board of Accountancy

11 members– 9 CPA’s– 1 attorney– 1 public member

Serve 3-year terms– Three rotate off each

year– Can be reappointed

Governor can choose his Board appointees from a list provided to him by the TSCPA, but he is no longer required to choose from that list.

Web site: http://www.tn.gov/regboards/tnsba/



Board contact information

Mailing Address:– State Board of Accountancy

500 James Robertson PkwyNashville, TN 37243-1141

Telephone numbers:– Phone: (615) 741 – 2550

– Toll Free: (888) 453 – 6150

– Fax: (615) 532 – 8800

Office Hours:– M-F 8:00 a.m. – 4:30 p.m.

– CLOSED on all State Holidays10

Key contacts

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BOARD CONTACT INFORMATION

Title/Function Name Contact Info

Executive Director Mark H. Crocker, CPA, CGMA [email protected]

Board Investigators Don Mills, CPA

Raymond P. Butler, Jr., CPA

[email protected]

[email protected]

Admin Assistant IVCPE, Firm Permits, and Reinstatements

Karen Condon [email protected]

Admin Assistant IIInitial Licensing and Reciprocity

Brenda Demastus [email protected]

Admin Assistant ILicense Renewals

Sandy Cooper [email protected]

Admin Assistant IIComplaints and Deposits

Joshua Canan [email protected]

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Rules of the Tennessee State Board of Accountancy

Adopted by the Board– Follows public hearings

and comment– Takes several months– Approved by

Tennessee’s Attorney General

– Submitted to Tennessee’s Secretary of State

The Rules are available on the Board’s web site:– http://www.state.tn.us/so

s/rules/0020/0020.htm

The Law is available through a link on the Board’s web site:– http://tn.gov/commerce/b

oards/tnsba/law.shtmlThis link will take you to Lexis Law Publishing’s web site for an online copy of the Accountancy Law



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Licensing requirements

Education– Requires a college

degree and 150 semester hours

Exam– Pass the Uniform CPA

exam Experience

– 1 year of experience– Experience must be

verified by an active licensee

Licensees state that they have read and understand all laws and rules of the board

CPAs in Tennessee Status August 18, 2014

Active 10,367

Inactive 4,156

Closed 2,799

Probation/Suspended 3

Revoked 51

Retired 1,004

Expired Grace (Delinquent) 196

Expired 2,287

Deceased 2,636

Other 409

Total Licenses 23,908

Source: Mark Crocker 14

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Renewal of individual licenses

Certificates issued for periods of not more than 2 years– Odd numbered

certificates renew in odd years; even numbered certificates renew in even years

– Participate in a program of learning designed to maintain professional competency

– Pay the $110 renewal fee by December 31



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Continuing education

All active permit holders are required to obtain CPE– 80 hours every two years

• Minimum of 20 earned hours in each year

• At least 40 of the hours must be in technical subjects (accounting, auditing, tax, MAS, or ethics)

• Licensees must complete two hours of state specific ethics training each renewal cycle

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Specific requirements– If performing attest

services, 20 of the 40 hours must be in accounting or auditing

– If performing expert witness testimony, 20 hours must be in the general area in which the court deems you an expert

CPE must be taken from NASBA approved sponsors or State Board exempted sponsors

Self-study course providers must be registered with NASBA’s Quality Assurance Service

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Limitations– Maximum of 16 hours

may be obtained through a magazine reading program

– Up to 24 hours of carry-over CPE per reporting period, but such hours lose their ‘identity’

– Instructors and speakers are allowed to claim three times the presentation hours for the first presentation

• Limited to 50% of total 80 hours

– Inactive permit holders exempt from complying with CPE requirements

– Credit can also be earned for successful completion of certain certification exams (e.g., CMA, CISA)

– Records of compliance must be kept for FIVE years



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What about failure to meet the CPE requirements?– Assessed additional

hours

– Could lead to revocation of license and/or civil penalties

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Notification of licensee changes

Within 30 days, licensee must notify board of– Name change

– Change in status (i.e., conviction of a felony, limit on right to practice public accountancy)

– Change in e-mail address

– Change(s) of address - board tracks 3 different addresses

• Home

• Mailing

• Employment

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Notification of firm changes

Within 30 days, firm must notify board of– Addition of partner,

member, or shareholder

– Retirement, withdrawal, or death of principal

– Change in firm name

– New office location

– Event causing the firm to be in non-compliance

– Formation of new firm



Licenses in good standingStatus Pay license

renewal feeComplete

CPEPay

professional privilege tax

Active Yes Yes Yes

Inactive Yes No No

Retired (55+ years – not in

public practice)

Yes No No

Retired over 70 No No No

Closed No – must return wall certificate

No No

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Licenses in bad standing

Delinquent

Expired

Probation

Suspended

Revoked

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Practice in Tennessee

The Board's jurisdiction is limited to licensed CPAs, PAs and licensed accounting firms. However, unlicensed individuals are not allowed to call themselves CPAs, PAs or accountants. Unlicensed individuals and firms should not advertise any public accounting services in any media.

Thus, every individual practicing public accounting in the State of Tennessee should be practicing through a registered office or firm. This would include individuals practicing as sole proprietors.

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Firm license

A firm license is needed if the individual is performing public accounting work for compensation

Required for each practicing office– Must have a resident

manager who has an active TN permit

CPA owners and their resulting voting rights must be more than 50%

Non-CPA owners must work at least 50% of the time at the firm

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Firm license renewal

Expires annually on December 31

Current fee is $50

Firm must disclose– CPA owners

– Non-CPA owners

– CPA employees

– Other states where CPAs are licensed

What is peer review?

Peer review is an evaluation of work product produced by firms which do attest work – evaluation is by other CPAs

Objective of peer review is to teach, identify, and remedy problems

Results are confidential

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What’s new?

Other things the Board wants you to know . . .

Mobility

Reciprocity - recent law change– For a CPA practicing in

another state who desires to perform incidental work in Tennessee, there is no longer a requirement to notify the Board (“no notice, no fee, and no escape”)

– Where warranted, disciplinary issues will be referred to the CPA’s licensing board

NASBA and the AICPA have an online tool to help CPAs navigate the various practice privilege requirements that enable them to practice across state borders more easily. – http://www.cpamobility.org/

A CPA with a TN address for home or business must have a TN license

CPA must maintain a license in good standing to practice via mobility 2929

Mutual recognition

The International Qualification Examination (IQEX) was developed to facilitate the U.S. CPA qualification process for accounting professionals from other countries whose professional bodies enter into mutual recognition agreements with the U.S. accounting profession.

At present, mutual recognition agreements are in effect with the following professional bodies:– ICAA, CICA, CAI,

IMCP, HKICPA, and NZICA

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More new items . . .

Accountancy Licensing Database– The ALD is a central

repository of current licensee and firm information.

– Conceptualized to assist boards of accountancy with their regulatory mission.

– ALD is hosted by NASBA and access to the system is free to state boards of accountancy.

International testing sites– To meet the demand of

international candidates for the CPA exam, NASBA and the AICPA decided to explore offering the CPA exam outside the United States

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Professional Conduct

• Doing something you shouldn’t

• Not doing something you should (failure to act)

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AICPA Code of Professional Conduct

Tennessee adopts the AICPA’s Code of Professional Conduct when the rules are silent



Incorporate Conceptual Frameworks

Two New Frameworks• Conceptual Framework for Members in the Practice of Public

Accounting

• Conceptual Framework for Members in Business

Applied when no guidance on a particular relationship or circumstance

Violation of applicable Rule• If the member cannot demonstrate that safeguards were applied

that eliminated or reduced significant threats to an acceptable level

Steps of the Conceptual Framework

Step 1Identify Threats

Step 2Evaluate Threats

Step 3Identify

Safeguards

Proceed

No Threats Proceed

Threats not

Proceed

Threats not Significant Proceed

Existing New

Step 4 EvaluateSafeguards

Threats

Level…Stop

ThreatsNot AcceptableLevel…Stop

Threats at Threats at Acceptable Proceed

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Applicability of the Rules of Conduct

The AICPA member is held responsible for compliance by ALL persons associated with him, who are under his supervision, or who are their fellow partners

The AICPA member shall not permit others to carry out, on their behalf, acts which, if carried out by the member, would place the member in violation of the rules



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Independence

Licensees in the performance of professional services shall conform to the independence standards of the AICPA– Where applicable, with

standards of the SEC, GAO, and other regulatory bodies (PCAOB)

Independence

Independence is impaired if a covered member– Had or was committed to

acquire any direct or material indirect financial interest, loan, or joint business investment in the client

Interests of covered members and their families are considered indistinguishable from each other

When firm acquires a new attest client, those who will become covered members must free themselves of any financial interests

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Independence

Past employment with the client– CPAs who were

previously employed by the client in a management capacity must disassociate themselves from that client and must not participate in audits of any periods during which they were employed by the client

Future employment with the client– Partners and covered

members must report to the firm any specific offer or the intention to seek employment with a client

– After such communication, firm should remove that CPA from all engagements for that client

– Sarbanes-Oxley requires that one year must pass before a member of the audit team may accept employment in certain positions



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Independence

Close relatives– Nondependent children– Parents and parents-in-

law– Siblings

A family member may be employed with the attest client if they are not in a position to influence the client’s financial statements

If close relatives of the groups given below hold a (1) key position with the client, (2) material financial interest in the client, or (3) material interest that enables the relative to exercise significant influence, then independence is impaired– Members of the attest team– Individuals in a position to

influence the attest engagement

– Any partner in the engagement office

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Integrity and objectivity

In the performance of any professional service, a licensee– shall maintain objectivity

and integrity

– shall be free of any undisclosed conflicts of interest

– shall not knowingly misrepresent facts or subordinate his/her judgment to others

Ethical violation?

4242Auditing & Assurance Services © 2015 Louwers, et al McGraw-Hill/Irwin, p. 628

Darcy Wolfe, CPA, practices management consulting in the area of computerized info systems under the firm name Wolfe & Associates. The “associates” are not CPAs, and the firm is not an accounting firm; however, Wolfe shows “CPA” on business cards and uses these credentials when dealing with clients.



Ethical violation?

4343Auditing & Assurance Services © 2013 Louwers, et al McGraw-Hill/Irwin, p. 628

Martha Jacoby, CPA, withdrew from the audit of Harvard Co. after discovering irregularities in their income tax returns. One week later, Jacoby received a phone call from Jake Henry, CPA, who explained that he had just been retained by Harvard to replace her. Henry asked Jacoby why she withdrew from the engagement, and she told him.

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Possession of a CPA certificate is evidence that the possessor

had basic accounting competence at the time the

certificate was granted.

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Competence

Licensee shall comply with the following standards– Professional competence

– Due professional care

– Planning and supervision

– Sufficient relevant data



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Competence

Compliance with standards– Licensees who perform

attest, MAS, tax, or other professional services shall comply with standards promulgated by the AICPA or other entities having similar authority

– “Rule 202”

Accounting principles– Licensees shall not

• Express an opinion that the financial statements are presented in conformity with GAAP OR

• State that they are not aware of any material modifications that should be made

– If such statements or data contain any departure from GAAP

– “Rule 203”

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Confidential client information

Licensee shall not disclose any confidential client information without the specific consent of the client

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Concerns applying rule 301

Dual responsibility to clients and public Client confidentiality

– CPAs do not generally enjoy the same protection possessed by lawyers, doctors, etc. – no common law privilege

– Info cannot be disclosed unless demanded by a court having subpoena or summons power

What if client breaks law?



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Commissions & other consideration

Licensees shall neither pay any consideration or commission to obtain a client nor accept any consideration or commission when the licensee or their firm performs attestservices

Attest means providing the following services– Audit

– Review

– Examination performed under SSARS or SSAE

– Compilation reports governed by SSARS or SSAE

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Commissions & other consideration

Licensees not prohibited from performing such services or receiving consideration or a commission must disclose that fact

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Contingent fees

Cannot accept if client is a(n)– Attest client

– Client for who the firm is preparing the original tax return

Shall disclose the terms of such contingent feesto the client



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Statement of Disclosure of Commissions or Contingent Fees

CPAs are required by law to disclose to clients the receipt or payment of certain commissions and contingent fees.

The purpose of this disclosure statement is to acknowledge that proper disclosure has been made and that a copy of this statement has been provided to each of the signatories thereof.

I hereby acknowledge that on this ___ day of _____, 201X, ____________ (CPA) has disclosed that he will receive/pay a commission/contingent fee of $_____ in relation to goods or services he has agreed to provide or recommend.

___________________ (Client signature) _________________ (Date)

___________________ (Firm signature) _________________ (Date)

Tennessee’s suggested form

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Records

Licensee shall furnish to their client (or a former client)– Copy of any report

obtained from the client– Documents belonging to

the client– Copy of licensee’s

working papers that constitute a part of the client’s books or records

Keep records for 5 years – SOX and other

regulations may specify a longer time

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Discreditable acts

CPAs should conduct themselves in a manner that enhances the profession– Positive actions create a

better public image than negative words

Member shall not commit an act discreditable to the profession– Retaining client records

– Discriminating

– Not following government auditing standards

– Signing a false or misleading opinion

– Committing a felony



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Other concerns

Shall not seek to obtain clients by advertising that is false, misleading, or deceptive

Solicitation by the use of coercion, overreaching, or harassing conduct is prohibited

Can practice in any legal business form

Complaints

How they happen– Doing something you

shouldn’t

– Not doing something you should (failure to act)

Life of a complaint– Can be filed by

anyone

– Respondent will be sent a written notice; respondent must reply in writing within 14 days

– Both the complaint and response go to the Board’s attorney

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2007 – 2013 Closed complaints investigated by the Board

Source: Review of published disciplinary actions on the State Board’s website

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Imposed on Non-CPAsUnlicensed activity 38 27.34%

Imposed on CPAsOperating on an expired license 23 16.55%Failure to comply with CPE audit 17 12.23%Discreditable acts 15 10.79%Failure to follow Peer Review requirements 12 8.63%Failure to pay Professional Privilege Tax 7 5.04%Felony conviction 5 3.60%Revocation of another state’s CPA license 4 2.88%Lack of Due Professional Care 3 2.16%Independence violation 3 2.16%Student loan default 2 1.44%Unpaid child support 1 0.72%Conduct unbecoming a professional 1 0.72%Failure to comply to Consent Order 1 0.72%Failure to comply with USDE audit requirements 1 0.72%Gross negligence 1 0.72%Breach of fiduciary responsibility to client 1 0.72%Issued financial statement without all required elements 1 0.72%Involvement in civil suit 1 0.72%IRS sanctions 1 0.72%Failure to follow professional standards 1 0.72%Total board actions 139 100.00%



What may the attorney do?

Ask for an investigation

Suggest disciplinary action based on statute and rules

Dismiss

Close

Potential disciplinary action may be impacted by the following:– Previous complaints

– Severity of alleged actions

– Risk of public harm

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Disciplinary actions

Letters (warning, instruction, caution)

Civil penalties– Each day of continued

violation may be a separate violation

Additional education

Additional peer reviews

Probation

Suspension

Revocation

Hearings– Informal

– Formal

Deferred Action 1 0.21%

Cease & Desist Letter 36 7.55%

Civil Penalty 86 18.03%

Civil Penalty/other 27 5.66%

Deceased 10 2.10%

Dismissed 138 28.93%

Letter of Instruction 11 2.31%

Letter of Reprimand 3 0.63%

Letter of Warning 70 14.68%

Open Complaint 64 13.42%

Referred to District Attorney 3 0.63%

Retired License 1 0.21%

Revocation 20 4.19%

Surrender of License 6 1.26%

Suspension 1 0.21%

Actual board action: 2006-2011

Source: Mark Crocker presentation (Executive Director of the Tennessee State Board of Accountancy)

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Closing comments

Some things to think about . . .

If you have an ethics question:

Call the AICPA Ethics Hotline

– Dial (888) 777 – 7077, menu option #6, followed by menu option #1

• (menu options have recently changed)

– E-mail the hotline at [email protected]

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Journey of a Corporate Whistleblower

Cynthia Cooper, former Vice President of Internal Audit @ WorldCom– “People don’t wake up

and say, ‘I think I’ll become a criminal today.’ Instead, it’s often a slippery slope and we lose our footing one step at a time.”

– What is the difference between an ‘ethical dilemma’ and ‘just doing one’s job’?



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Questions?

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