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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
11
1
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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
Perry.Moore@Lipscomb.edu
(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
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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/
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October 16, 2014 TGFOA Fall Conference
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 mark.h.crocker@tn.gov
Board Investigators Don Mills, CPA
Raymond P. Butler, Jr., CPA
d.a.mills@tn.gov
raymond.butler@tn.gov
Admin Assistant IVCPE, Firm Permits, and Reinstatements
Karen Condon karen.condon@tn.gov
Admin Assistant IIInitial Licensing and Reciprocity
Brenda Demastus brenda.demastus@tn.gov
Admin Assistant ILicense Renewals
Sandy Cooper sandra.k.cooper@tn.gov
Admin Assistant IIComplaints and Deposits
Joshua Canan Joshua.canan@tn.gov
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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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Continuing education
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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Continuing education
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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October 16, 2014 TGFOA Fall Conference
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Continuing education
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
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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
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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.
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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
5050
Commissions & other consideration
Licensees not prohibited from performing such services or receiving consideration or a commission must disclose that fact
5151
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
5353
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
5454
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
5656
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%
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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 ethics@aicpa.org
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6363
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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