Standards for Tennessee CPAs. Important Ethical Concepts, Principles and the Rules for CPAs in Tennessee

Transcription

1 Standards for Tennessee CPAs Important Ethical Concepts, Principles and the Rules for CPAs in Tennessee

2 Right is right, and wrong is wrong, and a body ain t got no business doing wrong when he ain t ignorant and knows better. Mark Twain The Adventures of Huckleberry Finn

3 Ethics is knowing the difference between what you have a right to do and what is right to do. Potter Stewart

4 What is law? Is it what is on the books, or what is actually enacted and obeyed in a society? Or is law what must be enacted and obeyed, whether or not it is on the books, if things are to go right? Bernhard Schlink, The Reader

5 Ethic of Justice Principles based Places great weight on rules, laws and principles applied equally Resistant to exceptions Concerned about setting precedent

6 Sense of responsibility to reduce harm and suffering Solutions are tailored to circumstances Exceptions come easy Situational ethics Objective = equity Ethic of Care Results = arbitrary and individualistic

7 What to Do When Policies Do Not Resolve the Dilemma? - Discuss with superior - Clarify relevant issues with advisor - Consult legal counsel - RESIGN

8 What Causes People to Compromise Their Ethical Standards? - Unrealistic expectations - Desire to further one s career - Desire to protect one s livelihood - Diminished morale in work environment - Ignorance of what is unethical Source: Business Ethics Survey 2005

9 Setting the Tone at the Top Management can significantly influence behavior Strong advocacy for ethical behavior Formal and evident ethics program Establish a Code of Conduct enforce it

10 Successful Ethical Programs Communicate corporate values Describe acceptable behavior Provide resources Include codes of conduct, ethics workshops AND TRAINING, hotlines and board level ethics committees

11 Central Focus Acceptable behavior Avoiding conflicts of interest Acceptable conduct in business affairs Desired workplace behavior

12 Rules of Professional Conduct Rule , 2 Adopt AICPA s Code of Professional Conduct when Tennessee State Board of Accountancy rules are silent.

13 AICPA Code of Professional Conduct Your Behavior Rulings Rulings for Special Purpose Interpretation Interpretation of Specific Rules Rules More Specific than the Principles Principles Conceptual Framework for the Code

14 Fundamental Theme Be committed to honorable behavior, even at the sacrifice of personal advantage Even the most rational approach to ethics is defenseless if there isn't the will to do what is right. Aleksandr Solzhenitsyn

15 Six Principles Responsibilities Public Interest Integrity Independence Due Care Scope and Nature of Service

16 Responsibilities & Public Interest Exercise sensitive professional and moral judgment Act in a way to serve public trust Demonstrate commitment to professionalism

17 Integrity Commitment to the truth Maintain public confidence

18 Independence Free of conflict of interest Independent in fact and appearance

19 Principle of Objectivity Can you perform the service with objectivity? Do other parties believe you can perform the service with objectivity? If no, decline the engagement. If yes, you should disclose the relationship to all relevant parties.

20 Due Care Follow professional standards Improve competence and quality Discharge to the best of one s ability Adequately plan and supervise any activity

21 Scope and Nature of Services Can the engagement or service be performed while meeting the previous principles? If not, then we should not accept the engagement.

22 Principles, Rules and Interpretations Apply to all professional services Unless otherwise indicated Outside the U.S. Follow local jurisdictional rules

23 The Tennessee Accountancy Act Product of legislative process Signed by Governor Last significant amendment, 1998 Tenn. Code Ann

24 Legislative Intent To promote the reliability of information that is used for guidance in financial transactions or accounting or for assessing the financial status or performance of commercial, noncommercial, and government enterprise. In other words PROTECT THE PUBLIC.

25 Primary Responsibility Tennessee State Board of Accountancy Protect the Public!

26 Tennessee State Board of Accountancy 11 members: 9 CPAs 1 Attorney 1 Public member Current board members: Appointed by the Governor Serve three-year terms

27 Practice in Tennessee Valid CPA certificate Requires active permit to practice Requires firm registration Mobility Peer review

28 Requirements for Certificate The Three E s: Education Examination Experience

29 When is my license due to renew?

30 License Renewal Based on license number Renewal every two years active, retired, probation, suspended, active military and disabled Reduced the CPA license renewal fee to one hundred ten dollars ($110.00) biennially Must be done within 1 year of due date, otherwise must go through a renewal process

31 License Renewal Renewal 1-31 days late can be renewed 31 days to 1 year - $100 fine Rules , 5 and , 1 Disabled must have doctor statement to be fee and CPE exempt Active military fee & CPE exempt by filing deployment orders with Board

32 What is my CPE Requirement?

33 Continuing Professional Education Rule , 1 Eighty (80) hours every two years Minimum of twenty (20) hours per year Engaged in attest function twenty (20) hours in A&A Expert witness testimony twenty (20) hours in subject area of testimony Carry-forward up to 24 hours (become non-technical hours)

34 CPE Limits Instructors and speakers receive three times the credit hours for the first presentation No more than 50% of instructor credit hours apply to requirements Reading professional journals no more than 20% to total credits Successful completion of some certifying exams

35 CPE extension possible? Rule

36 Failure to Meet CPE Requirements Rule Assessed additional hours Revocation of license

37 How do I determine which CPE sponsors are approved in Tennessee?

38 Qualifying Programs Rule NASBA Registry of CPE Sponsors If offering program(s) more than sixteen (16) hours or more than five (5) times per year NASBA Tennessee Roster of CPE Sponsors If offering program(s) less than sixteen (16) hours or less than five (5) times per year NASBA Quality Assurance Service (QAS) Sponsor Self-study

39 Qualifying Programs Rule Universities or colleges recognized under Rule Firms or other entities offering organized infirm or in-house educational programs for their employees and clients without charge Governmental entities

40 When CPA Can and Cannot Be Used Must hold Active, Inactive or over 65 ( retired ) TN CPA license If license is in Inactive or over 65 ( retired ), you MUST use CPA (Inactive) CPA can be used on any document (business card, letterhead, advertisement) if it can be used at all

41 When CPA Can and Cannot Be Used YES NO Working for CPA firm Working in government or education Working for business because CPA) (hired Owning a business that has nothing to do with CPA practice X X X X

42 When CPA Can and Cannot Be Used YES Completing tax filings for others outside registered CPA firm Currently under review?? Licensed in another state but living and providing CPA services in Tennessee (illegal) NO X Any 3 rd party attest work outside a registered CPA firm (illegal) X

43 How do I reactivate my license?

44 License Reactivation Rule , 3f Complete at least 80 hours of qualifying CPE during the 24 months prior to date of reapplication: Accounting Ethics Attest Taxation Management May be used as credit toward renewal if completed within 2 years of December 31 renewal.

45 How do I change my address on my CPA license file and when?

46 Address Change Change of address form is available online, ce/attachments/accountcpacoa.pdf Should be filed with the Board within 30 days of the change

47 How do I change my name or address?

48 Name and Change Request for name change form is available online, chments/accountnamechangerequest.pdf. A licensee may change their address in the Board s online renewal system.

49 Whom do I contact about the $400 professional privilege tax assessed on my CPA license?

50 Professional Privilege Tax Department of Revenue administers the Professional Privilege Tax Payment must be filed and paid online annually by June 1 Failure to pay will result in a complaint from the TDR For more information, visit

51 Real Life Example Your client has not paid your invoice. They ask you to return to them their records including all your worksheets, depreciation schedules, etc. What should you do?

52 Upon request furnish client: Records Rule Copy of any report or document belonging to or obtained from or on behalf of client. Any accounting or other documents belonging to, obtained from or on behalf of client. Copy of licensee s working papers, to the extent they include records that constitute a part of the client s books and records.

53 Firm Registration Rule o Expires every December 31 o Must have resident manager o Required for each office

54 Notification of Firm Changes Rule Must be in writing within 30 days of change of: Formation of new firm Addition of partner, member or shareholder Retirement, withdrawal or death of principal Change in firm name New office location Event causing a firm to be in non-compliance

55 Peer Review Chapter Required every three years Required for compilation, review or audit engagements Programs approved by the Board AICPA TSCPA

56 Tennessee State Board of Accountancy Rule , 3 The Board has no jurisdiction over fee disputes between a licensee and a client. The Board shall not seek to impose discipline against a licensee solely on the basis of a dispute between the licensee and the client regarding payment of fees by the client for professional services rendered by the licensee.

57 Complaints Complaint can be anonymous Complaints are filed with the Board, including copies of documentation supporting the complaint Disciplinary info is available to the public once action is taken by Board

58 Disciplinary Actions Chapter Board may assess civil penalties Impose disciplinary actions Restrict, suspend or revoke certificate and/or permits to practice

59 Investigations of Complaints Issue Percent (%) Non-license use of prohibited terms (nonlicensees) 29% Failure to pay professional privilege tax 14% Acts discreditable to profession 13% Failure to comply with CPE audit 12% Practicing with expired license 12%

60 Investigations of Complaints Issue Percent (%) Felony, disciplined by other board, suspended from IRS practice, releasing client information 10% Failure to return client records 7% Failure to comply with standards (GASB, Yellow Book, IRS etc.) 5% Failure to comply with Peer Review 3%

61 Complaints Against CPAs Most Common

62 Communication Historically, poor communication with clients is the #1 reason complaints are filed against a licensee

63 The Complaint Alleged that the licensee failed to file an estate return on time, which resulted in a penalty of $50, The licensee did not communicate with the Complainant in a timely manner.

64 The Investigation Investigation revealed that the CPA ed an extension for the estate to the executor with specific instructions as to the deadline for filing and the amount owed. The executor filed the return 10 days after the deadline.

65 The Resolution Finding that the CPA had not violated any of the professional standards, the Board dismissed the complaint.

66 Complaints = Cost Embarrassment Time spent in response and investigation Public Record Cost of Attorney

67 Communication with the Board License and firm permit renewal Responding to correspondence from the Board Continuing Professional Education Peer Review Professional Privilege Tax

68 Professional Competence Taking on jobs you can t finish in a timely manner. Engagements beyond your expertise. Lack of knowledge of the standards.

69 The Complaint CPA failed to prepare the renewal application for a client s deferred presentment (check cashing) license. Client was audited by the Division of Financial Institutions and fined for operating without a license.

70 The Story The CPA told client he would fix the problem and take it to Nashville. Client produced documents showing that the CPA did not provide the paperwork to the State until after the business had been audited, fined and closed.

71 The Ruling The Tennessee Board of Accountancy ruled The CPA was guilty of gross negligence; The CPA failed to exercise due professional care; and The CPA lacked the competence to complete the professional services in a reasonable time.

72 The Resolution The CPA signed a Consent Order: Placed on probation for 2 years; Assessed a $5,000 civil penalty; and Required additional 2 hours of state specific ethics CPE.

73 The Tennessee State Board of Accountancy has issued 24,236 licenses in its history. 56 of those licenses have been revoked by the Board. This is the story of one of those revocations.

74 The Complaints First complaint-the CPA failed to return client records and did not answer phone or requests. Second complaint- the CPA failed to file the client s income tax return and did not answer his phone calls or s.

75 The Investigation Once located by the Investigator, the CPA responded immediately.

76 The Resolution The Board ruled that the Licensee s absence had not harmed his clients and dismissed those complaints.

77 The Complaint A Licensee self-reported the assessment of $5,000 in preparer penalties. The penalties were related to the returns of one company and its four owners.

78 The Story The Investigation revealed that the IRS audit found mistakes that were primarily the result of incorrect or missing information supplied by the client; e.g. ending inventory, missing settlement statements.

79 The Resolution Noting that the CPA had no prior history of complaints, the Board closed the complaint with a letter of warning.

80 What s New? Firm mobility requirements when firms perform engagements in more than 1 state AICPA Financial Reporting Framework for Small- to Medium-Sized Entities (FRF for SMEs) State Board CPE Tracking Program (optional)

81 Who will decide by whose standards or rules we will follow? WE WILL Who is responsible for our actions? WE ARE Who will decide if our actions are ethical? ULTIMATELY WE WILL Why? BECAUSE IT S THE RIGHT THING TO DO

82 Sources of Assistance AICPA Tennessee Board of Accountancy Tennessee Society of CPAs Professional Ethics Committee Other professional organizations Other ethical websites

83 Tennessee State Specific Ethics Tennessee State Board of Accountancy Contact Information: Phone: or Fax: Website: Tennessee Society of CPAs Contact Information: Phone: Fax: Website:

84 Questions????