Ethics 101. Objectives. Ethics Bottom Line. If you don t live it, you don t believe it. If you don t stand for something, you will fall for anything.

Transcription

1 Ethics 101 Updated 2017 Instructor: Bryan W. Starnes CPA/ABV Objectives * Update on changes in rules governing CPAs in North Carolina * Define Ethics * Discuss how AICPA standards and NC General Statutes should drive your professional ethics * Discuss examples of possible ethical situations and explain how one may go about dealing with those situations Ethics Bottom Line If you don t live it, you don t believe it. If you don t stand for something, you will fall for anything. 1

2 Ethics and Integrity * It takes 20 years to build a reputation and 5 minutes to destroy it. * If you grasp this harsh reality, it will change your approach to ethical behavior. Fun Facts * There are 664,532 active CPAs in the United States as of April 22, 2016 * In NC we have 20,770 CPAs. 11,190 are male and 9,580 are female 2

3 AICPA Ethical Framework * Integrity * Objectivity * Professional Competence and Due Care * Confidentiality * Professional Behavior AICPA Ethical Framework - Integrity Integrity - To be straightforward and honest in all professional and business relationships AICPA Ethical Framework Professional Competence and Due Care Professional Competence and Due Care to maintain professional knowledge and skill at a level to ensure that a client or employer receives competent professional services 3

4 AICPA Ethical Framework Integrity * Avoid being associated with any communication that contains materially false or misleading information * Contains information that is recklessly furnished * Omits or obscures information that results in misleading information being provided AICPA Ethical Framework Objectivity Objectivity to not allow bias, conflict of interest, or undue influence of others to override professional or business judgments Independence in fact and in appearance Conflict of Interests Continuing Education * Must receive a certificate of completion * No CPE hours requirement for inactive CPAs * Ethics CPE hours may not be included in any carry forward hours (you can t skip a year of ethics due to carry forward, nor can you count more than one course) * The Board no longer registers sponsors or approves courses. NASBA registered sponsors considered a safe-haven for approval of courses. 4

5 AICPA Ethical Framework Professional Competence CPE * Must attend or complete the course * Must improve professional competency * Must be a course that meets the guidelines of this NCGS section * A sponsor registered with NASBA is presumed to offer approved courses * CPA must complete 40 hours per calendar year * You can carry over 20 hours per year AICPA - Ethical Framework Professional Competence Seven Fields of Study Outlined in NC Statutes * Accounting and auditing * Consulting services * Ethics (behavioral and regulatory) * Management (business law, finance, marketing, personnel, etc ) * Personal Development (communication, leadership, etc ) * Special Knowledge & Applications (computer science, math, economics, production) * Tax AICPA - Ethical Framework Due Care * Only take on engagements you can reasonable expect to complete competently * Exercise due professional care in the conducting of an engagement * Adequately plan and supervise the engagement * Obtain relevant and sufficient data to afford a reasonable basis for conclusions 5

6 AICPA - Ethical Framework Confidentiality Confidentiality to respect the trust relationship of a client/employer and, therefore, not to disclose any such information to third parties without proper and specific authority AICPA - Ethical Framework Professional Behavior Professional Behavior to comply with relevant laws and regulations and avoid any action that discredits the profession AICPA Ethical Framework Deceptive Conduct * Deceptive conduct including fraud, misrepresentations, representations, or omissions where a CPA knows or should know the conduct has the capacity to deceive * Acts are prohibited even if no one is deceived 6

7 AICPA Ethical Framework Deceptive Conduct Applied but not limited to: Obtaining or maintaining employment Obtaining or maintaining a client Obtaining or maintaining certification Reporting CPE credits Certifying the character of a CPA applicant Implying abilities not supported by training or education Overselling the quality of services delivered Creating false or unjustified expectations of favorable results Unauthorized uses of CPA title or services AICPA - Ethical Framework Discreditable Conduct * Now includes failure to participate in Peer Review * Acts affecting the honesty, integrity, and good character of a CPA. * This includes Board issued orders and failure to comply with peer review requirements. * Discrimination and harassment in employment practices. * Failure to follow professional standards * Negligence in the preparation of financial statements * Failure to file tax return or pay tax liability. AICPA - Ethical Framework Discreditable Conduct * Cannot knowingly violate any state or federal tax laws whether in public practice or private practice * Must comply with standards and laws related to Tax Practices 7

8 Hierarchy of Ethical Behavior Moral Right and Wrong Personal Integrity Accounting Standards Professional Regulation Legal Regulation Hierarchy of Ethical Behavior Character and Courage - Doing the right thing Moral Right and Wrong Personal Integrity Professional Regulation Accounting Standards Legal Regulation Rule Changes Effective * Adopted the national industry standards regarding Personal Financial Planning Services * Adopted the international standards on auditing * Failure to participate in peer review program added as a discreditable act under 8N

9 Big Rule Change Client Records * CPA shall return client-provided records upon request. * CPA prepared records provide to client for completed and issued work, EXCEPT THAT SUCH RECORDS MAY BE WITHHELD IF FEES ARE DUE FOR THAT SPECIFIC WORK PRODUCT. * CPA Work Product should be provided to the client upon request, EXCEPT if fees for the work product are due to the CPA; if the work product is incomplete; if the work product must be held to comply with standards (outstanding audit issues); or if threatened or outstanding litigation exists concerning the work product. Big Rule Change Client Records * CPA Prepared records are accounting work that the CPA was not specifically engaged to prepare and that are not in the client s books/records and are thus not otherwise available and makes the client s records incomplete. * Give it once, but not obligation to give it again! * No obligation to retain records beyond professional standards Big Rule Changes Client Records * May charge a fee to client to retrieve and copy records * Provide the records in any format usable to the client, but not required to convert records that are not electronic to electronic format; however CPA should provide to client in format requested if that is available * CPA not required to provide formulas, unless the formulas support the underlying records or if the CPA was specifically engaged to provide the formula * Not required to make and retain copies of the clients documents * CPA should comply with requests within 45 days 9

10 Massive Rule Changes Passed 10/22/2015, effective 2/1/2016 * Clarified holding out as a CPA * Updated CPA exam requirement language * Removed requirement to disclose arrest, charge, conviction that is expunged * Updated language on CPE requirements and sponsors, and inactive status * Updated language on post-revocation actions and requirements * Peer review language updated * Updated language on contingency fees and commissions * Updated language on retention of client records * Updated language on advertising Rule Changes Recent Years (From 2015) * Reporting Convictions, Judgements, and Disciplinary Actions Removed charge or arrest from the requirement, leaving only convictions of criminal actions * Clarified Civil Actions Reporting in general any civil action that is grounded in professional negligence, gross negligence, dishonesty, fraud, misrepresentation, incompetence, or violation of federal or State law. Also added any IRS or State DOR investigations as well as any IRS or State DOR liens Rule Changes Recent Years Reporting to the Board (from 2015) * Reminder: Personal bankruptcy or business bankruptcy not related to acts discussed above do not require reporting to the Board * Settlements must notify the Board within 30 days of settlement of cases grounded in situations discussed above * IRS State DOR Notify within 30 days investigations of any personal or business tax matters * Liens Notify within 30 days any filing of liens from IRS/ State DORs. 10

11 Why Ethics? * Why are ethics important to you? * Develop personal depth regarding convictions * It is important that we look at our ethical decisions as a responsibility. We create personal depth when we make a decision about what is right and wrong and become convicted to those beliefs. Psychological Reasons for Poor Ethics * Tunnel vision * The power of nicknames greasing the wheel * Social Bond Theory detached from the organizations goals * Time pressure * Acceptance of small theft * Self Serving bias * Conspicuous consumption (owners make too much) Psychological Reasons for Poor Ethics * Workplace environment (where corruption is ok) * Broken Window theory where there is disorder there is an assumption there is no authority NYC - Giuliani * Skirt the rules get your foot in the door with the man * Escalating commitment bar is too high and the reward is too high * Market and shareholder pressure * I am due the money underpaid/underappreciated 11

12 Situational Ethics * What is best for me? * Will I get caught? * Will anyone else see it? * Everyone does it * I am not as bad as others * Too risky to take a stand Conclusion: There are no absolutes, situations are relative, your internal compass is the highest level of moral/ethical authority. Framework for Ethical Decision Making * Recognize that an ethical issue exists * Get the facts * Evaluate the alternative actions from various perspectives * Make a decision and test it * Act then debrief. Evaluate, learn, adjust, re-calibrate 12

13 Summary of Board Actions Violation Number Result Misrepresentation of CPE; insufficient CPE; missing ethics class 38 Denied renewal; forfeit license for 1 year; fine Failure to file payroll taxes; failure to pay 2 Revocation Performed an audit and not independent (performed tax provision and audited it at different firm) 1 Censured, no audits for 1 year Failure to timely provide client documents; CPA asserted he provided, client asserted he did not 1 Fine and censure Failure to notify Board of practicing in NC (ERISA audits) 33 $1,000-2,000 fine Failure to file firm registration 8 Suspension, fine, (1 revocation ) Various Peer Review issues 2 Revocation, suspension, compliance required Summary of Board Actions Violation Number Result Failed Peer Review, did not provide required documents upon request 1 Censure, fine, prohibited from attestation 3 year prohibited from attestation; Issued substandard report; no peer review; did not know subject to peer review preissuance review afterward; pass peer 1 review; fined 3 year prohibited from attestation; Client complaint - deficient audit work; slow to respond to Board; documentation insufficient preissuance review afterward; pass peer 1 review; fined Failure to diclose criminal matter on renewal 1 Revocation, fine Failure to diclose civil matter on renewal 1 Censure, fine Governmental Audit Failure 1 Censure, fine, CPE Convicted of bank fraud, misrepresentation of financial information to SBA; wire fraud, bank fraud; knowingly and voluntarily joined the conspiracy 1 Permanent revoked; fined Multi-State tax return error (did it the way the guy before me did) 1 Censure Privilege License Questions * If you are an owner, principal, or manager of a CPA firm or business providing accounting services to third parties, you are required to purchase the $50 annual privilege license from NC DOR. * Accounting services include: audits, reviews, compilations, AUP, bookkeeping, tax returns, tax reports, accounting system services, management advisory, and tax consulting. * If you are in industry and provide these services to your employer, you ARE NOT REQUIRED to purchase the Privilege License 13

14 Thank you Now go and sin no more! 14