TN Specific Ethics

Report
Ethics for the
Tennessee CPA
• Mark H. Crocker, CPA, CGMA
Executive Director, Tennessee State Board of Accountancy
• Don Mills, CPA, CFE
TNSBA Investigator
• Ray Butler, CPA
TNSBA Investigator
20 Questions
• Where did these 20 questions come from?
• Attendees at our previous seminars
• Calls from our licensees
• Problem areas in compliance
What is “the Board”?
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Eleven Members – Appointed by Governor
Serve Terms of 3 Years
Nine are CPAs
One is Attorney
One is Public Member
Meets Quarterly- usually in January, May, July
and October
Current Members of the Board
• Trey Watkins, CPA, Chairman –
Memphis
• Casey Stuart, CPA, Vice Chair –
Chattanooga
• William Blaufuss, CPA, Sec. –
Nashville
• Henry Hoss, CPA – Chattanooga
• Stephen Eldridge, CPA – Jackson
• Vic Alexander, CPA - Nashville
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Troy Brewer, CPA – Nashville
Stan Sawyer, CPA – Memphis
Don Royston, CPA – Kingsport
Jennifer Brundige, JD –
Nashville, Public Member
• John Roberts, Attorney-at-Law –
Nashville, Attorney Member
Administrative Support Staff
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Executive Director – Mark H. Crocker, CPA, CGMA
Investigator – Don Mills, CPA, CFE
Investigator – Ray Butler, CPA
Advisory Attorney – Chris Whittaker, Esq.
Education Coordinator – Kathy Riggs, Ph.D.
Licensing Coordinator – Brenda Demastus
Disciplinary Coordinator – Karen Condon
Office Manager – Patricia Turner
Admin. Assistant – Sandy Cooper
Function of Administrative
Office
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Initial Licensing (testing and reciprocity)
Renewing Licenses
Updating Files
Assisting Licensees & Public
Investigation of Complaints
Education
Provide Assistance to Board Members
How many CPAs are there in
Tennessee?
CPAs in Tennessee
Status
Active
Inactive
Closed
Probation/Suspended
Revoked
Retired
Delinquent
Expired
Deceased
Other
Total Licenses
September 01, 2012
9,930
4,151
2,292
7
46
922
72
2,547
2,478
434
22,879
What Are the Requirements to Maintain
a License in Good Standing?
Status
Pay License
Renewal Fee
Complete CPE
Pay Professional Privilege
Tax
Active
Yes
Yes
Yes
Inactive
Yes
No
No
Retired
(55 yrs+)
Yes
No
No
Retired
Over 70
No
No
No
Closed
No – But Must
Return Wall
Certificate
No
No
Tennessee State Board of Accountancy
License Status – Bad
(Not In Good Standing)
•
•
•
•
•
Delinquent
Expired
Probation
Suspended
Revoked
Tennessee State Board of Accountancy
Can you explain the CPE
requirements one more time?
• All Licensees Holding Active License
• 80 Approved Hours every two years – add 8 penalty hours if
you don’t
• 40 Technical Hours (A&A, Taxes, Ethics & Management
Advisory)
• 2 Hours Ethics – Both must be State Specific Ethics (New this
year)
• Minimum of 20 Hours Each Year – add 8 penalty hours if you
don’t
• Special Areas:
• Attest Services – 20 Hours A&A
• Expert Witness Services – 20 Hours in Area
• If you are short on Technical or Ethics hours but have your 80
hours, make them up without penalty.
Is Carry Over CPE worth the
headache?
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Limited to 24 Hours
Carries Over as “Other” Hours
Cannot be used to meet 20 Hour Minimum
Must Have Actually Completed More Than 80
Hours in the Preceding Licensing Period
Example of Carryover CPE
Actually
Complete 96
hours
Licensing
Period 1
Actually
Complete 76
hours
Actually
Complete 76
hours
Can Bring
Forward 4 – 16
Hours from
Licensing
Period 1 to
make 80 or 92
hours
NO Carryover
available
Licensing
Period 2
Licensing
Period 3
Its December 31 and I don’t have
enough CPE. What can I do?
• First – Renew your license. Answer “no” to the CPE
question. Do not make things worse by practicing on a
delinquent license and accruing late fees.
• Then get busy and finish your hours along with the “penalty
hours”.
• Or:
• Change License to Inactive or Retired
• Close License and return wall certificate
• Request an Extension of time (max 6 months) and have a
really good reason.
What about CPE for reinstatement
and reactivation?
Reactivate:
1. You must have a viable license (Inactive,
Retired or Closed)
2. Complete 80 hours of technical CPE within
24 months of reactivation that counts toward
your renewal hours
3. Pay a $120 fee.
What about CPE for reinstatement
and reactivation?
Reinstate:
1. You do not have a viable license (Expired)
2. Complete 80 hours of technical CPE within 6
months of your request for reinstatement.
These are penalty hours and do not count
towards renewal
3. Pay all back fees plus a $250 penalty.
Any other rule changes I need to
know about?
1.
2.
3.
Penalty for Late Renewal of License – Changed from two $50
penalties applied in February and April to one $100 penalty
applied in February.
Address Change – New rule requires notification to the Board
of any changes in email address within 30 days.
Education- If you were not approved to sit for the exam on
6/24/12, you must now complete 30 semester hours
accounting education and 24 of those hours must be in upper
division accounting courses.
I have a large client…
who calls and asks if I know
anything about a CPA from
Nevada who has applied for a
position with the corporation. Is
there any way I can help?
Go online to CPAverify.org, maintained by the
NASBA. It contains licensee information from 31
states and Puerto Rico. It will tell you if the
individual is properly licensed and, in some cases, if
that person has been disciplined by their respective
board.
Now call your client and earn some brownie points.
How Long Must I Keep My
Working Papers?
A firm issues an audit report on an entity for the
fiscal year ended June 30, 2009. The auditors’
report is dated October 15, 2009. The Board
requires that working papers be kept for five
years after the period in which the report is
issued.
How Long Must I Keep My
Working Papers?
Answer: In this case, the period in which the
audit report was issued is June 30, 2010. The
working papers must be retained until July 1,
2015.
I have this friend…
who works for a private
corporation and does a few tax
returns on the side. Does he have
to open a firm?
“YES”
• If you are a licensed CPA in the state and you
provide accounting services – you must be
affiliated with a CPA firm.
• Definition of accounting services:
• Tax return preparation
• Attest services
• Any other services in which you hold out as a CPA
I work in private industry but
volunteer my time …
at a nonprofit agency where I
perform basic bookkeeping
services. I do not prepare
financial statements. Do I need a
firm permit?
No – as long as the licensee does not make
management decisions for the agency.
I work at home and only do
bookkeeping for a limited
number of clients. Do I need a
firm permit?
1. Do your bookkeeping services consist of more
than:
• Recording transactions to the client’s
general ledger which have been coded by
management.
• Posting client approved entries to the trial
balance.
• Preparation of reconciliations for bank
accounts, accounts receivable, etc.
2. Do your clients know that you are a CPA?
If you answered “yes” to these questions –
you need a firm permit.
$50
CPA Firm Licensure Requirements
• Basic Application
• Physical Information – Where is your office.
• Ownership- Must be 51% owned by CPAs
• Experience of Resident Manager
• Peer Review Selection or Exempt Request –
Sign up with TSCPA upon application for
firm permit
When is Peer Review Required?
• Tennessee requires peer review for any firm that
performs the attest function.
• Tennessee defines the attest function to include
compilations.
• Only engagements conducted under SSARS #8 may
be excluded from the requirement. (Be careful, this
is a high risk area)
• Notice to the Board of change in a firm’s
requirement for peer review is required
If I prepare “management-useonly” financial statements for my
clients:
1. What kind of report do I put on it?
2. Can I avoid peer review?
1. A management-use-only compilation is
issued without a report when a CPA does
not reasonably expect the financial
statements to be used by a third party.
Instead, document an understanding with
the entity through the use of an engagement
letter, preferably signed by management.
2. Since financial statements compiled for
management’s use only do not include a
report, they are theoretically outside the
purview of peer review.
How many complaints does
the Board receive in a year?
Complaint History
# Complaints
• Historically, the Board
opens an average of 68
complaints each year.
2005
88
2006
42
2007
63
2008
84
2009
69
2010
70
2011
61
Who files a complaint?
• Licensees
• Your (former) clients
• The Board
• State and Federal Agencies
As a Licensee, am I
required to notify the
Board of others who may
be violating the law and
rules of our profession?
Rule 0020-4-.03 (2)(d) states in part:
Conduct reflecting adversely upon the
licensee’s fitness to perform services
includes…concealment of information
regarding violations by other licensees of the
Act or the Rules….
What is the #1 question
asked by CPAs during a
complaint investigation?
Are you going to make
me take the exam
again?
What are the most
common complaints
received by the Board?
2006-2011 Violations
Acting Through Others
AICPA Code of Professional Conduct
Competence
Conduct Unbecoming a Professional
Confidential Client Information
CPE
Discreditable Acts
Due Professional Care
Failing to Consider Deficiencies
Failure to File Taxes
License Issues
Gross Negligence
Improperly Obtaining Clients
Integrity
Misleading Public
Other State Revocation
Peer Review
PPT
Records
Revocation
Tax Shelters
Unlicensed Practice
Violation of Consent Order
1
1
10
3
3
44
40
4
1
2
1
6
1
6
3
12
24
39
19
2
1
162
4
0.21%
0.21%
2.10%
0.63%
0.63%
9.22%
8.39%
0.84%
0.21%
0.42%
0.21%
1.26%
0.21%
1.26%
0.63%
2.52%
5.03%
8.18%
3.98%
0.42%
0.21%
33.96%
0.84%
What actions can the
Board take concerning a
complaint?
Possible Board Actions
• Dismissal
• Letters
• Consent Orders
• Civil Penalties
• Additional CPE or Peer Review
• Probation
• Suspension
• Revocation
• Informal Conference
• Formal Conference (Hearing)
Board Action 2006-2011
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%
What is the difference
between tax avoidance
and tax evasion?
JAIL
Can you explain mobility?
Case Study:
A firm is contracted to perform the independent
audit of a Tennessee municipality. The firm is
licensed in good standing with the State of
Mississippi, but not in Tennessee. A review of the
audit reveals apparent failures to meet the
fieldwork standards required by the “Yellow
Book” and a complaint against the firm is
initiated by the Tennessee Board.
Mobility-doing bad work in
Tennessee
Case Study:
In its response to the complaint, the firm
asserts that the Tennessee Board has no
jurisdiction to impose disciplinary action
on a Mississippi firm and that any action
against the firm must be taken by the
Mississippi Board of Accountancy.
Mobility-doing bad work in
Tennessee
Tennessee Code Annotated, Section 62-1-117
allows an individual from another state with a
valid license to practice in Tennessee with no
notice to the Board; however, it requires that:
“An individual licensee of another state exercising
the privilege under this chapter shall consent to the
personal and subject matter jurisdiction and
disciplinary authority of the board….”
Mobility-doing bad work in
Tennessee
Disposition:
The Board’s investigation revealed a failure to follow
professional standards. The complaint was settled via
Consent Order signed by the firm acknowledging the
failure and agreeing to a probationary period of two
years and a civil penalty of $2,000.
In addition, the Tennessee Board notified the
Mississippi Board of the action taken.
Mobility-firm previously
licensed in Tennessee
Case Study #2:
A North Carolina firm is hired to perform the
independent audit of a Knoxville nonprofit agency.
The firm was previously licensed in Tennessee, but
closed that firm permit prior to beginning the audit. A
Tennessee firm filed a complaint against the firm,
alleging that the Carolina firm could not practice in
Tennessee.
Mobility-firm previously
licensed in Tennessee
Disposition:
The North Carolina firm met the
requirements to practice in Tennessee and
the complaint was dismissed.
Mobility-firm previously
licensed in Tennessee
What if?
The North Carolina firm hired to
perform the audit had an expired firm
permit in Tennessee?
What about Mobility from
Tennessee to another state?
The newest tool in mobility can be found at:
• CPAmobility.org
Lets see how easy it is.
Can we have more case
studies?
Yes – And today you get to
be the Board.
Client Records
Case Study:
An employee of a firm discards the extra W2’s while preparing a client’s tax return. Placed
in a dumpster by the custodial staff, the W-2
somehow blows onto a nearby sidewalk. A
citizen finds the W-2 and mails it to the client.
The client files a complaint with the Board,
alleging that the firm released confidential
client information.
Client Records
Disposition:
You are the Board – What action should be
taken?
1. Dismiss.
2. Letter of warning.
3. Civil penalty of $500 and probation for one
year.
4. Other?
Professional Standards
Case Study:
A licensee’s client requests that his Federal
tax return status be shown as “Married-Filing
Separately” and the licensee does so.
When the client’s spouse becomes aware of
the change in status, she files a complaint
with the Board. She alleges that the licensee
had no right to change the status of a tax
return without her approval, especially since
the clients had filed a joint return in the past.
Professional Standards
Treasury Department Circular 230- Section 10.29
states in part:
…a practitioner shall not represent a client… if the
representation involves a conflict of interest.
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•
•
Is the representation of one client directly
adverse to another client?
Is there a significant risk that the representation
of one client will be materially limited by the
practitioner’s responsibilities to another client, a
former client or a third person?
Did the practitioner obtain a waiver from each
affected client, confirmed in writing?
Professional Standards
Disposition:
You are the Board – What action should be
taken?
1. Dismiss.
2. Letter of warning.
3. Civil penalty of $500 and probation for one
year.
4. Consent Order, Civil Penalty, and notice to
the Internal Revenue Service?
Unlicensed Practice
Case Study:
A complaint is opened against a non-licensed
firm for advertising “accounting services” and
using the word “accounting” throughout its
website.
The Board’s investigation revealed that the
firm used the “CPA” designation and engaged
in conduct that constitutes the practice of
accountancy under Tennessee law. In
addition, the firm employed three licensees
who failed to report the fact that they were
working in an unregistered firm.
Unlicensed Practice
Hearing:
In an informal hearing, the firm’s owner was given the
opportunity to obtain licensure through the formation of
a new firm that contained at least a 51% ownership
interest with any or all of the licensees he currently
employed.
Alternatively, the licensees could close their CPA
licenses and the firm could continue to operate with no
reference to “accounting” or the use of the “CPA”
designation.
The owner refused to act and the matter went to a
Formal Hearing.
Unlicensed Practice
Disposition:
You are the Board – What action should be
taken?
1. Dismiss.
2. Binding Letter of Instruction.
3. Consent Order with a Civil penalty of
$5,000.
4. Suspension of the three CPA licenses until
the firm is compliant
5. Other?
Prohibited Activities
Case Study:
A regulatory board in another state submitted
the following “opinion” after they were
unable to find the individual’s CPA license.
How many discrepancies can you spot?
Report of Enrolled Agent
We have audited the accompanying balance sheet for XYZ
Corp. as of December 1, 2009, in accordance with
Standards for Accounting and Auditing Services issued by
the Internal Revenue Service and the National Association
of Enrolled Agents. All information included in the balance
sheet is the representation of the management of XYZ
Corp.
Report of Enrolled Agent
An Audit consists principally of inquiries of company
personnel and analytical procedure applied to financial
data. It is an in depth study of pertinent data that is
imperative for a comprehensive picture of the operations
of the company. We performed this audit in accordance
with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the
balance sheet taken as a whole.
Report of Enrolled Agent
No audit can be designed to provide absolute assurance
that all revenue recorded by the client is appropriate or
fraudulent financial reporting is discovered. However, it
does show an awareness of conditions, along with an
appropriate skeptical response to issues identified
during the audit process and during the performance of
significant field work, can increase the likelihood that
either inadvertent or intentional material misstatements
of revenue are detected. We performed extensive field
work at their location and can assure there is no
misstatements of revenue.
Report of Enrolled Agent
Based on our audit, information on the balance sheet is
a clear representation of the financial structure and
management of XYZ Corp.
Sincerely,
Prohibited Activities
Formal Hearing:
You are the Board – What action should be taken?
1. Dismiss the charges since the report was not
issued to a regulatory body in Tennessee.
2. Require the Respondent to provide working
papers that prove “extensive field work at their
location”.
3. Find the Respondent guilty of preparing an
“auditor’s report” without possessing a valid
CPA license from Tennessee or any other state.
4. Assess the Respondent a civil penalty of $1,000
relating to the issuance of an opinion on
financial statements in bad taste.
5. Other?
Final Question - What can we
do for you?
• How can we best serve the public
interest?
Hope you enjoyed our 20
questions – we need 20 more
• Contact Information
• Phone: 888-453-6150 or 615-741-2550
• Fax:
615-532-8800
• Web: http://tn.gov/commerce/boards/tnsba
• E-Mail: TNSBA web page has direct contact
information for all Board Members and Staff
Members

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