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Ethics for the Tennessee CPA Mark H. Crocker, CPA, CGMA Executive Director, Tennessee State Board of Accountancy Don Mills, CPA, CFE TNSBA Investigator.

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Presentation on theme: "Ethics for the Tennessee CPA Mark H. Crocker, CPA, CGMA Executive Director, Tennessee State Board of Accountancy Don Mills, CPA, CFE TNSBA Investigator."— Presentation transcript:

1 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

2 20 Questions Where did these 20 questions come from? Attendees at our previous seminars Calls from our licensees Problem areas in compliance

3 What is “the Board”? 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

4 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 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

5 Administrative Support Staff 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

6 Function of Administrative Office Initial Licensing (testing and reciprocity) Renewing Licenses Updating Files Assisting Licensees & Public Investigation of Complaints Education Provide Assistance to Board Members

7 How many CPAs are there in Tennessee?

8 CPAs in Tennessee StatusSeptember 01, 2012 Active 9,930 Inactive 4,151 Closed 2,292 Probation/Suspended 7 Revoked 46 Retired 922 Delinquent 72 Expired 2,547 Deceased 2,478 Other 434 Total Licenses 22,879

9 Tennessee State Board of Accountancy What Are the Requirements to Maintain a License in Good Standing? StatusPay License Renewal Fee Complete CPEPay Professional Privilege Tax ActiveYes InactiveYesNo Retired (55 yrs+) YesNo Retired Over 70 No ClosedNo – But Must Return Wall Certificate No

10 Tennessee State Board of Accountancy License Status – Bad (Not In Good Standing) Delinquent Expired Probation Suspended Revoked

11 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.

12 Is Carry Over CPE worth the headache? 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

13 Example of Carryover CPE Actually Complete 96 hours Actually Complete 76 hours Can Bring Forward 4 – 16 Hours from Licensing Period 1 to make 80 or 92 hours Actually Complete 76 hours NO Carryover available Licensing Period 1 Licensing Period 2 Licensing Period 3

14 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.

15 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.

16 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.

17 Any other rule changes I need to know about? 1.Penalty for Late Renewal of License – Changed from two $50 penalties applied in February and April to one $100 penalty applied in February. 2.Address Change – New rule requires notification to the Board of any changes in email address within 30 days. 3.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.

18 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?

19 Go online to, 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.

20 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.

21 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.

22 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?

23 “YES”

24 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

25 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?

26 No – as long as the licensee does not make management decisions for the agency.

27 I work at home and only do bookkeeping for a limited number of clients. Do I need a firm permit?

28 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?

29 If you answered “yes” to these questions – you need a firm permit.

30 $50

31 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

32 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

33 If I prepare “management-use- only” financial statements for my clients: 1. What kind of report do I put on it? 2. Can I avoid peer review?

34 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.

35 How many complaints does the Board receive in a year?

36 Complaint History Historically, the Board opens an average of 68 complaints each year. # Complaints 200588 200642 200763 200884 200969 201070 201161

37 Who files a complaint? Licensees Your (former) clients The Board State and Federal Agencies

38 As a Licensee, am I required to notify the Board of others who may be violating the law and rules of our profession?

39 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….

40 What is the #1 question asked by CPAs during a complaint investigation?

41 Are you going to make me take the exam again?

42 What are the most common complaints received by the Board?

43 2006-2011 Violations Acting Through Others10.21% AICPA Code of Professional Conduct10.21% Competence102.10% Conduct Unbecoming a Professional30.63% Confidential Client Information30.63% CPE449.22% Discreditable Acts408.39% Due Professional Care40.84% Failing to Consider Deficiencies10.21% Failure to File Taxes20.42% License Issues10.21% Gross Negligence61.26% Improperly Obtaining Clients10.21% Integrity61.26% Misleading Public30.63% Other State Revocation122.52% Peer Review245.03% PPT398.18% Records193.98% Revocation20.42% Tax Shelters10.21% Unlicensed Practice16233.96% Violation of Consent Order40.84%

44 What actions can the Board take concerning a complaint?

45 Possible Board Actions Dismissal Letters Consent Orders Civil Penalties Additional CPE or Peer Review Probation Suspension Revocation Informal Conference Formal Conference (Hearing)

46 Board Action 2006-2011 Deferred Action10.21% Cease & Desist Letter367.55% Civil Penalty8618.03% Civil Penalty/other275.66% Deceased102.10% Dismissed13828.93% Letter of Instruction112.31% Letter of Reprimand30.63% Letter of Warning7014.68% Open Complaint6413.42% Referred to District Attorney30.63% Retired License10.21% Revocation204.19% Surrender of License61.26% Suspension10.21%

47 What is the difference between tax avoidance and tax evasion?


49 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.

50 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.

51 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….”

52 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.

53 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.

54 Mobility-firm previously licensed in Tennessee Disposition: The North Carolina firm met the requirements to practice in Tennessee and the complaint was dismissed.

55 Mobility-firm previously licensed in Tennessee What if? The North Carolina firm hired to perform the audit had an expired firm permit in Tennessee?

56 What about Mobility from Tennessee to another state? The newest tool in mobility can be found at: Lets see how easy it is.



59 Can we have more case studies?

60 Yes – And today you get to be the Board.

61 Client Records Case Study: An employee of a firm discards the extra W- 2’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.

62 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?

63 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.

64 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. 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?

65 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?

66 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.

67 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.

68 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?

69 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?


71 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.

72 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.

73 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.

74 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,

75 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?

76 Final Question - What can we do for you? How can we best serve the public interest?

77 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: E-Mail: TNSBA web page has direct contact information for all Board Members and Staff Members

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