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1 2013 1

2 Winter Park (407) Today’s Discussion Leader is…

3 FICPA Member Service Center (800) (in Florida) or (850) Ethics Sponsor ID (FBOA): 3461 QAS Sponsor ID: 014 DBPR live presentation ID:

4 100 Minutes Break 100 Minutes 4

5  Course evaluations  Confirmation of attendance  DBPR and BOA course ID numbers  Type of credit – Ethics (ETH)  Participant request - enter/leave quietly  Participant request - cell phones  Other matters 5

6 Background and Overview 6 p. 1-1

7  Explain Florida’s ethics requirement for CPE  Define the term “ethics”  Describe the origins of ethical behavior  Explain how the AICPA’s Code of Professional Conduct applies to CPAs licensed in Florida  Apply the AICPA’s Ethics Decision Tree to workplace situations  Describe an auditor’s ethical responsibilities under the Government Auditing Standards (Yellow Book) p

8 8 61H p. 1-1

9 Continuing Education (c) Not less than 5 percent of the total hours required by the board shall be in ethics applicable to the practice of public accounting. This requirement shall be administered by providers approved by the board and shall include a review of the provisions of chapter 455 and this chapter and the related administrative rules. 9 p. 1-1

10  80 hours over a two-year reporting period  20 hours of Accounting and Auditing  20 hours of Behavioral – maximum  4 hours of Ethics  No limitation or requirement for Technical Business 10 p. 1-1

11  Florida became the 37 th state to establish an ethics requirement  Outlined by Florida Board of Accountancy (see 61H )  FICPA’s support is in line with national support 11 p. 1-2

12  80 hours over a two-year reporting period, essentially, 80 hours of CPE  CPE to “directly enhance the auditor’s professional proficiency”  24 hours directly related to governmental topics  20 out of the 80 hours to be completed in any one year 12 p. 1-2

13 13 p. 1-4 NATIONAL Yellow BookAICPA Code of Conduct STATE Florida StatutesFL Admin Code LOCAL RulesPolicies Policies may contradict. Are you responsible to follow more than one?

14  Relationship of Florida laws and rules to national standards  Florida Statutes, Chapter 455, 473, and FAC 61H1  Issues of competency in public accounting  Auditor’s ethical responsibilities – Yellow Book 14 p. 1-4

15  The relationships of ethics and independence rules and implications to public accounting  Government auditing standards – independence requirements  Ethical responsibilities to clients other practical considerations  Future implications for CPAs 15 p. 1-4

16 16 The discipline dealing with what is good and bad with moral duty and obligation. p. 1-5

17 “The term, ethical behavior, refers to how an organization ensures that all its decisions, actions, and stakeholder interactions conform to the organization’s moral and professional principles. These principles should support all applicable laws and regulations and are the foundation for the organization’s culture and values. They define ‘right’ from ‘wrong’ behavior.” --National Malcolm Baldridge Quality Award 17 p. 1-6

18 Ethics are:  A set of moral principles or values  A theory or system of moral values  The principles of conduct governing an individual or a group  A guiding philosophy 18 p. 1-6

19 Key expressions include: 1.What ought a person to do? 2.What ought a person to not do? 3.What attitudes are viewed as good? 4.What behaviors are viewed as good? 5.Why are they viewed as good? 19 p. 1-6

20  Ethics has traditionally been considered a part of philosophy  Philosophy is a study of the principles of any activity  It is a systematic examination of basic concepts such as: o Truth o Existence o Reality o Causality o Freedom 20 p. 1-6

21 Behavioral sciences include:  Psychology  Sociology  Cultural Anthropology 21 p. 1-7

22  Religion has a concern with moral conduct influencing normal behavior  Religions may have different sets of ethical values depending on the religion  Ethics is often a common ground for different religions 22 p. 1-7

23 Can one teach someone to be ethical? No, it is either in one’s self or it is not. Can one teach someone what is ethical behavior? Yes, it is a system of values or principles for actions. 23 p. 1-8

24  The ethics requirements in the CPA profession in Florida (and maybe everywhere) most likely come as a response to a crisis.  The responses have been at many levels: o Regulatory o Educational o Personal 24 p. 1-8

25  The ethics of our profession begin with the individual  Organizational ethics are guided by individual ethics  CPA reputation has been based on core values for over 100 years o Honesty o Integrity o Trustworthiness 25 p. 1-9

26  Increased emphasis on ethics at state and national levels  Changes in our profession o Ownership o Solicitation o Commissions o Sale of financial products o Competitive bidding 26 p. 1-9

27  Securities and Exchange Commission  PCAOB  AICPA  FICPA  IRS  State Regulatory bodies  Others 27 p. 1-9

28  Public perception of accountants  Ethical decision making  Current examples of ethical behavior 28 p. 1-10

29 .02These principles express the profession‘s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. 29 p. 1-10

30 1. Whom does the Code of Professional Conduct govern? 2. Can the AICPA revoke my license due to a disciplinary matter? 3. Does the AICPA contact other state CPA societies and regulatory agencies having disciplinary responsibilities? 30 p. 1-11

31 4. Do other state CPA societies and federal and/or state regulatory agencies refer matters to the AICPA? 5. Am I subject to the same rules of the Code if I practice public accounting or work in business and industry? 6. How could I have a conflict of interest when I am no longer working in public accounting? 31 p. 1-12

32  For Government  Also one for Auditors and Businesses 32 p. 1-16

33 Ethical Beliefs and Behaviors in US Businesses and Government Agencies 33 Learning Objectives … p. 2-1

34  Review the 2011 National Business Ethics Survey  Examine the main points and recommended action steps from Retaliation in the Workplace  Examine the main points and recommended action steps from 2012 Report to the Nations 34 p. 2-1

35  The Ethics Resource Center (ERC) was founded in 1922, and is America’s oldest non profit organization devoted to the advancement of high ethical standards and practices in public and private institutions  2011 National Business Ethics Survey, 7 th in the series  ERC polled over 3,000 employees in the business, government and non profit sectors  Longitudinal research study; identifies context for national trends 35 p. 2-1

36 36 p. 2-2

37 37 p. 2-2

38  Post-recession employee conduct is similar to behavior during the recession  This phenomenon is a significant factor in the historically low rates of misconduct and high rates of reporting  Historical data shows ethical conduct improves when the economy cools 38 p. 2-3

39  Active social networkers report more negative experiences in their workplaces  Also more likely to experience pressure to compromise ethics and to experi­ence retaliation for reporting misconduct than less active social networkers  32% of active social networkers are more likely to feel pressure than less active networkers and non-networkers 39 p. 2-4

40 40 p. 2-4

41 41 p. 2-5  64% Excluded from decisions and work activity  62% Received a cold shoulder  62% Verbally abused by management  56% Almost lost their job  55% Not given promotions or raises  51% Verbally abused by other employees  46% Cut in pay or hours  44% Relocated or reassigned  32% Demoted  31% Experienced physical harm to person or property  31% Experienced online harassment  29% Harassed at home

42  City Ethics -  FirstGov.gov -  Dodd-Frank Wall Street Reform & Consumer Protection Act -  House Committee on Standards of Official Conduct -  US Office of Government Ethics p. 2-9

43  Survey conducted by the Association of Certified Fraud Examiners  Global study based on data from 1,388 fraud cases  2012 Report to the Nations, 7 th in the series  Longitudinal research study; identifies context for global trends 43 p. 2-9

44  Impact of Occupational Fraud – organizations lose 5% of revenue annually  Fraud Detection – takes 18 months to be detected  Victims of Fraud – larger impact to smaller businesses, fewer anti-fraud controls, less able to recover losses  Perpetrators of Fraud – higher levels of authority caused greater losses, most are first-time offenders 44 p. 2-10

45  Retaliation and ethical conduct  Whistleblowing 45 p. 2-11

46 Assurance Provided by Regulation (Chapter 455) 46 Learning Objectives … p. 3-1

47  Describe the role of the Florida Board of Accountancy per Chapter 455, FS  Describe the complaint process used by the Florida Board of Accountancy  List reasons that would cause the Florida Board of Accountancy to impose disciplinary actions on a CPA per Chapter , FS 47 p. 3-1

48  Powers and duties include: o Authority to issue citations o Conduct disciplinary proceedings o Designate violations o Recover costs 48 p. 3-1 (455.01(1), FS)

49 The Division of Certified Public Accounting is a division within Florida’s Department of Business and Professional Regulation (DBPR) 49 p. 3-2 Tallahassee, Florida Department of Business and Professional Regulation Headquarters Gainesville, Florida Section (2)(c)(2), Florida Statutes, states that the Division of Certified Public Accounting shall be located in Gainesville.

50  The division is responsible for the licensing and regulation of over 31,400 Certified Public Accountants (CPAs) and over 5,200 CPA firms 50 p ,203 Active CPAs 2,228 Inactive CPAs 5,213 Accounting Firms Source: DBPR Division of Certified Public Accounting, May 2013

51 51 p Total received Legally sufficient Probable cause found No probable cause Administrative Disciplinary action Source: DBPR Annual Reports

52 52 p Cases opened during period Admonished13161 Corrective action required91244 No violation/ dismissed5036 No further action53182 Subsequent monitoring completed satisfactorily 2932 Disciplinary action105

53  What is ‘legally sufficient’? o A complaint is legally sufficient is it contains ultimate facts that show a violation of chapter 455, FS, Chapter 473, F.S. or Chapter 61H1, FAC  What is ‘probable cause’? o If members of the Probable Cause Panel determine that there is Sufficient Evidence to support the filing of charges against a licensee 53 p. 3-3

54 54 p. 3-5 Cases found to have probable cause are presented to the full board for final action. OGC Prosecuting Attorney presents case to the Probable Cause Panel to determine if probable cause exists, and/or to determine if the complaint should be forwarded to a consultant for further investigation Complaints found to have legal sufficiency are forwarded to the Office of General Counsel (OGC) The Division is responsible for reviewing complaints for legal sufficiency Final Order

55  Deny an application for licensure  Revoke or suspend a license  Impose fine not to exceed $5,000 for each count  Issue a reprimand  Place licensee on probation for a period of time and possible CPE or work under the supervision of another licensee  Restrict scope of practice 55 p. 3-9

56  Violation of any provisions of FS (1) or any other provision of FS 473  Attempting to procure a license to practice public accounting by bribery or fraudulent misrepresentations  Having a CPA license revoked, suspended, denied, or otherwise acted against by the licensing authority of another state, territory, or country 56 p. 3-14

57  Being convicted or found guilty, or entering a plea of nolo contendere to a crime in any jurisdiction directly relating to practice of public accounting or ability to practice  Making or filing a false report or record that licensee knows to be false 57 p. 3-15

58  Other grounds include: o False or fraudulent advertising o Committing acts of fraud, negligence, incompetence, or misconduct o Violation of 455 or 473 or FAC o Practicing on a revoked, suspended, inactive or delinquent license o Suspension of right to practice o Any fraudulent act while licensed 58 p. 3-15

59 To report unlicensed activity:  Call the DBPR unlicensed activity hotline at (866)   Complete the online form 59 p. 3-16

60 Assurance Provided by Regulation (Chapter 473) 60 Learning Objectives … p. 4-1

61  Define the key terms that characterize public accounting in Florida ( , FS)  Explain the basic powers and duties of the Florida Board of Accountancy  Explain the requirements to become a CPA licensed in Florida , FS) 61 p. 4-1

62  Explain the requirements for a practice to become licensed in Florida ( , FS)  Name changes to a licensed firm that must be reported to the Florida Board of Accountancy (61H )  List the CPE requirements necessary to maintain a CPA license in Florida ( , FS)  Describe the process of practice mobility in Florida 62 p. 4-1

63 63 The public is assured by the State Legislature in the Florida Statutes, Chapter 473 that the Legislature, “…deems it necessary in the interest of public welfare to regulate the practice of public accountancy in this state.” p. 4-1

64  Certified Public Accountant – person holding a license to practice – (4)  Firm – Any entity engaged in practice of public accounting – (5)  Practice of or practicing public accountancy or public accounting – (8)(a)(b)(c) p

65 FS 473 gives the BOA certain powers and duties: o Fees o Examinations o Licensure o Practice requirements o Continuing education o Other matters 65 p. 4-2

66 66 p. 4-2 Continuing Education and payment can be completed online at  Approximately 15,000 renew each fiscal  Continuing Professional Education  Pay renewal fee of $105  $97 deposited into the Professional Regulation Trust Fund  $5 deposited into the Unlicensed Activity Trust Fund  $3 deposited into the Minority Scholarship Trust Fund

67 67 p. 4-2  Over 5,000 firms renew every two years  All Firm licenses expire in odd years  Pay the appropriate renewal fee:  $150 for Partnerships, Corporations, and Limited Liability Companies  $50 for a Sole Proprietor and One Owner Corporation Fund Continuing Education and payment can be completed online at

68 Requirements for taking CPA Exam:  Good moral character  Meets academic requirements o 120 hours with a concentration in accounting and business o Must have an additional 30 semester hours (150 total) to be issued a license 68 p. 4-3

69 Requirements for getting a Florida license:  Baccalaureate degree with a major in accounting or its equivalent plus at least 30 semester/45 quarter hours  Must have one year of work experience  Good moral character  Section (7) waiver  Five year experience as CPA o Under CPA in any state or equivalent as determined by the BOA o May waive the additional education requirements 69 p. 4-3

70 May not engage in practice as defined in (8)(a) unless: o Form recognized in Florida o Partners/ shareholders /members owning 51% must be CPA in some state o Partner/ shareholder/ member domiciled in Florida must be Florida CPA with active license o One partner/ shareholder/ member must be Florida CPA with active license 70 p. 4-6 ( , FS)

71 Sole proprietor, partnership, corporation, limited liability company, or any other legal entity seeking to engage in the practice of public accounting, as defined in s (8)(a) o Must file application for licensure with DBPR and supply the required information o Application must be made upon the affidavit of a sole proprietor, general partner, shareholder, or CPA member 71 p. 4-7 ( (1), FS)

72 The department shall renew a license upon receipt of:  Renewal application  Fee  Certification of CPE by BOA  Exception for spouses of members of Armed Forces (61H ) 72 p. 4-8 ( , FS)

73  All Florida CPAs must have their correct street address on file with the BOA as their ‘address of record’  All Florida CPAs must notify the BOA within 30 days of any changes to the ‘address of record’ and any change from their original licensure application  Notification online at the Division’s site is considered “in writing” 73 p. 4-9 (61H , FAC)

74  Firm must file written notification with Department within 30 days of: o Addition of any non-CPA o Any non-CPA co-partner, shareholder or member in any Florida office o Any CPA, non-CPA co-partners, shareholders or members have convictions or findings of guilt, regardless of adjudication 74 p. 4-9 (61H , FAC)

75 o Having the right to practice by the SEC, IRS, others acted against, including denial of licensure o Any other matters showing a lack of good moral character o The retirement or death of a co-partner, shareholder or member in any Florida office o A change in the name or termination of the entity o When the firm or any existing co-partner, shareholder or member has been the recipient of a conviction or finding of guilt of a crime in any civil lawsuit 75 p. 4-9 (61H , FAC)

76  Changing your address online will satisfy the “in writing” requirement  Do check your license periodically o o Choose Renew a License and follow the prompts o To log in initially, use your license number and last four digits of your SSN  REMEMBER – you are personally responsible for keeping your license information up to date! 76 p. 4-10

77  Any CPA involved in governmental audits including planning, directing, field work, or reporting should comply with the “Yellow Book” CPE requirements  Required to take 24 hours of CPE that directly relates to government auditing, the government environment, or the specific environment of the audited entity  See details at  Retain documentation in case of CPE audit 77 p. 4-10

78  As of January 1, 2011, DBPR no longer requires CPAs to report their CPE to DBPR  All licensees, regardless of whether you have an established account with DBPR’s Online Services are required to register as a new user  DBPR will rely on the honor system, self-reporting of hours earned  Retain documentation in case of CPE audit 78 p. 4-11

79  A Florida certified public accountant may request that her or his license be placed in an inactive status by making application to the department  The board may prescribe by rule fees for placing a license on inactive status, renewal of inactive status, and reactivation of an inactive license 79 p ( FS)

80 (61H )  Complete forms o DBPR , Master Individual Application o DBPR CPA , Request for Change of Status  Required CPE hours o one reporting period (120 hours) o two reporting periods (200 hours) o three-plus reporting periods (280 hours) 80 p. 4-11

81 ( FS) Mobility (or also know as “practice mobility”) is the ability of a licensed CPA to gain a practice privilege outside of their home state without getting an additional license in another state where they will be serving a client. State Boards of Accountancy will gain automatic jurisdiction over all CPAs practicing in their states whether they are licensed or registered in their state. Visit for practice requirements of other states. 81 p. 4-13

82 82

83 ( FS) 83 p  only 4 states had passed mobility provisions  By 2013, 49 states have enacted mobility statutes. Guam, Hawaii, Puerto Rico, and US Virgin Islands are “in process”.  Substantial Equivalency – 3 Issues o Education o Experience o Enforcement

84 ( FS)  Not valid for more than 90 days  Fee of $400  Will not cover more than one engagement  Not required for person entering this state solely for the purpose of preparing federal tax returns or advising on federal tax matters 84 p. 4-13

85 ( FS)  Non-Florida CPAs may provide public accounting services in Florida without: o obtaining a license o notifying or registering o paying a fee  The individual must hold a valid CPA license from a state that is “substantially equivalent” 85 p. 4-14

86 ( FS)  An individual who qualifies to practice may offer or provide services in person, by mail, by telephone, or by electronic means, and a notice, fee, or other submission is not required  Non-Florida CPAs and their firm will consent: o To the personal and subject matter jurisdiction and disciplinary authority of the board; o To comply with this chapter and the applicable board rules 86 p. 4-14

87 ( FS) o Practice only with a valid (non-Florida) license o To the appointment of the state board that issued the individual's license for any action or proceeding against the individual or firm  An individual who qualifies to practice under this section may perform the services identified in s (8)(a) only through a firm that has obtained a license issued under s or is authorized by s to provide such services. 87 p. 4-14

88 1.Amends (4), F.S., to allow CPAs to obtain the one- year work experience licensure requirement through verification by another CPA, versus direct supervision of a CPA (current law) 2.Streamlines the licensure-by-endorsement requirements in (7), F.S. for CPAs who have held a license in another state for at least 10 years prior to application 3. Creates a one-time amnesty to reactivate a license by allowing CPAs to notify the BOA of their intention by Dec. 31, 2012, and complete 120 hours of continuing professional education (CPE) by June 30, p. 4-15

89 4.Amends (3), F.S., by creating a 75-day window to submit a renewal application, without having to apply for reactivation, for licensees who had completed the required CPE by Dec. 31, but failed to report 5.Provides for a BOA report to the Legislature on the potential cost savings of privatizing or outsourcing some Board functions 89 p. 4-15

90 Ethics of Integrity, Objectivity, Commissions, Contingencies and Communications FAC 61H1 90 Learning Objectives … p. 5-1

91  Define the term “Objectivity” as it relates to the practice of public accounting  Define the term “Integrity” as it relates to the practice of public accounting  Describe the concept of “materiality” as defined by FASB No. 2, Qualitative Characteristics of Accounting Information  Describe the situations when commissions or referral fees are allowed per Florida rule 61H  Explain Florida’s rule 61H for communicating with another client 91 p. 5-1

92  Explain Florida’s rule 61H for communicating with another client  Define Objectivity and Integrity as well as ethical responsibilities under Government Auditing Standards  Explain guidance regarding “gifts” at the federal and state levels 92 p. 5-1

93 FAC 61H Integrity and Objectivity In the Florida Administrative Code, a CPA shall not: o Knowingly misrepresent facts o Subordinate their judgment to: Clients Employers Other third parties  Florida standards have their basis in the AICPA’s standards - Section 102, Integrity and Objectivity of the AICPA Code of Professional Conduct 93 p. 5-1

94  Being candid  Being honest  Placing service and public trust above personal advantage and personal gain  Doing the right thing  Acting in good faith  Observing both form and spirit of professional standards 94 p. 5-2

95 “Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle.” Source: AICPA ET 54, Article III, Integrity,.02 Or, in other words … “Doing the right thing when no one is looking.” 95 p. 5-2

96 In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others. 96 p. 5-2 (AICPA ET § Section 102)

97  AICPA ET Rule 102  Actions deemed violations: o Make, permit, or direct materially …false or misleading entries o Fail to correct materially…misleading documents or records o Signing, permitting to sign or directing to sign materially…false information 97 p. 5-3

98 A conflict of interest may occur if a member performs a professional service for a client or employer and the member or his or her firm has a relationship with another person, entity, product, or service that could, in the member's professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member's objectivity. 98 p. 5-3 (AICPA ET § Section 102)

99  Performing litigation services for a plaintiff with a lawsuit filed against a client of the member's firm  Providing tax or personal financial planning services for a married couple who are undergoing a divorce, and both parties asked the member for professional services  Suggesting that a client invest in a business in which he or she has a financial interest  Providing tax or PFP services for several members of a family who may have opposing interests 99 p. 5-3

100  Serving on a government’s board of tax appeals, which considers matters involving several of the member's tax clients  Referring a PFP or tax client to an insurance broker or other service provider, which refers clients to the member under an exclusive arrangement to do so  Recommending a client to a service bureau in which the member or partner(s) in the firm hold material financial interest 100 p. 5-3

101 Materiality – What is it? “Magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would change or be influenced.” 101 Defined by FASB Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information p. 5-5

102 Materiality has been defined in FASB, AICPA, SEC, and PCAOB documents … So, if the definitions are everywhere, what’s the problem? 102 p. 5-5

103 The problem is, there is… o No authoritative formulation of materiality in the law or accounting literature. o May be quite small numerically o Must be considered quantitatively and qualitatively 103 p. 5-5

104 104 p. 5-4  An increased emphasis on audit quality and ethics  An extensive update of the performance audit standards to include a specified level of assurance within the context of risk and materiality  May need to set lower materiality levels than in private sector–public accountability

105  Rule indicates that a member must, “…maintain objectivity and integrity in the performance of a professional service. In dealing with his or her employer's external accountant, a member must be candid and not knowingly misrepresent facts or knowingly fail to disclose material facts. This would include, for example, responding to specific inquiries for which his or her employer's external accountant requests written representation.” 105 p. 5-5

106  Rule 102, Ethics Ruling No. 113 – “Acceptance or Offering of Gifts and Entertainment”  What about gifts??? o Nature of gift o Occasion o Cost o Other matters 106 p. 5-5

107 GAS has guidance on:  Public interest  Professional behavior  Integrity  Objectivity  Proper use of government information, resources, and position 107 p. 5-6

108  Use common sense  Pay your own way for meals and entertainment valued over $20  Pay your own transportation and accommodations  Pay fair market price for products and services  Keep records of your expenses  If in doubt, don’t accept!  See Appendix C for ethics principles 108 (5 C.F.R. § ) p. 5-5

109  Follow guidance from your own agency and FS  Don’t accept gifts from a political committee or lobbying organization  Determine fair value of gifts – actual cost less taxes & gratuities  Honorariums treated similarly to gifts  See Appendix F for 112, FS 109 (Florida Statutes ) p. 5-8

110 Prohibits commissions or referral fees with: o Audits o Reviews o Compilations o Prospective financial data o Services resulting in an expression of opinion 110 (FAC Section 61H ) p. 5-10

111  CPA must have signed engagement letter with details of financial arrangements  CPA must hold appropriate licenses  Engagement letter must disclose if not independent (other than commission or contingent fee) 111 (FAC Section 61H ) p. 5-10

112  Not on services for which commissions or referral fees could not be accepted  Allowed only on findings of the government - not that of the licensee  Some exceptions 112 (FAC 61H1 – ) p. 5-12

113 If a client of one CPA or firm requests a second CPA or firm to provide professional advice on accounting or auditing matters in connection with an expression of opinion, the second CPA or firm must consult with the first CPA or firm, after obtaining the client's consent, to make certain that the (second CPA or firm) is aware of all the relevant facts. 113 (FAC 61H1 – ) p. 5-13

114 Competency and Related Issues 114 Learning Objectives … p. 6-1

115  Describe the four general standards of competence (61H )  Apply standards of documentation to the performance of audits, reviews, and compilations  Describe the purpose of the Clarity Project  Review new amendments to the Code of Professional Conduct ethics interpretations and rulings 115 p. 6-1

116  The Florida standards require compliance in four general areas: 1. Professional Competence 2. Due Professional Care 3. Planning and Supervision 4. Sufficient Relevant Data 116 p. 6-1

117  The AICPA deals with the issue of Competence in its General Standards, AICPA ET Section 201  The Florida Rules are found in 61H , Competence (General Standards)  Both sets of standards are closely aligned 117 (61H1 – ) p. 6-1

118  Agreement to perform implies that the member has necessary competence to complete the engagement  Member does not assume a responsibility for infallibility of knowledge or judgment  Competence involves both the member and his/her staff  A CPA must be in charge of all public accounting services performed by the firm 118 p. 6-2

119  Assumes the person offering services possess the “degree of skill commonly possessed” by other persons  Assumes the person exercises that skill with “reasonable care and diligence” 119 p. 6-2

120  “A licensee shall adequately plan and supervise an engagement.” 120 p. 6-2

121  Obtain sufficient relevant data to afford a reasonable basis for a conclusion or recommendations in relation to any professional services performed 121 p. 6-2

122  Competence to perform professional services involves: o The technical qualifications of the member and the member's staff o Ability to supervise and evaluate the quality of the work performed 122 p. 6-2

123  Competence relates to: o Knowledge of the profession's standards, techniques and the technical subject matter involved o The capability to exercise sound judgment in applying such knowledge in the performance of professional services 123 p. 6-3

124 124 How we may be judged p. 6-4

125  We will be judged for compliance with the ethical standards (professional competence, due professional care, planning and supervision, and sufficient relevant data)  Often these standards may be judged after the situation has occurred  Those judging us may ask, “Did you…”  We must protect ourselves from perfect hindsight vision 125 p. 6-4

126 Documentation 126 p. 6-4

127 Documentation requirements are found in many professional standards:  Auditing Standards  Review Standards  Compilation Standards  Quality Control Standards  Attestation Standards  Other Standards 127 p. 6-5

128  For our protection, we must understand the general body of standards to which we will be held accountable  Includes AICPA standards as well as Florida requirements  Documenting is your best means of defense. Be sure to document in writing, and in a way that is industry specific and timely. 128 p. 6-5

129  AICPA reached significant milestone in Clarity Project with release of SASs  SAS No. 122 contains a Preface and 39 clarified SASs, effective for periods ending after December 15, 2012  These are effective for audits for periods ending on or after December 15, p. 6-6

130  New report headings  Expanded communications about management’s responsibilities  Expanded communications about auditor’s responsibilities  Effective for periods ending on or after December 15, p. 6-7

131  SASs have been reissued as part of the Clarity Project p

132  The disclosure requirements for compilation and review engagements are generally the same as audits  SSARS 19 requires additional documentation for compilations and review in the area of “engagement letters” for periods beginning after December 15, 2010  SSARS 19 allows the reason(s) for the lack of independence in a compilation engagement  Other new requirements are in SSARS p. 6-7

133  A&A Standards are generally the same as those of the AICPA  Other Standards are generally those of the AICPA  Some standards are not authoritative  Florida’s assembled financial statements are NOT recognized by the AICPA  New standards for local Government audits – Auditor General Rules p

134  Independence o free from personal, external, & organizational impairments  Professional Competence o Professional skepticism, diligence  Judgment o Engagement staff must collectively possess adequate professional competence p

135 The most common areas with deficiencies were:  Single audit  Auditor’s reporting  Audit procedures  Financial statement deficiencies  See Appendix B for the report p

136  Framework for independence standards [ET Section ] o Definitions of Public Interest and changes to threats  Disclose client info to third parties [ET Sections and 391.2] o Disclosing info without permission is more limited  Members in business [ET Section 92.22] o Members must follow Code if type of services requires it 136 p. 6-9

137  Disclose prior employer confidential information [ET Sections 92.05, 391.2, 501.9] o Limits member’s disclosure about prior employers  Concept of “financial interest threats” is expanded to business members [ET Section ] o Now requires members in business to recognize financial interest threats and safeguards  Expands what is false or misleading acts to all CPAs [Interpretation ,.11] o Now applies to members in business 137 p. 6-9

138  Modifies GAAP for Rule 203 [Interp ] o May now use but denote the framework used  Explains when members may withhold records prepared for clients [Interp ] o Members must give client prepared records on request; may retain if unpaid fees or pending litigation exists  Members may not use misleading firm names [Interpretations and 505-5] o CPAs should not use misleading firm names 138 p. 6-9

139 Ethics and Independence 139 Learning Objectives … p. 7-1

140  Compare the similarities and differences between Florida and national rules for Independence  Compare independence standards between the Florida Board of Accountancy, AICPA, SEC, and Government Accountability Office  Define the key terms per AICPA’s Professional Standards ET p. 7-1

141  Identify the types of individuals who many impair the independence of an engagement team  Distinguish when independence is or is not impaired when providing non-attest services to attest clients per AICPA Interpretation p. 7-1

142  The Florida Legislature  The FL BOA  The AICPA  The PCAOB  The SEC  Yellow Book and/or OMB Requirements  Others 142 p. 7-1

143  Covered member o Single Office o Multi Office  Services performed o Attest services o Nonattest services  Client  Relationships 143 p. 7-2

144  Individual on attest engagement team  Individual in a position to influence  Partner or Manager providing nonattest services if…  Partner in office of engagement partner  The firm  Firm or commonly controlled entities 144 p. 7-3

145  An engagement that requires independence (ET 92.01)  In Florida, FS sets the stage.  Florida has “Standards for Independence”  “A certified public accountant shall not express an opinion of the financial statements of an enterprise unless she or he and her or his firm are independent with respect to such enterprise.” 145 p. 7-3

146  No opinions unless independent  BOA will adopt rules on independence 146 p. 7-3

147  The Florida Statutes are very clear on independence and expressing an opinion  The technical standards for independence are in FAC 61H  61H (2) sets out the standards known as “Standards for Independence” for Florida CPAs  Requires compliance with this Rule 147 p. 7-4

148  Rule 101, Ethics Ruling No. 114, “Acceptance or Offering of Gifts or Entertainment to or from an Attest Client.”  Position to influence  Significance  Reasonable 148 p. 7-5

149 “The Code of Professional Conduct was adopted by the membership to provide guidance and rules to all members - those in public practice, in industry, in government, and in education - in the performance of their professional responsibilities." Introduction to Code of Professional Conduct, AICPA 149 p. 7-5

150  Florida’s “Standards for Independence” has a direct reference to the AICPA’s Code of Professional Conduct  From the pronouncements, one can assume that if you are either a member of the AICPA or a licensed Florida CPA, the provisions for independence will apply  The major question is – apply to which engagements? 150 p. 7-5

151 Five basic engagements require independence: 1. Audit 2. Review 3. Compilation 4. Attestation 5. Prospective Financial Statements 151 p. 7-6

152  The AICPA’s Ethics Interpretation No , states that an attest engagement is any engagement which requires the CPA to be independent  Interpretation does not apply to a compilation engagement which the accountant has modified the report to indicate a lack of independence  No question that a review engagement or an audit engagement is an “attest” engagement  In SSARS 19 there is a clear indication that a compilation is an attest engagement 152 p. 7-6

153 AR A compilation is a service, the objective of which is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework. Although a compilation is not an assurance engagement, it is an attest engagement. 153 p. 7-6

154 “Client” shall be deemed and construed to mean the person(s) or entity which retains a licensee for the performance of public accounting services.” 154 p. 7-6 (FAC 61H )

155 Internal auditors reporting internally to management are free from impairment of independence if they are:  Accountable to the governmental head  Report results of work to the governmental head  Located organizationally outside of staff or line management functions  Has access to those charged with governance 155 p. 7-7

156  In a compilation when the accountant is not independent, the accountant should indicate the lack of independence  SSARS 19 states that the accountant is not precluded from disclosing a description about the reason(s) independence is impaired  Disclosing the reason(s) is not required but is optional 156 p. 7-8

157  “Revised Applicability of Statements on Standards for Accounting and Review Services”  SSARS do not apply when SAS 100, SAS 116, and SAS 121 apply. 157 p. 7-9

158 Independence: Non-attest, Non-audit Services 158 Learning Objectives … p. 8-1

159  Describe the implications of the AICPA’s Interpretation for nonattest services for attest clients  Describe the independence provisions of Government Auditing Standards (Yellow Book) relating to nonaudit services for audit clients 159 p. 8-1

160  Both AICPA and GAS provide guidance for nonattest services by an auditor  Nonattest audits must comply with both sets of standards  GAO rules are typically more restrictive  The standards are different, see comparison in Appendix D 160 p. 8-1

161 161 p. 8-2  Under Interpretation the independence rules may come from several authoritative bodies. o FL BOA o AICPA o SEC o GAO o Department of Labor

162 162 p. 8-2  When nonattest services are performed for clients for which attest services are performed: o Documentation of understanding with client is necessary o The requirements of are still being revised

163 163 p. 8-2  Clients must agree to do certain things: o Make all management decisions o Designate an employee o Evaluate adequacy and results o Accept responsibilities o Establish and maintain controls

164 164 p. 8-3  Member must establish and document in writing his/her understanding with the client: o Engagement objectives o Services o Client’s acceptance o Member’s responsibilities o Any limitations

165  Revisions issued by the Professional Ethics Executive Committee (PEEC)  Revisions are in bookkeeping, internal audit services, valuation, appraisal, actuarial services, and information systems design and implementation  Revisions tighten the requirements for documentation of the member’s understanding with the client regarding the services to be performed 165 p. 8-3

166 166 …do you know the answer? p. 8-4

167 Overarching Principles 1. The auditor should not provide nonaudit services that involve performing management functions or making management decisions. 2. The auditor should not audit his/her own work or provide nonaudit services in situations where the nonaudit services are significant/material to the subject matter of the audit. 167 p. 8-8

168  Bookkeeping and preparing accounting records  Preparing financial statements  Internal audit services  Internal control and monitoring and assessments  Information technology systems services  Valuation services 168 p. 8-8

169  Differences between the AICPA Code of Professional Conduct and Government Auditing Standards include: o Post-impairment period o GAO standards – “structural threat” o Subject external consultants and specialists to both independence standards and the assessment of independence o Contain guidance on documentation necessary to support adequate consideration of auditor independence 169 p. 8-9

170 Privileged Confidentiality, Communication, and Other Considerations 61H1-23 FAC 170 Learning Objectives … p. 9-1

171  Describe “privileged communication” between a CPA and client under Florida statutes and rules  Describe the disposition of client records per national and Florida rules  Define the term “client record” (AICPA 501-1)  Describe the implications to the CPA of verifying a “comfort letter” 171 p. 9-1

172  Describe what is permissible in regards to advertising and solicitations of clients per national and Florida rules  Describe the various forms of practice available to a licensee (61H )  Explain how a practice can be named and share office space (61H ) 172 p. 9-1

173 ( , FS) (1)(c) A communication between an accountant and client is “confidential” if it is not intended to be disclosed to third persons … (1)(d) A “quality review” is a study, appraisal, or review … conducted by a professional organization for the purpose of evaluating quality assurance required by professional standards, including a quality assurance or peer review 173 p. 9-1

174 (2) A client has a privilege to refuse to disclose, and to prevent any other person from disclosing, the contents of confidential communications with an accountant … This privilege includes other confidential information obtained by the accountant from the client for the purpose of rendering accounting advice. (3) The privilege may be claimed by … the client, guardian, personal representative, representative of an organization/ corporation/ association, or the accountant, but only on behalf of the client. 174 p. 9-1

175 (4) There is no accountant-client privilege under this section when: (a) The services were sought or obtained to commit a crime or fraud. (b) A communication is relevant to an issue of breach of duty by the accountant to their client or by the client to their accountant. (c) A communication is relevant to a matter of common interest between two or more clients (5) Communications are not privileged from disclosure in any disciplinary investigation or proceeding 175 p. 9-2

176 (6) The proceedings, records, and workpapers of a review committee are privileged and are not subject to … legal process or to introduction into evidence in a civil action or arbitration, administrative proceeding, or state accountancy board proceeding. A member of a review committee or person who was involved in a quality review may not testify … Public records and materials prepared for a particular engagement are not privileged merely because they were presented during the quality review. 176 p. 9-2

177 FAC 61H1-23 Two responsibilities:  Confidential client information  Records disposition responsibility 177 p. 9-3

178  CPAs may not disclose any confidential information obtained in the course of a professional engagement without the consent of the client.  Implies active and stored information  Peer Review is excluded 178 p. 9-3

179 Confidentiality includes:  Office situations  Storage in and away of client data  Other situations 179 p. 9-3

180 (1) A certified public accountant shall furnish to a client or former client within a reasonable time after request of the document the following if they are in the certified public accountant's possession or control at the time of the request. Any accounting or other records belonging to the client which the certified public accountant may have had occasion to remove from client's premises, or to receive for the client's account, including records prepared as part of the service to the client which would be needed to reconcile to the financial statements or tax return prepared and issued by the certified public accountant. 180 p. 9-4 (61H )

181 (2) This rule shall not preclude a licensee from making reasonable charges for costs incurred. A certified public accountant shall not withhold those items contemplated above under any circumstances following a demand for same from the client. (3) Provisions of this rule apply to Licensed Audit Firms and to all certified public accountants practicing public accounting. 181 p. 9-4 (61H )

182  If the tax return or financial statement has not been issued, the CPA must only return records received from the client, but this shall not preclude the licensee from making copies of such documents when same form the basis of work done by the CPA. 182 p. 9-4

183 The revised interpretation:  Defines key terms  Makes interpretations of how to respond to client requests. 183 p. 9-5

184  Requests from banks, financial institutions, and mortgage companies to verify financial information for a client  The risk in responding is significant  How should CPAs respond to these requests? 184 p. 9-7

185 “any public record made or received in connection with the official business of any public body, officer, or employee of the state, or person acting on their behalf unless there is a specific exemption.” Article I, Section 24 (a), Florida Constitution (1968) 185 p. 9-12

186  Found in ET Section 502 – “Advertising and Other Forms of Solicitation”  Florida rules generally follow the AICPA rules 186 p. 9-13

187  Licensee may reply to requests for proposals  Must adhere to rules for advertising, both oral and written 187 p (61H )

188  Licensees may not allow others to do things the CPA themselves may not do  This includes situations for compensation and not for compensation 188 p. 9-15

189  Names, terms, branch offices (61H1-26)  Forms of practice and name shared office space (61H )  Minimum capitalization /adequate public liability insurance (61H )  Financial statements of the firm 189 p. 9-15

190 190 p. 9-17

191 Code of Ethics for Public Officers and Employees (s. 112 F.S.) 191 Learning Objectives … p. 10-1

192  Review definitions regarding applicability  Review standards of conduct  Review restrictions on employment of relatives  Review voting conflicts  Review penalties 192 p. 10-1

193  Agency  Breach of public trust  Conflicts of interest  Gift  Purchasing agent  Relative  See s. 112, Part III, Definitions 193 p. 10-2

194  Solicitation or acceptance of gifts  Doing business with one's agency  Conflicts of employment or contractual relationship  Unauthorized compensation  Misuse of public position  Exemptions and other issues  Disclosures or use of certain information 194 p. 10-3

195 Future Implications 195 Learning Objectives … p. 11-1

196  Name several changes to the accounting profession that could occur within the next 10 years  Highlight several major differences between the IFAC and AICPA ethics codes of conduct  Discuss aspects of the CPA Horizons 2025 Project 196 p. 11-1

197 To prophesy is extremely difficult … especially with regard to the future  Chinese Proverb 197 p. 11-1

198 Where is the CPA profession going? 198 p. 11-1

199 Changes previously talked about have happened:  Most VERY large audits will be performed by the “Quadropoly”/“Final Four”  XBRL – bar coding of financial statements  Accounting Standards Codification  Mobility 199 p. 11-1

200  The AICPA and IFAC have begun to converge the IFAC’s Code of Ethics for Professional Accountants and the AICPA’s Code of Professional Conduct  In 1917, the AICPA’s predecessor adopted eight rules of conduct (one sheet of paper)  The rules evolved and were codified in 1973 into the current AICPA’s Code of Professional Conduct 200 p. 11-1

201  100 years – and many sheets of paper later – the AICPA Code and related guidance is ripe for reorganization  The standard setting organizations in more than 100 countries have adopted the IFAC’s Code of Ethics; many others are in the process of converging with the code  The code will impact those in public practice, business, academia, and government 201 p. 11-2

202  The IFAC code uses a conceptual framework approach to evaluate relationships or circumstances that raise ethical issues  The AICPA’s and the IFAC’s codes address similar issues: o Independence o Objectivity o Due care o Confidentiality 202 p. 11-2

203 The AICPA Project, CPA Horizons 2025, sought the insights of 5,600 CPAs on current and future trends that will impact the profession and the world of CPAs. 10 key themes emerged that give insight into the profession: o Conducting and will conduct business o Serve clients and employers o Attract and retain employees and new business o Remain competitive in the marketplace for the next 15 years 203 p. 11-5

204  Understand and leverage relevant technology in conjunction with core CPA competencies to deliver superior services 204 p. 11-5

205 IMPACT ON THE PROFESSION  Stay current with, embrace and exploit technology for increased efficiency and expansion of services  Find solutions to offer investors and stakeholders up-to- date, real-time financial information and to increase transparency  Embrace mobile technologies and social media  Fraud may be easier to commit and more difficult to prevent and detect 205 p. 11-5

206  Evolve the educational framework to keep pace with the changing dynamics of business, government and our profession 206 p. 11-6

207 IMPACT ON THE PROFESSION  Devote time to staying current with regulations and standards, and worldwide trends  Further develop interpersonal skills to enhance relationships  Embrace real-time learning in the workplace to learn and adapt quickly and knowledgeably  Requirements for new CPAs must remain rigorous and demanding and be practical and relevant  New CPAs must have a broad knowledge of business and soft skills and not simply focus on technical accounting 207 p. 11-6

208  Position the CPA as a premier designation of the accounting and finance profession throughout the world 208 p. 11-6

209 IMPACT ON THE PROFESSION  Be increasingly aware of international business issues and trends  Assess the trend toward outsourcing overseas and create opportunities to expand services to serve these markets  Continue to market the quality and value of their services to expand and thrive globally 209 p. 11-6

210  Encourage pride among CPAs in the CPA profession and in the value CPAs create throughout society 210 p. 11-6

211 IMPACT ON THE PROFESSION  The profession must continue to advocate on behalf of itself to ensure continued recognition as a trusted advisor  Uphold the integrity of the profession and maintain high standards in an ever-changing environment and in cultures where business practices differ from U.S. practices 211 p. 11-6

212  Preserve the role of the CPA as the trusted attester of financial and other information 212 p. 11-6

213 IMPACT ON THE PROFESSION  The profession must stay vigilant in defending its unique role as providers of audit and attest services  All CPAs benefit from the public trust rooted in the provision of audit and assurances services  Audit and attest functions must evolve to meet changing regulatory demands and client and business needs 213 p. 11-6

214  Promote the CPA as the trusted advisor who provides core CPA services and develops solutions to complex business problems 214 p. 11-6

215 IMPACT ON THE PROFESSION  Continue to evolve as strategic partners of clients, business and employers, applying multidisciplinary and integrated problem solving to expand traditional services and enhance nontraditional offerings and the perception of trusted advisor 215 p. 11-7

216  Leverage the strengths of the profession to expand market permissions 216 p. 11-7

217 IMPACT ON THE PROFESSION  Emerging opportunities for specialization will allow CPAs to strengthen their expertise and provide additional value to clients, employers and business  Continue to evaluate which services are offered locally and globally and how to deliver these services to adapt to the needs of clients, employers and business 217 p. 11-7

218  Address continual changes in the marketplace, economy, businesses and regulations 218 p. 11-7

219 IMPACT ON THE PROFESSION  The nature of the work that CPAs perform must evolve to respond to shifts in business, society and technology  Changes will offer opportunities to enhance the value of CPA services  Lifelong learning will take on greater importance as a way for CPAs to stay up-to-date 219 p. 11-7

220  Increase the visibility of the profession’s value proposition by demonstrating the profession’s Core Values in multiple areas of business and society 220 p. 11-7

221 IMPACT ON THE PROFESSION  By listening to and understanding the needs and challenges of employers and clients, opportunities for CPAs to develop services that align with Core Values will emerge  The profession must spend more time demonstrating their value to clients, businesses and the public about the role and value of the CPA in order thrive amid increased competition and economic pressures 221 p. 11-7

222  Continue to offer opportunities that enhance the appeal of the profession and be proactive in addressing both U.S. and global demographic shifts 222 p. 11-8

223 IMPACT ON THE PROFESSION  Strive to reflect the demographic shifts of incoming accounting students, clients, business and society  Programs offered to support minorities, women and young CPAs in the workplace must be more widely implemented  Experienced and older CPAs must continue to mentor young CPAs and identify leadership and advancement opportunities 223 p. 11-8

224  Increase flexible work arrangements and work-at-home options  Continue to support and enhance programs that build awareness of the CPA profession to young audiences 224 p. 11-8

225 225 p

226  It is a small world after all — every business is becoming a global business  The future is here — embracing the future now will ensure viability in the long run  Change is inevitable — technology already is changing the way we work … and the change will continue  Generations are working side by side — Baby Boomers are not retiring and Millennials are bringing a new set of skills and ideals to the workplace 226 p. 11-8

227  Be open to change — embrace, don’t fear, the future  Be nimble — adapt traditional services and establish new ones to take advantage of change  Be collaborative — work with each other and with the global community to shape and execute the standards and services that will emerge over the next decade  Be forward-thinking — assess and evaluate the current and future environments and plan accordingly 227 p. 11-8

228  Technology: Address security and privacy concerns; adapt traditional services; utilize state-of-the-art tools to reach out to new markets  Education: Balance judgment with technical skills; teach soft skills; stay ahead of the curve on regulations and standards  Globalization: Understand international issues, trends, standards and regulations; identify new markets; explore new job opportunities 228 p. 11-8

229  Promotion: Market the profession’s virtues of integrity, objectivity and trust to local, national and international audiences  Collaboration: Understand the different perceptions and realities of the generations and find ways to bridge the gap and take advantage of the best each can offer  Integration: Review our competencies and align them with new realities; enhance our role as a business advisor 229 p. 11-8

230  Adaptation: Address changes in the marketplace, economy, business and regulations; immerse ourselves in domestic and international trends  Competition: Understand the numerous choices available to clients and employers; market the CPA value 230 p. 11-9

231 Welcome to the future! p

232  Remember that for over 100 years the profession of certified public accountants have been kept at the top of the ethical list for the professions with: o Honesty o Trustworthiness o Integrity o Objectivity 232 p. 11-9

233 Our professional ethics 233 p

234 for your attention today …! 234 p. 11-9


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