Ethics for Governmental CPAs in Florida

2012

1

Today’s Discussion Leader is

William Blend, CPA, CFE Moore Stephens Lovelace, PA

1201 S. Orlando Av, Suite 400 Orlando, FL 32789 (407) 740-5400 [email protected]

2

For More Information

FICPA Member Service Center: (800) 342-3197 (in Florida) or (850) 224-2727 www.ficpa.org/ethics Sponsor Codes Ethics Sponsor ID (FBOA): 3461 QAS Sponsor ID: 014 DBPR live presentation ID: 4980 3

Course Begins

Schedule

100 Minutes 100 Minutes Break Course Ends 4

Housekeeping Details

      Course evaluations Confirmation of attendance DBPR and BOA course ID numbers Type of credit – Ethics (ETH) Participants’ request • Enter/leave quietly • Quiet cell phones Other matters 5

Chapter 1

Objectives, Background and Overview Learning Objectives … p. 1-1 6

Why are we here?

p. 1-1 7

Overview of the Ethics Requirement

      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 Ethics course content replaces need for Laws and Rules exam p. 1-2 8

Yellow Book CPE Requirements

    80 hours over a two-year reporting period, essentially, 80 hours of A&A 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 p. 1-2 9

Which Ethics Policies to Follow?

   Local – organization?

State – rules and regulations?

National – AICPA, Yellow Book?

  They may contradict.

Are you responsible to follow more than one?

p. 1-4 10

Major Course Topics

      Relationship of Florida laws and rules to national standards Florida Statutes, Chapters 455, 473, 112 and 119 Florida Administrative Code, Chapter 61H1 Governmental Auditing Standards Independence in Florida Ethical responsibilities of CPAs p. 1-4 11

p. 1-6

What are Ethics?

The discipline dealing with what is good and bad with moral duty and obligation.

12

Key Definitions - Ethics

   

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

p. 1-6 13

Ethical Behavior Defined

.

“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.”

p. 1-6 -- National Malcolm Baldridge Quality Award 14

Ethics As a System

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?

p. 1-7 15

Ethics As a System

   Ethics has traditionally been a subset of philosophy.

Psychology can only tell us what the average person does and what may result if averages hold.

Does psychology lack any authority of what human behavior ought to be?

p. 1-7 16

Ethics and Psychology

 Behavioral sciences include: • Psychology • Sociology • Cultural Anthropology p. 1-7 17

Ethics and Religion

   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 p. 1-8 18

Teaching of Ethics

 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.

p. 1-8 19

CPAs in Crisis

(wei-ji) p. 1-8 Crossroads of danger and opportunity 20

Past Studies

The bedrock values of the CPA profession:   Committed to the rules of the accounting profession Being reliable   Consistently demonstrated integrity and ethical behavior AICPA 2005 study – CPAs ranked higher than many other professionals p. 1-9 21

Ethics and the CPA Profession

   Ethics begins with the individual Organizational ethics are guided by individual ethics CPA reputation has been based on core values for over 100 years • Honesty • Integrity • Trustworthiness p. 1-9 22

Responding to a Crisis

  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: • Regulatory • Educational • Personal p. 1-10 23

Ethics and the CPA Profession

   Some mutual fund companies in illegal trading practices Prominent pharmaceutical companies engaging in ethical violations and cover ups Professional and Olympic athletes using performance enhancers p. 1-10 24

Ethics and the CPA Profession

   Politicians in blatant ethical violations and shady conduct Newspaper and news broadcast companies in fabrication, plagiarism, and falsification Sexual misconduct of religious leaders p. 1-10 25

Ethics and the CPA Profession

    Internet spammers, virus creators, hackers, moral indecency Illegal downloading of music and files Shoplifting in the form of copyright infringement Accounting wrongdoing p. 1-10 26

Governmental Ethics in the News

What ethics news regarding governmental agencies has made headlines in your area?

p. 1-10 27

Changes have Created a Crossroads of the Profession

  Increased emphasis on ethics at state and national levels Changes in our profession • Ownership • Solicitation • Commissions • Sale of financial products • Competitive bidding p. 1-10 28

Who Regulates Ethics?

       FL BOA AICPA SEC PCAOB Yellow Book and OMB State regulatory agencies IRS p. 1-11 29

AICPA Code of Professional Conduct

.02 The Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants 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.

p. 1-11 30

p. 1-11

General Questions and Answers

AICPA Code of Professional Conduct www.aicpa.org

31

General Questions

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?

p. 1-11 32

General Questions

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?

p. 1-12 33

General Questions

6.

What enables the AICPA the power to enforce the Code of Professional Conduct?

7. How could I have a conflict of interest when I am no longer working in public accounting?

8.

What are the ramifications if I am found in violation of the Code?

p. 1-13 34

Background of Florida’s Ethics Requirement

    Florida became the 37 th state to establish an ethics requirement All 50 states have this requirement Outlined by Florida Board of Accountancy (see 61H1-33.003) FICPA’s support is in line with national support p. 1-13 35

p. 1-14

Ethics Decision Tree

For Government 36

For More Information

   Florida Board of Accountancy http://www.myfloridalicense.com/dbpr/cpa Florida Institute of CPAs http://www.ficpa.org/ethics American Institute of CPAs http://aicpa.org

Financial Accounting Standards Board http://www.fasb.org

Appendix B 37

State of Florida Office of the Governor

Executive Order Number 11-03 p. 1-18 38

Chapter 2

Ethical Beliefs and Behavior in US Businesses & Government Agencies Learning Objectives … p. 2-1 39

The Ethics Resource Center

  ERC was founded in 1922 America’s oldest non profit organization devoted to the advancement of high ethical standards and practices in public and private institutions.  ERC has been a resource for public and private institutions committed to a strong ethical culture for 90 years.  Visit

www.ethics.org

p. 2-1 40

National Business Survey

 Survey of businesses conducted by ERC in 2011; government survey in 2007  7 th in a series of surveys  Polled over 3,000 employees in the business, government and non profit sectors  Longitudinal research study; identifies context for national trends p. 2-1 41

2011 Survey Results

    • Fewer employees witnessed misconduct on the job Fell from 49% in 2009 to 45% in 2011 (new low) More employees reported misconduct when they observed it • 65% in 2011, up from 63% in 2009 Strength of ethical culture in the workplace decreased – a negative sign • 42% in 2011, up from 35% in 2009 Perceived pressure to commit an ethics violation increased • 13% in 2011 from 8% in 2009 p. 2-2 42

However …

However…retaliation against those who reported misconduct increased sharply … a negative development

p. 2-2 43

Survey Results

(cont.)

   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 Also matches historical data that shows ethical conduct improves when the economy cools p. 2-2 44

Survey Results

(cont.)

   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 p. 2-2 45

2011 Was Unique Year for Ethics

  The NBES findings indicate something is changing in the American workplace

American employees are doing the right thing more than ever before, but in other ways employees’ experiences are worse than in the past

p. 2-2 46

2011 Was Unique Year for Ethics

(cont.)  ERC’s explanation of the unique results from the 2011 survey could be one of two views: • The 2011 survey marks the beginning of a major change in the way the American office conducts itself • The 2011 survey is a snapshot of a workforce knocked off its historic trend, and now in the process of returning to the patterns seen in past studies p. 2-2 47

2011 Was Unique Year for Ethics

(cont.) The ERC believes it is more likely the latter – a snapshot that captures a downturn on the horizon in ethical behavior p. 2-2 48

Specific Forms of Retaliation Experienced

            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 p. 2-2 49

Observed Misconduct

  Nearly half (49%) of employees observed some type of misconduct taking place in the workplace Percentage is based on employees’ observing at least 1 of 15 specific behaviors in the past 12 months p. 2-2 50

Governmental Study - Results

   30% of federal and 14% of state/ local govt. workers believe their organizations have well implemented ethics and compliance programs Most frequently observed misconduct by federal employees were: abusive behavior, safety violations, lying to employees, and putting one's own interests ahead of the organization's 58% of all government workers who saw misconduct did not report it • Did not believe managers would take action • Feared they would face retaliation if they reported what they • 1% used anonymous hotlines p. 2-3 51

Organizational Ethics Links for Government – Examples

     City Ethics www.cityethics.org

FirstGov.gov www.firstgov.gov/ Dodd-Frank Wall Street Reform & Consumer Protection Act http://sec.gov/spotlight/dodd-frank.shtml

House Committee on Standards of Official Conduct www.house.gov/ethics US Office of Government Ethics www.usoge.gov

p. 2-4 52

Too Big to Regulate?

   The ERC Fellows Program meets twice a year to study issues.

For past two years they have looked into questions of government regulation and enforcement.

“Too Big to Regulate?” refers not to size but to whether the U.S. government can keep pace with changes and challenges.

p. 2-6 53

Chapter 3

Assurance Provided by Regulation (Chapter 455) Learning Objectives … p. 3-1 54

Florida Board of Accountancy

  Defined in FS 455.01(1) Powers and duties include: • Authority to issue citations • Conduct disciplinary proceedings • Designate violations • Recover costs p. 3-1 55

The Division of Certified Public Accountants

  The Division of Certified Public Accounting is a division within Florida’s Department of Business and Professional Regulation (DBPR) The division is responsible for the licensing and regulation of over 30,500 Certified Public Accountants (CPAs) and over 5,200 CPA firms p. 3-1 56

Division Offices

Mission:

To ensure that the licensees meet the statutory requirements for licensure and practice of certified public accounting in Florida, as well as to protect the public from unscrupulous and unlicensed practitioners.

Tallahassee, Florida

Department of Business and Professional Regulation Headquarters

Gainesville, Florida

Section 20.165(2)(c)(2), Florida Statutes, states that the Division of Certified Public Accounting shall be located in Gainesville.

p. 3-2

www.MyFloridaLicense.com

Number of Licenses

28,285 Active CPAs 2,163 Inactive CPAs 5,263 Accounting Firms p. 3-2 Source: DBPR Div. of CPA, November 2011

Division Responsibilities

 Administers to the Florida Board of Accountancy  Application Processing  Biennial License Renewal  Protect the public from unscrupulous and unlicensed practitioners p. 3-2

www.MyFloridaLicense.com

Administers to the Florida Board of Accountancy

 Coordinates meetings for Board, Probable Cause Panel, and other committees.

 Prepares agendas  Copies agenda items and bind board books  Prepares and sends notices  Makes recommendations regarding licensure and denial of applications.

 Communicates to licensees and/or potential licensees board policies and rulings.

Board and Probable Cause Panel meet every 6 to 8 weeks

p. 3-2

www.MyFloridaLicense.com

Complaints Received By Board of Accountancy

Total received Legally sufficient Probable cause found No probable cause Administrative Disciplinary action

10-11

328 161 183 150 22 27

09-10

301 235 55 172 24 48

08-09

304 350 69 206 36 5

07-08

334 34 10 111 10 10 p. 3-2

www.MyFloridaLicense.com

Complaint Process

The Division is responsible for reviewing complaints for legal sufficiency Cases found to have probable cause are presented to the full board for final action.

Complaints found to have legal sufficiency are forwarded to the Office of General Counsel (OGC) 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.

p. 3-3

Protecting the Public Disciplinary Proceedings Florida Statute 455.225

• The Department shall investigate any complaint that is in writing, signed by the complainant, and is legally sufficient.

• The Department may investigate any anonymous complaint or a complaint made by a confidential informant if: – The complaint is in writing and legally sufficient, – The alleged violation of law or rule is substantial, and – The department has reason to believe that the allegations are true.

• The Department may initiate an investigation if it has reasonable cause to believe that a licensee has violated a Florida Statute or Rule.

p. 3-3

www.MyFloridaLicense.com

Authority to Issue Citations

(Florida Statutes 455.225)

    FL BOA has authority to issue citations FL BOA may designate violations FL BOA can recover costs Must issue citations within 6 months p. 3-5 64

Grounds for Disciplinary Action

  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 p. 3-9 65

Introduction to the Case Study

 The case study begins with this chapter and continues throughout the manual.

p. 3-13 66

p. 4-1

Chapter 4

Public Accountancy in Florida (Chapter 473)

Learning Objectives … 67

Statutory References

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 68

Key Definitions

   

Certified Public Accountant

– person holding a license to practice – 473.302(4)

Firm

– Any entity engaged in practice of public accounting – 473.302(5)

Licensed Audit Firm

473.3101

– licensed under FS “

Practice of

” or “

practicing public accountancy

”, or “

public accounting

” 473.302(8)(a)(b)(c) • Opinion on financial statements • Accounting services • Preparation of financial statements p. 4-1 69

New Definition – Members in Business

 ET Section 92, Definitions  The new definition is intended to capture members that are not in the practice of public accounting p. 4-3 70

Powers and Duties of the Board

 Chapter 473, FS, gives the FL BOA certain powers and duties: • Fees • Examinations • Licensure • Practice Requirements • Continuing education • Other matters p. 4-3 71

Biennial License Renewal Individual Renewal

   Approximately 16,000 renew each fiscal year Continuing Professional Education Payment of renewal fee of $105.00 – $97.00 deposited into the Professional Regulation Trust Fund – $5.00 deposited into the Unlicensed Activity Trust Fund – $3.00 deposited into the Minority Scholarship Trust Fund p. 4-4

www Payment can be made online at www.MyFloridaLicense.com

Biennial License Renewal Firm Renewal

   Approximately 5,200 firms renew every two years All firm licenses expire in odd years Submit the appropriate renewal fee: – $150 for Partnerships, Corporations, and Limited Liability Companies – $50 for a Sole Proprietor and One Owner Corporations p. 4-4

www Payment can be made online at www.MyFloridaLicense.com

CPA Examination – 473.306

Requirements for taking CPA Exam:   Good moral character Meets academic requirements • 120 hours with a concentration in accounting and business • Must have an additional 30 semester hours (150 total) to be issued a license p. 4-4 74

473.308 Licensure

   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 p. 4-5 75

Licensure by Endorsement

473.308 (7)

  Section 473.308(7) waiver Five year experience as CPA • Under CPA in any state or equivalent as determined by the BOA • May waive the additional education requirements p. 4-7 76

Renewal of License

(473.311, FS)

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 (61H1-33.0065) p. 4-10 77

Informaing DBPR of Address Changes

(61H1-26.005, FAC)

 All Florida CPAs must have their correct street address on file with the BOA as their ‘address of record’  A post office box may be added only as a mailing address  All Florida CPAs must notify the BOA within 30 days of any changes to the ‘address of record’ p. 4-11 78

Changes by Firms

(61H1-26.004, FAC)

 Firm must file written notification with Department within 30 days of: • Addition of any non-CPA • Any non-CPA co-partner, shareholder or member in any Florida office • Any CPA, non-CPA co-partners, shareholders or members have convictions or findings of guilt, regardless of adjudication p. 4-11 79

www.MyFloridaLicense.com

p. 4-11

www.MyFloridaLicense.com

Communicating with DBPR

  Changing your address online will satisfy the “in writing” requirement Do check your license periodically • www.myfloridalicense.com

• Choose Renew a License and follow the prompts • To log in initially, use your license number and last four digits of SSN p. 4-11 81

The Florida BOA is not responsible for finding you!

Submit written notice of your changes to DBPR within 30 days All addresses on file with DBPR are required to include a street address

p. 4-11 82

Communicating with DBPR

Contact the BOA with your questions E-mail: [email protected]

Customer Contact Center: (850) 487-1395 Monday-Friday, 8 am to 5 pm EST Florida Board of Accountancy 240 NW 76 th Drive, Suite A Gainesville, FL 32607 p. 4-11 83

Continuing Education

(473.312 FS)

 Florida CPAs must submit proof of completing at least 48 of 80 CPE hours every 2 years  Penalty to complete CPE requirement on time may be up to 25% additional CPE hours p. 4-12 84

Continuing Education

(cont.) (473.312 FS)

 Not less than 25 percent of the total hours required by the board shall be in accounting related and auditing-related subjects  Not less than 5 percent of the total hours required by the board shall be in ethics applicable to the practice of public accounting p. 4-12 85

Continuing Education

(cont.)

 Approved programs by the board shall be formal programs of learning which contribute directly to the professional competency of an individual following licensure to practice public accounting and may be any of the following: • Professional development programs of the AICPA • State societies of certified public accountants or other organizations p. 4-12 86

Continuing Education

(cont.)

 • Technical sessions at meetings of the AICPA, state societies, chapters, or other organizations • University and college courses • Formal organized in-firm education programs The board shall adopt rules establishing the CPE requirements for Florida CPAs who are engaged in the audit of a governmental entity (61H1-33.0035) p. 4-12 87

Continuing Education

(cont.)

  CPAs need to keep track of Yellow Book hours, primarily for peer review purposes (61H1-33.0035) The board may appoint a CPE Advisory Committee, which shall be composed of 1 member of the board, 1 academician on the faculty of a Florida university, and 6 CPAs p. 4-12 88

Continuing Education – Governmental Auditing

 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 http://www.gao.gov/yellowbook p. 4-13 89

Major Changes to CPE Reporting

 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 p. 4-13 90

Inactive Status

(473.313 FS)

 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 p. 4-14 91

Reactivation

(61H1-33.006)

  Complete forms • DBPR 0010-2, Master Individual Application • DBPR CPA 5011-1, Request for Change of Status Required CPE hours • one reporting period (120 hours) • two reporting periods (200 hours) • three-plus reporting periods (280 hours) p. 4-14 92

Mobility

(473.3141 FS)

Mobility client. (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 Visit www.CPAMobility.org for practice requirements of other states.

p. 4-15 93

Temporary License

(473.314 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 p. 4-16 94

“

Accountancy Bill” 2012 Legislation – 5 Key Changes

 Amends 473.308(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)  Streamlines the licensure-by-endorsement requirements in 473.308(7), F.S. for CPAs who have held a license in another state for at least 10 years prior to application p. 4-16 95

“

Accountancy Bill” 2012 Legislation – 5 Key Changes

 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, 2014 p. 4-16 96

“

Accountancy Bill” 2012 Legislation – 5 Key Changes

 Amends 473.313(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  Provides for a BOA report to the Legislature on the potential cost savings of privatizing or outsourcing some Board functions p. 4-16 97

Chapter 5

Ethics of Integrity, Objectivity, Commissions, Contingencies, and Communications (FAC 61H1)

Learning Objectives … p. 5-1 98

Comparison of Florida Rules to National Standards

FAC 61H1-21.002

In the Florida Administrative Code (FAC), a CPA shall not: • Knowingly misrepresent facts • Subordinate their judgment to:    Clients Employers Other third parties p. 5-1 99

Comparison of Florida Rules to National Standards

FAC 61H1-21.002

• Florida standards have their basis in the AICPA’s standards • True for Section 102, Integrity and Objectivity of the AICPA Code of

Professional Conduct

p. 5-1 100

Definition of Objectivity

“A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities.”

p. 5-2 101

Definition of Integrity

“Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle.”

p. 5-2 102

What is Integrity?

   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 p. 5-2 103

Conflicts of Interest – AICPA Examples

   A member provides tax or PFP services for several members of a family who may have opposing interests A member has a significant financial interest, is a member of management, or is in a position of influence in a company that is a major competitor of a client for which the member performs management consulting services A member serves on a city's board of tax appeals, which considers matters involving several of the member's tax clients p. 5-3 104

Direct Violations

  AICPA ET 102.01 Rule 102 Actions deemed violations: • Make, permit, or direct

materially

false or misleading entries… • Fail to correct

materially

… • Signing, permitting to sign or directing to sign

materially

… p. 5-4 105

p. 5-4

Materiality A Key Concept

What is it?

106

Definition of Materiality

“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.”

Defined by FASB Statement of Financial Accounting Concepts No. 2, Qualitative

Characteristics of Accounting Information

p. 5-4 107

Materiality

Has been defined in FASB, AICPA, SEC, and PCAOB documents…

So, if the definitions are everywhere, what’s the problem?

p. 5-4 108

Materiality

(cont.)

The problem is… •

No authoritative formulation of materiality in the law or accounting literature.

• May be quite small numerically • Must be considered quantitatively and qualitatively p. 5-4 109

GAS Materiality

The 2007 GAS (sections 4.05 & 6.06) includes: • 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 p. 5-4 110

Impairment of Objectivity or Integrity

  Rule 102, Ethics Ruling No. 113 – “Acceptance or Offering of Gifts and

Entertainment”

What about gifts???

• Nature of gift • Occasion • Cost • Other matters p. 5-5 111

Ethical Responsibilities under GAS 2007

2007 GAS has guidance on:  Public interest   Professional behavior Integrity   Objectivity Proper use of government information, resources, and position p. 5-5 112

Gifts at the Federal Level

5 C.F.R. § 2635.202-204

       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 D for ethics principles

p. 5-7 113

   

Gifts at the State Level

Florida Statutes 112.3148

Follow guidance from your own agency and FS 112.3148

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 p. 5-8 114

Commissions and/or Referral Fees ( FAC Section 61H1-21.003)

 Prohibits commissions or referral fees with: • Audits • Reviews • Compilations • Prospective financial data • Services resulting in an expression of opinion p. 5-10 115

Contingent Fees

(FAC 61H1 – 21.005)

   Allowed only on findings of the government - not that of the licensee Some exceptions Government employees are not allowed to accept a contingent fee p. 5-12 116

Communication with Client of Another Licensee

(Florida Administrative Code 61H1 – 21.006)

“When a client of one licensee requests a second licensee to provide professional advice in connection with an expression of opinion, the second licensee must consult with the first, after obtaining the client's consent, to make certain that the second CPA is aware of all the relevant facts.”

p. 5-14 117

Chapter 6

Competency and Related Issues

Learning Objectives … p. 6-1 118

Florida Standards - Compliance

 The Florida standards require compliance in four general areas: 1. Professional Competence 2. Due Professional Care 3. Planning and Supervision 4. Sufficient Relevant Data p. 6-1 119

Competence – Professional

    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 p. 6-2 120

Competence – Due Professional Care

  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” p. 6-2 121

Competence

Planning and Supervision

 “A licensee shall adequately plan and supervise an engagement.”

Sufficient Relevant Data

 Data of a reasonable basis for a conclusion or recommendations p. 6-2 122

AICPA ET Section 201 – General Standards

 The AICPA standards are closely aligned with the Florida standards  Various interpretations also are closely aligned with the Florida standards p. 6-2 123

Interpretations Under Rule 201,

(cont.)

 Competence to perform professional services involves: • The technical qualifications of the member and the member's staff • Ability to supervise and evaluate the quality of the work performed p. 6-2 124

Interpretations Under Rule 201,

(cont.)

 Competence relates to: • Knowledge of the profession's standards, techniques and the technical subject matter involved • The capability to exercise sound judgment in applying such knowledge in the performance of professional services p. 6-2 125

p. 6-3

Hindsight

How we may be judged 126

Hindsight Judgment

     Hindsight is how we will be judged 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 p. 6-3 127

Hindsight Protection

Documentation Documentation Documentation

Documentation

Documentation p. 6-3 128

Documentation Requirements

Documentation requirements are found in many professional standards:   Auditing Standards Review Standards     Compilation Standards Quality Control Standards Attestation Standards Other Standards p. 6-4 129

  

Audit Documentation

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

• •

industry-specific timely

p. 6-4 130

Audit Documentation

(cont.)

Documentation implies that each work paper will include the following six points: 1. Who prepared it?

2. When?

3. Who reviewed it?

4. When?

5. Where did it come from?

6. Where is it going?

p. 6-5 131

Risk Assessment Standards

   Many documentation requirements are in the “Risk Assessment” standards SASs 104-111 have been reissued as part of the Clarity Project The new standards are in SAS 122, effective for periods ending after December 15, 2012 p. 6-6 132

Specific Standards

     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. 6-6 133

Government Auditing Standards – General Standards

   Independence • free from personal, external, & organizational impairments Professional Competence • Professional skepticism, diligence Judgment • Engagement staff must collectively possess adequate professional competence p. 6-6 134

 

Summary of New Ethics Guidance from the AICPA

Framework for independence standards [ET Section 100-1.20] • Definitions of Public Interest and changes to threats Applicability [ET Section 91] • No separate AICPA disciplinary process if AESBA standards used  Members in business [ET Section 92.22] • Members must follow Code if type of services requires it p. 6-6 135

 

Summary of New Ethics Guidance from the AICPA

(cont.)

Disclose client info to third parties [ET Sections 92.05 and 391.2] • Disclosing info without permission is more limited Disclose prior employer confidential information [ET Sections 92.05, 391.2, 501.9] • Limits member’s disclosure about prior employers p. 6-6 136

 

Summary of New Ethics Guidance from the AICPA

(cont.)

Concept of “financial interest threats” is expanded to business members [ET Section 100-1.20] • Now requires members in business to recognize financial interest threats and safeguards Expands what is false or misleading acts to all CPAs [Interpretation 501.10, .11] • Now applies to members in business p. 6-6 137

  

Summary of New Ethics Guidance from the AICPA

(cont.)

Interpretation on application of independence reqs. to attest clients [Int.101-18, 20] • Independence requirement applications revisited CPAs may now teach for firm’s educational institution clients [101-.19, .21] • Auditors may now be part-time faculty Changes 101-3 for Attestation Engagements [101-.11, .13] • May now provide attest services not relating to specific matters of attestation engagement p. 6-6 138

  

Summary of New Ethics Guidance from the AICPA

(cont.)

Modifies GAAP for Rule 203 [Interp. 203-5] • May now use but denote the framework used Explains when members may withhold records prepared for clients [Interp. 501-1] • 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 505-4 and 505-5] • CPAs should not use misleading firm names p. 6-6 139

Chapter 7

Ethics and Independence (Florida and AICPA) Learning Objectives … p. 7-1 140

Which Rules are for You?

• The Florida Legislature • The FL BOA • The AICPA • The PCAOB • The SEC • Yellow Book and/or OMB Requirements • Others p. 7-1 141

Key Independence Terms

    Covered member • • Single Office Multi Office Services performed • • Attest services Nonattest services Client Relationships p. 7-2 142

Who is a Covered Member?

   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 p. 7-3 143

What is an attest engagement?

    An engagement that requires independence (ET 92.01) In Florida, FS 473.315 sets the stage.

Florida has “Standards for Independence” (Appendix H)

“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.”

p. 7-3 144

Gifts and Entertainment

    Rule 101, Ethics Ruling No. 114, “Acceptance or Offering of Gifts or

Entertainment to or from an Attest

Client.” Position to influence Significance Reasonable p. 7-5 145

Code of Professional Conduct

“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

p. 7-6 146

61H1-21.001 Independence

    The Florida Statutes are very clear on independence and expressing an opinion.

The technical standards for independence are set out in FAC 61H1-21-001. 61H1-21.001 (2) sets out the standards known as “Standards for Independence” for Florida CPAs Requires compliance with this rule p. 7-6 147

Code of Professional Conduct

   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?

p. 7-6 148

Basic Engagements

Five basic engagements require independence: 1. Audit 2. Review 3. Compilation 4. Attestation 5. Prospective Financial Statements p. 7-6 149

Attest Engagements

    The AICPA’s Ethics Interpretation No. 101-3, 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

p. 7-6 150

Covered Members and Independence

  Single Office Multi Offices p. 7-6 151

Who is the Client?

“Client” shall be deemed and construed to mean the person(s) or entity which retains a licensee for the performance of public accounting services.” FAC 61H1-20.003

p. 7-8 152

Independence of Internal Auditors

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 p. 7-8 153

Independence Changes in Comp & Review Engagements

 SSARS 19, Compilation and Review Engagements • 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 p. 7-10 154

Chapter 8

Independence: Non-attest, Non-audit Services Learning Objectives … p. 8-1 155

AICPA and GAO Standards

    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 F p. 8-1 156

Performing Nonattest Services Independence Rules of AICPA

 Under Interpretation 101-3 the independence rules may come from several authoritative bodies.

• FL BOA • AICPA • SEC • GAO • Department of Labor p. 8-2 157



Nonattest Services for a Client

When nonattest services are performed for clients for which attest services are performed: • Documentation of understanding with client is necessary • The requirements of 101-3 are still being revised p. 8-2 158

Nonattest Services for a Client

 Clients must agree to do certain things: • Make all management decisions • Designate an employee • Evaluate adequacy and results • Accept responsibilities • Establish and maintain controls p. 8-2 159

Nonattest Services for a Client

 Member must establish and document in writing his/her understanding with the client: • Engagement objectives • Services • Client’s acceptance • Member’s responsibilities • Any limitations p. 8-3 160

AICPA Interpretation 101-3

   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 p. 8-3 161

p. 8-4 Professional Ethics Quiz

…do you know the answer?

162

 

Independence Changes in Attestation Engagements

SSAE No. 17, Reporting on Compiled

Prospective Financial Statements When the Practitioner’s Independence is

Impaired, has permitted (but not required) the accountant to disclose the reason(s) for an independence impairment in the report SSAE 17 is effective for compilations of prospective financial statements for periods ending on or after December 15, 2010 p. 8-11 163

Performing Nonattest Services Independence Rules of GAS

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.

p. 8-12 164

Yellow Book Independence Scenarios

…do you know the answer?

By the Comptroller General of the United States Government Auditing Standards July 2007

p. 8-13 165

Chapter 9

Ethical Responsibilities to Clients and Other Considerations

Learning Objectives … p. 9-1 166

Confidential Client Information

   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 p. 9-2 167

Client Confidentiality

 Confidentiality includes: • Office situations • Storage in and away of client data • Other situations p. 9-3 168

Records Disposition Responsibility

 

CPA must return client records, documents, or other papers belonging to the client within a reasonable time

May charge for reasonable costs incurred p. 9-4 169

Revisions to Rule 501-1

  The revised interpretation defines key terms Makes interpretations of how to respond to client requests p. 9-5 170

Florida’s Public Record Law Chapter 119, F.S.

“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)

p. 9-9 171

Advertising

Advertising may not be: • Fraudulent • False • Deceptive • Misleading p. 9-10 172

Advertising/ Advertisements

       Misrepresentation of facts Partial disclosure False or unjustified expectations Appeal to fears, ignorance or anxieties False claims or misleading claims Designations False information p. 9-10 173

AICPA Rules on Advertising

 Found in ET Section 502 – “Advertising and Other Forms of

Solicitation”

 Florida rules generally follow the AICPA rules p. 9-12 174

Solicitation

(61H1-24.002)   Licensee may reply to requests for proposals Must adhere to rules for advertising, both oral and written p. 9-13 175

Responsibilities to Other Persons

  Licensees may not allow others to do things the CPA themselves may not do This includes situations for compensation and not for compensation p. 9-14 176

Practical Responsibilities

     Advertising/Advertisements Solicitation Other Persons Names, Terms, Branch Offices Form of Practice p. 9-14 177

Administrative and Office Considerations

    Names, terms, and branch offices (61H1-26) Forms of practice and name shared office space (61H1-26.001) Minimum capitalization /adequate public liability insurance (61H1-26.002) Financial statements of the firm p. 9-14 178

AICPA Rulings and Interpretations on Ethics

p. 9-15 179

Chapter 10

Code of Ethics for Public Officers and Employees

Learning Objectives … p. 10-1 180

Key Definitions

       Agency Breach of public trust Conflicts of interest Gift Purchasing agent Relative

See s. 112, Part III, Definitions

p. 10-2 181

Standards of Conduct

       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 p. 10-3 182

Chapter 11

Future Implications

Learning Objectives … p. 11-1 183

To prophesy is extremely difficult … especially with regard to the future.

Chinese Proverb p. 11-1 184

Our Future

Where is the CPA profession going?

p. 11-1 185

Our Future

(cont.)

  Most VERY large audits are performed by the “Quadropoly”/“Final Four” XBRL – bar coding of financial statements  Accounting Standards Codification   GAAP Restructuring/Codification Student enrollment in accounting across the US continues to rise  Mobility p. 11-1 186

Mobility

473.3141 FS

2007 - only 4 states had passed mobility provisions By Nov. 2011, 48 states had enacted mobility statutes. California, Guam, Hawaii, Puerto Rico, and US Virgin Islands are in-process.

Washington, DC has mobility pending.

p. 11-2 187

Mobility

(cont.) 473.3141 FS

.

 Mobility (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 a client’s state.

 In the end, State Boards of Accountancy will gain automatic jurisdiction over all CPAs practicing in their states whether they are licensed or registered in their state.

p. 11-2 188

Mobility

(cont.) 473.3141 FS

 Substantial Equivalency – 3 Issues • Education • Experience • Enforcement p. 11-2 189

CPA Mobility Legislation 2012

p. 11-2 190

“Big GAAP” vs “Little GAAP”

  Jan. 2011 - Blue-Ribbon Panel addressing Standards for Private Companies submits report of recommendations to Financial Accounting Foundation Report calls for fundamental changes to the system of standard setting, including the creation of a new board, to be overseen by the FAF, that would focus on making modifications to US GAAP for private companies  Report does not recommend a separate GAAP for private companies or a comprehensive reorganization of GAAP p. 11-2 191

Private Company GAAP

 Mar. 2011 - Financial Accounting Foundation outlines plans to address Standard Setting for Nonpublic Entities  Formed a Trustee Working Group to address accounting standard setting for nonpublic entities p. 11-2 192

International Implications

   2008 - AICPA Council approved International Financial Reporting Standards as recognized GAAP in the US Another step towards IFRS becoming the official GAAP of the US An ongoing convergence project between the FASB and the International Accounting Standards Board (IASB) will eliminate most of the differences between US GAAP and International GAAP over the next five years p. 11-2 193

International Implications

(cont.)

   The SEC Roadmap reflects that the SEC will make a major decision for the issuing entities in the United States The SEC Roadmap should not be interpreted as a roadmap for non issuers Ultimately, the convergence for non issuers will be determined by the FASB, the AICPA, and possibly others p. 11-2 194

p. 11-3 195

International Implications

(cont.)  The major question facing the United States is •

If the United States mandates IFRS for publicly traded companies, will private companies and not-for-profit organizations be required to adopt IFRS?

p. 11-3 196

International Implications

(cont.)  The simple answer is NO • The discussion of the SEC designating a future date for voluntary (or mandatory) adoption of IFRS has been for U.S. public companies only  Many privately held companies adopted provisions of the Sarbanes-Oxley Act, such as the formation of independent audit committees • Many might take similar action regarding IFRS p. 11-3 197

International Implications

(cont.)

 In December 2009, the AICPA, the Financial Accounting Foundation (FAF) and the National Association of State Boards of Accountancy (NASBA) established of a blue-ribbon panel to address how U.S. accounting standards can best meet the needs of users of private company financial statements p. 11-3 198

International Implications

(cont.)

  The panel will provide recommendations on the future of standard setting for private companies, including development of separate, standalone accounting standards A report is expected in the early part of 2011 p. 11-4 199

International Implications

(cont.)

Why might some private companies in the United States adopt IFRS?

 Adoption of IFRS by small businesses and non-profits is likely to be market driven  IASB developed a version of IFRS for small and medium-size entities to minimize complexity and reduce the cost of financial statement preparation, yet allow users to assess financial position, cash flows, and performance p. 11-4 200

International Implications

(cont.)

  IFRS for Small and Medium Entities (SME) released on July 9, 2009 • See FAQs regarding IFRS for SMEs at the AICPA site Will IFRS be incorporated into the Uniform CPA Exam?

• Yes, starting in January 2011 p. 11-4 201

International Audit Convergence

  Parallel effort is the AICPA’s Auditing Standards Board convergence project with the International Auditing and Attestation Standards Board (IAASB) Missing is what might happen to the Public Companies Accounting Oversight Board and its role in the global accounting profession p. 11-4 202

International Compilation and Review Convergence

  International Standard on Related Services (ISRS) 4410,

Engagements to Compile Financial Statements

International Standard on Review Engagements (ISRE) 2400,

Engagements to Review Financial Statements

• Issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) p. 11-4 203

International Compilation and Review Convergence

(cont.)

The purpose of the ISRS and ISRE is to: • Establish international standards and provide guidance on the accountant’s professional responsibilities when engaged to compile or review financial statements • Provide guidance on the form and content of the report the accountant issues for that compilation or review.

p. 11-4 204

International Compilation and Review Convergence

(cont.)

  ISRS 4410 and ISRE 2400 can be found in IFAC’s Handbook of International

Auditing, Assurance, and Ethics

Pronouncements at www.ifac.org

ISRS 4410 and ISRE 2400 do not override SSARS

p. 11-5 205

International Compilation

 

and Review Convergence

(cont.)

Interpretation No. 30 (AR 9100.130.135),

Considerations Related to Financial Statements Prepared in Accordance with International Standards

• Allows an accountant who performs a compilation or review of historical financial statements of a U.S. entity to follow the standards of another set of compilation and review standards in addition to the required AR 100 Standards Additionally, as US GAAP and US GAAS converge with the international standards, the ethics will also change p. 11-5 206

International Ethics

   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

p. 11-5 207

International Ethics

(cont.)

   Almost 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 and many others are in the process of converging with the code The code will impact those in public practice, business, academia, and government p. 11-5 208

International Ethics

(cont.)

  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: • Independence • Objectivity • Due care • Confidentiality p. 11-6 209

 

Who’s in Charge?

An ongoing issue for the future will be -

just who is in charge?

As organizations, people, and nations jockey for position in the future accounting world, our profession will see many changes occur • What will become of the FASB?

• What about the PCAOB?

• What will happen to the AICPA?

• How about the SEC?

• Will the IRS be impacted?

p. 11-7 210

Where in the heck are we going?

211

CPA Horizons 2025

The AICPA Project, CPA Horizons 2025, sought the insights on current and future trends that will impact the profession and the world of CPAs by: • online survey • 16 in-person forums • online discussions and focus groups • More than 5,600 CPAs responded spending a cumulative 6,000 hours and generating 75,000-plus comments relating to the current state and future of the CPA profession p. 11-7 212



CPA Horizons 2025

(cont.)

Ten key themes emerged that give insight into how the profession is: • Conducting and will conduct business • Serve clients and employers • Attract and retain employees and new business • Remain competitive in the marketplace throughout the next 15 years p. 11-7 213

1. Technology

 Understand and leverage relevant technology in conjunction with core CPA competencies to deliver superior services 214

1. Technology

(cont.)  IMPACT ON THE PROFESSION CPAs must stay current with, embrace and exploit technology for increased efficiency and expansion of services    The profession must find solutions to offer investors and stakeholders up-to-date, real-time financial information and to increase transparency CPAs must embrace mobile technologies and social media to modernize and enhance interaction and collaboration with clients and colleagues Fraud may be easier to commit and more difficult to prevent and detect 215

2. Pre-certification and Lifelong Learning

 Evolve the educational framework to keep pace with the changing dynamics of business, government and our profession 216

2. Pre-certification and Lifelong Learning

(cont.)  IMPACT ON THE PROFESSION CPAs must devote time to staying current with regulations and standards, and social, economic, technological and political trends domestically and abroad     CPAs must further develop interpersonal skills to enhance relationships with colleagues, clients, businesses and employers Real-time learning in the workplace will change the way CPAs learn and help them 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 217

3. Worldwide Profession

 Position the CPA as a premier designation of the accounting and finance profession throughout the world 218

3. Worldwide Profession

(cont.)  IMPACT ON THE PROFESSION CPAs must be increasingly aware of international business issues and trends   CPAs must assess the trend toward outsourcing overseas and create opportunities to expand services to serve these markets CPAs must continue to market the quality and value of their services in order to expand and thrive globally 219

4. Pride in the Profession

 Encourage pride among CPAs in the CPA profession and in the value CPAs create throughout society 220

4. Pride in the Profession

(cont.)   IMPACT ON THE PROFESSION The profession must continue to advocate on behalf of itself to ensure continued recognition as a trusted advisor CPAs must 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 221

5. Trusted Attester

 Preserve the role of the CPA as the trusted attester of financial and other information 222

5. Trusted Attester

(cont.)    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 223

6. Trusted Advisor

 Promote the CPA as the trusted advisor who, in addition to providing core CPA services, develops solutions to complex problems by integrating knowledge, expertise and resources from multiple disciplines 224

6. Trusted Advisor

(cont.)  IMPACT ON THE PROFESSION CPAs must 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 225

7. Market Permissions

 Leverage the strengths of the profession to expand market permissions 226

7. Market Permissions

(cont.)   IMPACT ON THE PROFESSION Emerging opportunities for specialization will allow CPAs to strengthen their expertise and provide additional value to clients, employers and business The profession must continue to evaluate which services it offers locally and globally and how it will deliver these services to adapt to the needs of clients, employers and business 227

8. Marketplace

 Address continual changes in the marketplace, economy, businesses and regulations 228

8. Marketplace (cont.)

   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, positioning CPAs to be leaders in helping clients and employers Lifelong learning will take on greater importance as a way for CPAs to stay up-to date 229

9. Value Proposition

  Increase the visibility of the profession’s value proposition by demonstrating the profession’s Core Values in multiple areas of business and society 230

9. Value Proposition

(cont.)   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 231

10. Demographic Shifts

 Continue to offer opportunities that enhance the appeal of the profession and be proactive in addressing both U.S. and global demographic shifts 232

10. Demographic Shifts

(cont.)   IMPACT ON THE PROFESSION The profession must 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 throughout the profession  Experienced and older CPAs must continue to mentor young CPAs and identify leadership and advancement opportunities that will foster stronger relationships and loyalty 233

10. Demographic Shifts

(cont.)   In order to attract and retain younger generations, employers must increase flexible work arrangements and work-at home options The profession must continue to support and enhance programs that build awareness of the CPA profession to young audiences 234

WHAT HAVE WE LEARNED?

    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 235

HOW DO WE DO IT?

• 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 236

HOW DO WE DO IT? (cont.)

• Globalization: Understand international issues, trends, standards and regulations; identify new markets; explore new job opportunities • Promotion: Market the profession’s virtues of integrity, objectivity and trust to local, national and international audiences 237

HOW DO WE DO IT? (cont.)

• 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 238

HOW DO WE DO IT? (cont.)

• 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 239

Welcome to the future!

240

p. 11-7

Even if you are on the right track, you’ll get run over if you just sit there.

Will Rogers 241

Take Away

…

 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: • Honesty • Trustworthiness • Integrity • Objectivity p. 11-7 242

The Reason for This is Simple

…

Our Professional

ETHICS

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Yellow Book Interim Revision

    Effective for engagements and financial audits beginning December 15, 2011 Expect final issuance by end of 2011 Biggest changes are to independence standards; will more closely align with AICPA Other changes include requirements: • Requirements for internal specialists • Requirements to follow AICPA’s general standards Appendix I, YB 244

Key Changes to Independence Standards

    Conceptual framework of “threats and safeguards” and how to document them Identification of seven threat categories Discussion of nonaudit service prohibitions and how to evaluate such services How to document management’s ability to oversee nonaudit services Appendix I, YB 245

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