Ethics and Professional Conduct for Oklahoma CPAs. Course #4755B Course Material

Transcription

1 Ethics and Professional Conduct for Oklahoma CPAs Course #4755B Course Material

2 Ethics and Professional Conduct for Oklahoma CPAs (Course #4755B) Table of Contents Page Chapter 1: Introduction to the Study of Ethics 1-1 Review Questions & Solutions 1-3 Chapter 2: Oklahoma Professional Conduct Rules 2-1 Review Questions & Solutions 2-14 Chapter 3: The AICPA Code of Professional Conduct 3-1 Review Questions & Solutions 3-22 Chapter 4: Ethics for Industry CPAs 4-1 Review Questions & Solutions 4-15 Chapter 5: Ethics and the Tax Professional 5-1 Review Questions & Solutions 5-45 Glossary Index Table of Contents

3 Chapter 1: Introduction to the Study of Ethics Objectives: After completing this chapter, you will be able to: Explain the function of ethics. Discuss the theory of utilitarianism. Describe the history of ethics in Western civilization. Contrast the term positive laws with natural laws. Discuss whether the AICPA code of ethics is a positive law or natural law. Explain why people follow rules of laws. Ethics has a number of functions or goals. The primary function is to develop formulas or logical constructs that can be used in choosing between various courses of action. The "moral" or "ethical" thing to do is considered the right thing to do. But it is not always easy to know what the moral course of action is. Ethical constructs and theories, such as Utilitarianism, which will be discussed later, are designed to be used as tools of thought in selecting an appropriate, ethical course of action. It does not matter if your goal is to be the best CPA or the best spouse or friend; the principles that guide one's actions will theoretically be the same. Webster's Dictionary defines "ethics" as "the discipline dealing with what is good and bad and with moral duty and obligation" and as "a set of moral principles or values." The word "moral" is defined as "of or relating to principles of right and wrong in behavior." Ethics has also been defined as the "science of conduct." First and foremost, ethics is a philosophy. The study of ethics has a long and rich history in Western civilization, beginning with the early Greek philosophers such as Plato and Aristotle, emerging along with early Christian thought in the medieval period and continuing into modern European scholarship. Throughout the centuries, the great philosophers have attempted to develop normative constructs to use in defining behavior. Many schools of thought have developed that have been used not only to define conduct, but to establish norms. These theories have been used variously to justify different courses of conduct as ethical and to promote different modes of behavior. OBSERVATION: Nowhere in the dictionary will you find the definition of ethics as doing that which one is legally obligated to do. Ethical responsibilities exceed legal obligations. The modern professional rules of conduct that govern CPAs like those governing attorneys and other professionals have developed out of those schools of thought with an eye toward establishing a set of norms that benefit and promote the profession while protecting consumers. A general understanding of some of the background of this field of study is helpful to more fully understand the goal of the rules of professional conduct governing CPAs. This type of understanding is also useful in analyzing situations that may arise that do not fall squarely within the parameters of one of the specific professional rules. The ethical CPA should be able to determine the appropriate course of action regardless of the circumstances in which she finds herself. We will begin our discussion with a brief overview of a few of the major philosophical ethical constructs and then examine how those constructs can be used as models in guiding the behavior of CPAs. Most societies attempt to compel ethical behavior by requiring adherence to a series of laws (in this way, the rules of professional conduct governing CPAs can be viewed as Introduction to the Study of Ethics 1-1

4 laws designed to ensure that CPAs act ethically). English philosopher John Austin wrote that "a law, in the most general and comprehensive acceptation in which the term, in its literal meaning, is employed, may be said to be a rule laid down for the guidance of an intelligent being by an intelligent being having power over him." This definition is taken from Austin's "The Providence of Jurisprudence Determined," first published in Austin defines several types of laws. First, according to Austin, are laws laid down by God to govern the behavior of man. These are referred to as "natural laws." Next are laws established by men, which are termed "positive laws," or laws that exist by position. Every law, according to Austin, is a "command": Summary: Philosopher John Austin believed there are 2 types of laws: 1) Natural Laws Laws laid down by God to govern the behavior of man; 2) Positive Laws Laws that are established by men. Viewed according to this philosophical model, the AICPA's Code of Professional Conduct is most properly characterized as a set of commands. As they are commands laid down by man to govern the conduct of man, philosopher John Austin would classify the AICPA s Code of Professional Conduct as a positive law. And as the result of a failure to follow or abide by a rule of professional conduct can lead to the imposition of a punishment or a sanction, that rule of professional conduct can again, according to Austin's philosophical model, properly be referred to as a positive law. Even though the purpose of the rule is to achieve a certain good, the rule is defined by the sanction that is threatened when there is non-compliance: I am determined or inclined to comply with the wish of another, by the fear of disadvantage or evil. I am also determined or inclined to comply with the wish of another, by the hope of advantage or good. But it is only by the chance of incurring evil, that I am bound or obliged to compliance. It is only by conditional evil, that duties are sanctioned or enforced. It is the power and purpose of inflicting eventual evil, and not the power and purpose of imparting eventual good, which gives to the expression of a wish the name of a command. Thus, the AICPA Code requirement that CPAs "maintain objectivity and be free of conflicts of interest in discharging professional responsibilities" (Article IV) takes the form of a "command" over CPAs through the risk that a CPA who fails to act with objectivity in discharging his or her obligations could be sanctioned by the AICPA. It is through knowledge that a sanction is possible that the CPA follows the "commands" of the rules of professional conduct. It is through the fact that the members of the group, in this case CPAs, follow the same set of commands, that a "society" is established: "In order that a given society may form a society political, the generality or bulk of its members must habitually obey a superior determinate as well as common." Thus, accountants, while they do not form a "society" within the traditional meaning of the term, defined as a political entity, do form a society in the broader definition as a group of individuals who voluntarily submit themselves to the same set of rules under the threat that non-compliance with any particular positive law can lead to the imposition of a sanction. Introduction to the Study of Ethics 1-2

5 CHAPTER 1 REVIEW QUESTIONS The following questions are designed to ensure that you have a complete understanding of the information presented in the chapter. They do not need to be submitted in order to receive CPE credit. They are included as an additional tool to enhance your learning experience. We recommend that you answer each review question and then compare your response to the suggested solution before answering the final exam questions related to this chapter. 1. The study of ethics as a philosophy began: a) in the 20th century b) with ancient Greek philosophers c) with the development of Christianity d) with medieval philosophers 2. The AICPA s Code of Professional Conduct are most properly classified, according to Austin, as: a) natural laws b) philosophical models c) positive laws d) commands Introduction to the Study of Ethics 1-3

6 CHAPTER 1 SOLUTIONS AND SUGGESTED RESPONSES 1. A: Incorrect. The study of ethics as a philosophy began over 2000 years ago. B: Correct. The study of ethics as a philosophy began with ancient Greek philosophers such as Plato and Aristotle. C: Incorrect. The study of ethics began with Plato which predates Christianity. D: Incorrect. The study of ethics was well founded by medieval times. (See page 1-1 of the course material.) 2. A: Incorrect. Natural laws are laid out by God. God did not create the AICPA Code of Professional Conduct. B: Incorrect. The AICPA Code of Professional Conduct is a set of commands, not a philosophical model. C: Correct. Austin considers every set of commands as a positive law. D: Incorrect. Although the AICPA Code of Professional Conduct is a set of commands, under Austin s philosophical model a set of commands is a positive law. Most people studying philosophy would consider both c and d to be correct answers. (See page 1-2 of the course material.) Introduction to the Study of Ethics 1-4

7 Chapter 2: Oklahoma Professional Conduct Rules Objectives: After completing this chapter, you will be able to: Apply the Oklahoma Professional Conduct Rules. SUBCHAPTER 30. CONTINUING PROFESSIONAL EDUCATION Section 10: Reporting and documentation by certificate and license holders 10: Reporting and documentation by certificate and license holders (a) Certificate and license holders not otherwise exempt must complete one hundred twenty (120) hours of qualifying CPE within a rolling three (3) calendar year period. A certificate or license holder's rolling three (3) calendar year period begins January 1 in the year the certificate or license holder was required to earn CPE. A minimum of twenty (20) hours of acceptable CPE shall be completed each calendar year. Effective January 1, 2009, four hours of professional ethics must be completed within each rolling three (3) calendar year period. (b) Each certificate and license holder shall annually report CPE for the preceding calendar year or claim an exemption to the CPE requirement for the preceding calendar year. This reporting shall take place in conjunction with the filing of the certificate or license holder s annual registration renewal based on the certificate or license holder s birth month. The Board shall provide a schedule for purposes of transitioning to the new staggered annual birth month renewal/reporting dates. (c) The professional ethics requirement as mandated in this section may be met by courses from other licensed professional disciplines that relate directly to the practice of public accounting, such as law or securities and may be met by courses on ethical codes in jurisdictions other than Oklahoma. (d) CPE hours claimed for credit may be claimed only for the compliance period in which the course was completed and credit granted. (e) Each letter or certificate of completion shall include the date of completion of the seminar or course as evidenced by: (1) Date the in-attendance course was completed; (2) Date a self-study course was completed and evidenced by the date of certified mailing or date of facsimile transmission to the program sponsor; (3) Date an Internet self-study course is transmitted to the program sponsor. (f) At the time of completing each course, or within sixty (60) days thereafter, the certificate or license holder shall obtain a letter or certificate attesting to completion of the course from the sponsor of the course. Such letters or certificates shall be retained for a period of five (5) years after the end of the calendar year in which the Oklahoma Professional Conduct Rules 2-1

8 program is completed and shall include the specific information set forth in the Board s CPE Standards in 10: (a). (g) Participants in CPE programs shall also retain descriptive material for five (5) years which reflects the content of a course in the event the participant is requested by the Board to substantiate the course content. Examples of such descriptive materials might include: (1) Course descriptions; (2) Course outlines; and (3) Course objectives. (h) If a certificate or license holder's main area of employment is industry and the certificate or license holder holds a permit to practice, at least seventy-two (72) hours of the one hundred twenty (120) hour requirement within a rolling three (3) calendar year period of the qualifying CPE completed by the certificate or license holder shall be in subjects related to the practice of public accounting and shall earn a minimum of eight (8) hours in the areas of taxation, accounting or assurance per year. (i) Effective January 1, 2011, if a certificate or license holder is actively involved in the supervision or review of compilation engagements for third party reliance, the certificate or license holder must complete a minimum of eight (8) credits of CPE by group program method in the subject area of compilation engagements in each calendar year. This requirement shall be waived if: (1) The certificate or license holder works for a public accounting firm currently enrolled in a peer review program with an approved sponsoring organization; or (2) The certificate or license holder is a sole proprietorship currently enrolled in a peer review program with an approved sponsoring organization. SUBCHAPTER 39. RULES OF PROFESSIONAL CONDUCT Section 10: Application 10: Firm names 10: Written communications 10: Professional misconduct 10: Application OBSERVATION: In prior years, Oklahoma had its own rules of professional conduct which closely followed the AICPA rules. In 2004, the Board adopted the AICPA code by reference except where it conflicts with Board rules. Henceforth, any change in the AICPA rules automatically applies to Oklahoma CPAs. (a) To the extent not contradicted by rule herein, a registrant shall conform in fact and in appearance to the AICPA Code of Professional Conduct. Oklahoma Professional Conduct Rules 2-2

9 (b) To protect the public interest, the Rules of Professional Conduct are based on the premise that the public and the business community rely on sound financial reporting and on professional competence. This premise is inherent in the authorized use of the titles certified public accountant and public accountant, which imposes on persons registered with the Board certain obligations to the public and to others. These obligations which the Rules of Professional Conduct are intended to enforce, include: the obligation to maintain independence and objectivity of thought and action, to strive continuously to improve professional skills, to observe, where applicable, accounting principles generally accepted in the United States of America, International Financial Reporting Standards (IFRS), governmental auditing standards, standards as set by the Public Company Accounting Oversight Board, and generally accepted auditing standards, to promote sound and informative financial reporting, to hold the affairs of clients or employers in confidence, to uphold the standards of the public accounting profession, and to maintain high standards of personal conduct in all matters affecting fitness to practice public accounting. (c) Acceptance by a registrant of a certificate or license involves duty to abide by the Rules of Professional Conduct. (d) The Rules of Professional Conduct are intended to have application to all kinds of professional services performed in the practice of accounting, including, but not limited to, assurance, attest, auditing, accounting, review and compilation services, tax services, management advisory services and personal financial and investment planning, and intended to apply as well to all certificate and license holders, whether or not engaged in the practice of public accounting, except where the wording of one of the Rules of Professional Conduct clearly indicates that the applicability is more limited. (e) A registrant who is engaged in the practice of public accounting outside the United States is not subject to discipline by the Board for departing, with respect to such foreign practice, from any of the Rules of Professional Conduct, so long as the conduct is in accordance with the Rules of Professional Conduct applicable to the practice of public accounting in the country in which the registrant is practicing. If the name of a registrant is associated with financial statements in such manner as to imply that the registrant is acting as an independent CPA or PA under circumstances which would entitle the reader to assume that United States practices are followed, the registrant will be expected to comply with auditing standards and accounting principles generally accepted in the United States of America, and other professional standards applicable to the services provided. (f) In interpreting and enforcing these rules, the Board may give consideration, but not necessarily dispositive weight, to relevant interpretations, rulings and opinions issued by the boards of other jurisdictions, appropriately authorized ethics committees of professional organizations and other federal and state agencies. 10: Firm names (a) A firm name may not contain words, abbreviations or other language that is misleading to the public or that may cause confusion to the public as to the legal form or ownership of the firm. Oklahoma Professional Conduct Rules 2-3

10 (b) A firm licensed by the Board may not conduct business, perform or offer to perform services for or provide products to a client under a name other than the name in which the firm is licensed. (c) A word, abbreviation or other language is presumed to be misleading if it: (1) Is a trade name or assumed name that does not comply with paragraph (d)(1) or (2) of this subsection; (2) States or implies the quality of services offered, special expertise, expectation as to outcomes or favorable results, or geographic area of service; (3) Includes the name of a non-owner of the firm; (4) Includes the name of a non-cpa; (5) States or implies educational or professional attainment not supported in fact; (6) States or implies licensing recognition for the firm or any of its owners not supported in fact; or (7) Includes a designation such as and company, company, associates, and associates, group, or abbreviations thereof or similar designations implying that the firm has more than one employed registrant unless there are at least two employed registrants involved in the practice. Independent contractors are not considered employees under this subsection. (d) A word, abbreviation or other language is presumed not misleading if it: (1) Is the name, surname, or initials of one or more current or former CPA owners of the firm, its predecessor firm or successor firm; (2) Is the name, surname, or initials of one or more current or former international practitioner owners of the firm, its predecessor firm or successor firm who are or would have been eligible to practice public accountancy in this state; (3) Indicates the legal organization of the firm; or (4) States or implies a limitation on the type of service offered by the firm, such as tax, audit or investment advisory services, provided the firm in fact principally limits its practice to the type of service indicated in the name. (e) A registrant who is a sole proprietor, and not incorporated, who is engaged in the practice of public accounting must comply with 1 and 2 of this subsection: (1) The registrant shall be allowed to use and employ the designation d/b/a with a business name provided the sole proprietor s name is included in the name of the business. No registrant shall use a misleading business name; and (2) A partner surviving the death of all other partners may continue to practice under the partnership name for up to two years after becoming a sole proprietor. (f) The name of any current or former owner may not be used in a firm name during any period when such owner is prohibited from practicing public accountancy and prohibited from using the title certified public accountant, public accountant or any abbreviation thereof. (g) This section regarding firm names does not affect firms licensed by the Board prior to the effective date of this section, but does apply to any change in legal organization or name that occurs after the effective date of this section. Oklahoma Professional Conduct Rules 2-4

11 (h) A firm licensed by the Board after the effective date of this section, whose name includes a designation implying that the firm has more than one employed registrant, as provided in Subsection (c)(7) above, may continue to practice under that name for up to two years from the date the firm no longer has more than one employed registrant. Case Study Public Communications and Advertising by Firm A operated as a sole proprietor from 1984 through In March 2002, A registered A LLC with the Board. In August 2006, B and C merged with A to form AB&C LLC. The website for AB&C LLC described the firm as established in Stating that AB&C LLC was established in 1984 is a misrepresentation of fact. POSSIBLE BOARD ACTION: Using the established date of 1984 is misleading and a violation of Rule 10: Practice Pointer FIRM NAMES Every business organization or sole proprietor that performs attest services, or uses the terms certified public accountant or public accountant or any abbreviation for such terms, or holds out to the public as being engaged in the practice of public accounting, is required to be registered with the Oklahoma Board of Accountancy. False and misleading firm names. The fundamental principle that public accounting firms must keep in mind when considering a firm name relates to the rule that prohibits false and misleading firm names. Firm names that seem to comply with other provisions of the rules must finally be tested by asking the question Is this name false or misleading to the public? Plural firm names. Public accounting firms that have the names of more than one licensed accountant in the firm name must have an equal number of licensed accountants in the firm. Firms that use a plural title or designation, such as company, associates or accountants, must employ at least one licensed person who works at least 20 hours per week in addition to the number of licensees who are named in the title of the firm. Retired or deceased names. A public accounting firm may continue to include the names of one or more past partners, shareholders, owners or members in the firm name, so long as the firm name is not false or misleading to the public. Oklahoma Professional Conduct Rules 2-5

12 Question: Bob Jones is a sole practitioner who employs a part-time secretary who is not a CPA. May Bob Jones use the firm name Bob Jones and Company, Certified Public Accountants? Answer: No. Bob Jones has violated the rules. The use of and company implies more than one CPA. Because the secretary is not a CPA, the plural designation is not permitted. 10: Written communications A certificate or license holder, firm, candidate, or applicant shall provide copies of any requested documents and shall substantively respond in writing to any communications from the Board requesting a response within thirty (30) days of the mailing of such request or communication by registered or certified mail, to the last address of the registrant known to the Board. Observation: Failure to respond to a Board inquiry can result in disciplinary action. Case Study Failure to Respond to Board Communications A complaint was filed against Brown. The Board notified Brown of the complaint and requested that Brown respond within 30 days. Brown did not respond within 30 days. LIKELY BOARD ACTION: Violation of Rule 10: : Professional misconduct It is professional misconduct for a CPA, PA or a firm to: (1) Violate or attempt to violate the Oklahoma Accountancy Act or the rules implementing that Act, knowingly assist or induce another to do so, or do so through the act of another; or (2) Commit a criminal act that reflects adversely on the CPA s or PA s integrity, trustworthiness or fitness to practice as a CPA or PA; or (3) Commit any act that reflects adversely on the CPA s or PA s fitness to practice public accounting; or (4) Engage in conduct involving dishonesty, fraud, deceit, misrepresentation or omission of a known material fact; or (5) Engage in a pattern of repeated offenses, even ones of minor significance, including an indifference to the Oklahoma Accountancy Act or the rules implementing that Act; or Oklahoma Professional Conduct Rules 2-6

13 (6) State or imply an ability to influence improperly a government agency or official; or (7) Receive a censure, suspension, cancellation, or revocation by a state or federal agency concerning the right of the registrant to practice before a state or federal agency, whether by a hearing, consent agreement, court order, or other administrative proceedings. 10: Enforcement SUBCHAPTER 41. CHILD SUPPORT STATUTE The Board shall comply with the district courts of this state in implementing the provisions of Title 43, Section 139.1, of the Oklahoma Statutes. Observation: Failure to pay court-ordered child support may result in the loss of your right to practice public accounting. CPE REPORTING REQUIREMENTS AND EXCEPTIONS Part I CPE Reporting Requirements 1. Who must meet the CPE requirements? All certificate and license holders, unless exempted by retirement, active military service, disability, or inactive status, must meet the requirement. In general, you must meet the CPE requirement if: You wish to use your CPA/PA designation without using "retired CPA/PA" or "inactive CPA/PA"; You are in a position of responsibility and you hold that position because of your CPA/PA designation or because of your expertise as a CPA/PA; You provide any type of services that can be considered accounting, tax, bookkeeping, financial services, or management advisory services, whether or not for compensation, for anyone other than yourself or immediate family members; There is reliance on the services you provide, on your expertise as a CPA/PA, or on the accounting-related advice you give to anyone other than yourself or your immediate family members, whether or not for compensation. Note: You cannot claim an inactive status for the preceding compliance year if you provided any accounting-related services for anyone other than immediate family, even if it was only part time or for part of the year. 2. What is the CPE requirement? At least 120 hours of CPE must be earned within any rolling 3-calendar-year period with a minimum of 20 hours in any year. Four hours of professional ethics must be earned in each rolling 3-calendar-year period. Oklahoma Professional Conduct Rules 2-7

14 3. Are there any special CPE requirements? Yes, there are two situations requiring special CPE. Permit holders whose main area of employment is industry (including government and academia) must complete 72 of the 120 hours earned in any 3- calendar-year period in areas related to the practice of public accounting. At least 8 hours each year must be in the specific areas of taxation, accounting, or assurance. Effective January 1, 2011, if a certificate or license holder is actively involved in the supervision or review of compilation engagements for third party reliance, the certificate or license holder must complete a minimum of four (4) credits of CPE if: (1) The certificate or license holder works for a public accounting firm currently enrolled in the peer review program with an approved sponsoring organization; or (2) The certificate or license holder is a sole proprietorship currently enrolled in a peer review program with an approved sponsoring organization. 4. How does the rolling three-calendar-year CPE period work? Registrants required to complete CPE must be able to show they have earned 120 hours of CPE in any rolling 3-calendar-year period. For most registrants, the first 3-year period was January 1, 2006 through December 31, On January 1, 2009, CPE earned in 2006 dropped off. The next 3-year period was then January 1, 2007 through December 31, On January 1, 2010, the 2007 hours dropped off. The next 3-year period was January 1, 2008 through December 31, What is the compliance period for earning CPE? CPE is earned during each calendar year, between January 1 and December When and how will I report my CPE to the OAB? Until the implementation of birth month registration and reporting, the filing deadline for reporting CPE earned in the preceding calendar year will continue to be July 31. Once birth month reporting has been implemented, the deadline for reporting CPE will be the last day of the certificate or license holder's birth month. You will report your CPE online through the OAB's portal system or by submitting the paper form. There will continue to be a single process to report CPE or claim an exemption, register your CPA certificate or PA license, and/or apply for a permit, whichever are applicable to your situation. 7. Should I send my CPE certificates or other proof of completion to the OAB throughout the year as I earn my CPE? No. Keep your documentation in your CPE file. If you are selected to participate in the random sample CPE audit, you will be asked to provide copies of your documentation to the OAB. 8. What will happen if I do not meet the CPE requirement? You are given the entire calendar year to meet the minimum CPE requirement of 20 hours and three full calendar years to meet the 120-hour requirement. Poor planning and being "too busy" do not constitute valid reasons for not completing the CPE required by statute. If you are required by the Act and the Code to complete CPE and you choose not to meet the requirement, the matter may be referred to the OAB's Enforcement Committee for possible disciplinary action. Oklahoma Professional Conduct Rules 2-8

15 If there are extenuating circumstances, such as catastrophic illness, that prevent you from meeting the requirement, contact the OAB's CPE Coordinator as soon as you suspect you might not meet the requirement. 9. The rules require me to complete CPE if I perform management advisory services (MAS) for clients or for my employer. What accounting services are considered MAS? Accounting services that are considered MAS include but are not limited to the following: Counseling management in analysis, planning, organizing, operating, risk management and controlling functions; Conducting special studies, preparing recommendations, proposing plans and programs, and providing advice and technical assistance in their implementation; Reviewing and suggesting improvement of policies, procedures, systems, methods, and organization relationships; and Introducing new ideas, concepts, and methods to management. Part II Exceptions to the CPE Reporting Requirements 10. If I claim an inactive status and do not complete CPE, may I use the CPA or PA designation on letterhead, business cards, a resume or biography? No, not unless they say "inactive" or "retired" CPA or PA. 11. I provide accounting services, but I live and work outside of Oklahoma. Do I have to meet the CPE requirements? Yes. 12. I am retired (or inactive), but I provide volunteer services. Must I meet the CPE requirement? An "inactive" or "retired" status registrant may volunteer services for which the registrant receives no direct or indirect compensation so long as the registrant does not sign any documents related to such services as a CPA or PA. Volunteer services do not extend to preparing tax returns for friends and neighbors. 13. I am the trustee of a family member's trust fund. Must I complete CPE? No. 14. I am the trustee of a friend's trust fund. Do I have to complete CPE? No, not unless there is reliance upon your expertise as a CPA. 15. Do I have to meet the CPE requirement to prepare my grandmother's tax return? You can provide incidental, non-compensated services for immediate family members as defined in Code 10: without having to meet the CPE requirement. 16. I provide bookkeeping and/or accounting services for my family owned business. Do I have to meet the CPE requirement? No, not unless you are signing financial documents as a CPA. 17. I am a tax attorney. Do I have to meet the CPE requirement? No, not if the only client services you provide are as an attorney. However, if you do not meet the CPE requirement, you cannot display your CPA certificate or PA license on your office wall or use your professional designation on business cards and letterhead. Oklahoma Professional Conduct Rules 2-9

16 18. Does a loan officer at a bank have to meet the CPE requirement? If the loan officer prepares or assists customers in preparing financial statements, provides management advisory services to customers or to the employer, CPE is required. 19. Do Certified Financial Advisors and Certified Financial Planners have to meet the CPE requirement? Yes. 20. I sit on the Board of a public company. Do I have to meet the CPE requirement? You would be required to complete CPE if you were selected for membership on the Board because of your CPA or PA designation, if the Board relies on your CPA or PA designation, if you provide any type of management advisory services, or if you use your CPA or PA designation. 21. I am the Chief Financial Officer for a company. Do I have to complete CPE? Yes. 22. I am the CEO of a company. Am I required to complete CPE? You must complete CPE if being a CPA was a requirement for your position. You must complete CPE if you are using your CPA designation on letterhead or business cards or signing letters or other documents as a CPA, unless you specify "inactive CPA." Otherwise, you do not. FIRM FREQUENTLY ASKED QUESTIONS 1. I am thinking about incorporating or forming a limited liability company for my practice. How do I proceed? Contact the Oklahoma Secretary of State about forming a professional services firm. The phone number is Contact the Oklahoma Accountancy Board for a letter of good standing which certifies that each of the incorporators, directors, members, partners and shareholders are registered and hold a permit to practice public accounting. This certification is required by the Secretary of State. File a completed initial firm registration form with the Board as soon as the Secretary of State has issued your corporate charter. The Board requires a copy of the charter and a copy of the Articles of Incorporation as filed with the Oklahoma Secretary of State, with all amendments thereto to be filed with the initial firm registration. 2. What if I need to change the name or structure of my firm? If applicable to the type of entity, contact the Oklahoma Secretary of State about renaming a professional services firm. The phone number is File a complete initial firm registration form with the Board as soon as the Secretary of State has issued your amended corporate charter. The Board requires a copy of the charter and a copy of the amended Articles of Incorporation as filed with the Oklahoma Secretary of State with all amendments thereto to be filed with the initial firm registration. Oklahoma Professional Conduct Rules 2-10

17 If you need to dissolve the previous firm, you can either file a notice of dissolution form or attach a letter requesting the firm be dissolved. Did you know? ATTENTION ALL FIRMS! Section 15.15A.C. of the Oklahoma Accountancy Act requires the following to be reported by letter to the Board within 30 calendar days from the date of occurrence: Changes in the shareholders, members, or partners of the firm; Changes in the structure of the firm; Changes in the designated manager of the firm; Changes in the number or location of offices of the firm; Denial, revocation, or suspension of certificates, licenses, permits, or their equivalents to the firm or its shareholders, members, partners, or employees other than in this state. BOARD ADOPTS PEER REVIEW REQUIREMENT The Peer Review rules found in Subchapter 33 became effective July 1, The rules can be viewed or downloaded from the Board s website at INTERNET PRACTICE NOTIFICATION REQUIREMENTS Did you know that if you offer or render professional accounting services to Oklahoma clients from a website, you must disclose via that website your principal jurisdiction of licensure, license number, and an address? This applies to other electronic means as well. This is so regulators and the public have a means to contact you regarding complaints, questions, or regulatory compliance. Firms who offer or render professional accounting services to Oklahoma clients must provide on their website s homepage or other electronic medium a name, address, and the principal jurisdiction of licensure. Again, the purpose is to provide a means for regulators and the public to contact a responsible licensee in charge at the firm regarding complaints, questions, or regulatory compliance. Oklahoma Professional Conduct Rules 2-11

18 Observation: Board s Rules Take Precedence Oklahoma registrants often have many hats to wear and many rules to follow. Recent articles from both the AICPA and SEC have indicated professional independence and ethics rules that may be less restrictive than the rules of the Oklahoma Accountancy Act and related regulations. Registrants should be aware that when there is a conflict between other regulatory provisions and those of the Oklahoma Accountancy Act or the Oklahoma Administrative Code, they must comply with Oklahoma law and rules. The complete text of the Act and the Administrative Code can be found on the Board s website. PRACTICE POINTER: The July 6, 1998 issue of Sports Illustrated included a book review on a book written by a CPA in public practice. The book by a Chicago based sports accountant included the names of many well known and relatively unknown sports personalities. No confidential information was released; however, I believe the CPA profession was harmed by the book s publication, even though all applicable ethical guidelines were met. The release of client names may lead the public to distrust the CPA. I propose you adhere to a higher standard in your practice such as the following: Public companies public company client names may be released since the public is relying on your firm s attestation of the client s financial statements. Non-Public companies and individuals keep confidential unless the client has released your name or you have received permission to speak. Practice Pointer: How do you know whether you are in the practice of public accounting? It is particularly important that you are familiar with the criteria that establish whether a registrant is in the practice of public accounting. The definition and a discussion of the Practice of Public Accounting can be found in the Act in section 15.1A (Definitions), number 31. Please note that OAC 10: (b) states: Any registrant engaged in the practice of public accounting, regardless of whether such services are rendered for compensation, must have a permit if the registrant is holding out as a CPA or PA in any manner as described in the Act [emphasis added]. It is a common misconception that if you don t sign any reports or any tax returns, you don t have to hold a permit to practice. This is not the case. Please note that Section 15.1A(31)(3) of the Act says, prepares or certifies for clients reports In addition, 15.1A(31)(6) says, prepares or signs as the tax preparer [emphasis added]. Oklahoma Professional Conduct Rules 2-12

19 If you work in the non-public arena but are preparing tax returns for family or friends, even if you don t sign them and even if you are not paid for your services, you are practicing public accounting and need to hold a permit. You also need to notify the Board in writing that you practice public accounting on a part-time basis. The same holds true if you are advising others and they rely on your advice because they know you are a CPA or a PA, whether or not for compensation RULE CHANGES SUMMARY These rules were approved April 29, 2010 and generally took effect July 1, The birth month registration is scheduled to begin January 1, Subchapter 3 The purpose of substantive amendments to Subchapter 3 is to establish rules for performing a national criminal history record check for applicants of a certificate or license. Subchapter 22 The purpose of amendments to Subchapter 22 is to eliminate the requirement that outof-state CPAs must notify the Oklahoma Accountancy Board of their intent to practice under the substantial equivalency provisions. Subchapter 30 The purpose of substantive amendments to Subchapter 30 is to provide that reporting of CPE will be in conjunction with the filing of the certificate or license holders annual registration renewal based on their birth months and provide examples of the types of descriptive materials that should be retained to substantiate CPE courses. To further protect the public, a new provision is added that requires that individuals actively involved in the supervision or review of compilation engagements for third party reliance complete at least 8 credits of CPE taken by the group program method within each calendar year. This requirement would be waived if the registrant works for a public accounting firm currently enrolled in a peer review program with an approved sponsoring organization or if the registrant is a sole proprietor currently enrolled in a peer review program with an approved sponsoring organization. Subchapter 37 The purpose of the amendment to Subchapter 37 is to create a specific rule violation for failure to cooperate with an investigation conducted by the Board. Greater cooperation from individuals under investigation should reduce the time it takes to complete an investigation, thus reducing the cost of the investigation. Oklahoma Professional Conduct Rules 2-13

20 CHAPTER 2 REVIEW QUESTIONS The following questions are designed to ensure that you have a complete understanding of the information presented in the chapter. They do not need to be submitted in order to receive CPE credit. They are included as an additional tool to enhance your learning experience. We recommend that you answer each review question and then compare your response to the suggested solution before answering the final exam questions related to this chapter. 1. In general, Oklahoma certificate and license holders not otherwise exempt must complete CPE in order to renew their license. Which of the following is correct regarding how many hours of CPE are required: a) 120 hours of CPE within a rolling three year period b) 60 hours over a three year period c) 40 hours per calendar year d) 20 hours in the prior calendar year 2. Fred Smith is a sole practitioner who employs a full-time assistant who is not a CPA. Which of the following firm names may Mr. Smith use: a) Fred Smith & Associates, Certified Public Accountants b) Fred Smith & Associates, Certified Public Accountant c) Fred Smith, Certified Public Accountant d) Fred Smith & Company, Certified Public Accountant Oklahoma Professional Conduct Rules 2-14

21 CHAPTER 2 SOLUTIONS AND SUGGESTED RESPONSES 1. A: Correct. In addition, a licensee must complete a minimum of 20 hours per calendar year and four hours of ethics each three-year period. B: Incorrect. Licensees must complete a minimum of 20 hours per year. C: Incorrect. The average number of CPE hours per year is 40, but there is a minimum of 20 hours per year with at least 120 over a three year period. D: Incorrect. Licensees must complete a minimum of 20 hours per year. However, there are additional requirements also. (See page 2-1 of the course material.) 2. A: Incorrect. The use of & Associates implies more than one CPA. In addition, the plural designation Accountants is not permitted. B: Incorrect. The use of & Associates implies more than one CPA. The singular designation Accountant is permitted. C: Correct. The name is not confusing, nor does it imply that more than one CPA is part of the firm. D: Incorrect. The use of & Company implies more than one CPA. In addition, the plural designation Accountants is not permitted. (See page 2-4 of the course material.) Oklahoma Professional Conduct Rules 2-15

22 Chapter 3: The AICPA Code of Professional Conduct Objectives: After completing this chapter, you will be able to: List the six guiding principles in the AICPA Code of Professional Conduct. Explain the difference between the principles and the rules. Discuss how to apply the rules to specific actions common to the CPA community. The Code of Professional Conduct provides guidelines for accounting practitioners in the conduct of their professional affairs. A member of the AICPA must observe all the Rules of Conduct unless an exception applies. The need to observe the Rules of Conduct also extends to individuals who carry out tasks on behalf of an AICPA member. A member may be held responsible for a violation of the rules committed by fellow partners, shareholders, or any other person associated with him who is engaged in the practice of public accounting. The bylaws of the AICPA provide the basis for determining whether a member has violated the Rules of Conduct. If a member is found guilty of a violation, he or she may be admonished, suspended or expelled. A member of the AICPA also must be aware of Interpretations of the AICPA Rules of Conduct. After public exposure, Interpretations of the AICPA Rules of Conduct are published by the Executive Committee of the Professional Ethics Division. Interpretations are not intended to limit the scope or application of the Rules of Conduct. A member of the AICPA who departs from the guidelines provided in the Interpretations has the burden of justifying such departure. Question: Why do I care about the AICPA rules if I am not a member of the AICPA? Answer: Most states pattern their rules after the AICPA. In addition, when courts look at professional negligence, they will look to national standards such as the AICPA Code of Professional Conduct. OBSERVATION: In performing an attest engagement, a member should consult the rules of his or her state board of accountancy, his or her state CPA society, the Public Company Accounting Oversight Board (PCAOB), and the U.S. Securities and Exchange Commission (SEC) if the member s report will be filed with the SEC, the U.S. Department of Labor (DOL) if the member s report will be filed with the DOL, the Government Accountability Office (GAO) if law, regulation, agreement, policy or contract requires the member s report to be filed under GAO regulations, and any organization that issues or enforces standards of independence that would apply to the member s engagement. Such organizations may have independence requirements or rulings that differ from (e.g., may be more restrictive than) those of the AICPA. The AICPA Code of Professional Conduct 3-1

23 AICPA ETHICS PYRAMID E) Your Behavior D) Rulings for Special Circumstances C) Interpretations Interpretations of Specific Rules B) Rules More Specific than the Principles A) Principles Conceptual Framework for the Code The AICPA ethics pronouncements can be thought of as a pyramid. A) Principles The six principles of the Code of Professional Conduct provide the conceptual framework for the code. They are the cornerstone of ethical behavior. B) Rules The rules of the Code of Professional Conduct are more specific than the six principles. Members must observe the rules. C) Interpretations Interpretations are issued by the AICPA to better explain the Code of Professional Conduct. Only the principles and rules are considered part of the Code of Professional Conduct. Interpretations explain the code but are not part of it. D) Rulings The rulings apply the rules of conduct and interpretations to particular circumstances. AICPA members who depart from such rulings must justify their departures. E) Your Behavior The code, interpretations and rulings are meaningless if they do not impact your behavior. For this reason, your behavior is at the top of the pyramid. PRINCIPLES The Principles of the Code of Professional Conduct: I. Responsibilities In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities. The AICPA Code of Professional Conduct 3-2

24 II. The Public Interest Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism. III. Integrity To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity. IV. Objectivity and Independence A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services. V. Due Care A member should observe the profession s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member s ability. VI. Scope and Nature of Services A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided. These principles establish the basis for characterizing the responsibilities the CPA has to clients, colleagues and the public at large. The fundamental theme of the six principles is to be committed to honorable behavior, even at the sacrifice of personal advantage. RULES The following definitions are used in the Rules of the Code of Professional Conduct: Practice of public accounting - The practice of accounting consists of the performance for a client, by a member or a member s firm, while holding out as CPA(s), of the professional services of accounting, tax, personal financial planning, litigation support services, and those professional services for which standards are promulgated by bodies designated by Council. However, a member or a member s firm, while holding out as CPA(s), is not considered to be in the practice of public accounting if the member or the member s firm does not perform, for any client, any of the professional services described in the preceding paragraph. Professional services - Professional services include all services performed by a member while holding out as a CPA. The AICPA Code of Professional Conduct 3-3