Ethics and Professional Conduct for Colorado CPAs CR&R. Course #4000M Course Material

Ethics and Professional Conduct for Colorado CPAs CR&R Course #4000M Course Material

ETHICS AND PROFESSIONAL CONDUCT FOR COLORADO CPAS CR&R (COURSE #4000M) Table of Contents Page Introduction I-1 Review Questions & Solutions I-3 Chapter 1: Colorado Revised Statutes 1-1 Review Questions & Solutions 1-30 Chapter 2: Rules of the Colorado State Board of 2-1 Review Questions & Solutions 2-51 Chapter 3: Policies of the Colorado State Board of 3-1 Review Questions & Solutions 3-15 Glossary Index Table of Contents

INTRODUCTION Objectives: After completing this chapter, you will be able to: Explain the three types of rules which govern the actions of Colorado CPAs. Almost all states require that CPAs pass an ethics course prior to obtaining their initial CPA certificate. More and more states are adopting regulations mandating ethics CPE as a condition of renewing one s right to practice. CPAs often ask, Why an ethics course I ve been practicing for years. The answer is simple. The accounting industry is undergoing change at a rapid pace. The areas undergoing the greatest change are: commissions, non-license ownership and contingent fees. Colorado law is often different from the AICPA. Thus, while you could be acting ethically in the eyes of the AICPA, you could be in violation of Colorado law. HOW THIS COURSE IS ORGANIZED Because it is designed as a two CPA hour course, the course focuses on the actual Colorado rules. These rules have three sources: Chapter 1: Colorado Revised Statutes this is the law the legislature wrote. It is often vague and leaves much room for interpretation. Chapter 2: Rules of the Colorado State Board of these rules were drafted by the Board in order to interpret and clarify the statutes. The rules are based on the statutes but are generally more meaningful because they explain the statute and enumerate special actions which are allowed or prohibited. The rules were adopted only after public hearings and comment. Chapter 3: Policies of the Colorado State Board of the policies simply detail how the Board carries out the requirements of the statutes and rules. The policies generally are not of much interest to most CPAs. The statutes, rules and policies can be compared to a pyramid: Policies Board Rules Colorado Statutes Introduction 1

BOARD OF ACCOUNTANCY The State Board of regulates the profession of certified public accountants, both individuals and public accounting firms. The practice of public accounting includes the issuance of reports on financial statements, management advisory or consulting services, preparation of tax returns and furnishing advice on tax matters. Its mission is to Identify, examine and license qualified practitioners; Identify and license qualified public accounting firms; Conduct investigations to ensure that practitioners comply with generally accepted standards of practice or conduct; and Restrict or revoke licenses when generally accepted standards of practice or conduct are not met. In 2010, there were approximately 11,900 active and 3,300 inactive status certificate holders, and 1,200 active registered public accounting firms on record. The Board is responsible for: Licensing and regulating individual Certified Public Accountants (CPAs); Licensing and regulating Certified Public Accounting Firms; Administering the Uniform CPA Examination; Investigating complaints against its licensees; Conducting disciplinary hearings against licensees who are alleged to have violated the Accountants Law or the Board s Rules and Regulations; Issuing disciplinary action against licensees who violate the Accountants Law or the Board s Rules and Regulations; Renewing individual licenses every two years and firm licenses every three years; Making rules and regulations for the orderly conduct of its affairs and for the administration of the Accountants Law; Making appropriate rules of professional conduct in order to establish and maintain a high standard of integrity in the profession of public accounting; and Monitoring continuing education of its licensees. Introduction 2

INTRODUCTION 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. Colorado has approximately individual active status CPAs. a) 1,150 b) 3,300 c) 11,900 d) over 15,000 Introduction 3

INTRODUCTION SOLUTIONS AND SUGGESTED RESPONSES 1. A: Incorrect. Colorado has approximately 1,150 CPA firms. B: Incorrect. Colorado has approximately 3,300 inactive status certificate holders. C: Correct. There are approximately 11,900 active status certificate holders. D: Incorrect. There are over 15,000 individuals and firms regulated by the Colorado Board of which includes inactive certificate holders. (See page I-2 of the course material.) Introduction 4

CHAPTER 1: COLORADO REVISED STATUTES Objectives: After completing this chapter, you will be able to: Discuss the statutes that apply to the practice of public accounting in Colorado. Explain the difference between being an individual CPA and being a CPA firm. TITLE 12, PROFESSIONS AND OCCUPATIONS ARTICLE 2, ACCOUNTANTS Effective July 1, 2010 Table of Contents 12-2-101. Legislative declaration 12-2-102. Definitions 12-2-103. State board of accountancy - subject to termination 12-2-104. Powers and duties of board 12-2-105. Rules and regulations. (Repealed) 12-2-106. Fees 12-2-107. Disposition of fees 12-2-108. Certificate of certified public accountant - issuance - renewal - reinstatement - rules 12-2-109. Educational and experience requirements - rules - repeal 12-2-110. Alternate educational and experience requirements. (Repealed) 12-2-111. Examinations - reexaminations - rules 12-2-112. Approval of schools 12-2-113. Issuance of certificate by reciprocity or by passing examination of another state 12-2-114. Existing certificates confirmed. (Repealed) 12-2-115. Use of the title "certified public accountant" 12-2-115.5. Retired certified public accountant 12-2-116. Registered accountants. (Repealed) 12-2-117. Partnerships, professional corporations, and limited liability companies composed of certified public accountants - registration thereof - definitions 12-2-118. Partnerships or professional corporations composed of registered accountants - registration thereof. (Repealed) 12-2-119. Continuing education 12-2-120. Unlawful acts 12-2-121. Exceptions - acts not prohibited - rules 12-2-122. Single act evidence of practice 12-2-122.5. Inactive certificant 12-2-123. Grounds for disciplinary action - administrative penalties 12-2-123.5. Response to board communication 12-2-124. Revocation or suspension of partnership, professional corporation, or limited liability company registration 12-2-125. Hearings before board - notice - procedure - review 12-2-126. Investigations, examinations, and cease-and-desist orders against unlawful act 12-2-127. Judicial review 12-2-128. Reconsideration and review of action of board 12-2-129. Unauthorized practice - penalties 12-2-130. Ownership of accountant's working papers 12-2-130.5. Ownership of state auditor's work papers 12-2-131. Professional corporations for the practice of public accounting as certified public accountants or as registered accountants. (Repealed) 12-2-132. Repeal of article Colorado Revised Statutes 1-1

12-2-101. Legislative declaration. (1) It is declared to be in the interest of the citizens of the state of Colorado and a proper exercise of the police power of the state of Colorado to provide for the licensing and registration of certified public accountants, to ensure that persons who hold themselves out as possessing professional qualifications as certified public accountants are, in fact, qualified to render accounting services of a professional nature, and to provide for regulation of certified public accountants employed, serving clients, or doing business in Colorado and the maintenance of high standards of professional conduct by those so licensed and registered as certified public accountants. Because of the customary reliance by the public upon audited financial statements and upon financial information presented with the opinion or certificate of persons purporting to possess expert knowledge in accounting or auditing, it is further declared to be in the interest of such citizens to limit and restrict, under the circumstances set forth in this article, the issuance of opinions or certificates relating to accounting or financial statements which utilize or contain wording indicating that the author has expert knowledge in accounting or auditing or which purport to express an independent auditor's opinion as to financial position, financial results of operations, changes in financial position, reliability of financial information, or compliance with conditions established by law or contract to persons so licensed or registered. (2) It is declared that the state board of accountancy may invoke discipline proactively with regard to certified public accountants employed, serving clients, or doing business in Colorado when required for the protection of the public health, safety, and welfare of the citizens of this state. 12-2-102. Definitions. As used in this article, unless the context otherwise requires: (1) "Accredited college or university" means either: (a) A college or university which is accredited by one of the following regional accrediting agencies: (I) The middle states association of colleges and schools; (II) The north central association of colleges and schools; (III) The New England association of schools and colleges; (IV) The northwest association of schools and colleges; (V) The southern association of colleges and schools; (VI) The western association of schools and colleges; or (b) A college or university which meets academic standards substantially equivalent to the standards of the agencies specified in paragraph (a) of this subsection (1). The board shall establish by rule what constitutes substantially equivalent academic standards. Colorado Revised Statutes 1-2

(1.5) "Board" means the state board of accountancy. (2) "Foreign corporation" means a corporation organized under the laws of another state, which meets the requirements of section 12-2-117 (7). (2.5) "Foreign limited liability company" means a limited liability company organized under the laws of another state, which meets the requirements of section 12-2-117 (7). (2.7) "Limited liability company" means a limited liability company organized for the sole purpose of providing professional services to the public customarily performed by certified public accountants and includes foreign limited liability companies. (2.9) "Peer review" means a study, appraisal, or review by an independent certified public accountant of one or more aspects of the professional work of another certified public accountant or of a registered partnership, corporation, or limited liability company that issues attest or compilation reports. (3) "Person" includes individuals, partnerships, professional corporations, and limited liability companies. (4) "Professional corporation" means a corporation organized for the sole purpose of providing professional services to the public customarily performed by certified public accountants and includes foreign corporations. (5) "State" means any state, territory, or insular possession of the United States and the District of Columbia. 12-2-103. State board of accountancy - subject to termination. (1) The state board of accountancy shall consist of seven members appointed by the governor. Each member of the board shall be a citizen of the United States and a resident of this state. Five members of the board shall be holders of valid certified public accountant certificates issued under the laws of this state, a majority of whom are engaged in active practice as certified public accountants. Two members of the board shall be members of the public who do not hold a certified public accountant certificate. Members shall be appointed for terms of four years each. Any vacancy occurring during a term shall be filled by appointment by the governor for the unexpired term. Upon the expiration of a member's term of office, such member shall continue to serve until a successor is appointed. In no event shall a member of the board serve more than two consecutive terms. The governor shall remove from the board any member whose certificate has become void or has been revoked or suspended and may remove any member of the board for neglect of duty, misconduct, or incompetence. (2) A majority of the board shall constitute a quorum for the transaction of business. (3) In any proceeding in court, civil or criminal, arising out of or founded upon any provision of this article, a copy of the records of the board certified as correct by the board shall be admissible in evidence as being the records of the board. (4) Repealed. Colorado Revised Statutes 1-3

(5) The provisions of section 24-34-104, C.R.S., concerning the termination schedule for regulatory bodies of the state unless extended as provided in that section, are applicable to the state board of accountancy created by this section. (6) (a) Any member of the board, any member of the board's staff, any person acting as a witness or consultant to the board, any witness testifying in a proceeding authorized under this article, and any person who lodges a complaint pursuant to this article shall be immune from liability in any civil action brought against him or her for acts occurring while acting in his or her capacity as board member, staff, consultant, or witness, respectively, if such individual was acting in good faith within the scope of his or her respective capacity, made a reasonable effort to obtain the facts of the matter as to which he or she acted, and acted in the reasonable belief that the action taken by him or her was warranted by the facts. Any person participating in good faith in lodging a complaint or participating in any investigative or administrative proceeding pursuant to this article shall be immune from any civil or criminal liability that may result from such participation. (b) The disclosure of reports or working papers subpoenaed by the board or any person or group authorized by the board to conduct an investigation into audit or review attest activities of a certified public accountant or certified public accounting firm pursuant to section 13-90-107 (1) (f) (III) or (1) (f) (IV), C.R.S., which is not in good faith shall subject the member of the board, person, or group to civil liability for damages to be determined by a court of competent jurisdiction. 12-2-104. Powers and duties of board. (1) The board has the power and duty to: (a) Elect annually from among its members a chair and prescribe the duties of such office; (b) Make such rules and regulations, not inconsistent with the laws of this state, as may be necessary for the orderly conduct of its affairs and for the administration of this article, pursuant to the provisions of article 4 of title 24, C.R.S.; (c) Make appropriate rules of professional conduct in order to establish and maintain a high standard of integrity in the profession of public accounting. Any rule of professional conduct applies with equal force to all persons holding certificates under this article. No rule of professional conduct shall be promulgated which will work to the disadvantage of one group and in favor of another. Every person practicing as a certified public accountant in the state shall be governed and controlled by such rules. All rules of professional conduct shall be promulgated pursuant to the provisions of article 4 of title 24, C.R.S. (d) to (f) Repealed. (g) Prescribe forms for and receive applications for certificates and grant certificates, including contracting with people to receive and review the applications as the agent of the board; Colorado Revised Statutes 1-4

(h) Give examinations to applicants and, as necessary, contract for assistance in administering the examination; (i) Deny the issuance or renewal of, suspend for a specified period, or revoke a certificate; issue a letter of admonition to or censure or place on probation or fine any person who, while holding a certificate, violates any of the provisions of this article; issue confidential letters of concern; issue cease-and-desist orders; or impose other conditions and limitations; (j) Keep a record of all certificates, suspensions, and revocations and of its own proceedings; (k) Administer this article and exercise and perform any other powers and duties granted or directed by the general assembly; (l) Collect all fees prescribed by this article. (m) Repealed. (2) Publications of the board circulated in quantity outside the executive branch shall be issued in accordance with the provisions of section 24-1-136, C.R.S. 12-2-105. Rules and regulations. (Repealed) 12-2-106. Fees. (1) A fee authorized to be established pursuant to section 24-34-105, C.R.S., shall be paid for each application made to the board, whether it is an application for examination or reexamination or for issuance, renewal, reactivation, or reinstatement of a certificate of certified public accountant, an application for registration with the board as a public accounting firm, or any other application requiring formal action or consideration by the board. The fee required shall not be returnable irrespective of the action taken by the board. (2) A fee authorized to be established pursuant to section 24-34-105, C.R.S., shall be paid for each examination in which the candidate is examined in the subjects prescribed by the board. (3) Any person making application for a certificate of certified public accountant under section 12-2-113 shall pay a fee authorized to be established pursuant to section 24-34- 105, C.R.S., in addition to the fee required in subsection (1) of this section. (4) (Deleted by amendment, L. 2010, (HB 10-1236), ch. 146, p. 502, 17, effective July 1, 2010.) (5) Nothing in this section shall be construed to authorize the board to impose any notice, fee, or other submission requirement on a certified public accountant or registered public accountant from another state or a foreign partnership, corporation, limited partnership, limited liability limited partnership, or limited liability company, that is practicing accountancy in this state pursuant to section 12-2-121 (2). Colorado Revised Statutes 1-5

12-2-107. Disposition of fees. All fees shall be transmitted to the state treasurer, who shall credit the same pursuant to section 24-34-105, C.R.S., and the general assembly shall make annual appropriations pursuant to said section for the expenditures of the board incurred in the performance of its duties under this article, which expenditures shall be made out of such appropriations upon vouchers and warrants drawn pursuant to law. 12-2-108. Certificate of certified public accountant - issuance - renewal - reinstatement. (1) The board shall grant a certificate of certified public accountant to any applicant who: (a) Meets the requirements of section 12-2-113; (b) Satisfies the board of the applicant's continued competence; or (c) (I) Passes a written examination pursuant to section 12-2-111; and (II) Meets the requirements of section 12-2-109. (2) Repealed. (3) All certificates shall expire pursuant to a schedule established by the director of the division of registrations within the department of regulatory agencies and shall be renewed or reinstated pursuant to section 24-34-102 (8), C.R.S. The director of the division of registrations within the department of regulatory agencies may establish renewal fees and delinquency fees for reinstatement pursuant to section 24-34-105, C.R.S. If a person fails to renew his or her certification pursuant to the schedule established by the director of the division of registrations, such certificate shall expire. Any person whose certificate has expired shall be subject to the penalties provided in this article or section 24-34-102 (8), C.R.S. (4) and (5) (Deleted by amendment, L. 2004, p. 1793, 2, effective August 4, 2004.) (6) Any person who practices certified public accounting after the expiration of his or her certificate shall be practicing in violation of this article. The board may refuse to reactivate or reinstate any expired certificate for conduct that constitutes a violation of this article. Observation: This seemingly simple law is violated all too frequently. For example, an inactive CPA may begin an engagement prior to getting his license reactivated or reinstated. Remember, you must have an active CPA certificate prior to doing any public accounting work. Note: The next 5 sections of the Statutes are of interest to those who have not yet received their CPA certificate. For purposes of this course, we will skip to Section 12-2-115. Colorado Revised Statutes 1-6

(7) Effective on the first renewal period established by the board after May 31, 2011, the board shall not renew the certificate of a holder who issues attest or compilation reports unless the certificate holder performs public accounting within a partnership, professional corporation, or limited liability company or the certificate holder has undergone a peer review conducted according to rules promulgated by the board that meet the standards for performing and reporting on a peer review of the American Institute of Certified Public Accountants or an equivalent standard. 12-2-115. Use of the title "certified public accountant". (1) (a) A person who has received from the board and holds an active certificate of certified public accountant shall be styled and known as a certified public accountant and may also use the abbreviation "C.P.A." (b) A partnership, professional corporation, or limited liability company of certified public accountants that is registered under this article may use the words "certified public accountants" or the abbreviation "C.P.A.s" in connection with its partnership, professional corporation, or limited liability company name. (2) A person authorized to use the title "certified public accountant" or the abbreviation "C.P.A." shall provide to any client residing in or headquartered in Colorado, during the course of an engagement, an address and telephone number for the certified public accountant's firm or, in the case of a sole practitioner, the address and telephone number of the sole practitioner. Observation: Under the provisions of this section, there is no prohibition against the use of the words public accountant by a person who has not received from the board of accountancy a certificate of his qualifications to practice as a certified public accountant. Colorado Assn. Of Accountants v. Colorado Society of Cert. Pub. Accountants, 152 Colo. 563, 384 P.2d 94 (1963). Case Study Holding out as a Certified Public Accountant In April 2008, the Board mailed Jane Doe (Doe) a renewal application. Doe did not renew, and her permit lapsed on June 1, 2008. Doe submitted a reinstatement application in July 2010. During the time period that Doe s permit was lapsed, Doe held out as a CPA on business cards. LIKELY BOARD ACTION: Violation of 12-2-115. Use of the title certified public accountant. (3) (a) Except as authorized in subsection (4) of this section, a person shall not assume or use the title or designation "certified public accountant", the abbreviation "C.P.A.", or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that such person is a certified public accountant unless the person holds a certificate as a certified public accountant issued under this article or under the laws of any other state. A person who is inactive pursuant to section 12-2-122.5 may use the title "inactive certified public accountant" or "inactive C.P.A." Colorado Revised Statutes 1-7

(b) Except as authorized by subsection (1) or (4) of this section, an individual, partnership, professional corporation, or limited liability company shall not assume or use any title or designation using the word "certified", "registered", "chartered", "enrolled", "licensed", "independent", or "approved" in conjunction with the word accountant or auditor or any abbreviation thereof or any title, designation, or abbreviation likely to be confused with "certified public accountant" or the abbreviation "C.P.A.", including the terms "chartered accountant" and "certified accountant" and the abbreviation "C.A." (c) Except as authorized in subsection (4) of this section, a partnership, professional corporation, or limited liability company shall not assume or use the title or designation "certified public accountants", the abbreviation "C.P.A.s", or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that such partnership, professional corporation, or limited liability company is composed of certified public accountants unless such partnership, professional corporation, or limited liability company is registered as a partnership, professional corporation, or limited liability company of certified public accountants under this article or the laws of any other state. (4) (a) A certified public accountant from another state or jurisdiction of the United States who is practicing in this state pursuant to section 12-2-121 may use the title "certified public accountant", the abbreviation "C.P.A.", or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that the person is a certified public accountant. (b) A foreign partnership, corporation, limited partnership, limited liability limited partnership, or limited liability company that is practicing in this state pursuant to section 12-2-121 may use the title or designation "certified public accountants", the abbreviation "C.P.A.s", or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that the partnership, corporation, or limited liability company is composed of certified public accountants. 12-2-115.5. Retired certified public accountant. (1) Any person who has received from the board and holds a certificate of certified public accountant, including an expired certificate of certified public accountant that remains subject to renewal, reactivation, or reinstatement, may apply to the board for retired status. The board may grant such status by issuing a retired status certificate of certified public accountant to any person who meets established conditions prescribed by the board. (2) Any person issued a retired status certificate of certified public accountant may be styled and known as a "retired certified public accountant" or "retired C.P.A." (3) During such time as a certified public accountant remains in a retired status, such person shall not perform those acts set forth in section 12-2-120 (6) (a) and (6) (b). The board shall retain jurisdiction over retired status certified public accountants. Observation: Retired means exactly that retired. A single act of public accountancy would be a violation of law. Colorado Revised Statutes 1-8

12-2-116. Registered accountants. (Repealed) 12-2-117. Partnerships, professional corporations, and limited liability companies composed of certified public accountants - registration thereof - definitions. (1) Except as provided in section 12-2-121 (2), a partnership, professional corporation, or limited liability company engaged in this state in the practice of public accounting as certified public accountants shall register with the board as a partnership, professional corporation, or limited liability company of certified public accountants and must meet the following requirements; and, as used in this article, "partnership" includes a registered limited partnership, limited liability partnership, limited liability limited partnership, foreign limited partnership, foreign limited liability partnership, and foreign limited liability limited partnership: (a) At least one partner, shareholder, or member who shall also be a director or manager thereof must be a certified public accountant or registered firm of this state in good standing. (b) (I) A simple majority of the ownership of a certified public accounting firm doing business as a public accounting firm in Colorado, in terms of financial interests and voting rights of all partners, officers, shareholders, members, or managers, shall be licensed certified public accountants in good standing in this state or another state. (II) (Deleted by amendment, L. 2005, p. 240, 1, effective July 1, 2005.) (c) Any other partner, shareholder, or member thereof may, but need not, be a certified public accountant of some state, in good standing, or registered firm in this state who at all times owns such person's partnership interest, corporate share, or membership interest in such person's own right. (d) Repealed. (e) Each resident manager in charge of an office of the partnership, professional corporation, or limited liability company in this state must be a certified public accountant of this state in good standing. (f) (Deleted by amendment, L. 94, p. 1082, 1, effective May 4, 1994.) Observation: Non-licensee ownership At least one partner working in Colorado must be a Colorado CPA Majority ownership must be a CPA of some state (2) (a) (I) Application for such registration shall be made upon the affidavit of a partner of such partnership, of a shareholder of such professional corporation, or of a member of such limited liability company who is a certified public accountant of this state in good standing and shall provide: Colorado Revised Statutes 1-9

(A) The names and addresses of the persons who are practicing public accounting for the partnership, professional corporation, or limited liability company; (B) The names and addresses of the persons who are not certified public accountants, but who are partners of a partnership, shareholders of a professional corporation, or members of a limited liability company; (C) Disclosure of all of the states in which the partnership, professional corporation, or limited liability company is licensed, registered, or permitted to practice. The application shall also disclose all of the states in which licensure, registration, or permission to practice has been denied, suspended, or revoked. (D) Any other information the board may reasonably request; and (E) A registration fee, the amount of which shall be set by the board, to cover the board's administrative costs. (II) Each member of the partnership, professional corporation, or limited liability company may receive a copy of the application. (III) The partner, shareholder, or member designated by the firm shall notify the board in writing within thirty days after any change in the partnership, professional corporation, or limited liability company, including: (A) Identities and numbers of partners, shareholders, members, managers, or officers; and (B) Location of places of business of the partnership, professional corporation, or limited liability company. (IV) The board may suspend or revoke registration of or impose any other discipline the board sees fit to administer to a partnership, professional corporation, or limited liability company that fails to notify the board of any changes outlined in subparagraph (III) of this paragraph (a). (b) The board shall in each case determine whether the applicant is eligible for registration. (2.2) Each firm registration expires pursuant to a schedule established by the director of the division of registrations within the department of regulatory agencies. The registrant shall renew or reinstate the registration. The director of the division of registrations within the department of regulatory agencies may establish renewal fees and delinquency fees for reinstatment pursuant to section 24-34-105, C.R.S. If a firm fails to renew its registration pursuant to the schedule established by the director of the division of registrations, the registration shall expire. A firm whose registration has expired shall be subject to the penalties provided in this article or section 24-34-102 (8), C.R.S. (2.5) As used in subsections (3) and (3.5) of this section, "employee" includes a member of a limited liability company and a partner in a limited partnership, limited liability partnership, or limited liability limited partnership or foreign limited partnership, limited liability partnership, or limited liability limited partnership. Colorado Revised Statutes 1-10

(3) The corporation must be in compliance with the "Colorado Business Corporation Act", articles 101 to 117 of title 7, C.R.S., and, to the extent applicable under section 7-117-103, C.R.S., with the "Colorado Corporation Code", articles 1 to 10 of title 7, C.R.S., as said articles existed prior to their repeal on July 1, 1994. The limited liability company must be in compliance with the "Colorado Limited Liability Company Act", article 80 of title 7, C.R.S. The organizing documents of any partnership, the articles of incorporation of any such corporation, or the articles of organization of any such limited liability company shall contain provisions complying with the following requirements: (a) The partnership, corporation, or limited liability company shall be organized solely for the purpose of practicing accountancy and such other activities as may from time to time be specifically found by the board to be activities suitable and proper to be performed by certified public accountants only through or under the supervision of at least one person who holds a certificate to practice public accounting as a certified public accountant. (b) Each partner who is personally engaged within this state in the practice of public accounting shall be a certified public accountant of this state in good standing, and each partner not personally engaged within this state in the practice of public accounting may, but need not, be a certified public accountant of some state in good standing. The president of any such corporation shall be a shareholder and a director, and one or more of such directors shall be certified public accountants of this state in good standing. The manager or managers of any such limited liability company shall be a member or members and one or more of such managers shall be certified public accountants of this state in good standing. Lay directors and officers and managers shall not exercise any authority whatsoever over professional matters. (c) All partners, shareholders of the corporation, or members of the limited liability company shall be jointly and severally liable for all acts, errors, and omissions of the employees of the partnership, corporation, or limited liability company except during periods of time when the partnership, corporation, or limited liability company maintains in good standing professional liability insurance, or designated or segregated moneys in lieu of such professional liability insurance, which meets the standards set forth in subparagraphs (I) to (V) of this paragraph (c): (I) The insurance shall insure the partnership, corporation, or limited liability company against liability imposed upon the partnership, corporation, or limited liability company by law for damages resulting from any claim made against the partnership, corporation, or limited liability company arising out of acts, errors, and omissions committed in the performance of professional services for others by those employees of the partnership, corporation, or limited liability company who hold certificates to practice public accounting as certified public accountants. (II) Such policies shall insure the partnership, corporation, or limited liability company against liability imposed upon it by law for damages arising out of the acts, errors, and omissions of all other employees. (III) The insurance shall be in an amount for each claim of at least fifty thousand dollars multiplied by the number of certified public accountants employed by or members of the partnership, corporation, or limited liability company within this state, and the policy may provide for an aggregate top limit of liability per year for all claims of one hundred fifty thousand dollars also multiplied by the number of certified public accountants employed Colorado Revised Statutes 1-11

by or members of the partnership, corporation, or limited liability company within this state; except that no firm shall be required to carry insurance in excess of three hundred thousand dollars for each claim with an aggregate top limit of liability for all claims during the year of one million dollars and except that the board, in the public interest, may adopt regulations increasing the minimum amounts of insurance coverage required by this subsection (3). A policy of insurance obtained in accordance with this subparagraph (III) may be issued on a claims-made or occurrence basis. (IV) (A) The policy may provide that it does not apply to: Any dishonest, fraudulent, criminal, or malicious act or omission of the insured partnership, corporation, or limited liability company or any partner, stockholder, member, or employee thereof; the conduct of any business enterprise in which the insured partnership, corporation, or limited liability company under this article is not permitted to engage but which nevertheless may be owned by the insured partnership, corporation, or limited liability company or in which the insured partnership, corporation, or limited liability company may be a partner or which may be controlled, operated, or managed by the insured partnership, corporation, or limited liability company in its own or in a fiduciary capacity including the ownership, maintenance, or use of any property in connection therewith; and bodily injury to, or sickness, disease, or death of, any person, or to injury to or destruction of any tangible property, including the loss of use thereof. (B) The policy may be of a type reasonably available in the commercial insurance market and may contain reasonable provisions with respect to policy periods, territory, claims, conditions, exclusions, and other usual matters. (C) The policy may provide for a deductible, or self-insured retained amount, and may provide for the payment of defense or other costs out of the stated limits of the policy, in either or both cases, all partners, shareholders of the corporation, or members of the limited liability company shall be jointly and severally liable for all acts, errors, and omissions of the employees of the partnership, corporation, or limited liability company to the extent of the amount of such deductible or retained self-insurance, and the amount, if any, by which the payment of defense costs reduces the insurance remaining available for the payment of claims below the minimum limit of insurance required by this paragraph (c). (V) A partnership, corporation, or limited liability company may maintain, in lieu of the insurance specified in subparagraph (III) of this paragraph (c), moneys specifically designated and segregated as security for the payment of liabilities imposed by law against the partnership, corporation, or limited liability company, or its partners, shareholders, or members, arising out of claims of the type specified in subparagraphs (I) and (II) of this paragraph (c), in the amount of at least fifty thousand dollars multiplied by the number of certified public accountants employed by or members of the partnership, corporation, or limited liability company within this state; except that such amount is not required to exceed one million dollars and except that the board, in the public interest, may adopt rules increasing the minimum amount of designated and segregated moneys required by this subparagraph (V). The partnership, corporation, or limited liability company remains in compliance with this section notwithstanding amounts paid from the designated or segregated moneys in any one calendar year in settling or discharging such claims, so long as the amount of the designated and segregated moneys is increased to at least the minimum required amount as of the first business day of the next calendar year. A partnership, corporation, or limited liability Colorado Revised Statutes 1-12

company is in compliance with this subparagraph (V) if it maintains moneys in the required amount in trust or in bank escrow in the form of cash, bank certificates of deposit, or United States treasury obligations, or maintains in effect bank unconditional, irrevocable letters of credit in the required amount or insurance or surety company bonds in the required amount. Such moneys or equivalency shall be maintained in or issued by a qualified United States financial institution as defined by section 10-1-102 (17), C.R.S. (d) A partnership name shall be ended by words or abbreviations permitted pursuant to the law under which the partnership is organized. The corporate name shall be ended by the word "Corporation" or "Incorporated" or by the words "Professional Corporation" or by the abbreviations "Corp.", "Inc.", or "P.C.". The name of any limited liability company shall be ended by the words "Limited Liability Company" or the abbreviation "LLC" or the word limited may be abbreviated as "Ltd.", and the word company may be abbreviated as "Co.". An assumed or trade name may be used if it is not misleading and clearly indicates that the firm is engaged in providing accounting services. (3.5) No limited liability company, limited liability partnership, limited partnership, or limited liability limited partnership, or foreign limited partnership, limited liability partnership, or limited liability limited partnership engaged in the practice of public accounting in this state and in one or more other jurisdictions shall be required to include a provision in its articles of organization or organizing documents as otherwise required by subsection (3) of this section, but shall be subject, with respect to the practice of public accounting within this state, to the requirements of paragraphs (a), (b), (c), and (d) of subsection (3) of this section. (3.7) Effective on the first renewal period established by the board after May 31, 2011, the board shall not renew the registration of a firm that issues attest or compilation reports unless the registered partnership, professional corporation, or limited liability company has undergone a peer review conducted according to rules promulgated by the board that meet the standards for performing and reporting on a peer review of the American Institute of Certified Public Accountants or an equivalent standard. (4) The partnership, corporation, or limited liability company may exercise the powers and privileges conferred upon partnerships, corporations, and limited liability companies by the laws of Colorado in furtherance of and subject to its partnership, corporate, or limited liability company purposes and may invest its funds in a manner not incompatible with the practice of public accounting as certified public accountants. Any stock purchased by the corporation, or membership interest purchased by the limited liability company or partnership interest purchased by the partnership may be made out of capital as well as surplus without regard to the impairment of the partnership capital, corporation capital, or limited liability company capital. (5) The partnership, corporation, or limited liability company shall do nothing in this state which, if done by a person who holds a certificate as a certified public accountant within this state and employed by it, would violate the provisions of this article. Any violation by the partnership, corporation, or limited liability company of this article shall be grounds for the board to deny, revoke, suspend, or refuse to renew its registration, or the board may fine, issue a confidential letter of concern to, issue a letter of admonition to, or place on probation the registrant. Colorado Revised Statutes 1-13

(6) Nothing in this section shall diminish or change the obligation of each person who holds a certificate of certified public accountant employed by the partnership, corporation, or limited liability company within this state to conduct such person's practice in accordance with the provisions of this article. Any person who holds a certificate to practice public accounting as a certified public accountant who, by act or omission, causes the partnership, corporation, or limited liability company to act or fail to act in a way which violates this article is personally responsible for such act or omission and subject to discipline therefor. (7) Foreign partnerships, corporations, limited partnerships, limited liability limited partnerships, or limited liability companies may engage in the practice of public accounting in this state as certified public accountants so long as their organizing documents, articles of incorporation, or articles of organization provide that such partnership, corporation, limited partnership, limited liability limited partnership, or limited liability company is organized solely for the purpose of practicing accountancy and such other activities as may from time to time be specifically found by the board to be activities suitable and proper to be performed by certified public accountants and comply with and meet the requirements of subsection (3) of this section. (8) Except as provided in this section, partnerships, professional corporations, and limited liability companies shall not practice public accounting as certified public accountants. (9) Nothing in this section shall modify the accountant-client privilege specified in section 13-90-107 (1) (f), C.R.S. (10) When any law of this state or any rule or regulation of any agency or other authority established under the constitution or laws of this state requires or authorizes any audit, financial report, or statement to be made, approved, or certified by a certified public accountant, such audit, report, or statement may be made, approved, or certified by a partnership, professional corporation, or limited liability company registered in this state. Observation: Firm Registration of a PC All firms need to be registered with the Board within 90 days of beginning business. This applies to all firms including sole proprietorships registered with the Secretary of State; e.g., Professional Corporations and LLCs. The only firms that do not need to follow these guidelines are sole proprietorships who have not incorporated. 12-2-118. Partnerships or professional corporations composed of registered accountants - registration thereof. (Repealed) 12-2-119. Continuing education. (1) to (4) Repealed. (5) As a condition of renewing, reactivating, or reinstating a certificate of certified public accountant, every applicant shall comply with continuing education requirements adopted by the board. (6) The board shall promulgate rules and regulations governing the following: Colorado Revised Statutes 1-14

(a) The basic requirements for continuing education; except that the board shall not require continuing education of more than eighty hours every two years; (b) A delineation of qualifying programs; (c) A system of control and reporting. (7) In exercising its power under subsection (6) of this section, the board shall, as a basis for a high standard of practice by certified public accountants, establish requirements which will assure reasonable currency of knowledge. The requirements shall assure that a variety of alternative means of compliance with continuing education requirements are available to certificate holders and shall take cognizance of specialized areas of practice. (8) The board shall make exceptions from continuing education requirements for holders of certificates who are not engaged in public practice or who cannot continue their education for reasons of health, military service, or other good cause. If such holders of certificates return to the practice of public accounting, the holders of certificates shall meet such continuing education requirements as the board may determine. (9) The board shall determine in each case whether a holder of certificate of certified public accountant has complied with continuing education requirements adopted by the board. 12-2-120. Unlawful acts. (1) and (2) (Deleted by amendment, L. 2010, (HB 10-1236), ch. 146, p. 500, 12, effective July 1, 2010.) (3) and (4) Repealed. (5) (Deleted by amendment, L. 2010, (HB 10-1236), ch. 146, p. 500, 12, effective July 1, 2010.) (6) (a) (I) No person, partnership, professional corporation, or limited liability company shall issue, author, or publish any opinion or certificate relating to any accounting or financial statement if such opinion or certificate utilizes any title or designation, the use of which is prohibited by law. (II) No person, partnership, professional corporation, or limited liability company shall, without an active certificate of certified public accountant or a valid registration: Colorado Revised Statutes 1-15

(A) As an independent auditor, make or conduct an investigation, examination, or audit of the financial statements or supporting records of any person, organization, or corporation, to determine the accuracy or fairness with which they present the financial position, changes in financial position, or financial results of operations of such person, organization, or corporation; (B) Attest or express an opinion, as an independent auditor, as to the financial position, changes in financial position, or financial results of the operation of any person, organization, or corporation, or as to the accuracy or reliability of any financial information contained in any such accounting or financial statement. (III) The requirement in subparagraph (II) of this paragraph (a) that a person, partnership, professional corporation, or limited liability company have an active certificate of certified public accountant or a valid registration issued by the board shall not apply to a certified public accountant from another state or a foreign partnership, professional corporation, or limited liability company practicing accountancy in this state pursuant to section 12-2-121 (2). (b) The provisions of paragraph (a) of this subsection (6) shall not prohibit any officer or employee of a corporation, partner or employee of a partnership, member or employee of a limited liability company, or individual or employee of an individual from: (I) Making or conducting such investigation, examination, or audit; or (II) Issuing or authoring an assessment or certificate utilizing any wording designating the position, title, or office that the person holds concerning the financial affairs of such corporation, partnership, limited liability company, or individual. (c) The provisions of paragraph (a) of this subsection (6) shall not prohibit any act of a public official or public employee in the performance of his duties as such or affect the qualifications of any person to testify as a witness before any court or administrative agency of the state of Colorado who is determined to be qualified by such court or agency. (d) The term "independent auditor" as used in this section shall mean any person or corporation engaged or employed to make or conduct an audit of the financial statements or supporting records of any person, organization, or corporation, to determine, on the basis of such audit, the accuracy or fairness with which they present the financial position, changes in financial position, or financial results of operations of such person, organization, or corporation, other than an officer, employee, or partner of the person, organization, or corporation under audit. Colorado Revised Statutes 1-16

(e) The provisions of paragraph (a) of this subsection (6) shall not prohibit the performance by persons other than certified public accountants of other services involving the use of accounting skills, including the preparation of tax returns and the preparation of financial statements without the expression of opinions or assurances thereon. (7) and (8) Repealed. (9) Nothing in this section shall be construed to prohibit any person from preparing or assisting in the preparation of any report or tax return to any agency of the federal, state, or local government or other political subdivision if such preparation or assistance is otherwise permissible under law or under the regulations of such agency or from affixing the signature of the person or firm so preparing or assisting in the preparation of any such report or return to said report or return. Observation: Preparing tax returns alone is not considered practicing accounting. (10) and (11) Repealed. 12-2-121. Exceptions - acts not prohibited - rules. (1) Nothing in this article shall prohibit any person not a certified public accountant from serving as an employee of or an assistant to a certified public accountant holding an active certificate or serving as an employee or assistant of a validly registered partnership, professional corporation, or limited liability company composed of certified public accountants. Such employee or assistant shall not issue any accounting or financial statement over his name. (2) (a) Nothing in this article shall prohibit a certified public accountant whose principal place of business is located in another state or jurisdiction of the United States, from practicing in this state on professional business, as defined by rules promulgated by the board. Such practice shall be conducted in conformity with rules promulgated by the board. Notwithstanding the requirements of section 12-2-117, a foreign partnership, corporation, limited partnership, limited liability limited partnership, or limited liability company may engage in the practice of accountancy in this state without registering with the board. (b) Nothing in this article shall prohibit: (I) An accountant who holds a certificate, degree, or license in a foreign country, constituting a recognized qualification for the practice of public accounting in such country, from practicing in this state on professional business incident to his or her regular practice outside this state, as defined by the board. Such practice shall be conducted in conformity with rules promulgated by the board. Colorado Revised Statutes 1-17

(II) and (III) Repealed. (c) A certified public accountant from another state or jurisdiction of the United States who is practicing in this state pursuant to this subsection (2) and the firm that employs the certified public accountant simultaneously consent, as a condition of practicing in this state: (I) To be subject to the jurisdiction of and disciplinary authority of the board; (II) To comply with the requirements of this subsection (2) and rules promulgated by the board pursuant to this subsection (2); (III) That if the certified public accountant's certificate, license, or registration issued by the state in which the certified public accountant's principal place of business is located is no longer valid, the certified public accountant will cease to offer or render professional services in this state, either individually or on behalf of a firm; and (IV) To appoint the state board or entity that issued a certificate, license, or registration to the certified public accountant as the agent for service of process in any action or proceeding brought by the board against the certified public accountant. (d) The board may recover its reasonable costs incurred as part of its investigative, administrative, and disciplinary proceedings against a certified public accountant from another state or jurisdiction of the United States or from a foreign country if the board: (I) Enters a final order against the certified public accountant, finding that the certified public accountant violated a provision of this article, a rule adopted by the board, or an order of the board with which the certified public accountant is obligated to comply and the board has the authority to enforce; or (II) Enters into a consent or settlement agreement in which the board finds, or the certified public accountant admits or does not contest, that he or she violated a provision of this article, a rule adopted by the board, or an order of the board with which the certified public accountant is obligated to comply and the board has the authority to enforce. Observation: The author has observed a situation where a partner in a Big 4 firm is transferred into the state. The partner keeps his out of state license but delays obtaining an in-state license. Such practice could be a violation of law. 12-2-122. Single act evidence of practice. Any person who displays, utters, or causes to be displayed or uttered a card, sign, advertisement, or other printed, engraved, or written instrument or device bearing such person's name in conjunction with the words "certified public accountant", the abbreviation "C.P.A.", or any title, designation, or abbreviation prohibited by section 12-2-115 may be presumed in any action brought under section 12-2-126 to have held himself or herself out to be a certified public accountant holding an active certificate of certified public accountant pursuant to section 12-2-108. In any legal action brought Colorado Revised Statutes 1-18

under this article, evidence of the commission of a single act prohibited by this article is sufficient to justify an injunction. 12-2-122.5. Inactive certificant. (1) The holder of a certificate of certified public accountant, upon written notice by first class mail to the board, shall have his or her name transferred to an inactive list and shall not be required to comply with the continuing education requirements for certificate renewal pursuant to section 12-2-119 so long as he or she remains inactive. Each inactive certificant shall register in the same manner as active certificate holders and pay a fee pursuant to section 12-2-108 (3). At such time as an inactive certificant wishes to resume the practice of public accounting as a certified public accountant, he or she shall file an application therefor, meet any education requirements imposed by the board, and pay a fee as established by the director of the division of registrations within the department of regulatory agencies. (2) During such time as a certified public accountant remains in an inactive status, the certified public accountant shall not perform those acts restricted to active certified public accountants pursuant to section 12-2-120 (6) (a). The board shall retain jurisdiction over inactive certified public accountants for the purposes of disciplinary action pursuant to section 12-2-123. 12-2-123. Grounds for disciplinary action - administrative penalties. (1) After notice and hearing as provided in section 12-2-125, the board may deny the issuance of, refuse to renew, revoke, or suspend any certificate of a certified public accountant issued under this article or any prior law of this state or may fine, issue a letter of admonition to, or place on probation the holder of any certificate and impose other conditions or limitations for any of the following causes: (a) Fraud or deceit in obtaining or in attempting to obtain a certificate as a certified public accountant or in obtaining registration under this article; (b) Fraud or negligence in the practice of public accounting in Colorado or any other state or in the filing of or failure to file the certified public accountant's own income tax returns; (c) Violation of any provision of this article, of any final rule or regulation promulgated by the board, or of any valid agency order; (d) Violation of a rule of professional conduct promulgated by the board under the authority granted by this article; (e) Conviction of a felony under the laws of any state or of the United States, and, for the purposes of this paragraph (e), a plea of guilty or a plea of nolo contendere accepted by the court shall be considered as a conviction; (f) Conviction of any crime, an element of which is dishonesty or fraud, under the laws of any state or of the United States, and, for the purposes of this paragraph (f), a plea of guilty or a plea of nolo contendere accepted by the court shall be considered as a conviction; Colorado Revised Statutes 1-19

(g) Discipline taken against the person's authority to practice as a certified public accountant or a public accountant in any jurisdiction; (h) Discipline taken against the person's right to practice before any state or federal agency or agency outside the United States or the public company accounting oversight board, created by the federal "Sarbanes-Oxley Act of 2002", 15 U.S.C. sec. 7201 et seq., for improper conduct or willful violation of the rules or regulations of such state or federal agency or the public company accounting oversight board; (i) Repealed. (j) Providing public accounting services to the public for a fee without an active certificate of certified public accountant or a valid registration or acting as a member, partner, or shareholder of a partnership or professional corporation registered pursuant to section 12-2-117; (k) and (l) Repealed. (m) Failure to comply with the requirements for continuing education as prescribed by the board; (n) An act or omission which fails to meet generally accepted accounting principles or generally accepted auditing standards in the profession; (o) Use of false, misleading, or deceptive advertising; (p) Habitual intemperance with respect to or excessive use of a habit-forming drug, controlled substance as defined in section 12-22-303 (7), or alcoholic beverage that renders the certified public accountant unfit to practice public accounting; (q) Failure to retain records of the work performed for each client for a period of five years; (r) Failure of a partnership, professional corporation, or limited liability company to register with the board pursuant to section 12-2-117 and to renew the registration as prescribed by the board. (2) In considering the conviction of crimes, as provided in paragraphs (e) and (f) of subsection (1) of this section, the board shall be governed by the provisions of section 24-5-101, C.R.S. (3) (Deleted by amendment, L. 2010, (HB 10-1236), ch. 146, p. 497, 9, effective July 1, 2010.) (4) No certificant whose certificate is revoked shall be allowed to apply for reinstatement of such certificate earlier than two years after the effective date of the revocation. Observation: The Board does not have the authority to waive or shorten this period. However, the Board does have the authority to reopen the original case. Colorado Revised Statutes 1-20

(5) (a) In addition to any other penalty that may be imposed pursuant to this section, any person violating this article or any rules promulgated pursuant to this article may be fined upon a finding of misconduct by the board as follows, either: (I) In a proceeding against a certificant, a fine not in excess of five thousand dollars per violation; or (II) In a proceeding against a registrant, a fine not in excess of ten thousand dollars per violation. (b) All fines collected pursuant to this subsection (5) shall be transferred to the state treasurer, who shall credit such moneys to the general fund. 12-2-123.5. Response to board communication. A certificant shall, at the request of the board, respond to communications from the board within thirty days after the mailing of any communication. Case Study Failure to Respond to a Board Communication 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 12-2-123.5 Response to a board communication. 12-2-124. Revocation or suspension of partnership, professional corporation, or limited liability company registration. (1) After notice and hearing as provided in section 12-2-125, the board shall revoke the registration of a partnership, professional corporation, or limited liability company if, at the time of such hearing, the partnership, professional corporation, or limited liability company does not have all the qualifications prescribed by the section of this article under which it qualified for registration. (2) After notice and hearing as provided in section 12-2-125, the board may deny, revoke, suspend, or refuse to renew the registration of a partnership, professional corporation, or limited liability company or the board may fine, issue a confidential letter of concern to, issue a letter of admonition to, or place on probation a registrant for any of the causes enumerated in section 12-2-123 or for the following additional causes: (a) The revocation, suspension, or refusal to renew the certificate of any partner, shareholder, or member; (b) The cancellation, revocation, suspension, or refusal to renew the authority of the partnership or any partner thereof to practice public accounting in any other jurisdiction; Colorado Revised Statutes 1-21

(c) The cancellation, revocation, suspension, or refusal to renew the authority of the professional corporation, limited liability company, or foreign corporation or limited liability company or any shareholder or member thereof to practice public accounting by any other state or federal jurisdiction, or jurisdiction outside the United States or the Public Company Accounting Oversight Board, created by the federal "Sarbanes-Oxley Act of 2002", 15 U.S.C. sec. 7201 et seq. 12-2-125. Hearings before board - notice - procedure - review. (1) (a) The board may initiate proceedings under this article, either on its own motion or on the complaint of any person. (b) The board, through the department of regulatory agencies, may employ administrative law judges on a full-time or part-time basis to conduct hearings as provided by this article or on any matter within the board's jurisdiction upon such conditions and terms as the board may determine. (2) Except as otherwise provided in this article, all proceedings before the board with respect to the denial, suspension, or revocation of certificates or registrations issued under this article shall be conducted pursuant to the provisions of sections 24-4-104 and 24-4-105, C.R.S. (3) If, after having been served with the notice of hearing as provided for in this section, the accused fails to appear at the hearing and defend, the board may proceed to hear evidence against the accused and may enter such order as is justified by the evidence, which order shall be final unless the accused petitions for a review thereof as provided in this section. Within thirty days after the date of any order, upon a showing of good cause for failing to appear and defend, the board may reopen the proceedings and may permit the accused to submit evidence in his or her behalf. (4) The board or an administrative law judge shall have the power to administer oaths, take affirmations of witnesses, and issue subpoenas to compel the attendance of witnesses and the production of all relevant papers, books, records, documentary evidence, and materials in any hearing, investigation, accusation, or other matter coming before the board. The board may appoint an administrative law judge pursuant to part 10 of article 30 of title 24, C.R.S., to take evidence and to make findings and report them to the board. (4.5) Upon failure of any witness to comply with such subpoena or process, the district court of the county in which the subpoenaed person or licensee resides or conducts business, upon application by the board or director with notice to the subpoenaed person or licensee, may issue to the person or licensee an order requiring that person or licensee to appear before the board or director; to produce the relevant papers, books, records, documentary evidence, or materials if so ordered; or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt of court. (5) At all hearings, the attorney general of this state or one of the attorney general's designated assistants shall appear and represent the board. Colorado Revised Statutes 1-22

(6) The decision of the board shall be by majority vote thereof. Observation: This section does not violate the defendant s right of due process as the state board of accountancy is required by statute to initiate proceedings, hear evidence, and render decisions, and the board has no statutory authority to use a hearing officer for such proceedings. Mertsching v. Webb, 757 P.2d 1102 (Colo. App. 1988). 12-2-126. Investigations, examinations, and cease and desist orders against unlawful act. (1) (a) (I) The board, on its own motion based on reasonable grounds or on the signed, written complaint of any person, may investigate any person who has engaged, is engaging, or threatens to engage in any act or practice that constitutes a violation of any provision of this article. The board or any member thereof may administer oaths, take affirmations of witnesses, and issue subpoenas to compel the attendance of witnesses and the production of all relevant papers, books, records, documentary evidence, and materials in any hearing, investigation, accusation, or other matter coming before the board. The board may appoint an administrative law judge pursuant to part 10 of article 30 of title 24, C.R.S., to take evidence and to make findings and report them to the board. (II) Upon failure of any witness to comply with such subpoena or process, the district court of the county in which the subpoenaed person or licensee resides or conducts business, upon application by the board or director with notice to the subpoenaed person or licensee, may issue to the person or licensee an order requiring that person or licensee to appear before the board or director; to produce the relevant papers, books, records, documentary evidence, or materials if so ordered; or to give evidence touching the matter under investigation or in question. Failure to obey the order of the court may be punished by the court as a contempt of court. (b) (I) Complaints of record that are dismissed by the board and the results of investigation of such complaints shall be closed to public inspection. (II) Upon completing an investigation, the board shall make one of the following findings: (A) The complaint is without merit and no further action need be taken. (B) There is no reasonable cause to warrant further action. (C) The investigation discloses an instance of conduct that does not warrant formal action and should be dismissed, but the investigation discloses indications of possible errant conduct that could lead to serious consequences if not corrected. If this finding is made, the board shall send a confidential letter of concern to the licensee or registrant. (D) The investigation discloses an instance of conduct that does not warrant formal action but should not be dismissed as being without merit. If this finding is made, the board may send a letter of admonition to the licensee or registrant by certified mail. Colorado Revised Statutes 1-23

(E) The investigation discloses facts that warrant further proceedings by formal complaint. If this finding is made, the board shall refer the complaint to the attorney general for preparation and filing of a formal complaint. (III) (A) When a letter of admonition is sent to a licensee or registrant, the board shall include in the letter a notice that the licensee or registrant has the right to request in writing, within twenty days after receipt of the letter, that formal disciplinary proceedings be initiated to adjudicate the propriety of the conduct upon which the letter of admonition is based. (B) If the request for adjudication is timely made, the letter of admonition is vacated and the board shall proceed by means of formal disciplinary proceedings. (IV) The board shall conduct all proceedings pursuant to this subsection (1) expeditiously and informally so that no licensee or registrant is subjected to unfair and unjust charges and that no complainant is deprived of the right to a timely, fair, and proper investigation of a complaint. (c) Complaints of record that are not dismissed by the board and are the results of investigations of such complaints shall be closed to public inspection and any meeting concerning such complaints shall be closed to the public during the investigatory period and until a stipulated agreement is reached between the applicant or certificate holder and the board or until notice of hearing and charges are filed and served on an applicant or certificate holder. Except for confidential books of account, financial records, advice, reports, or working papers provided by the client, the certified public accountant, or the certified public accounting firm, the board's records and papers shall be subject to the provisions of sections 24-72-203 and 24-72-204, C.R.S., regarding public records and confidentiality. (2) (a) If it appears to the board, based upon credible evidence as presented in a written complaint by any person, that a certificate holder is acting in a manner that is an imminent threat to the health and safety of the public or a person is acting or has acted without the required certificate, the board may issue an order to cease and desist such activity. The order shall set forth the statutes and rules alleged to have been violated, the facts alleged to have constituted the violation, and the requirement that all unlawful acts or uncertified practices immediately cease. (b) Within ten days after service of the order to cease and desist pursuant to paragraph (a) of this subsection (2), the respondent may request a hearing on the question of whether acts or practices in violation of this article have occurred. Such hearing shall be conducted pursuant to sections 24-4-104 and 24-4-105, C.R.S. (3) (a) If it appears to the board, based upon credible evidence as presented in a written complaint by any person, that a person has violated any other portion of this article, then, in addition to any specific powers granted pursuant to this article, the board may issue to such person an order to show cause as to why the board should not issue a final order directing such person to cease and desist from the unlawful act or uncertified practice. Colorado Revised Statutes 1-24

(b) A person against whom an order to show cause has been issued pursuant to paragraph (a) of this subsection (3) shall be promptly notified by the board of the issuance of the order, along with a copy of the order, the factual and legal basis for the order, and the date set by the board for a hearing on the order. Such notice may be served by personal service, by first-class United States mail, postage prepaid, or as may be practicable upon any person against whom such order is issued. Personal service or mailing of an order or document pursuant to this subsection (3) shall constitute notice thereof to the person. (c) (I) The hearing on an order to show cause shall be commenced no sooner than ten and no later than forty-five calendar days after the date of transmission or service of the notification by the board as provided in paragraph (b) of this subsection (3). The hearing may be continued by agreement of all parties based upon the complexity of the matter, number of parties to the matter, and legal issues presented in the matter, but in no event shall the hearing commence later than sixty calendar days after the date of transmission or service of the notification. (II) If a person against whom an order to show cause has been issued pursuant to paragraph (a) of this subsection (3) does not appear at the hearing, the board may present evidence that notification was properly sent or served upon such person pursuant to paragraph (b) of this subsection (3) and such other evidence related to the matter as the board deems appropriate. The board shall issue the order within ten days after the board's determination related to reasonable attempts to notify the respondent, and the order shall become final as to that person by operation of law. Such hearing shall be conducted pursuant to sections 24-4-104 and 24-4-105, C.R.S. (III) If the board reasonably finds that the person against whom the order to show cause was issued is acting or has acted without the required certificate or has or is about to engage in acts or practices constituting violations of this article, a final cease-and-desist order may be issued directing such person to cease and desist from further unlawful acts or uncertified practices. (IV) The board shall provide notice, in the manner set forth in paragraph (b) of this subsection (3), of the final cease-and-desist order within ten calendar days after the hearing conducted pursuant to this paragraph (c) to each person against whom the final order has been issued. The final order issued pursuant to subparagraph (III) of this paragraph (c) shall be effective when issued and shall be a final order for purposes of judicial review. (4) If it appears to the board, based upon credible evidence presented to the board, that a person has engaged in or is about to engage in any uncertified act or practice, any act or practice constituting a violation of this article, any rule promulgated pursuant to this article, any order issued pursuant to this article, or any act or practice constituting grounds for administrative sanction pursuant to this article, the board may enter into a stipulation with such person. Colorado Revised Statutes 1-25

(5) If any person fails to comply with a final cease-and-desist order or a stipulation, the board may request the attorney general or the district attorney for the judicial district in which the alleged violation exists to bring, and if so requested such attorney shall bring, suit for a temporary restraining order and for injunctive relief to prevent any further or continued violation of the final order. (6) A person aggrieved by the final cease-and-desist order may seek judicial review of the board's determination or of the board's final order as provided in section 12-2-127. (7) When a complaint or an investigation discloses an instance of misconduct that, in the opinion of the board, warrants formal action, the complaint shall not be resolved by a deferred settlement, action, judgment, or prosecution. Observation: The requirement that the state board investigate a member of the accounting profession s conduct and reach a tentative conclusion as to the gross negligence and dishonesty of that conduct is a proper function to be exercised prior to the bringing of charges. McGee v. State Bd. Of, 169 Colo. 87, 453 P.2d 800 (1969). 12-2-127. Judicial review. (1) Any person aggrieved by any final action or order of the board and affected thereby is entitled to a review thereof by the court of appeals by appropriate proceedings under section 24-4-106 (11), C.R.S. (2) For the purposes of review, the residence of the board shall be the city and county of Denver. 12-2-128. Reconsideration and review of action of board. The board, on its own motion or upon application, at any time after the imposition of any discipline as provided in section 12-2-123 (1), may reconsider its prior action and reinstate or restore such license or terminate probation or reduce the severity of its prior disciplinary action. The taking of any such further action, or the holding of a hearing with respect thereto, shall rest in the sole discretion of the board. 12-2-129. Unauthorized practice - penalties. Any person who violates section 12-2-115 or 12-2-120 (6) (a) commits a class 2 misdemeanor and shall be punished as provided in section 18-1.3-501, C.R.S., for the first offense, and, for the second or any subsequent offense, the person commits a class 6 felony and shall be punished as provided in section 18-1.3-401, C.R.S. 12-2-130. Ownership of accountant's working papers. All statements, records, schedules, working papers, and memoranda made by a certified public accountant incident to or in the course of professional service to a client by the certified public accountant, except financial statements submitted by a certified public accountant to a client and books and records prepared for the use of the client, shall be and remain the property of the certified public accountant in the absence of an express agreement to the contrary between the certified public accountant and the client. Colorado Revised Statutes 1-26

Client Records and Working Papers Applicable Statutes or Administrative Rules CRS 12-2-130 Rule 7.9 Licensees may not withhold client records and working papers based on the client s refusal to pay the licensee s fees. Rule 7.9 requires licensees to provide to a client or former client any records belonging to or obtained from or on behalf of the client, and a copy of the licensee s working papers, to the extent that the working papers include records that would ordinarily constitute part of the client s records and are not otherwise available to the client. The requirement to return client records and working papers differs depending on whether or not the licensee has issued the work product that is the subject of the engagement. A client s request for return of records that is made within a reasonable time and that occurs prior to the issuance of tax return, financial statement, report or other document prepared by a licensee: the licensee shall furnish, within a reasonable time to the client or former client any accounting or other records belonging to, or obtained from or on behalf of the client, that the licensee received for the client s account or removed from the client s premises. Explanation: If the CPA received any records owned by the client, the records must be returned. Client records do not include the work product or working papers of the CPA. A client s request for return of records that is made within a reasonable time and that occurs after the issuance of a tax return, financial statement, report or other document prepared by a licensee: the licensee shall furnish, within a reasonable time to the client or former client: 1. A copy of a tax return, financial statement, report or other document issued by a licensee to or for such client or former client; 2. Any accounting or other records belonging to or obtained from or on behalf of the client that the licensee removed from the client s premises or received for the client s account; and 3. A copy of the licensee s working papers, to the extent that the working papers include records that would ordinarily constitute part of the client s records and are not otherwise available to the client. 4. Working papers, for this rule, include but are not limited to all statements, records, schedules, general ledgers, journals, trial balances and depreciation schedules made by a licensee incident to or in the course of rendering services to a client or former client. Working papers are and shall remain the property of the licensee in the absence of an express agreement to the contrary between the licensee and the client. Explanation: The licensee is required to provide a copy of the work product that was issued for the engagement and return any records obtained from the client. The requirement to return the working papers may vary; for example, if the client has a complete accounting system including a general ledger, sub ledgers, a fixed asset accounting process and maintains their own account analysis and reconciliations, only copies of the adjusting entries with explanations and any supporting working papers would be necessary. Colorado Revised Statutes 1-27

The client may have a general ledger, but may depend on the CPA to adjust and close the general ledger. In that event, copies of both adjusting entries, with explanations and any supporting papers, and closing entries would be provided to the client. If the client does not have a general ledger and only provides the CPA with transaction summaries that the CPA uses to prepare a working trial balance, copies of the adjusted working trial balance, transaction entries, adjusting entries with explanations and any supporting working papers, and closing entries would be provided to the client. If the CPA prepared the fixed asset depreciation schedule because the client does not have one, or because the CPA adjusted the client s schedule, a copy must be provided. If the CPA prepared a bank reconciliation because the client did not do one, a copy must be provided. If the CPA determines and prepares schedules of account balances that the client does not ordinarily prepare, and the CPA reported on such schedules, copies must be provided to the client. Examples of such schedules include, but are not limited to: Investments Accounts payable Prepaid expenses Accrued liabilities Owner s equity Current portion of long-term debt Accounts receivable Bad debts Income tax expenses and payable If the client determined the account balances and provided schedules, copies of the schedules with the CPA notes and conclusions are not required to be provided. Copies of the CPA notes, or conclusions on any accounts or transactions, are only required to be provided to the client if the account balances or transactions reported on cannot be understood without consulting the CPA notes or conclusions. The decision whether to provide copies of all or part of the accountant s work papers depends on whether the client s records include the same information as the licensee s work product. The client must have sufficient documentation to explain or prove transactions or events that are reported by the licensee in the client s tax returns or financial statements when called upon to do so. If the documentation is sufficient and can be used for such explanation and proof, copies of work papers are not necessary. If the documents are not sufficient, copies of the appropriate work papers are required. 12-2-130.5. Ownership of state auditor's work papers. Except for reports submitted to the legislative audit committee and books and records prepared for use by such committee, all statements, records, schedules, working papers, and memoranda prepared by a certified public accountant in the employ of the state auditor's office, in the course of professional service to the legislative audit committee, shall be and remain the property of the state auditor's office and shall be kept confidential unless a majority of the members of the legislative audit committee vote to open such documents. Colorado Revised Statutes 1-28

12-2-131. Professional corporations for the practice of public accounting as certified public accountants or as registered accountants. (Repealed) 12-2-132. Repeal of article. (1) This article is repealed, effective July 1, 2019. (2) Prior to such repeal, the state board of accountancy shall be reviewed as provided in section 24-34-104, C.R.S. Colorado Revised Statutes 1-29

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. Colorado Law 12-2-117 outlines the requirements for non-licensee ownership of a CPA firm. All partners working in Colorado need to be Colorado CPAs. a) true b) false 2. Regarding non-licensee ownership of CPA firms, at least one-third of the ownership must be Colorado CPAs. a) true b) false 3. The Colorado Board of permits individual CPAs to prepare tax returns while on inactive status. a) true b) false Colorado Revised Statutes 1-30

CHAPTER 1 SOLUTIONS AND SUGGESTED RESPONSES 1. A: Incorrect. A minimum of one partner working in Colorado must be a Colorado CPA. B: Correct. At least one partner working in Colorado must be a Colorado CPA. The majority of owners must be a CPA of some state. (See Title 12-2-117 in the course material.) 2. A: Incorrect. Majority ownership must be CPAs, however, only one partner needs to be a Colorado CPA. B: Correct. Majority ownership must be CPAs of some state. (See Title 12-2-117 in the course material.) 3. A: Correct. The Board does not consider preparing tax returns practicing accounting. B: Incorrect. The CPA is not required to have active status to prepare tax returns. (See Title 12-2-120 in the course material.) Colorado Revised Statutes 1-31

CHAPTER 2: RULES OF THE COLORADO STATE BOARD OF ACCOUNTANCY Effective October 30, 2010 Objectives: After completing this chapter, you will be able to: Discuss the regulations established by the Board of to regulate CPAs. Explain the difference between active and inactive status. List the CPE requirements to renew as an active CPA. Discuss the requirements of the Code of Professional Conduct and identify examples of misconduct. For your convenience, the entire Rules table of contents is reprinted below. For purposes of this course, only selected Rules have been reprinted in their entirety. You are encouraged to research other parts of the Rules as they relate to your practice. TABLE OF CONTENTS Chapters Chapter 1 Chapter 2 Chapter 3 SUBJECT Board Organization and Administration 1.1 Definitions and Abbreviations 1.2 Meetings 1.3 Conferring with Board Members 1.4 Committees 1.5 Notices from Certificate Holders and Firm Registrants 1.6 General Information Concerning CPA Certificates Education Requirements for Examination and Certification 2.1 General Information 2.2 Accredited College or University 2.3 Approved Accounting Program 2.4 Education Requirements for Examination 2.5 Education Requirements for Certification Prior to July 1, 2015 Concentration in Accounting or the Equivalent 2.6 Education Requirements for Certification on and After July 1, 2015 2.7 Education in Lieu of Experience Under Section 12-2-109(1)(c), C.R.S. Examinations Requirements 3.1 Applications 3.2 Examination Eligibility 3.3 Official Transcripts 3.4 Withdrawals Rules of the Colorado State Board of 2-1

Chapters SUBJECT (cont.) 3.5 Candidate Conduct During Examination 3.6 Conditioning Requirements 3.7 Examination Window 3.8 Notice to Schedule (NTS) 3.9 Examination More Than 10 Years Prior to the Application Date Chapter 4 Chapter 5 Chapter 6 Chapter 7 Experience Requirements for Certification 4.1 General Experience and Verification Requirements 4.2 Experience in Public Accounting 4.3 Experience in Industry 4.4 Experience in Government 4.5 Experience in Academia Certification by Reciprocity 5.1 Applicants Holding a CPA Certificate from Another U.S. Jurisdiction 5.2 International Applicants Holding a Certificate or Designation From an Organization That Has Entered Into a Mutual Recognition Agreement (MRA) With the U.S. International Qualifications Appraisal Board (IQAB) 5.3 International Applicants With Education Obtained Outside the U.S. and Not Holding a Certificate or Designation From an Organization That Has Entered into a MRA With the IQAB Certificate Status and Maintenance 6.1 Introduction 6.2 Application for Board Action 6.3 Active Certificate 6.4 Inactive Certificate 6.5 Retired Status Certificate 6.6 Reactivation of an Inactive or Retired Status Certificate 6.7 Reinstatement of an Expired Certificate 6.8 CPE Required After Reactivation or Reinstatement to Active Status Continuing Professional Education (CPE) 7.1 Introduction 7.2 CPE Standards 7.3 Subject Matter 7.4 Availability of Materials Incorporated By Reference 7.5 CPE Records Retention 7.6 Hardship Exceptions 7.7 CPE Committee 7.8 Failure to Comply With CPE Requirements Rules of the Colorado State Board of 2-2

Chapters Chapter 8 Chapter 9 SUBJECT (cont.) Peer Review Requirement 8.1 Introduction 8.2 Peer Review Program Standards 8.3 Exemption From Peer Review 8.4 Retention of Documents Relating to Peer Reviews 8.5 Submission of Peer Review Reports 8.6 Facilitated State Board Access 8.7 Change of Firm Registration Status Peer Review Status 8.8 Confidentiality of Peer Review Information 8.9 Peer Review Program Oversight 8.10 Effective Date Rules of Professional Conduct Code of Professional Conduct Preamble 9.1 Definitions 9.2 Independence 9.3 Integrity and Objectivity 9.4 Receipt of Commissions and Contingent Fees 9.5 Professional Competence and Compliance With Applicable Technical Standards 9.6 Other Professional Standards 9.7 Confidential Client and Employer Information 9.8 Issuing Copies of Reports Tax Returns or Other Documents 9.9 Client Records 9.10 Acting Through Others 9.11 Solicitation 9.12 Practice Names 9.13 Offering Services Via the Internet 9.14 Disclosure By Certificate Holders and Firms Chapter 10 Chapter 11 Declaratory Orders Practice Privilege/Mobility 11.1 Scope of the Practice Privilege 11.2 Requirements 11.3 Discipline for Holders of the Practice Privilege Rules of the Colorado State Board of 2-3

CHAPTER 1 BOARD ORGANIZATION AND ADMINISTRATION 1.1 DEFINITIONS AND ABBREVIATIONS A. Active The status of a Certificate Holder s certificate or a Firm s registration allowing the Certified Public Accountant (CPA) or Firm Registrant to use the CPA designation and to perform any service for which an Active CPA certificate or Firm registration is required pursuant to Section 12-2-120(6), C.R.S. B. AICPA Ethics Examination Pursuant to Sections 12-2-109(1)(b) and 12-2-109(2)(b), C.R.S., the professional ethics course and examination shall mean Professional Ethics: AICPA's Comprehensive Course, a course of study concerning the subject of professional ethics and the related examination prepared and administered by the AICPA. C. AICPA The American Institute of Certified Public Accountants D. AICPA Code of Professional Conduct The Code of Professional Conduct issued by the AICPA E. Applicant An Applicant is an individual who has submitted an application for an original, renewal, reinstated, reactivated, Retired, or Inactive CPA certificate. F. Board The Colorado State Board of G. Candidate A Candidate is an individual who has submitted an application to sit for the Examination. H. Certificate Holder A person granted a Colorado CPA certificate pursuant to the requirements in Article 2 of Title 12, C.R.S. I. Client A person or entity that agrees with a Certificate Holder or a Firm to receive any Professional Service. Rules of the Colorado State Board of 2-4

J. Competence The knowledge and ability to assure that the quality of the services rendered meets professional standards. It requires a Certificate Holder to (1) be responsible for assessing and evaluating whether the Certificate Holder s education, experience and judgment are adequate for the responsibility assumed, and (2) maintain a commitment to learning and professional improvement that continues throughout a Certificate Holder s professional life. K. Conflict of Interest A conflict of interest arises if, when performing a professional service for a party, the Certificate Holder or Firm has another interest or relationship that threatens the Certificate Holder s or Firm s ability to perform the service objectively and free of bias or undue restriction. L. Contingent Fee A fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specific finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service. Solely for purposes of these Rules, fees are not regarded as being contingent if fixed by courts or governmental entities acting in a judicial or regulatory capacity, or in tax matters if determined based upon the results of judicial proceedings or the findings of governmental agencies acting in a judicial or regulatory capacity or there is a reasonable expectation of substantive review by a taxing authority. M. CPE Continuing professional education that satisfies the requirements of Section 12-2-119, C.R.S. and Chapter 7. N. CR&R CPE concerning Sections 12-2-101-132 and 13-90-107(1)(f), C.R.S. and Colorado State Board of Rules and Regulations. In order to qualify as a CR&R course, the course must review and encourage compliance with Colorado statutes, rules and regulations regarding CPAs. O. C.R.S. The Colorado Revised Statutes P. Due Care The discharge of responsibilities to clients, employers and the public with diligence and competence which requires a Certificate Holder or Firm to (1) render services carefully and in a timely manner, (2) be thorough, (3) observe applicable technical and ethical standards, and (4) plan and supervise adequately any professional activity for which the Certificate Holder or Firm is responsible. Rules of the Colorado State Board of 2-5

Q. Ethics CPE CPE concerning professional ethical behavior in Regulatory Ethics or Behavioral Ethics as defined by the Fields of Study. For the purpose of CPE, Behavioral Ethics are not considered to be Personal Development. R. Examination The Uniform CPA Examination S. Expired / Lapsed The status of a Certificate Holder s certificate or Firm s registration following a failure to renew the certificate or registration by the expiration date. A Certificate Holder with a certificate in expired status is prohibited by law from holding out as a CPA and from performing any service for which an Active certificate is required pursuant to Section 12-2-120(6), C.R.S. A Firm Registrant is prohibited by law from holding out as a Firm composed of CPAs and from performing any service for which an Active registration is required pursuant to Section 12-2-120(6), C.R.S. T. Fields of Study The NASBA CPE Fields of Study, incorporated by reference in Chapter 7 U. Financial Statements Statements and disclosures related thereto that purport to show actual or anticipated financial position which relates to a point in time, or results of operations, cash flow, or changes in financial position which relate to a period of time, on the basis of U.S. GAAP or another comprehensive basis of accounting. The term includes specific elements, accounts, or items of such statements but does not include incidental financial data included in management advisory services reports to support recommendations to a client, nor does it include tax returns and supporting schedules. V. Firm A business entity composed of one or more CPAs engaged in the practice of public accounting as a domestic or foreign partnership, single owner professional corporation or single member limited liability company, corporation, professional corporation, registered limited liability partnership, limited liability limited partnership, limited partnership, limited liability company or professional limited liability company. W. GAAP Generally Accepted Accounting Principles X. GAAS Generally Accepted Auditing Standards Rules of the Colorado State Board of 2-6

Y. He, His, Him Masculine pronouns when used also include the feminine. Z. Holding Out Except as provided in Section 12-2-121(2)(a), C.R.S., any activity by an individual or entity that informs or implies to others an Active status as a Colorado Certificate Holder or Firm Registrant. This includes, but is not limited to, any oral or written representation, such as business cards or letterhead, resumes, biographies, the display of a certificate evidencing a CPA designation, or the listing as a Colorado Certificate Holder or Firm Registrant in directories or on the Internet. AA. Inactive The status of a certificate following the Certificate Holder s request that the Board transfer the certificate status to Inactive. AB. Independence The absence of relationships that impair or appear to impair a Certificate Holder s objectivity in performing an engagement in which the Certificate Holder or Firm will issue an attestation report or opinion other than a report in which a lack of independence is disclosed. AC. Integrity An element of character fundamental to professional recognition which requires a Certificate Holder to (1) be honest and candid within the constraints of client confidentiality, (2) observe both the form and the spirit of technical and ethical standards, and (3) keep service and the public trust above personal gain an advantage. It is the quality from which the public trust derives and the benchmark against which a Certificate Holder must ultimately test all decisions. It can accommodate the inadvertent error and the honest difference of opinion. It cannot accommodate deceit or subordination of principle. AD. Joint Standards The Joint AICPA / NASBA Statement on Standards for Continuing Professional Education (CPE) Programs incorporated by reference in Chapter 7 AE. NASBA The National Association of State Boards of AF. Objectivity A principle that requires a Certificate Holder or Firm to (1) be impartial, intellectually honest and free of conflicts of interest, (2) protect the integrity of their work regardless of service or capacity, and (3) avoid any subordination of their judgment. Rules of the Colorado State Board of 2-7

AG. Peer Review A study, appraisal, or review by an independent CPA or Firm of one or more aspects of the professional work of another CPA or of a registered partnership, corporation, or limited liability company that issues attest or compilation reports and acceptance of the CPA s or Firm s Peer Review documents by the sponsoring organization s report acceptance body as defined in the Board-approved Peer Review standards described in Chapter 8. AH. Practice of Public Accounting Performing for a client or offering to perform for a client or potential client, one or more kinds, or any combination of services involving the use of accounting or attestation skills, including the issuance of reports on financial statements, or of one or more types of management advisory or consulting services, or the preparation of tax returns, or the furnishing of tax advice. AI. Practice Privilege / Mobility The privilege for a CPA or Firm whose principal place of business is located in another jurisdiction to practice public accounting pursuant to, and subject to, the conditions contained in Section 12-2-121(2), C.R.S. and Chapter 11. AJ. Principal Place of Business The office location designated by a CPA or Firm AK. Professional Services Any service performed or offered to be performed by a Certificate Holder, Firm or a holder of a Practice Privilege while holding out as a CPA or Firm. AL. Reactivation The process by which an Inactive or Retired status certificate is returned to Active status. AM. Registrant A Firm engaged in the practice of public accounting granted registration pursuant to the requirements in Article 2 of Title 12, C.R.S. AN. Reinstatement The process by which a CPA certificate that has expired is returned to Active, Inactive, or Retired status or by which a Firm registration that has expired is returned to Active status. Rules of the Colorado State Board of 2-8

AO. Renewal The process of applying to retain a CPA certificate in an Active, Inactive, or Retired status every two years in accordance with the schedule established by the Division of Registrations pursuant to Sections 12-2-108 (3), C.R.S. and 24-34-102, C.R.S. or of applying to retain a Firm registration every three years pursuant to Section 12-2- 117(2.2), C.R.S. AP. Reporting Period A two-year period from January 1 of the even-numbered year through December 31 of the odd-numbered year immediately preceding the expiration date of a certificate during which the Certificate Holder shall complete CPE. AQ. Retired The status of a certificate following the Board s approval of a Certificate Holder s application to transfer the certificate status to Retired. AR. Substantial Equivalency A determination by the Board or its designee that the education, examination, and experience requirements contained in the statutes and administrative rules of another jurisdiction are comparable to, or exceed the education, examination, and experience requirements contained in the AICPA /NASBA Uniform Act (UAA) or that an individual CPA s education, examination, and experience qualifications are comparable to or exceed the education, examination, and experience requirements contained in the UAA. In ascertaining substantial equivalency as used in these Rules, the Board shall take into account the qualifications without regard to the sequence in which experience, education, or examination requirements were attained. 1.2 MEETINGS A. Meetings of the Board shall be held at intervals necessary to transact business or upon the call of the chair or request by a majority of the members. B. The election of a chair, as required by Section 12-2-104(1)(a), C.R.S., shall be held annually. C. The chair shall preside at all meetings and shall perform such other duties as the Board may direct. In the absence or inability of the chair to act, the vice chair will preside over the meeting. In the absence or inability of the vice chair to act, a majority of the members attending a duly called meeting shall appoint a member to preside. D. The Board shall follow Robert's Rules of Order Newly Revised, to the extent that the rules do not conflict with state or federal statutes or rules, in the conduct of its business. Rules of the Colorado State Board of 2-9

E. Except as otherwise provided by law, all regular meetings of the Board are open to the public, who may, at the discretion of the Board, participate in any one of the following ways: (1) by requesting in writing to the Board that they be included on the agenda; (2) by written invitation of the Board; (3) by verbal invitation of the Board to members of the audience at a Board meeting. The Board may establish a time limit for presentations by the public, and the presiding officer may exclude from the meeting room any person who is disruptive, abusive, or disorderly. 1.3 CONFERRING WITH BOARD MEMBERS In the event any person contacts a Board member regarding any matter applicable to the Colorado Act, Article 2 of Title 12, C.R.S. or these Rules, any expression of opinion by that Board member will be exclusively his opinion and will in no way commit the Board. All requests for the Board to consider an issue shall be directed to the Board s Program Director. 1.4 COMMITTEES The Board may appoint such committees as it deems necessary to effectively administer, implement and carry out the provisions of the Colorado Act and these Rules. Board committees shall be guided and assisted administratively by the Board's staff. The action of a committee shall be deemed to be the action of the Board only when that action is adopted and ratified by the Board. 1.5 NOTICES FROM CERTIFICATE HOLDERS AND FIRM REGISTRANTS A. Certificate Holder Address and Name Changes 1. Certificate Holders shall inform the Board of any name, address, telephone, or email change within 30 days of the change. The Board will not change a Certificate Holder's information without explicit notification in a manner prescribed by the Board. Observation: Failure to notify the Board of an address change is one of the most common violations. 2. The Board requires one of the following forms of documentation to change a Certificate Holder s name or social security number: a. Marriage license; b. Divorce decree; c. Court order; or d. A driver s license or social security card with a second form of identification may be acceptable at the discretion of the division of registrations. Rules of the Colorado State Board of 2-10

B. Firm Registration Changes 1. The partner, shareholder, or member designated by the Firm pursuant to Section 12-2-117(2)(a)(III), C.R.S. shall notify the Board, in a manner prescribed by the Board, within 30 days of any change including the: a. Location or addition/deletion of places of business or termination of a firm; b. Composition or structure of the firm; c. Name of the firm; d. Responsible party for the firm; and e. Names of any partner, principal, shareholder, or member. C. Renewal Notices to Certificate Holders and Firm Registrants 1. The Board sends notices for renewal of certificates and registrations according to a schedule established and in a manner approved by the Division of Registrations pursuant to Section 24-34-102(8), C.R.S. to the last address furnished to the Board and there is a 60 day grace period from the expiration date of the CPA certificate or Firm registration within which to pay the renewal fee, plus a late fee. 2. Failure to receive a renewal notice does not relieve the Certificate Holder or the Registrant of the obligation to pay the renewal fee and submit appropriate documentation in support of the renewal application such as CPE and Peer Review requirements as listed in Chapters 6, 7, and 8. 3. Pursuant to Section 12-2-123.5, C.R.S., Certificate Holders and Registrants are not excused of their obligation to respond to Board communications due to a failure to properly notify the Board of any changes. 1.6 GENERAL INFORMATION CONCERNING CPA CERTIFICATES Every certificate, while it remains in the possession of the Certificate Holder, shall be preserved by the holder, but such certificate shall, nevertheless, always remain the property of the Board. In the event that the certificate is suspended or revoked, it shall be delivered by the Certificate Holder to the Board. Note: This course is designed for CPA continuing education purposes. Since you already are a CPA, the sections of the rules relating to becoming a CPA have been omitted. The complete rules are available on the Board s website at www.dora.state.co.us/accountants. Rules of the Colorado State Board of 2-11

6.1 INTRODUCTION CHAPTER 6 CERTIFICATE STATUS AND MAINTENANCE This Chapter sets forth the requirements, including CPE requirements, for a Certificate Holder to renew, reactivate or reinstate a certificate, and to obtain a Retired or Inactive status certificate. For the CPE standards, see Chapter 7. It is the responsibility of the Certificate Holder to complete the renewal process every two years. 6.2 APPLICATION FOR BOARD ACTION A Certificate Holder or a person wishing the Board to take any action regarding the status of a certificate shall apply in a manner prescribed by the Board. 6.3 ACTIVE CERTIFICATE An Active certificate expires and shall be renewed every even-numbered year, according to the schedule established by the Division of Registrations pursuant to Section 24-34- 102, C.R.S., to maintain the certificate in an Active status. A. Within six months of the date the Board grants an initial certificate, the Certificate Holder shall complete two hours of CR&R. B. After initial certification, a Certificate Holder shall complete ten hours of CPE during each full quarter remaining in the reporting period, of which no more than 20 percent shall be in Personal Development, as defined by the Fields of Study. At least two hours of CPE must be in Ethics, which may be satisfied by CR&R if taken as described in Rule 6.3.A. C. As a condition for the renewal of an Active status certificate, each Certificate Holder shall complete a total of 80 hours of CPE during the reporting period. No more than 16 hours may be in Personal Development, as defined by the Fields of Study. Four hours of CPE must be in Ethics, of which up to two hours may be in CR&R. D. Any course previously used to meet the education requirements for examination or certification shall not be reported for subsequent CPE credit. A CPE course that was taken prior to certification, but within the reporting period, may be eligible for CPE credit upon initial renewal if it was not used to meet the education requirements for initial certification. 6.4 INACTIVE CERTIFICATE An Inactive certificate expires and shall be renewed every even-numbered year, according to the schedule established by the Division of Registrations pursuant to Section 24-34-102, C.R.S., to maintain the certificate in an Inactive status. Rules of the Colorado State Board of 2-12

A. Transfer of a Certificate to Inactive Status To transfer a certificate from Active to Inactive status, a Certificate Holder shall submit notice in a manner prescribed by the Board of the Certificate Holder s request to transfer to Inactive status. B. Conditions of an Inactive Certificate 1. Inactive Certificate Holders are not required to comply with CPE requirements for the period during which the certificate is Inactive. 2. Inactive status must be indicated by the word Inactive (e.g., Inactive CPA, Inactive Certified Public Accountant) if the Certificate Holder uses the CPA designation in any manner. 3. A Certificate Holder with a certificate in Inactive status is prohibited by law from Holding Out as an Active CPA and from performing any service for which an Active certificate is required pursuant to Section 12-2-120(6), C.R.S. 6.5 RETIRED STATUS CERTIFICATE A Retired certificate expires and shall be renewed every even-numbered year, according to the schedule established by the Division of Registrations pursuant to Section 24-34- 102, C.R.S., to maintain the certificate in a Retired status. A. Transfer of a Certificate to Retired Status 1. To transfer a certificate from Active, Inactive or Expired status to Retired status a Certificate Holder shall submit an application, in a manner prescribed by the Board, to transfer to Retired status. 2. A Certificate Holder shall be at least 55 years old and have held an Active certificate in good standing from any state(s), as state is defined in Section 12-2-102(5), C.R.S., for a total of at least 15 years. B. Conditions of a Retired Certificate 1. A Retired Certificate Holder is not required to comply with CPE requirements for the period during which the certificate is in Retired status. 2. Retired status must be indicated by the word Retired (e.g., Retired CPA, Retired Certified Public Accountant) if the Certificate Holder uses the CPA designation in any manner. 3. Retired Certificate Holders are prohibited from performing any service for which an Active certificate is required pursuant to Section 12-2-120(6), C.R.S. Rules of the Colorado State Board of 2-13

C. Exceptions The Board in its discretion may grant exceptions to the requirements in this Chapter for reasons of individual hardship or other good cause. 6.6 REACTIVATION OF AN INACTIVE OR RETIRED STATUS CERTIFICATE A. Conditions of Reactivation: Inactive or Retired Less Than Two Years When a certificate has been in Inactive or Retired status less than two years, it may be reactivated provided the Certificate Holder completes a total of 80 hours of CPE within the two years immediately preceding the application receipt date. No more than 16 hours may be in Personal Development, as defined by the Fields of Study. Four hours of CPE must be in Ethics of which two hours must be in CR&R. B. Conditions of Reactivation: Inactive or Retired Two Years or More When a certificate has been in Inactive or Retired status for two years or more, it may be reactivated provided the Certificate Holder completes a total of 80 hours of CPE within the two years immediately preceding the application receipt date. No CPE in Personal Development, as defined by the Fields of Study, shall be counted toward the 80 hours. The CPE must include the completion of the AICPA Ethics Examination and two hours of CR&R. C. Notwithstanding the requirements described in Rule 6.6.A. and B. above, if the Retired status certificate to be reactivated was in expired status at the time the Certificate Holder obtained his Retired status certificate, the Certificate Holder shall meet the requirements for Reinstatement to an Active certificate in Rule 6.7 based on the period the certificate was expired. 6.7 REINSTATEMENT OF AN EXPIRED CERTIFICATE A. Conditions of Reinstatement: Expired Less Than Two Years 1. When a certificate has been expired for less than two years, it may be reinstated in an Active status provided the Certificate Holder completes a total of 80 hours of CPE within the two years immediately preceding the application receipt date. No more than 16 hours may be in Personal Development, as defined by the Fields of Study. Four hours of CPE must be in Ethics of which two hours must be in CR&R. 2. When a certificate has been expired for less than two years, it may be reinstated in an Inactive status provided the Certificate Holder completes two hours of CPE in CR&R within the two years immediately preceding the application receipt date. B. Conditions of Reinstatement: Expired Two Years or More and Less Than Six Years When a certificate has been expired for two years or more and less than six years, it may be reinstated in an Active or Inactive status provided the Certificate Holder completes a total of 80 hours of CPE within the two years immediately preceding the application receipt date. No CPE in Personal Development, as defined by the Fields of Study, shall be counted toward the 80 hours. The CPE must include the completion of Rules of the Colorado State Board of 2-14

the AICPA Ethics Examination and two hours of CR&R. When the Certificate Holder provides satisfactory evidence of completing the conditions of this Paragraph (B), it will be deemed that continued professional competency has been demonstrated. C. Conditions of Reinstatement: Expired Six Years or More When a certificate has been expired for six years or more, it may be reinstated in an Active or Inactive status provided the Certificate Holder satisfies the conditions set forth in either Paragraph (1) or (3) of this Rule 6.7.C. 1. Within two years immediately preceding the application receipt date, the Certificate Holder shall: a. Complete a total of 80 hours of CPE. No CPE in Personal Development, as defined by the Fields of Study, may be counted toward the 80 hours. The CPE must include the completion of the AICPA Ethics Examination and two hours of CR&R, and b. Obtain experience or education according to one of the following conditions: (1) one year of experience as provided in Chapter 4; or (2) a post-baccalaureate degree with a concentration in accounting obtained from an accredited college or university, as defined by Section 12-2-102(1), C.R.S. 2. When the Applicant provides satisfactory evidence of completing the requirements of Rule 6.7.C.1. it will be deemed that continued professional competency has been demonstrated. 3. The Certificate Holder may also reinstate a certificate expired six years or more by satisfying the same conditions as an Applicant for initial certification, including passing the Examination, meeting the education and experience requirements as established by statute and Board Rules and completing the AICPA Ethics Examination. 6.8 CPE REQUIRED AFTER REACTIVATION OR REINSTATEMENT TO ACTIVE STATUS A. When a certificate is reactivated or reinstated to Active status, the CPE required for the next renewal is 10 hours for each full quarter remaining in the reporting period in which the certificate was reinstated or reactivated. No more than 20 percent of the CPE shall be in Personal Development, as defined by the Fields of Study. Two hours of CPE must be in Ethics, which may not be in CR&R. B. Any course used for reactivation or reinstatement to Active status may not be used to satisfy the requirements of this Rule 6.8. Observation: The old requirement to obtain a minimum of 20 CPE hours each year no longer applies. In addition, you may take all 80 hours via self study. Rules of the Colorado State Board of 2-15

Renewal of a CPA Certificate Individual Colorado CPA certificates expire on May 31 of even numbered years. Certificate holders must renew their certificates in order to continue to hold out as a Certified Public Accountant and practice public accounting on or before the expiration date of their certificate. If a certificate expires, certificate holders must apply to reinstate their certificate. Before the end of April of an even numbered calendar year, the Board will mail over 13,000 renewal forms to individual certificate holders. May 31 st is the deadline for certificate holders to return the form to renew a certificate. Don t let the final days sneak up on you. By carefully reading the instructions enclosed with your renewal form, you can ensure that your renewal is processed quickly and efficiently. 7.1 INTRODUCTION CHAPTER 7 CONTINUING PROFESSIONAL EDUCATION (CPE) All Certificate Holders should participate in learning activities that maintain and/or improve their professional competence. A Certificate Holder s field of employment does not limit the need for CPE. Certificate Holders performing Professional Services need to have a broad range of knowledge, skills and abilities. Thus, the concept of professional competence should be interpreted broadly. Accordingly, acceptable CPE encompasses programs that contribute to the development and maintenance of both technical and non-technical professional skills. It is the responsibility of Certificate Holders to be aware of and comply with all CPE requirements described in Chapters 6 and 7. 7.2 CPE STANDARDS Certificate Holders, program sponsors and program developers must follow the Joint AICPA / NASBA Statement on Standards for Continuing Professional Education (CPE) Programs, which were in effect, July 14, 2006. This Rule does not include later amendments to or editions of the Joint Standards. 7.3 SUBJECT MATTER The following are acceptable subjects for CPE courses as defined by the NASBA CPE Fields of Study, which were in effect, July 14, 2006. Accounting Accounting (Governmental) Administrative Practice Auditing Auditing (Governmental) Behavioral Ethics Rules of the Colorado State Board of 2-16

Business Law Business Management and Organization Communications Computer Science Economics Finance Management Advisory Services Marketing Mathematics Personal Development Personnel/HR Production Regulatory Ethics Social Environment of Business Specialized Knowledge and Applications Statistics Taxes This Rule does not include later amendments to or editions of the Fields of Study. 7.4 AVAILABILITY OF MATERIALS INCORPORATED BY REFERENCE The public should contact the Board s Program Director at 1560 Broadway, Suite 1350, Denver, Colorado 80202, (303) 894-7800, or accountancy@dora.state.co.us to examine the Joint Standards and Fields of Study, incorporated by reference in Rules 7.2 and 7.3 respectively. Copies of these materials may also be examined at any state publications depository library. 7.5 CPE RECORDS RETENTION As set forth in the Joint Standards, the Certificate Holder is responsible for accurate reporting and documentation of all CPE hours completed. Certificate Holders must retain appropriate documentation for a minimum of five years from the end of the year in which the CPE was completed. Appropriate documentation includes: 1. Name and contact information of CPE program sponsor, 2. Participant s name, 3. Title of program 4. Field of study 5. Date(s) the program was offered or completed, 6. Location of program, 7. Type of instruction/delivery method, 8. Number of CPE credits completed, and 9. Certificate of completion or other verification supplied by the CPE program sponsor (for additional examples of acceptable evidence of completion, see the Joint Standards Section 200.11). Rules of the Colorado State Board of 2-17

7.6 HARDSHIP EXCEPTIONS A Certificate Holder seeking an exception to the CPE requirements must submit a written request and evidence of good cause to the Board. The Board shall decide on a case-by-case basis whether good cause has been demonstrated to make an exception to the CPE requirements in accordance with Section 12-2-119(8), C.R.S. 7.7 CPE COMMITTEE A. The Board may appoint a committee that may audit the CPE records of Certificate Holders on a sample or complete basis to verify compliance with the requirements described in Chapters 6 and 7. B. Upon notice from the Board, a Certificate Holder shall provide all documents and information requested regarding CPE compliance in a manner prescribed by the Board within 30 days of the Board s notice. 7.8 FAILURE TO COMPLY WITH CPE REQUIREMENTS A. If the Board finds that a Certificate Holder has failed to comply with the CPE requirements, the Certificate Holder shall have 30 days from the mailing of the notice of such finding to: 1. Provide further evidence that the hours completed meet the CPE requirements established by these Rules; 2. Provide documentation described in Rule 7.5, of having completed additional CPE hours during the reporting period; or 3. Cure the deficiency by completing the required number of CPE hours. Such hours shall be counted only toward curing the deficiency and shall not be counted toward the CPE requirements for a subsequent reporting period. B. If the Board finds that a Certificate Holder has failed to comply with the CPE requirements, the Board may include the Certificate Holder in the CPE audit of a subsequent reporting period. NEW CPE RULES EFFECTIVE JANUARY 1, 2010 The changes to the rules include elimination of the Code A and Code B categories for CPE, expansion of the subjects which qualify for CPE, and an increase to the ethics CPE requirement from two hours every two years to four hours every two years, with no more than two hours of credit in Colorado Rules and Regulations (CR&R). These rules apply to the two-year renewal period January 1, 2010 through December 31, 2011. Hours in Personal Development will be limited to no more than 16 hours in any two-year period. Rules of the Colorado State Board of 2-18

CPE FAQs CPE How do I find CPE providers and courses? The Colorado State Board of does not actually approve providers or courses. The requirements for both providers and participants are addressed in the Statement on Standards for Continuing Professional Education (CPE) Programs and in Chapter 6 of the Board Rules. You should review these requirements if you have any questions. To help you select a course that meets your needs, we suggest the following resources: The Colorado Society of CPAs can direct you to many courses. You may access their website at www.cocpa.org or reach them by phone at (303) 773-2877. The National Association of State Boards of also offers a website of providers and courses at www.cpemarket.com. The American Institute of Certified Public Accountants (AICPA) has a CPE Store that offers many products as well at www.cpa2biz.com. To find CR&R courses go to CR&R Course Providers for more options. What if I am unable to complete the 80 hours of CPE within the reporting period? If you are unable to complete the required CPE within the reporting period, you must renew in an inactive status, and, upon completion of the continuing education, must submit a change of status application and pay the appropriate fees. The Board, upon written request, may make exceptions to the requirements in particular cases for reasons of hardship or other good cause. (See Rule 7.6 of the Board Rules.) If I was licensed in the middle of the renewal period, do I still need to get 80 hours of CPE for the next renewal? No. The Colorado Board will prorate the requirement according to the time remaining. Generally, you will need 10 hours of CPE for each full quarter remaining in the reporting period. The reporting period is from January 1 st of even years to December 31 st of odd years. See the chart below for specific information. Rules of the Colorado State Board of 2-19

CONTINUING EDUCATION REQUIREMENTS FOR THE MAINTENANCE OF AN ACTIVE STATUS CERTIFICATE FOR INDIVIDUALS WHO ARE GRANTED A COLORADO CERTIFICATE VIA INITIAL LICENSURE FROM JANUARY 2010 THROUGH DECEMBER 2012 Renewal Reporting Period = Calendar Years January 1, 2010 December 31, 2011 for Certificates Expiring 05/31/2012 Issue Date Total Pro-Rated Hours Required (Normal requirement is 80 hours) Required Minimum Number Code A (Normal requirement is 30 hours) Required Hours in Subject CR&R or Ethics Jan-10 70 26 2 Feb-10 70 26 2 Mar-10 70 26 2 Apr-10 60 22 2 May-10 60 22 2 Jun-10 60 22 2 Jul-10 50 18 2 Aug-10 50 18 2 Sep-10 50 18 2 Oct-10 40 14 2 Nov-10 40 14 2 Dec-10 40 14 2 Jan-11 30 10 2 Feb-11 30 10 2 Mar-11 30 10 2 Apr-11 20 6 2 May-11 20 6 2 Jun-11 20 6 2 Jul-11 10 2 2 Aug-11 10 2 2 Sep-11 10 2 2 Oct-11 0 0 0 Nov-11 0 0 0 Dec-11 0 0 0 Rules of the Colorado State Board of 2-20

Will I need to submit a certificate of completion when I renew? You are no longer required to report and submit a detailed record of continuing education log sheet with your renewal application, or furnish any other information regarding CPE courses completed. However, pursuant to Rule 7.7 in the Board Rules, you may be subject to a random audit to determine compliance with renewal requirements. Please maintain your CPE documentation. If you are later audited, you will be required to submit a certificate of completion. May I apply continuing education credits I received to meet the Board s requirements to other organizations, agencies and jurisdictions (states)? Yes. Example: if you are both a CPA and a lawyer, you may use the same CE to meet the requirements of both licensing agencies. Of course, the CE must meet the specific requirements of both agencies. The same would be true if you are licensed in two or more jurisdictions. Is there a limit to the number of online or correspondence courses I can take to meet the CPE requirements? No. There used to be a limit of 50% to self-study courses, but the Board removed it. Can I get CPE credit for teaching a course? Yes. Please refer to the Statement on Standards for Continuing Professional Education (CPE) Programs under Standards for CPE Program Measurement #38 (Standard No. 14). Can I claim CPE credit for college classes? Yes. Please refer to the Statement on Standards for Continuing Professional Education (CPE) Programs under Standards for CPE Program Measurement #32 (Standard No. 12). Does Colorado accept QAS hours? Yes. For more information about the Quality Assurance Service (QAS) and a complete list of states that accept QAS hours, visit NASBA s CPE information page and click on QAS at the top of the page. 8.1 INTRODUCTION CHAPTER 8 PEER REVIEW REQUIREMENT In the interest of public protection, the Board requires all CPAs and Firms issuing attest and/or compilation reports to be enrolled in and undergo Peer Review at least every three years. Upon renewal of an Active certificate or Firm registration, all Certificate Holders and Firms, except those exempt from Peer Review described in Rule 8.3., must attest to having undergone a Peer Review during the previous renewal period. This shall include providing the date of the acceptance letter of the Peer Review and the name of the Peer Review Firm as well as whether the Peer Review resulted in a report rating of fail, pass with deficiencies or pass. Rules of the Colorado State Board of 2-21

8.2 PEER REVIEW PROGRAM STANDARDS A. To the extent not otherwise inconsistent with these Rules, the Board hereby adopts and incorporates by reference the AICPA Standards for Performing and Reporting on Peer Reviews, effective for Peer Reviews commencing on or after January 1, 2009. These rules do not include later amendments to or editions of these standards. The AICPA Standards for Performing and Reporting on Peer Reviews are available by contacting the AICPA at 1211 Avenue of the Americas, New York, New York, 10036-8775 or by contacting the Board s Program Director at 1560 Broadway, Suite 1350, Denver, Colorado 80202, (303) 894-7800. B. Peer review sponsoring organizations shall include those approved by the AICPA s Peer Review Board and other such organizations approved by the Board which adhere to the Peer Review standards defined in Paragraph (A) above. C. The Firm, entity, or individual selected to conduct a Peer Review must be approved to conduct the Peer Review by the AICPA s Peer Review Board-approved sponsoring organization or other such organizations approved by the Board. D. Any Peer Review performed in accordance with the standards defined in Paragraph (A) must be submitted to an approved Peer Review sponsoring organization for acceptance. E. Based upon the Peer Review outcome as stated in the acceptance letter from the authorized Peer Review program administrator, the Board, or its authorized appointee may impose remedial actions, including specified CPE courses that the Certificate Holder or Board-designated individuals of a Firm must complete as a condition for continued registration under this Chapter. F. The Board may take disciplinary action against a Certificate Holder or Firm who fails or does not comply with any remedial action mandated in accordance with Paragraph (E) above. G. No Certificate Holder or Firm shall be required to become a member of any Peer Review sponsoring organization. 8.3 EXEMPTION FROM PEER REVIEW A Certificate Holder or Firm who does not issue attest or compilation reports is exempt from the Peer Review requirements of this Chapter. 8.4 RETENTION OF DOCUMENTS RELATING TO PEER REVIEWS A. Certificate Holders and Firms subject to Peer Review shall maintain all documentation necessary to establish that all Peer Reviews conformed to Peer Review standards. The documentation maintained by the Certificate Holder or Firm shall include the following: 1. Documentation of Peer Review Firm qualifications; 2. Copies of all Peer Review reports; Rules of the Colorado State Board of 2-22

3. All correspondence that indicates the Certificate Holder s or Firm s concurrence or non-concurrence with the results of the Peer Review; and 4. All proposed remedial actions and all information relevant to those remedial actions, including the implementation of the remedial actions. B. The documents described in Paragraph 8.4.A. above shall be retained in the office of the Certificate Holder or Firm until the completion of the two most recent succeeding Peer Reviews or for a period of five years, whichever is later and shall be made available to the Board upon its request. 8.5 SUBMISSION OF PEER REVIEW REPORTS A. If and when a complaint is filed and/or initiated by the Board against a Certificate Holder or Firm, and at the time the Board requests a response, the Certificate Holder or Firm will be required to submit the following documents related to its most recent Peer Review or what the Board determines to be the equivalent: 1. Peer Review report; 2. Letter of response; 3. Acceptance letter; 4. Letter signed by the reviewed Certificate Holder or Firm accepting the Peer Review documents with the understanding that the reviewed Certificate Holder or Firm agrees to take certain actions; and 5. Letter notifying the reviewed Certificate Holder or Firm that certain required actions have been completed. B. A Certificate Holder or Firm who receives a Peer Review report rating of fail, a rating of pass with deficiency(ies) following a rating of fail, or a second consecutive rating of pass with deficiency(ies) must notify the Board in writing of such finding(s) within 45 days of the issuance of the report(s), including providing a copy of the report(s). 8.6 FACILITATED STATE BOARD ACCESS The Board may use the Facilitated State Board Access (FSBA) system maintained by the AICPA for accessing Peer Review documents when and if necessary. 8.7 CHANGE OF FIRM REGISTRATION STATUS PEER REVIEW STATUS In the event a Certificate Holder s or Firm s practice is sold, dissolved or merged with the practice of one or more other Certificate Holders or Firms, determination of successor or predecessor Firm(s) Peer Review year-end(s) and other Peer Review due date(s), if any, will be made in accordance with the Board-approved sponsoring organization s guidance. Rules of the Colorado State Board of 2-23

8.8 CONFIDENTIALITY OF PEER REVIEW INFORMATION Peer reviewers shall not disclose or use for their own benefit any confidential client information which comes to their attention from Certificate Holders or Firms in carrying out their responsibilities, except that they may furnish such information in response to a formal request from an investigative or disciplinary body established by law or formally recognized by the Board. 8.9 PEER REVIEW PROGRAM OVERSIGHT A. The Board may establish a committee to oversee Peer Review sponsoring organizations administration of their Peer Review programs. The committee may consist of up to five members appointed by the Board. B. A committee member may serve up to a three-year term, except that the terms of those first appointed shall be arranged so that to the extent possible, an equal number of members will rotate off annually. C. The committee may fill vacancies occurring during a term for the unexpired term with members approved by the Board. D. Each committee member must hold a current Colorado CPA certificate or a current CPA certificate from another substantially equivalent jurisdiction. E. Each committee member must have received a Peer Review report with a rating of pass on the most recently accepted Peer Review for himself or his Firm. F. No committee member may be a member of any state board of accountancy or one of its committees or perform any enforcement-related work for a state board. G. Committee responsibilities may include but are not limited to: 1. Recommending to the Board the approval of sponsoring organizations, Peer Review programs and Peer Review standards. 2. Monitoring and assessing the effectiveness of the sponsoring organizations, Peer Review programs and Peer Review standards. 3. Reporting to the Board whether sponsoring organizations are administering and facilitating their Peer Review programs in conformity with the Board-approved Peer Review standards in all material respects. 8.10 EFFECTIVE DATE A. These Peer Review requirements shall be effective for Certificate Holders and Firms upon renewal of CPA certificates and Firm registrations in 2014. At that time, and for all future renewals, Certificate Holders and Firms will be required to attest to having complied with the requirements of this Chapter and either (1) undergone a minimum of one Peer Review within three years prior to the renewal or (2) have not issued attest or compilation reports subject to Peer Review. Rules of the Colorado State Board of 2-24

B. A Certificate Holder s or Firm s due date for its initial Peer Review is 18 months from the date it enrolled in a Board-approved Peer Review program or should have enrolled, whichever date is earlier. CHAPTER 9 RULES OF PROFESSIONAL CONDUCT CODE OF PROFESSIONAL CONDUCT PREAMBLE Authority The Rules of Professional Conduct are promulgated under the authority granted by 12-2- 104(1)(c), C.R.S. to establish and maintain high standards of Competence and Integrity in the public accounting profession. The Rules of Professional Conduct apply with equal force to all Certificate Holders under this article, except where the wording of a specific rule indicates otherwise. Principles Integrity, Objectivity, Independence, Due Care and Competence are the Principles upon which the Board's Rules of Professional Conduct are based. They express the profession's recognition of its responsibilities to the public, to clients, and to colleagues and guide Certificate Holders in the performance of their professional responsibilities. They express the basic tenets of ethical and professional conduct and call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. The Principles are not rules, rather they represent the policies or guidelines used by the Board in promulgating the Rules of Professional Conduct. Responsibilities As professionals, Certified Public Accountants perform an essential role in society. Consistent with that role, Colorado Certificate Holders have responsibilities to all those who use their Professional Services. Certificate Holders also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public's confidence, and carry out the profession's special responsibilities for selfgovernance. The collective efforts of all Certificate Holders are required to maintain and enhance the tenets of the profession. The Public Interest A distinguishing mark of the profession is acceptance of its responsibility to the public. The accounting profession's public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the Objectivity and Integrity of CPAs to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on CPAs. The public interest is defined as the collective well being of the community of people and institutions the profession serves. Rules of the Colorado State Board of 2-25

In discharging their professional responsibilities, Certificate Holders may encounter conflicting pressures from among each of those groups. In resolving those conflicts, Certificate Holders should act with Integrity, guided by the precept that when Certificate Holders fulfill their responsibility to the public, clients' and employers' interests are best served. Those who rely on CPAs expect them to discharge their responsibilities with Integrity, Objectivity, Due Care, and a genuine interest in serving the public. Certificate Holders are expected to offer and provide services and enter into fee arrangements in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct. All who accept a Colorado certificate of Certified Public Accountant commit themselves to honor the public trust. In return for the faith that the public reposes in them, Certificate Holders should continually seek to demonstrate their dedication to professional excellence. Applicability Title 12, Article 2 of the C.R.S., requires that Certificate Holders adhere to the Rules of Professional Conduct. Certificate Holders must be prepared to justify departures from those Rules. The Rules of Professional Conduct that follow apply to all professional services performed except (a) where the wording of the rule indicates otherwise and (b) that a Certificate Holder who is practicing outside the United States will not be subject to discipline for departing from any of the rules stated herein as long as the Certificate Holder's conduct is in accord with the rules of the organized accounting profession in the country in which the Certificate Holder is practicing. However, where a Certificate Holder's name is associated with Financial Statements under circumstances that would entitle the reader to assume that United States practices were followed, the Certificate Holder must comply with the requirements of Rules 9.2, 9.5 and 9.6. 9.1 DEFINITIONS A. Integrity An element of character fundamental to professional recognition which requires a Certificate Holder to: (1) be honest and candid within the constraints of client confidentiality, (2) observe both the form and the spirit of technical and ethical standards, and (3) keep service and the public trust above personal gain an advantage. It is the quality from which the public trust derives and the benchmark against which a Certificate Holder must ultimately test all decisions. It can accommodate the inadvertent error and the honest difference of opinion. It cannot accommodate deceit or subordination of principle. B. Objectivity A principle that requires a Certificate Holder to: (1) be impartial, intellectually honest, and free of conflicts of interest, (2) protect the integrity of their work regardless of service or capacity, and (3) avoid any subordination of their judgment. Rules of the Colorado State Board of 2-26

C. Independence The absence of relationships that impair or appear to impair a Certificate Holder's objectivity in performing an engagement in which the Certificate Holder or the Certificate Holder's Firm will issue an attestation report or opinion other than a report in which a lack of independence is disclosed. D. Due Care The discharge of responsibilities to clients, employers and the public with diligence and competence which requires a Certificate Holder or Firm to: (1) render services carefully and in a timely manner, (2) be thorough, (3) observe applicable technical and ethical standards, and (4) plan and supervise adequately any professional activity for which the Certificate Holder or Firm is responsible. E. Competence The knowledge and ability to assure that the quality of the services rendered meets professional standards. It requires a Certificate Holder to: (1) be responsible for assessing and evaluating whether the Certificate Holder's education, experience and judgment are adequate for the responsibility assumed, and (2) maintain a commitment to learning and professional improvement that continues throughout a Certificate Holder's professional life. F. Contingent Fee A fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specific finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service. Solely for purposes of these Rules, fees are not regarded as being contingent if fixed by courts or governmental entities acting in a judicial or regulatory capacity, or in tax matters if determined based upon the results of judicial proceedings or the findings of governmental agencies acting in a judicial or regulatory capacity or there is a reasonable expectation of substantive review by a taxing authority. G. Other Professional Standards For the purpose of these Rules, Other Professional Standards shall include, but are not limited to: 1. Statements on Standards for Consulting Services 2. Statements on Standards for Tax Services 3. Statements on Standards for Accounting and Review Services 4. Statements on Standards for Attestation Engagements 5. Statements on Standards for Valuation services. Rules of the Colorado State Board of 2-27

The statements in this Rule 9.1.G. were issued by the AICPA and in effect as of January 1, 2009. This Rule does not include later amendments to or editions of the professional standards. Copies of professional standards may be inspected in the offices of the Board during regular business hours. The public should contact the Board s Program Director at 1560 Broadway, Suite 1350, Denver, CO 80202 to examine the professional standards. 9.2 INDEPENDENCE When a Certificate Holder or Firm performs Professional Services requiring Independence, they shall conform to the Independence standards established by the AICPA and in effect as of September 1, 2002, whether or not the individual CPA or Firm are members of the AICPA. When the Certificate Holder or Firm performs services regulated by the U.S. Securities and Exchange Commission (SEC) or the General Accounting Office (GAO), they also shall conform to the independence standards established by those bodies for those services and in effect as of August 15, 2003. This rule does not include later amendments to or editions of the AICPA, SEC or GAO standards. Note: The AICPA rules are available at www.aicpa.org. 9.3 INTEGRITY AND OBJECTIVITY A. Certificate Holders shall perform all professional services with integrity and objectivity. They shall not knowingly misrepresent facts or subordinate their judgment to others. 1. Misrepresentations of fact or subordination of judgment include, but are not limited to: a. Knowingly making, permitting, or directing another to make false and misleading entries in an entity's financial statements or records. b. Misrepresenting or failing to disclose material facts to an external or internal auditor, or accountant. c. Taking a position in a tax return or advising a tax client to take a position that does not have a realistic possibility of being sustained on its merits in an administrative or judicial review unless the position is not frivolous and is adequately disclosed all as provided in the professional standards entitled, Statement on Standards for Tax Services. B. Subordination of judgment or principle. When disagreements and disputes arise in the course of employment of a Certificate Holder related to the recording of transactions or preparing financial statements, a Certificate Holder 1. Shall determine whether (a) the entry or the failure to record a transaction in the records, or (b) the financial statement presentation or the nature or omission of disclosure in the financial statements, as proposed, represents the use of an acceptable alternative and does not materially misrepresent the facts. Rules of the Colorado State Board of 2-28

a. If, after appropriate research or consultation, the Certificate Holder concludes that the matter has authoritative support or does not result in a material misrepresentation, the Certificate Holder need do nothing further. b. If the Certificate Holder concludes that the matter results in a material misrepresentation or misstatement, the Certificate Holder shall make any concerns known to the appropriate higher level(s) of management within the organization (for example, the supervisor's immediate superior, senior management, the audit committee or equivalent, the board of directors, the company's owners). Certificate Holders shall document their understanding of the facts, the accounting principles involved, me application of those principles to the facts, and the parties with whom these matters were discussed. i. If, after discussing their concerns with the appropriate person(s) in the organization, the Certificate Holder concludes that appropriate action was not taken, they must assess their continuing relationship with the employer. ii. Certificate Holders also must assess any responsibility that may exist to communicate to third parties, such as regulatory authorities or the employer's (former employer's) external accountant. Case Study Integrity and Objectivity Brown CPA provided tax services to Mr. and Mrs. Taylor for the last 14 years of their marriage. Brown CPA had knowledge of financial information that related to both husband and wife based on Brown s prior services to Mr. and Mrs. Taylor. When the couple decided to divorce, Brown CPA accepted an engagement from Mr. Taylor to assist him with consultation and tax matters related to the divorce proceedings. Brown CPA prepared the final joint tax return for Mr. and Mrs. Taylor after the date of the divorce. While Brown CPA represented the couple, Brown CPA was also representing Mr. Taylor with services that were related to the divorce proceedings. These separate services were adversarial to Mrs. Taylor. Brown CPA did not request permission of Mrs. Taylor to represent only Mr. Taylor. Brown CPA accepted the engagement with Mr. Taylor even though it was adverse to Mrs. Taylor. Brown CPA violated the rule on integrity and objectivity by accepting a separate engagement from Mr. Taylor which was adversarial to his engagement to Mr. and Mrs. Taylor. LIKELY BOARD ACTION: Violation of Rule 9.3 Integrity and Objectivity. Rules of the Colorado State Board of 2-29

Case Study Professional Misconduct White, CPA prepared Smith s 2009 tax return. White offered client Extended Tax Service (ETS) for a fee. White explained to Smith that ETS is a guarantee to represent Smith at no additional cost if a taxing authority selected Smith s tax return for audit. White required that clients who purchased ETS must be continuing clients to receive the benefits of ETS. White published the terms of ETS once a year in his December newsletter. The continuing client requirement was not printed on Smith s invoice. White did not give Smith a verbal explanation of the continuing client requirement. Smith did not read White s December newsletter. Smith paid White for ETS when she picked up her 2009 tax return. Smith knew at the time that she paid for ETS that she would not use White s services again. Smith s 2009 tax return was selected for audit. White refused to represent Smith, because Smith was not a continuing client. White was obligated under the terms stated on Smith s invoice to provide ETS. POSSIBLE BOARD ACTION: Violation of Rule 9.3 Integrity and Objectivity. 9.4 RECEIPT OF COMMISSIONS AND CONTINGENT FEES A. Permitted Commission Arrangements. Certificate Holders who hold themselves out to the public as CPAs and who are not otherwise prohibited by this rule from receiving a commission shall disclose to the recipient of the services or the buyer of the product, in writing, the nature, amount and source of any commission prior to performing the services or making the referral or sale that generates the commission. B. Prohibition on Commissions and Contingent Fees. When Certificate Holders or Firms perform an audit or review of a Financial Statement, or a compilation of a Financial Statement when Certificate Holders do not disclose a lack of independence; or an examination of prospective financial information, they shall not: 1. For a commission, recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, or 2. Perform for a contingent fee any professional services for, or receive such a fee from, a client. This prohibition on commissions and contingent fees shall apply during fee period in which Certificate Holders are engaged to perform any of the services listed above and the period coveted by any Financial Statements involved in such listed services. C. Contingent Fees in Tax Matters. Certificate Holders may not prepare an original or amended tax return or claim for refund for a contingent fee. For purposes of this rule, fees are not regarded as contingent if fixed by courts or other public authorities, or if based on the results of judicial proceedings or the findings of governmental agencies. A Rules of the Colorado State Board of 2-30

fee is considered to be based on the findings of a governmental agency if, at the time of a fee arrangement, Certificate Holders can demonstrate a reasonable expectation of substantive consideration by an agency with respect to the Certificate Holder's client. In the case of the preparation of an original tax return, such expectation is not deemed reasonable. Observation: The rules on commissions and contingent fees is similar to the AICPA code of professional conduct. Commissions, Contingent Fees & Referral Fees Rule 9.4 describes the circumstances when licensees are prohibited from paying or receiving commissions, referral fees and contingent fees. The prohibitions apply when the holder of a permit or any partner, officer, shareholder, member, manager or owner of the firm performs any of the following services for a client who is also the subject of the commissions, referral fees or contingent fees: Audit, review or agreed-upon-procedures of a financial statement, Examination of prospective financial information, or Compilation of a financial statement if the compilation report does not disclose a lack of independence between the client and the licensee. The prohibitions also apply during the period in which the certified public accountant, public accountant or firm is engaged to perform the services listed, including the period that is subject of the report and the period covered by any historical financial statements involved in the listed services. What Is Meant By During the Period The period of prohibition begins at the time the licensee has accepted an engagement to perform attest or compilation services, includes the period covered by the engagement, and extends through the report date on the engagement. If the licensee is engaged to do attest or compilation services for a subsequent period, there would be no period of time that the licensee is not covered by this prohibition. The prohibition could extend until it is implicit that the firm is no longer providing attest or compilation services for the client, especially if the firm has been providing such services on an on-going periodic basis. Issuing a letter of resignation from providing the services would be considered reasonable documentation of the termination. Rules of the Colorado State Board of 2-31

9.5. PROFESSIONAL COMPETENCE AND COMPLIANCE WITH APPLICABLE TECHNICAL STANDARDS A Certificate Holder shall comply with the following: A. General Standards 1. Professional Competence - Undertake only those professional services that the Certificate Holder or the Certificate Holder's Firm can reasonably expect to complete with professional competence. 2. Due Care - Exercise due care in the performance of professional services. 3. Planning and Supervision - Adequately plan and supervise the performance of professional services. 4. Sufficient Relevant Data - Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed. B. Auditing Standards A Certificate Holder shall not permit the Certificate Holder's name to be associated with Financial Statements in such a manner as to imply that the Certificate Holder is acting as an independent public accountant unless the Certificate Holder has complied with the applicable auditing standards. Applicable auditing standards shall include those defined as generally accepted auditing standards by the AICPA, such as Statements on Auditing Standards and Government Auditing Standards as promulgated by the United States General Accounting Office or standards of any successor organizations, including interpretations. Departures from these standards must be justified by those who do not follow them. C. Accounting Principles If Financial Statements or other financial data contain any material departure from an accounting principle(s) promulgated by the Financial Accounting Standards Board (FASB), the Government Accounting Standards Board (GASB), their predecessor entities and other entities having similar generally recognized authority or jurisdiction to establish such principle(s), a Certificate Holder shall not: 1. Express an opinion or state affirmatively that the Financial Statements or other financial data, of any entity are presented in conformity with generally accepted accounting principles, or 2. State that the Certificate Holder is not aware of any material modifications that should be made to such statements or data for them to be in conformity with generally accepted accounting principles. If, however, the statements or data contain such a departure and the Certificate Holder can demonstrate that unusual circumstances would have caused the Financial Statements to be otherwise misleading, the Certificate Holder can comply with this rule Rules of the Colorado State Board of 2-32

by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement. D. Prospective Financial Information Certificate Holders shall not permit their name to be used in conjunction with any prospective financial information in a manner that may lead to the belief that the Certificate Holders vouch for the achievability of the prospective financial information. Certificate Holders should be guided by standards in this area promulgated by the AICPA or by other entities having similar generally recognized authority or jurisdiction over the service provided. Departures from applicable standards must be justified by those who do not follow them. E. Other Attestation Standards Certificate Holders shall not permit their name to be associated with assertions or conclusions about the reliability of a written representation of another party unless they have complied with the Statements on Standards for Attestation Engagements (SSAE) promulgated by me AICPA or by other entities having similar generally recognized authority or jurisdiction over the service provided. Case Study Competence and Technical Standards Brown prepared Client s 2009 tax returns and calculated that Client would receive a $6,000 tax refund from Arizona, owe $7,000 in taxes to Colorado, and owe $6,500 in taxes to the Internal Revenue Service. Client took tax information to another Certified Public Accountant who completed the returns and made the following determination: Client would receive a $10,000 refund from Arizona, owe $6,000 to Colorado, and owe $5,500 to the IRS. Brown agreed that he did not prepare Client s tax return correctly. LIKELY BOARD ACTION: Violation of Rule 9.5. Rules of the Colorado State Board of 2-33

Case Study Competency and Technical Standards Able Accountants, CPAs (Firm) audited XYZ Company in 2008 and 2009. XYZ Company provided investment and money management services to clients, many of which were union pension trusts and health and welfare plans. XYZ Company managed a total portfolio of about one billion dollars. A division of Firm prepared a valuation report of XYZ Company that valued XYZ Company at just under $5 million dollars. XYZ Company s growth in fee income was fueled by a collateralized note program that was critical to Firm s valuation. The collateralized note program included loans made by XYZ Company to its affiliate ABC Company. By 2009, the collateralized note program with its affiliate ABC Company had accounted for 25% of the total assets managed by XYZ Company and 45% of the fees charged by XYZ Company. ABC Company suffered losses during the years 2008 through 2010 and had a stockholders deficit of $109 million at the end of September 2010. ABC Company filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The 2010 audit report for ABC Company was prepared by another firm. The audit report expressed substantial doubt about ABC Company s ability to continue as a going concern. Firm audited XYZ Company during calendar years 2008 and 2009 and issued unqualified opinions for both years. LIKELY BOARD ACTION: Violations of Generally Accepted Auditing Standards in both 2008 and 2009. 9.6 OTHER PROFESSIONAL STANDARDS In performing tax services, accounting, review and compilation services, attestation engagements, personal financial planning, business valuation, litigation support and expert witness services, and consulting services, a Certificate Holder shall conform with Rule 9.5.A., Other Professional Standards applicable to such services as promulgated by the AICPA, and any other rules established or incorporated by reference by the Board. For purposes of this rule, Other Professional Standards are considered to be defined by Statements on Standards for Consulting Services, Statements on Standards for Tax Services, Statements on Standards for Accounting and Review Services, Statements on Responsibilities in Personal Financial Planning Practice and Statements on Standards for Attestation Engagements, all of which have been issued by the AICPA and incorporated by reference in this Chapter 9. Rules of the Colorado State Board of 2-34

Case Study Competence and Other Professional Standards Able CPA provided professional services to Mrs. Frank during a divorce settlement. Able also prepared a business valuation of a dental practice owned by Mrs. Frank s husband. The valuation was prepared for use in the divorce proceedings. The business valuation of the dental practice was not prepared according to professional standards or similar pronouncements by a generally recognized authority. Instead, it was found that Able did not properly use industry statistics and had an overall lack of knowledge of standards. Able held out to Mrs. Frank that he could perform services that he was not competent to perform. BOARD ACTION: Violation of Rule 9.5 Competence; Violation of Rule 9.6 Other professional standards. 9.7 CONFIDENTIAL CLIENT AND EMPLOYER INFORMATION A. In General. Certificate Holders shall not disclose or use for their own benefit any confidential information pertaining to a client or the employer of the Certificate Holder, which information is obtained in the course of employment or performing Professional Services. This rule shall not in any way be construed to relieve Certificate Holders of their obligations under Rule 9.5. Information obtained as part of a proposed acquisition or in evaluating the acquisition or merger of an accounting practice shall not be disclosed or used to the Certificate Holders' benefit. B. Exceptions. Rule 9.7.A shall not apply: 1. If information is disclosed with the specific consent of the client or the employer of the Certificate Holder. 2. If information is disclosed pursuant to a subpoena or summons issued with respect to the Certificate Holder or an entity with which the Certificate Holder is associated, where the subpoena or summons has been determined to be legally enforceable; or if information is disclosed to permit a Certificate Holder's compliance with applicable laws and government regulations. 3. If information is disclosed as part of the public record in a civil law suit (legal action) between the Certificate Holder and the client or employer. 4. If information is disclosed in the course of a Peer Review of a Certificate Holder's Professional Services. Professional practice reviewers shall not disclose any confidential client information which comes to their attention from Certificate Holders in carrying out their responsibilities, except that they may furnish such information in response to a formal request from an investigative or disciplinary body of the kind referred to in Rule 9.7.B.5. Rules of the Colorado State Board of 2-35

5. If information is disclosed as part of the process of initiating a complaint with, or responding to an inquiry made by the Board and the disclosure to the Board is in accordance with the C.R.S. regarding accountant-client privilege or the client waives the privilege; or if information is disclosed as part of the process of initiating a complaint with or responding to an investigative or disciplinary body established by law or formally recognized by the Board. Members of the Board shall not disclose any confidential client information that comes to their attention from Certificate Holders in disciplinary proceedings or otherwise in carrying out their responsibilities. 6. If information is disclosed as part of an acquisition or merger or proposed acquisition or merger of an accounting practice. 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. 9.8 ISSUING COPIES OF REPORTS - TAX RETURNS OR OTHER DOCUMENTS A. Upon request and reasonable notice, a Certificate Holder shall furnish to a client or former client a copy of any report, tax return or other document issued by the Certificate Holder to or for such client during the previous five years. Unpaid fees do not constitute justification for withholding copies of these items. B. If a client, including a former client, requests copies of reports and tax returns previously issued by the Certificate Holder under this Rule 9.8, a fee may be collected for the copying. Such fee should be set to reflect the reasonable cost of providing the copies. 9.9 CLIENT RECORDS A. Client records are: 1. Accounting or other records belonging to, obtained from, or on behalf of, the client, that the Certificate Holder removed from the client's premises or received for the client's account. 2. Certificate Holder's workpapers or records that contain data which should properly be reflected in the client's books and records, including, but not limited to: Rules of the Colorado State Board of 2-36

a. Adjusting, closing, combining, or consolidating journal entries. b. Information normally contained in the books of original entry and general ledgers or subsidiary ledgers, such as accounts receivable, job cost and equipment ledgers or similar types of depreciation records. 3. Computer files that include client information normally contained in the books of original entry and general ledgers or subsidiary ledgers. B. Obligation to retain, return and provide client records: 1. A Certificate Holder must retain copies of documentation of work performed, including issued reports and tax returns, for a period of five years. If original client records or copies of client records are retained by the Certificate Holder, they must also be retained for a period of five years. 2. A Certificate Holder must return client records upon request and reasonable notice from the client or former client. If the records cannot be returned to the client promptly, the Certificate Holder shall immediately notify the client of the date the records will be returned. 3. A Certificate Holder shall not retain a client's records in an attempt to force payment of any kind. 4. Upon completion of an engagement wherein the client's records have been returned to the client, duplicate records requested by the client shall be furnished to the client upon reasonable notice for a reasonable fee. Such fee should be set to reflect the reasonable cost of providing the copies. 5. Upon request, a Certificate Holder must provide to the client a copy of any computer files that constitute client records, without password protection and with the name of the software used to manage the accounting information. The Certificate Holder is under no obligation to provide the client or former client with a copy of any computer code, application program or instructions for the software used to assemble the data. Practice Pointer: You may not hold a client s records hostage until you collect your past due fees. C. Workpapers belonging to the Certificate Holder. 1. A Certificate Holder is not required to furnish to the client or former client any workpapers developed by the Certificate Holder incident to the performance of the engagement, that do not result in changes to the client's records or are not in themselves part of the records ordinarily maintained by a client. 2. Certificate Holder's workpapers are considered to be solely the property of the Certificate Holder and are not the property of the client. For example, the Certificate Holder may make extensive analyses of inventory or other accounts as part of the selective audit procedures. These analyses are considered to be a part of the Certificate Holder's workpapers, even if client personnel at the request of the Certificate Holder Rules of the Colorado State Board of 2-37

have prepared the analyses. Only to the extent these analyses result in changes to the client's records would the Certificate Holder be required to furnish the details from the workpapers in support of the journal entries recording the changes, unless the journal entries themselves contain all necessary details. 3. If an engagement is terminated prior to the completion of work, and the Certificate Holder's work product has neither been issued nor paid for by the client, the work product is solely and exclusively the property of the Certificate Holder. Case Study Client records and working papers Requested records In 2008, Green decided to close her public accounting office and accept a position in private industry. Green notified clients that she was closing her office and referred clients to another Certified Public Accountant. Client A received the notification from Green. In 2010, Client A needed a copy of her depreciation schedule to complete 2008 and 2009 tax returns. Client A left telephone messages for Green. Green did not return Client s calls and did not provide Client with a copy of the requested depreciation schedule. Green was required to retain client working papers and tax returns for 5 years. Green was required to provide Client A with a copy of the depreciation schedule. LIKELY BOARD ACTION: Violation of Rule 9.9 Client Records. 9.10 ACTING THROUGH OTHERS Certificate Holders shall not knowingly permit others to carry out on their behalf, either with or without compensation, acts, which, if carried out by the Certificate Holders, would place them in violation of the Rules of Professional Conduct. Similarly, in supervising subordinates, a Certificate Holder shall not accept or condone conduct in violation of the Rules of Professional Conduct. 9.11 SOLICITATION A Certificate Holder shall not solicit an engagement to perform professional services by any direct personal communication if: A. The communication contains false, misleading, or deceptive statements that: (1) create false or unjustified expectations; (2) imply an ability to influence any court, tribunal, regulatory agency, or similar body or official; (3) contain a representation of unrealistic future fees; or (4) contain a representation likely to be misunderstood by a reasonable person. Rules of the Colorado State Board of 2-38

B. The communication creates or uses coercion, duress, compulsion, intimidation, threats, overreaching, vexatious or harassing conduct, or untruthful statements about the professional work product or competence of other Certificate Holders. Case Study Solicitation A operated as a sole proprietor from 1984 through 1999. In March 2000, A registered A LLC with the Board. In August 2004, B and C merged with A to form AB&C LLC. The website for AB&C LLC described the firm as established in 1984. 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 9.11 Solicitation. 9.12 PRACTICE NAMES A. A Firm registered by the Board in compliance with Section 12-2-117, C.R.S. may use the name(s) of current, retired or deceased owners, either alone or with other descriptive terms, in its name. B. A Certificate Holder or Firm registered by the Board in compliance with Section 12-2- 117, C.R.S. may use an assumed or trade name if it is in compliance with Colorado Law, is not misleading, and clearly indicates that the individual or entity is engaged in the Practice of Public Accounting as defined in Chapter 1. Observation: A fictitious name is allowable provided such name is not misleading and is registered with the Board. C. The designation and company or and associates will not be considered misleading when used in a practice name only when a Certificate Holder or Firm, registered by the Board in compliance with Section 12-2-117, C.R.S., has employees, professional associates, or contractual relationships with other professionals. FIRM NAMES Every business organization 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 as a public accounting firm with the Board of. 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? Rules of the Colorado State Board of 2-39

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 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. Fictitious business names. Public accounting firms may use a fictitious business name. The fictitious business name must be properly registered with the Board. Internet Practice. Public accounting firms that perform or solicit services via a website are required to include information on the website with specified identifying information. Expiration. Firm registrations expire on May 31 st every 3 years. The firm registration information is on the Board website. 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. Because the secretary is not a CPA, the plural designation certified public accountants is not permitted. 9.13 OFFERING SERVICES VIA THE INTERNET Any Certificate Holder or Firm licensed or registered by the Colorado Board and offering to or performing Professional Services via the internet shall include the following information on the internet: 1. Name of the Certificate Holder or Firm licensed by the Colorado State Board of ; 2. Principal place of business 3. Business telephone number; and 4. Colorado certificate number and/or Colorado Firm registration number. Rules of the Colorado State Board of 2-40

Internet Advertising: What are the Issues? (Reprinted and adapted from Spring 2001 Newsletter) One of the clear winners in the exploding world of electronic technology is Internet Marketing. Individuals and small firms are able to effectively market in the same arena as larger, better financed firms. The Internet offers: Multi-national exposure, as well as targeting local individuals and businesses; Space for extensive information about your firm s specialties, contact information and anything else you want prospective clients to know about you; Graphics and other attractive formatting all at a fraction of the cost of traditional advertising. With all this flexibility and low cost comes some concern about the way web sites may be used and what a consumer might think as he or she is looking for a CPA to handle his or her business. The Colorado Board has avoided regulating advertising for the most part. However, the Board does have rules aimed at promoting truth in advertising. Rule 9.5 Do not offer to take business you are not qualified to handle. Rule 9.11 Do not make claims on which you cannot deliver. Rule 9.12 You should not use misleading business names. In addition to these ethical concerns, the Internet opens a few new potholes, the largest of which may be interstate commerce. This can be a large and thorny problem raising difficult questions about state boundaries and licensure. Questions like: When does a CPA enter a state for the purpose of doing business? Is there a difference between physically coming into a state to perform a service remotely and electronically? If a consumer is aggrieved, where do they complain? Rather than trying to tackle this large problem all at once, several states have decided to take a first step and require firms and individuals registered or licensed in their state to provide certain information on their web site. Colorado s Rule 9.13 requires: 1. Name of individual CPA or CPA firm licensed by the Colorado State Board of ; 2. Principal place of business; 3. Business telephone number; 4. Colorado certificate number and/or Colorado firm registration number. In an effort to address some early questions about the way the information is to be provided, the Board issued policy 90-09, which states: In order to comply with Rule 9.13, it is only necessary for a registered firm (including sole practitioner Professional Corporations) to provide the firm name, registration number, principal business address and telephone number. It is not necessary to provide each CPA member s, partner s, officer s, or shareholder s name, certificate number, principal business address and telephone number. Individuals must provide their name, certificate number, principal business address and telephone number. Rules of the Colorado State Board of 2-41

9.14 DISCLOSURE BY CERTIFICATE HOLDERS AND FIRMS A. A Certificate Holder or Firm, as defined in Chapter 1, shall notify the Board within forty-five days of any of the following events relating to the Certificate Holder or the Firm: 1. Imposition of discipline, including, but not limited to, censure, reprimand, sanction, probation, civil penalty, fine, consent decree or order, suspension, revocation, or modification of a license, certificate, permit or practice rights by: a. The U.S. Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), or the Internal Revenue Service (IRS) by the Director of the Office of Professional Responsibility. b. Another state board of accountancy for any cause other than failure to pay a professional license fee by the due date or failure to meet the CPE requirements of another state board of accountancy. c. Any other federal or state agency regarding the Certificate Holder s conduct while rendering professional services. d. Any federal or state taxing, insurance or securities regulatory authority. e. Any foreign authority or credentialing body that regulates the practice of accountancy. 2. Notice of disciplinary charges filed by the SEC, PCAOB, IRS, or another state board of accountancy, or a federal or state agency concerning the practice of accountancy, or a foreign authority or credentialing body that regulates the practice of accountancy. 3. Initiation of a civil proceeding or an alternative dispute resolution proceeding by a governmental entity relating to an audit report for a public or non-public company. 4. Judgment, settlement or resolution of a civil proceeding or an alternative dispute resolution proceeding by a governmental entity relating to an audit report for a public or non-public company. 5. Initiation of an administrative proceeding or disciplinary proceeding by any federal state, or non-u.s. agency, board, or administrative or licensing authority or any professional association or entity regarding an audit report for a public or non-public company. 6. Decision, judgment, settlement or resolution of an administrative proceeding or disciplinary proceeding by any federal, a state or non-u.s. agency, board, or administrative or licensing authority or any professional association or entity regarding an audit report for a public or non-public company. 7. Any judgment, award or settlement of a civil action or arbitration proceeding of $150,000 or more in which the Certificate Holder or Firm was a party if the action or proceeding included any allegation of gross negligence, violation of specific standards of practice, fraud, or misappropriation of funds in the Practice of Public Accounting or during employment. Rules of the Colorado State Board of 2-42

8. A criminal charge against or a conviction of the Certificate Holder, deferred prosecution, or a plea of guilty or nolo contendere to a crime by the Certificate Holder if the crime is: a. a felony under the laws of the United States or of any state of the United States or any foreign jurisdiction; or b. a misdemeanor when an essential element of the misdemeanor is dishonesty or fraud. B. The Certificate Holder designated by a partnership, professional corporation, or limited liability company as responsible for notifying the Board, pursuant to section 12-2- 117(2)(a)(iii), C.R.S., shall be the Certificate Holder responsible for notifying the Board of the reportable event regarding the Firm. 1. A Firm shall notify the Board only when such reportable event directly involves the Firm s Practice of Public Accounting in the State of Colorado. C. The notice to the Board shall include the following information regarding the reportable event: 1. If the reportable event is a disciplinary proceeding, alternative dispute resolution proceeding, administrative proceeding or civil action by any governmental entity or professional association or entity, the name of the agency, its jurisdiction, the case name, the docket or proceeding or case number by which it is designated, a description of the matter or a copy of the document initiating the action or proceeding and, and, if the matter has been adjudicated or settled, a copy of the consent decree, order or decision. 2. If the reportable event is a criminal conviction, charge or plea, the court, its jurisdiction, the case name, the case number, and a description of the matter or a copy of the indictment or charges, and, if the Certificate Holder has been convicted, acquitted, or entered a plea of guilty or nolo contendere, a copy of the judgment of conviction. 3. If the reportable event concerns a civil action or arbitration proceeding, the court or arbiter, the jurisdiction, the case name, the case number, a description of the matter or a copy of the complaint, and a copy of the verdict, the court or arbitration decision, or, if settled, the court s order of dismissal. D. During the pendency of a reportable event, the reporting Certificate Holder or Firm may submit a written explanatory statement to be included in the Board s records. E. Documents provided to the Board shall be closed to public inspection if federal statute or regulation or state statute so provides. F. This rule shall apply to any reportable event that occurs on or after the Rule s effective date. Rules of the Colorado State Board of 2-43

CHAPTER 10 DECLARATORY ORDERS SECTION 24-4-105(II), C.R.S 10.1 Any person, as defined in Section 12-2-102(3), C.R.S., may petition the Board for a declaratory order to terminate controversies or to remove uncertainties as to the applicability to the petitioner of any statutory provisions or of any rule or order of the Board. 10.2 The Board will determine, in its discretion and without notice to petitioner, whether to rule upon any such petition. If the Board determines that it will not rule upon such a petition, the Board shall promptly notify the petitioner of its action and state the reasons for such action. 10.3 In determining whether to rule upon a petition filed pursuant to this Chapter, the Board will consider the following matters, among others: A. Whether a ruling on the petition will terminate a controversy or remove uncertainties as to the applicability to petitioner of any statutory provision, rule, or order of the Board. B. Whether the petition involves any subject, question or issue which is the subject of a formal or informal matter or investigation currently pending before the Board or a court involving one or more of the petitioners. C. Whether the petition involves any subject, question or issue which is the subject of a formal or informal matter or investigation currently pending before the Board or a court but not involving any petitioner. D. Whether the petition seeks a ruling on a moot or hypothetical question or will result in an advisory ruling or opinion. E. Whether the petitioner has some other adequate legal remedy, other than an action for declaratory relief pursuant to Rule 57, Colorado Rules of Civil Procedure, which will terminate the controversy or remove any uncertainty as to the applicability to the petitioner of the statute, rule or order in question. 10.4 Any petition filed pursuant to this Chapter shall set forth the following: A. The name and address of the petitioner and whether the petitioner holds a certificate issued pursuant to Section 12-2-101, C.R.S. et seq. B. The statute, rule or order to which the petition relates. C. A concise statement of all of the facts necessary to show the nature of the controversy or uncertainty and the manner in which the statute, rule or order in question applies or potentially applies to the petitioner. 10.5 If the Board determines that it will rule on the petition, the following procedures shall apply: Rules of the Colorado State Board of 2-44

A. The Board may rule upon the petition based solely upon the facts presented in the petition. In such a case: 1. Any ruling of the Board will apply only to the extent of the facts presented in the petition and any amendment to the petition. 2. The Board may order the petitioner to file a written brief, memorandum or statement of position. 3. The Board may set the petition, upon due notice to the petitioner, for a non-evidentiary hearing. 4. The Board may dispose of the petition on the sole basis of the matters set forth in the petition. 5. The Board may request the petitioner to submit additional facts, in writing. In such event, such additional facts will be considered as an amendment to the petition. 6. The Board may take administrative notice of facts pursuant to the Administrative Procedure Act Section 24-4-105(8), C.R.S. and may utilize its experience, technical competence and specialized knowledge in the disposition of the petition. 7. If the Board rules upon the petition without a hearing, it shall promptly notify the petitioner of its decision. B. The Board may, in its discretion, set the petition for hearing, upon due notice to petitioner, for the purpose of obtaining additional facts or information or to determine the truth of any facts set forth in the petition or to hear oral arguments on the petition. The notice to the petitioner setting such hearing shall set forth, to the extent known, the factual or other matters into which the Board intends to inquire. For the purpose of such a hearing, to the extent necessary, the petitioner shall have the burden of proving all of the facts stated in the petition, all of the facts necessary to show the nature of the controversy or uncertainty and the manner in which the statute, rule or order in question applies or potentially applies to the petitioner and any other facts the petitioner desires the Board to consider. 10.6 The parties to any proceeding pursuant to this Chapter shall be the Board and the petitioner. Any other person may seek leave of the Board to intervene in such a proceeding, and leave to intervene will be granted at the sole discretion of the Board. A petition to intervene shall set forth the same matters as required by Rule 10.4. Any reference to a "petitioner" in this Chapter also refers to any person who has been granted leave to intervene by the Board. 10.7 Any declaratory order or other order disposing of a petition pursuant to this Chapter shall constitute agency action subject to judicial review pursuant to Section 24-4-108, C.R.S. Rules of the Colorado State Board of 2-45

CHAPTER 11 PRACTICE PRIVILEGE / MOBILITY SECTION 12-2-121(2), C.R.S. 11.1 SCOPE OF THE PRACTICE PRIVILEGE An out-of state individual or Firm who qualifies for the Practice Privilege under Rule 11.2 shall be deemed to have all the privileges of a Certificate Holder or Firm without the need to obtain a Colorado certificate or Firm registration. Such an individual or Firm is subject to the requirements in Section 12-2-121(2)(c), C.R.S., and may use the title certified public accountant, the abbreviation CPA, CPAs, or CPA Firm, pursuant to Section 12-2-115(4), C.R.S. 11.2 REQUIREMENTS A. Practice Privilege requirements 1. An individual whose principal place of business is not in this state shall be presumed to have qualifications substantially equivalent to this state s requirements and shall have all the privileges of a Certificate Holder without the need to obtain a certificate under Section 12-2-108, C.R.S., if: a. The individual holds a valid CPA certificate from any U.S. jurisdiction which the NASBA national qualification appraisal service has verified to be substantially equivalent to the CPA licensure requirements of the AICPA/NASBA Uniform Act (UAA); or b. The individual holds a valid CPA certificate from any U.S. jurisdiction which the NASBA national qualification appraisal service has not verified to be substantially equivalent with the CPA licensure requirements of the UAA, but such individual obtains from the NASBA national qualification appraisal service verification that such individual s CPA qualifications are substantially equivalent to the CPA licensure requirements of the UAA. Any individual who has passed the Examination and holds a valid CPA certificate issued by any other jurisdiction prior to January 1, 2012, shall be exempt from the education requirements in the UAA. 2. Pursuant to Section 12-2-106(5), C.R.S. and notwithstanding any other provision of law, an individual who offers or renders Professional Services, whether in person, or by mail, telephone or electronic means shall be granted Practice Privilege in this jurisdiction. No notice or other submission shall be required of any such individual. 3. For purposes of this Chapter, valid CPA certificate means a current certificate or license allowing an individual to engage in the practice of public accounting in that jurisdiction and to hold himself out as a CPA in the jurisdiction that issued the certificate or license. Rules of the Colorado State Board of 2-46

B. Firm registration not required Pursuant to Section 12-2-121(2)(a), C.R.S., any foreign partnership, corporation, limited partnership, limited liability limited partnership, or limited liability company engaging in the practice of accounting in this jurisdiction through a holder of a Practice Privilege shall not be required to register with the Board, notwithstanding Section 12-2-117, C.R.S. C. Contact information required Any person authorized to use the title certified public accountant or the abbreviation CPA shall provide contact information to clients pursuant to Section 12-2-115(2), C.R.S. 11.3 DISCIPLINE FOR HOLDERS OF THE PRACTICE PRIVILEGE A. Practice Privilege Holders The Board may revoke, suspend, fine, issue a Letter of Admonition, place on probation, impose other conditions or limitations or deny the Practice Privilege to any Practice Privilege holder for the following grounds: 1. Fraud or deceit in qualifying for the Practice Privilege, 2. Fraud or negligence in the practice of public accounting in Colorado or any other jurisdiction, 3. Fraud in the filing of or failure to file his own income tax returns, 4. Violation of any provision of Article 2 of Title 12, C.R.S applicable to the Practice Privilege, of any final rule or regulation promulgated by the Board applicable to the Practice Privilege or of any valid agency order, 5. Violation of a Rule of Professional Conduct promulgated by the Board under the authority granted by Article 2 of Title 12, C.R.S., 6. Conviction of a felony under the laws of any jurisdiction or of the United States. A plea of guilty or a plea of nolo contendere accepted by the court shall be considered as a conviction, 7. Conviction of any crime, an element of which is dishonesty or fraud, under the laws of any jurisdiction or of the United States. A plea of guilty or a plea of nolo contendere accepted by the court shall be considered as a conviction, 8. Cancellation, revocation, suspension, limitation of the right to practice, any other form of discipline or refusal to renew authority to practice as a CPA in any jurisdiction, 9. Suspension, revocation or any limitation of the right to practice before any jurisdiction or federal agency for improper conduct or willful violation of the rules or regulations of such jurisdiction or federal agency, Rules of the Colorado State Board of 2-47

10. Providing public accounting services to the public without qualifying for the Practice Privilege under Section 12-2-121(2), C.R.S., 11. Assuming or using the title or designation "certified public accountant" or the abbreviation "CPA," or any other title, designation, words, letters, abbreviation, sign, card or device tending to indicate that such person is a CPA unless such person holds an Active certificate as a Colorado CPA or qualifies for the Practice Privilege, 12. An act or omission which fails to meet U.S. GAAP or GAAS, 13. Habitual intemperance with respect to or excessive use of any habit-forming drug, any controlled substance as defined in Section 12-22-303 (7), C.R.S. or any alcoholic beverage, any of which renders him unfit to practice public accounting, 14. Failure to retain records of the work performed for each client in Colorado for a period of five years or as required by law. B. If an individual Practice Privilege holder s certificate, license or permit to practice as a CPA is limited or subjected to any form of discipline or denial by a federal agency or foreign jurisdiction while he or she is exercising the Practice Privilege in Colorado, or if the Firm s certificate, license, permit or registration is limited or subjected to any form of discipline or denial by another jurisdiction, the Practice Privilege holder shall notify the Board, in a manner prescribed by the Board, of the limitation or discipline by the other jurisdiction within seven business days of the action taken by the other jurisdiction. The Complaint Process (Reprinted from Board website) Q & A from CPAs and CPA Firms If the complaint is forwarded to investigations, do I receive notice? Yes, you will receive a letter from the Board. You may also receive a subpoena from an investigator asking for your side of the story. You can provide a written statement, documents, witness names, and any information that you believe is relevant to refute the complaint. Do I need any attorney at this point? A CPA license and/or CPA firm registration is an important property interest. Whether or not to retain an attorney is entirely your decision; there is no legal requirement that you have one. If you hire an attorney, all financial obligations are yours. An attorney may represent you at any stage of the proceeding. Should I cooperate with the Board and the investigator? Whether or not to cooperate is entirely your decision. The Board will review all information regarding the complaint. This is your first change to communicate with the Board to tell your side of the story. Failure to respond or provide information can result in the Board only seeing one version of the complaint. Rules of the Colorado State Board of 2-48

What happens to the information I give to the investigator? It is reviewed by the investigator and reported to the Board in the investigator s Board of Investigation. What else happens in an investigation? The investigator may contact witnesses, review relevant documents and in some complex cases retain an expert consultant. The Board has subpoena authority that may be used to gather information. The investigator then prepares a Report of Investigation for Board review. However, the investigator does not make any recommendations to the Board for disposition. Do I get a copy of the Report of Investigation? The report is available only after the Board has reviewed it and upon written request. The report will not be released, however, until the complaint has been dismissed, a Notice of Hearing has been mailed to the licensee or upon the issuance of a final Board action. What happens after the Board reviews the Report of Investigation? If the Board finds that no violation occurred, the case will be dismissed. If the Board feels no formal action is warranted, but that a violation occurred, it may issue a letter of admonition that is a reprimand. The letters are issued by the Board to you directly and include information about your rights to appeal. If the Board finds that your conduct was more serious and violated the licensing law, it will refer the case to the Office of the Attorney General for a hearing. The Assistant Attorney General assigned to the case will prepare formal charges based upon the alleged violations. The hearings are conducted before an Administrative Law Judge in the Division of Administrative Hearings. It is conducted like a trial. You or your attorney will generally have the opportunity to discuss settlement of the case with the Assistant Attorney General. This may avoid the expense and time of a hearing. If no settlement is reached, a hearing date will be set. You have the right to present your response to the charges at the hearing. What happens if after the hearing I am found to have committed a violation? The sanctions may include a fine, continuing education, probation, suspension or revocation of your license. The Board retains final authority to impose the discipline it determines is appropriate based on the findings from the hearing and based on its statutory authority. The Board s Final Agency Order is reviewable on appeal to the appropriate court. (See the Enforcement Report for a list of CPAs and CPA firms who have been disciplined). Rules of the Colorado State Board of 2-49

A Statistical Review of Complaints from a One Year Period Enforcement Activities Complaints Total Received (includes non-jurisdictional complaints) 135 Complaints resulting in disciplinary action Revocation 3 Suspensions 0 Stipulations 51 Letter of Admonition 3 Other Actions 7 Ten Ways to Mess Up Your License 1. Don t submit an address change to BOA 2. Fudge on your CPE report 3. Don t respond to Board communications 4. Renew your CPA certificate with the Society 5. Advertise and open a firm before it is registered 6. Don t use an engagement letter 7. Forget to renew your certificate 8. Withhold client records 9. Accept engagements beyond your skill level 10. Don t pay your taxes Rules of the Colorado State Board of 2-50

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. A certificate holder shall notify the Board of a change of address that the certificate holder has furnished to the Board for the purpose of receiving mail from the Board within: a) 10 business days of change b) 15 business days of change c) 30 days of the change d) 60 days of the change 2. Which of the following statements is correct regarding the conditions of renewal of an active status certificate: a) an active status certificate expires in an even-numbered year b) an active status certificate must be renewed once every three years c) each active status certificate holder must complete 80 hours of continuing education plus 4 hours of ethics during the reporting period immediately before the year of certificate renewal d) there are no restrictions on the types of continuing education a certificate holder must complete during each renewal period 3. Which of the following statements is true regarding reactivating to active status a license that has been expired less than 2 years: a) you need 40 hours of CPE in the preceding calendar year b) two of your CPE hours must be in CR&R c) at least 32 hours of the total CPE shall be in personal development d) there are no continuing education requirements 4. When a certificate has been inactive for five years, the certificate can be reactivated if the certificate holder does all of the following except: a) completes 80 hours of continuing education within the two years immediately preceding the date of the application b) completes at least 80 hours of continuing education in subjects other than personal development c) completes at least two hours of CR&R d) successfully completes the Uniform CPA Examination Rules of the Colorado State Board of 2-51

5. For Colorado CPE purposes, which of the following is not an acceptable field of study: a) business management and organization b) marketing c) self actualization d) behavioral ethics Rules of the Colorado State Board of 2-52

CHAPTER 2 SOLUTIONS AND SUGGESTED RESPONSES 1. A: Incorrect. This period is shorter than required. B: Incorrect. This period is shorter than required. C: Correct. A failure to notify the Board of a change of address within the time required shall not excuse the certificate holder from renewing a certificate or registering a firm by the date established for renewal or registration or from corresponding to a Board communication. D: Incorrect. This period is longer than the period permitted. (See Rule 1.5 in the course material.) 2. A: Correct. The active status certificate expires according to a schedule established by the Division of Registrations pursuant to section 24-34-102, C.R.S. B: Incorrect. Active status certificates shall be renewed once every two years to maintain their status. C: Incorrect. The 4 hours of ethics required are included in the 80 hours of continuing education, and not in addition to them. D: Incorrect. The continuing education hours required do have limitations on the type. No more than 16 hours can be in personal development; 4 hours of CPE must be in ethics, of which up to 2 hours may be in CR&R. (See Rule 6.3 in the course material.) 3. A: Incorrect. You need 80 hours of CPE in the two years immediately preceding the application to reactivate. B: Correct. 2 hours must be in CR&R; 4 hours must be in ethics. C: Incorrect. No more than 16 hours of personal development is allowed. D: Incorrect. You must complete 80 hours of continuing education, 4 of which must be in ethics, and include 2 hours of CR&R. (See Rule 6.6 and Licensing FAQs in the course material.) Rules of the Colorado State Board of 2-53

4. A: Incorrect. This is one of the requirements of the certificate holder to reactivate their certificate. B: Incorrect. This is one of the requirements of the certificate holder to reactivate their certificate. C: Incorrect. This is one of the requirements of the certificate holder to reactivate their certificate. D: Correct. The certificate holder is not required to retake the Uniform CPA Examination to reactivate their certificate. (See Rule 6.6 in the course material.) 5. A: Incorrect. Business management is an acceptable study area. B: Incorrect. Marketing is an acceptable study area. C: Correct. Self actualization is not an acceptable study area. D: Incorrect. Behavioral ethics is an acceptable study area. (See Rule 7.3 in the course material.) Rules of the Colorado State Board of 2-54

CHAPTER 3: POLICIES OF THE COLORADO STATE BOARD OF ACCOUNTANCY Objectives: After completing this chapter, you will be able to: Describe Board policies that interpret the regulations. TABLE OF CONTENTS SECTION SUBJECT 10 Application Processing 10-01 Review Denied Certificate/Registration Applications 10-02 Notification to Certificate Holders When Application to Register Firm Is Denied 10-03 Timely Filing of Applications for Firm Registration 10-04 Processing of Application for Reciprocity Applicants with Expired Certificates from Other Jurisdictions 10-05 Filing of Changes to a Firm Registration 10-05(A) Filing of Changes to a Firm Registration in Conjunction with Individuals 10-06 Timely Filing of Reciprocal Applications for Certification 20 Certificates 20-01 Voluntary Surrender of Colorado CPA Certificate 20-03 Ethics Examination for Certification 25 Firm Registration 30 Education Requirements 40 Examinations and Re-Examinations 40-01-7 Refunds for Candidates Called to Active Military Duty 40-02 AICPA Elijah Watt Sells Award & Medal Winners 40-03 Cheating Dishonest or Deceitful Conduct 40-06 Exception to Requirement for Baccalaureate Degree to be Posted on Official Transcript 50 Experience 60 Continuing Education 60-03 Continuing Education Audit 60-05 Requests for Extensions to Complete the CE Requirements for the Renewal Period 60-06 Clarification of Chapter 5 Related to CPE Requirements Policies of the Colorado State Board of 3-1

SECTION SUBJECT (cont.) 70 Complaints 70-01 Confidentiality 70-07 Procedures for Handling a Non-Response to 30 Day Letters 70-08 Cases Dismissed with Letters of Concern: Clarification of Basis for Dismissal, Reopening of Such Cases, and Case Retention Period 70-09 Process for Handling Complaints Involving the Board of 70-10 Anonymous Complaints 70-11 Delegated Authority to Board Staff to Initiate Complaint for Clear Violations of the Act 80 Grounds for Denial & Sanctions 80-01 Criminal Convictions Disclosed by Applicants 80-02 Administrative Action Concerning Misdemeanor Convictions 80-05 Peer Review 80-06 Child Support Enforcement 90 General 90-02 Questions From The Press 90-04 Delegation of Authority to Program Director 90-05 Delegation of Authority to President to Rule on Pre & Post-Hearing Motions 90-06 Peer Review Reports Confidential Documents 90-08 Testimony by Board Members in Any Case 90-10 Subpoena Enforcement Policies of the Colorado State Board of 3-2

APPLICATION PROCESSING COLORADO BOARD OF ACCOUNTANCY POLICY STATEMENTS 10-01 Review of Denied Certificate/Registration Applications The Board will honor one request from an applicant to reconsider a certificate application or firm registration that was previously denied and will grant the applicant an opportunity to make a personal appearance before the Board. After reconsideration and reaffirmation of a denial, the applicant will be informed of an option for a denial hearing pursuant to the provisions in the Administrative Procedure Act. 10-02 Notification to Certificate Holders When Application to Register Firm Is Denied When an application to register a firm name is denied and evidence exists which indicates that a certificate holder(s) is using a firm name without proper registration, the Board will include in each denial letter a statement advising that the certificate holder(s) immediately cease and desist practicing public accounting under a firm name which is not properly registered. 10-03 Timely Filing of Applications for Firm Registration Updated 6/10 The Board will consider completed applications for firm registration to be timely filed if said application is received within 120 days from the date the registrant began providing public accounting services to the public for a fee. The application can be pre-approved by staff upon verification of compliance with all statutory/regulatory provisions and presented to the Board for final approval pursuant to standard administrative practice. Firm applications which are filed beyond the 120 day time period must be presented to the Board as a specific item on its regular meeting agenda for its review and consideration. 10-04 Processing of Applications for Reciprocity Applicants with Expired Certificates from Other Jurisdictions If a reciprocity applicant holds an expired certificate in another jurisdiction when the applicant applies for certification in Colorado, and that certificate is deemed not in good standing by the other jurisdiction due to a failure to renew the certificate, the applicant may be certified in Colorado providing all Colorado requirements have been met for original licensure and no disciplinary actions have been taken against the expired certificate. 10-05 Filing of Changes to a Firm Registration Updated 06/10 The Board requires an immediate application to change a firm registration for a change in name, ownership or form of entity. The application may be approved by staff upon verification of compliance with all statutory/regulatory provisions. Policies of the Colorado State Board of 3-3

Applications for a change to a firm registration which are filed beyond 120 days will be presented to the Board as a specific item on its regular meeting agenda for its review and consideration. 10-05 (A) Filing of Changes to a Firm Registration in Conjunction with Individuals The information provided to the Board in a firm renewal application or notice of other changes in the firm required to be reported to the Board, will not constitute satisfaction of the firm s individual owners change of name, address or status that are otherwise required to be reported. Likewise, application by an individual for or renewal of their own personal certificate does not satisfy the requirement of a firm to report changes in the firm that are otherwise required to be reported to the Board. 10-06 Timely Filing of Reciprocal Applications for Certification Updated 06/10 All persons performing public accounting work as a CPA and whose principal place of business is Colorado must hold an active Colorado certificate. A completed application for certification based on reciprocity for persons licensed in another jurisdiction is to be submitted prior to the commencement of such work in Colorado. The application for reciprocal certification may be pre-approved by staff upon verification of compliance with all statutory/regulatory provisions. Applications which are filed beyond 120 days after commencement of work, will be presented to the Board as specific items on its regular meeting agenda for its review and consideration. After commencement of work and prior to submittal of a completed application, applicants for certification based on reciprocity may not violate any of the provisions of Section 12-2-101, et. seq., C.R.S. CERTIFICATES 20-01 Voluntary Surrender of Colorado CPA Certificate The Board will accept the voluntary surrender of CPA certificates. Certificate holders who voluntarily surrender their certificates must enter into a voluntary surrender agreement with the Board. Certificate holders who opt to surrender said certificate will agree that they may no longer assume or use the title or designation certified public accountant or the abbreviation C.P.A., or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate they are licensed in Colorado, and may no longer perform audit services, as audit services are defined in Section 12-2- 120(6), C.R.S. A voluntary surrender agreement will generally not be accepted if a certificate holder has a complaint pending. If a certificate holder surrenders their CPA certificate and subsequently applies for the granting of a certificate, they will be required to comply with the requirements for the granting of an original certificate. Policies of the Colorado State Board of 3-4

20-03 Ethics Examination for Certification Updated 05/10 The Board will accept the passage of the AICPA ethics examination, titled Professional Ethics: The AICPA s Comprehensive Course as meeting the ethics examination requirement for Colorado CPA certification. 1/03 The Board requires that all applicants applying for licensure by reciprocity successfully pass the AICPA ethics examination, unless the applicant has already completed the AICPA ethics examination. 7/95 FIRM REGISTRATION EDUCATION REQUIREMENTS EXAMINATIONS and RE-EXAMINATIONS 40-01-7 Refunds for Active Duty candidates Adopted 10/90 The Board authorizes its examination vendor to issue full refunds automatically to candidates who are called to active duty with the United States Armed Forces, provided the dates of required service coincide with Uniform CPA Examination dates and upon receipt of a copy of the official order. 40-02 AICPA Elijah Watt Sells Award & Medal Winners Upon notification from the AICPA, the Board will inform the Colorado Society of CPA s of the Colorado examination candidates who earned the highest scores on the Uniform CPA Examination. In addition, the Board will recognize the respective Colorado candidates by sending them a letter of congratulations. 40-03 Cheating Dishonest or Deceitful Conduct Cheating on the CPA examination will be considered dishonesty related to the professional responsibilities of a CPA and as such will be cause for disqualification. Penalties that may be imposed by the Board for cheating on the examination will be based upon the seriousness of the situation. Penalties may range from the entering of a failing grade on all parts of the examination in which cheating occurred, suspension of the right to apply for future examinations and/or immediate expulsion from the testing center. Any candidate suspected of cheating or who may have observed cheating may be requested to remain for a reasonable period of time following an examination session and questioned by test center officials. These officials shall report to the Board regarding this incident. The Board, after notice to the candidate, may schedule a hearing to determine the validity of the charge of cheating. The candidate shall be provided a written decision and order of the Board following this hearing. Policies of the Colorado State Board of 3-5

If more than one candidate is knowingly involved in a connected offense of cheating, all persons so involved are subject to penalties, although not necessarily of the same severity. Other jurisdictions to which a candidate may apply for the examination will be notified of the penalty levied in this state. 40-06 Exception to Requirement for Baccalaureate Degree to be Posted on Official Transcript Individuals who are enrolled in the accounting program at an accredited college or university in Colorado during the transition from a bachelor s degree program to a combined bachelor/master degree program, shall not be required to have the awarding of the baccalaureate degree posted on an official transcript prior to taking the CPA examination. Rather, they shall submit an official transcript which indicates all courses taken and credit earned. In addition, an official verification from the school must accompany the transcript relating that the requirements for the award of a baccalaureate degree have been met, and will be posted following completion of the combined program. EXPERIENCE CONTINUING EDUCATION 60-03 Continuing Education Audit The Staff may maintain a tickler system to monitor future continuing education credits reported by certificate holders who have undergone an audit of their continuing education for renewal and who have been disciplined for failure to meet the continuing education requirements. The CPA Board members shall submit to the CPE audit. 60-05 Requests for Extensions to Complete the CE Requirements for the Renewal Period Revised 06/10 The Board may permit the holder of an active certificate who lacks 10 hours or less of required continuing professional education (CPE) as of January 1st of the renewal year to renew in an active status if the certificate holder: a. Requests an extension to complete the required CPE, in writing and received by the Board by March 31st of the renewal year; b. The request is made for reasons of health, military service or other good cause, and c. The Board grants the extension request. Board staff may approve a request for the extension, received by March 31 of the renewal year, for 10 hours or less and for such reasons as noted above, or staff may place the request before the Board. Any hours that are completed in the renewal year for the preceding two year reporting period may not be used for CPE credit for the period beginning in the renewal year. Policies of the Colorado State Board of 3-6

60-06 Clarification related to CPE Requirements Adopted 03/10 1. The Colorado Rules and Regulation (CR&R) course could be taken six months before or after initial licensure provided the course was not used to qualify for initial licensure. 2. The ethics requirement means that behavioral ethics would be satisfactory to meet the requirement. The exception of the specific ethics requirement from the NASBA defined fields of study are as follows: a) CPE provider transcripts would be accepted in audit materials provided they contained the following pre-printed information from the NASBA Standards for CPE Program Reporting, Standard No. 17: (1) CPE program sponsor name and contact information; (2) Participant s name; (3) Course title; (4) Date offered or completed; (5) Amount of CPE credit recommended (in 50 or 75 minute increments); and (6) Verification by CPE program sponsor representative. b) The following Standards for CPE Program Reporting, Standard No. 17 that were recommended but not specifically required are: (1) Course field of study; (2) If applicable, location; and (3) Type of instructional/delivery method used. COMPLAINTS 70-01 Confidentiality- Updated 06/10 The Board will, during the investigative process and until a complaint is settled by stipulated agreement or until charges are served on an applicant or certificant, deem such complaint of record and the results of investigation, including the report of investigation, closed to inspection by the complainant, the respondent and the public. The Board will not disclose, discuss or comment with regard to whether complaints are pending during the investigative stage of a complaint. The Board will disclose such information when a complaint is settled by stipulated agreement or charges are filed. Fully executed stipulations and consent agreements are public records. 70-07 Procedures for Handling a Non-Response to Thirty (30) Day Letters 1. The initial 30 day letter will be mailed to a Respondent via first class mail. 2. If a Respondent fails to respond to the initial letter, a second 30 day letter will be mailed. 3. If a Respondent fails to respond to the second letter, the Program Director has the authority to refer the matter to the Office of Investigations (OI) with direction to locate the Respondent through the best means available. 4. Pending the outcome of the investigation, the Program Director will either continue to seek a response to the 30 day letter or place the matter on the Board s agenda for review and consideration for further action. Policies of the Colorado State Board of 3-7

70-08 Cases Dismissed with Letters of Concern: Clarification of Basis for Dismissal, Reopening of Such Cases and Retention Period After five years from the date of the letter of concern, the physical file will be disposed of in accordance with the Division of Registration s records management procedures. If the licensee has other active cases pending at the end of the five year retention period, the letter of concern may be kept for a longer period of time at the discretion of the Board staff. 70-09 Process for Handling Complaints Involving the Board of Adopted 07/09 Any signed complaint received by the Board against a current licensee who is a member of the Board or one who has served on the Board within the past five years, or a licensee who has an ongoing formal relationship with the Board will be handled as follows: If the complaint alleges a violation of the Practice Act or the Board Rules of Professional Conduct, the complaint will be sent to the Office of Investigations within the Division of Registrations for a formal investigation. If the complaint alleges substandard practice, the Office of Investigations will also have the case reviewed by an independent consultant selected by the Office of Investigations. Upon completion of the investigation, the report will be referred to the Board for appropriate action. If the complaint is against a current board member, he or she shall recuse from all discussions regarding the complaint and physically leave the meeting room during these discussions. All other customary procedures for the handling of a complaint by the Board will apply. These include but are not limited to issuance of a 30-day letter, notification to the licensee and complainant of Board decisions, and the confidentiality of the complaint and investigation as provided by the Practice Act. Anonymous complaints filed against a current licensee who is a member of the Board or one who has served on the Board within the past five years, or a licensee who has an ongoing formal relationship (e.g. expert consultants) with the Board will be evaluated by the Board on a case-by-case basis. 70-10 Anonymous Complaints Adopted 03/10 The Board discourages anonymous complaints and does not automatically investigate such complaints. The Board will review complaints on a case-by-case basis in accordance with section 12-2-126, C.R.S. Policies of the Colorado State Board of 3-8

70-11 Delegated Authority to Board Staff to Initiate Complaint for Clear Violations of the Act When a clear violation of the Practice Act, 120-2-101 et seq, is identified, such as stipulation violations, failure to respond to Board ordered correspondence or Continuing Education Deficiencies, the Board authorizes Board Staff to initiate a complaint on its behalf against the individual CPA or CPA firm. GROUNDS FOR DENIAL & SANCTIONS 80-01 Criminal Convictions Disclosed by Applicants Updated 05/10 The Board requires disclosure of criminal convictions by applicants and directs staff to flag the respective files and bring the information to the Board s attention for review prior to approval of the application. Convictions include conviction of a felony or of any crime, an element of which is dishonesty or fraud, under the laws of any state or jurisdiction. A plea of guilty or nolo contendere accepted by the court shall be considered a conviction. The Board has a basis for denial/discipline based on felony convictions, convictions of any crime of dishonesty, fraud or habitual intemperance. If the Board approves the issuance of a license, staff will send a letter of information advising the applicant that they have a responsibility to self-disclose future convictions. 80-02 Administrative Action Concerning Misdemeanor Convictions The Board will automatically approve the application of applicants who otherwise meet the requirements for certification and who report a conviction of a misdemeanor five years or more prior to certification, with the exception of misdemeanors involving drugs or alcohol. The Board will review applications with misdemeanors involving the use of drugs or alcohol. The Board established internal guidelines in reviewing such convictions and delegated the authority to staff to approve certain applicants who fall within the guidelines. 80-05 Peer Review The Board will accept on-site peer reviews conducted in accordance with standards established by the AICPA Peer Review Board and conducted under the auspices of the Colorado Society of Certified Public Accountants. 80-06 Child Support Enforcement Updated 05/10 Authority has been delegated to the Program Director to execute a "Memorandum of Understanding" with the Colorado Department of Human Services for the purpose of enforcing Section 26-13-126, C.R.S. relevant to the suspension and reinstatement of a license to practice a profession. When the suspension and reinstatement is based on child support compliance, the Program Director is authorized to execute "Orders of Suspension," "Orders of Reinstatement" of a professional license, correspondence from the Board notifying respondents of license suspensions, and denials and any and all documentation necessary to enforce compliance with Sections 24-34-107 and 26-13- Policies of the Colorado State Board of 3-9

126, C.R.S. An "Order of Suspension" based on child support compliance will be effective 20 days after its signing. GENERAL 90-02 Questions from the Press The Board members will not respond to questions regarding board matters from the press and will refer questions from the press to the Program Director. 90-04 Delegation of Authority to Program Director Updated 06/10 The Board grants the program director the authority to sign routine subpoenas necessary in the course of investigations or routine hearings on behalf of the Board. The Board delegates to the Program Director the authority to execute stipulations, the terms of which were previously approved by the Board. 90-05 Delegation of Authority to Chair to Rule on Pre & Post-Hearing Motions Adopted 07/10 The Board grants its Chair the authority to rule on all pre and post-hearing motions pursuant to Section 24-4-105 of the Administrative Procedure Act. 90-06 Peer Review Reports -- Confidential Documents Peer review reports which contain confidential, commercial, financial information are closed to public inspection and will be reviewed by the Board in Executive Session. 90-08 Testimony by Board Members in Any Case Revised 06/10 If a Board Member testifies as an accounting expert in any matter, the Board Member shall notify the court and the opposing party in writing and testimony that the opinions that he or she express are their own and not those of the State Board of. If the matter comes before the Board as a possible disciplinary action, the Board Member is expected to recuse from discussions and decisions on the matter (conflict of interest). A Board member should not speak on behalf of the Board unless the entire Board gives specific authority to the Board member. 90-10 Subpoena Enforcement Adopted 09/09 It is the policy of the Board that when, in the course of an investigation of a complaint, a subpoena needs to be enforced pursuant to the Act and the Administrative Procedure Act (APA), the Board specifically authorizes the Program Director, or designee, to refer such matter directly to the Office of the Attorney General for enforcement. Policies of the Colorado State Board of 3-10

Engagement Letters as Risk-Management (Reprinted from Fall 2000 Board Newsletter) It is no secret that the accounting profession s clients are more litigious now than they were a few years ago. As the accounting profession takes on more roles in order to remain competitive, lawsuits now delve into a wider range of issues. Where once they were largely generated by tax and audit work, now they also derive from compilation and review, write-up, and management advisory services. Many lawsuits involving CPAs are the result of a communication breakdown (or expectation gap ) between the CPA and the client. In many situations, the client s understanding of the scope of services to be performed and how the work product will be utilized may be quite different from the CPA s understanding of these issues. Although engagement letters are not required legally, they are strongly encouraged. A properly drafted engagement letter can serve as a helpful risk-management tool by establishing a legal framework for a working relationship with a client. While the engagement letter itself may vary with the level of service or type of engagement to be provided, common provisions in most engagement letters include the following: Identification of client; Description of the engagement and its limitations; Timing of the work and staffing of the engagement; Client information and responsibilities; Designation of the party to work with the CPA; Identification of intended users of the CPAs work product Fees and payments; Withdrawing from and/or terminating the engagement; Responding to discovery requests, subpoenas, and outside inquiries; Alternative dispute resolution as a means of resolving disputes; Where applicable, disclosures recommended or required by the AICPA; and Client signature. Identification of Client A properly drafted engagement letter should identify who will receive the CPA s services. The CPA may be working for an individual, a group, an entity, or a portion of an entity. For example, if the CPA s client is a corporation that has subsidiaries or other corporate affiliations, it may be necessary to identify the entities to be included in the engagement. Description and Limitations of Work to Be Performed The engagement letter should indicate what services are to be rendered. In general, the CPA should outline the procedures to be performed and any reports to be issued. In so doing, the engagement letter can help guard against the client developing unreasonable expectations about the nature and the scope of the services to be provided. Policies of the Colorado State Board of 3-11

Timing of Work and Staffing of Engagement This section of the engagement letter indicates when the engagement will begin and end. This section may vary by type of engagement. For example, an audit engagement may contain a provision indicating the date fieldwork will begin and end and the date of delivery of the audit report. A tax engagement may contain a provision indicating any known filing deadlines and the parties understanding concerning the use of extensions should the information not be received by the CPA to timely prepare the return. Some CPA firms may indicate who will be staffing the engagement. This provision may prove helpful, for example, where a client expects to work with certain employees of the CPA firm. Client Information and Responsibilities In most engagements, the client is required to collect certain information and provide certain records to the CPA. If this information is necessary for the CPA, to complete the engagement, these client responsibilities, and any applicable deadlines for the completion of work by the client, should be described. For example, a tax engagement would normally contain a provision indicating it is the client s responsibility to sign and file tax returns prepared by the CPA, along with an explanation of the consequences of the client s failure to sign and file such returns. Designation of the Party to Work with the CPA Some engagement letters request the client to designate the party to work with the CPA. This provision can help the CPA avoid situations in which conflicting requests or instructions are received from more than one of the client s employees. Identification of Intended Users of the CPA s Work Product In some jurisdictions, a CPA can limit or avoid liability to third parties by identifying in the engagement letter the intended users of the work product. In addition to identifying these users, this provision often contains language prohibiting the client from distributing the CPA s work product to any party other than these users. In deciding whether the engagement letter should contain this provision, competent legal counsel should be consulted. This is especially true for jurisdictions, such as New York and New Jersey, which have privity standards for establishing auditor negligence. Fees and Payments An engagement letter can help avoid fee disputes before the work begins. This section details how and when the client will be billed. It may describe the amount of retainer (if any); how the fee will be computed; when payment will become due; the client' obligation to pay promptly; and the CPA's rights should the client fail to give prompt payment. In some cases, the CPA may charge interest for late payments. In more extreme cases, it may be necessary for the CPA to suspend work or cancel the engagement for fees not paid. Policies of the Colorado State Board of 3-12

Withdrawing from or Terminating the Engagement At times, it may be necessary for the CPA to withdraw from the engagement. The engagement letter should outline the conditions that might lead to the CPA s withdrawal and the procedures the CPA will follow in case of withdrawal. Examples of situations in which the CPA s withdrawal from the engagement may be required include issues of conflict of interest; management ethics or integrity; or the CPA s real or apparent lack of independence. This section should also discuss policies and procedures related to the termination of the engagement including return of client files; preparation of the final bill; work paper retention; and date of termination of services. Responding to Discovery Requests, Subpoenas, and Outside Inquiries Occasionally, a CPA may receive a discovery request, subpoena, or outside inquiry. While several states have established a CPA/client privilege with respect to communications, most states do not have such a privilege. Moreover, there is no federal CPA/client privilege. This section of the engagement letter can help avoid future misunderstandings between the client and the CPA regarding whether, and to what extent, the CPA may be required to respond to such requests. Alternative Dispute Resolution Alternative dispute resolution (ADR) refers to methods of resolving disputes outside of the courtroom. One of these methods is known as arbitration. In arbitration, the opposing parties select one or more arbitrators who decide the outcome of the dispute. In most cases, the decision of the arbitrator cannot be appealed. Typically, the prearbitration discovery process is limited, and third parties are not bound by the arbitrator s decision. Another method of resolving disputes outside of a court of law is mediation. During mediation, a mediator attempts to find the common ground that exists between the opposing parties that may lead to a mutually agreed-upon settlement. In the event the mediation is not successful, the parties, if they so desire, may litigate their dispute. Before inserting a provision in the engagement letter regarding alternative dispute resolution, a CPA should consult with legal counsel regarding the provision s enforceability. In addition, inserting a provision concerning alternative dispute resolution in an engagement letter may have insurance coverage implications. For example, while most insurers encourage the use of mediation, under many policies the use of an arbitration clause may limit or void the CPA s professional liability insurance coverage for any claims that are arbitrated. Disclosures Recommended or Required by the AICPA The AICPA recommends the inclusion in an engagement letter of certain disclosures for certain types of engagements. These disclosures may be incorporated into, or have an effect upon, other provisions of the engagement letter. Policies of the Colorado State Board of 3-13

Client Signature This section should request the client sign and return an executed copy of the engagement letter to the CPA. It should provide that if the client does not agree that the engagement letter accurately reflects the agreement of the parties to the engagement, the client will promptly notify the CPA. If the client does not return a signed engagement letter, the CPA may send a certified letter indicating that, unless otherwise notified, the CPA will assume the client agrees to the terms of the engagement letter. In any event, the most effective engagement letter is one signed by the client before the CPA begins the engagement. Policies of the Colorado State Board of 3-14

CHAPTER 3 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 Board will generally permit the holder of an active certificate who lacks 10 hours or less of required CPE, an extension to complete the hours by March 31 if the request is made for certain reasons. Which of the following is generally deemed acceptable: a) health reasons or military service b) moving out of state c) being out of work d) any reason requested in good faith by the licensee Policies of the Colorado State Board of 3-15

CHAPTER 3 SOLUTIONS AND SUGGESTED RESPONSES 1. A: Correct. In addition, an other good cause may also be an acceptable reason. B: Incorrect. Moving out of the country is more likely to qualify. C: Incorrect. Being out of work should afford more time to do the required CPE. D: Incorrect. However, other good cause is acceptable. (See Policy section 60-05 of the course material.) Policies of the Colorado State Board of 3-16

GLOSSARY OF ETHICS TERMS The terms included in this glossary are related to the ethics area in general, but may not be specifically used in this material. They are provided for greater clarification and educational purpose. TERM Alternative Practice Structures (APS) American Institute of Certified Public Accountants (AICPA) Client s records Close relative Code of Professional Conduct (the Code) Conflict of interest Consulting process DEFINITION A nontraditional structure for the practice of public accounting in which a traditional CPA firm engaged in auditing and other attestation services might be closely aligned with another organization, public or private, that performs other professional services (e.g., tax and consulting). The national professional organization for all certified public accountants (CPAs). Any accounting or other records belonging to the client that were given to the member by, or on behalf of, the client. Close relatives are the member s nondependent children (including grandchildren and stepchildren), brothers and sisters, grandparents, parents, and parents-in-law. Spouses of any of the above are also close relatives. The SEC definition of close relatives expands the above to include a spouse s brothers and sisters and their spouses. The Code was adopted by the membership of the AICPA to provide guidance and rules to all members on various ethics requirements. The Code consists of: 1) Principles, 2) Rules, 3) Interpretations, and 4) Ethics Rulings. A conflict of interest may occur if a member performs a professional service for a client or employer, and the member or his or her firm has a relationship with another person, entity, product, or service that could, in the member s professional judgment, be viewed by the client, employer, or other appropriate parties as impairing the member s objectivity. The analytical approach applied in performing a consulting service. The process typically involved some combination of the following: Determining the client s objective Fact-finding Defining problems or opportunities Evaluating alternatives Formulating proposed actions Communicating results Implementing Following up Glossary G-1

Consulting services Contingent fee Direct financial interest Disqualifying services Ethics Rulings Firm Former practitioner Holding out as a CPA Independence in appearance Independence in fact Indirect financial interest Integrity Professional services that use the practitioner s technical skills, education, observations, experiences, and knowledge of the consulting process. A fee for performing any service in which the amount of the fee (or whether a fee will be paid) depends on the results of the service. A direct financial interest is created when a member invests in a client entity. Term used to refer to the following services, which when performed for a client prohibit the member from accepting a contingent fee or commission: a. An audit or a review of a financial statement. b. An examination of prospective financial information. c. A compilation of a financial statement expected to be used by third parties except when the compilation report discloses a lack of independence. Part of the Code of Professional Conduct. Rulings summarize the application of rules and interpretations to a particular set of factual circumstances. A form of organization permitted by state law or regulation whose characteristics conform to resolutions of Council that is engaged in the practice of public accounting, including the individual owners thereof. A proprietor, partner, shareholder or equivalent of a firm, who leaves by resignation, termination, retirement, or sale of all or part of the practice. Includes any action initiated by a member, whether or not in public practice, that informs others of his or her status as a CPA. If there are circumstances that a reasonable person might believe are likely to impair independence, the CPA is not independent in appearance. To be recognized as independent, the auditor must be free from any obligation to or interest in the client, its management, or its owners. To be independent in fact (mental independence), the CPA must have integrity and objectivity. If there is evidence that independence is actually lacking, the auditor is not independent in fact. An indirect financial interest is created when a member invests in a nonclient entity that has a financial interest in a client. An element of character fundamental to professional recognition. It is the quality from which public trust derives and the benchmark against which a member must ultimately test all decisions. Glossary G-2

Internal audit outsourcing Interpretations of rules of conduct Joint closely held business investment Joint Ethics Enforcement Program (JEEP) Member Multidisciplinary practices (MDP) National Association of State Boards of (NASBA) Objectivity Period of professional engagement Internal audit outsourcing involves performing audit procedures that are generally of the type considered to be extensions of audit scope applied in the audit of financial statements. Examples of such procedures might include confirming receivables, analyzing fluctuations in account balances, and testing and evaluating the effectiveness of controls. Part of the Code of Professional Conduct. Interpretations are pronouncements issued by the AICPA s Division of Professional Ethics to provide guidelines concerning the scope and application of the rules of conduct. An investment that is subject to control by the member, or the member s firm, client or its officers, directors, or principal stockholders, or any combination of the above. The AICPA and most state societies cooperate in the Joint Ethics Enforcement Program (JEEP) in bringing enforcement actions against their members. In its broadest sense, member is a term used to describe a member, associate member, or international associate of the AICPA. All members must adhere to the AICPA s Code of Professional Conduct. For the purposes of applying the independence rules, the term member identifies the people in a CPA firm and their spouses, dependents, and cohabitants who are subject to the independence requirements. Arrangements in which CPAs share fees with attorneys or other professionals. A voluntary organization composed of the state boards of accountancy. It promotes communication, coordination, and uniformity among state boards. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Objectivity is a state of mind, a quality that lends value to a member s services. The period of engagement starts when the member begins the service requiring independence and ends upon termination of the relationship (by the member or the client) or, if later, when the report is issued. The period does not stop when the report is issued and restart with the beginning of the next engagement. The period of engagement typically covers many periods. Glossary G-3

Practice of public accounting Principles Professional services Rules Securities and Exchange Commission (SEC) State boards of accountancy State societies of CPAs Statements on Standards for Tax Services (SSTS) Unpaid fees Yellow Book According to the Code of Professional Conduct, the practice of public accounting consists of the performance for a client, by a member or a member s firm, while holding out as CPAs, 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, such as Statements of Financial Accounting Standards, Statements on Auditing Standards, Statements on Standards for Accounting and Review Services, Statements on Standards for Consulting Services, Statements on Standards for Tax Services, Statements of Governmental Accounting Standards, and Statements on Standards for Attestation Engagements. However, a member or member s firm, while holding out as CPAs, 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. Positive statements of responsibility in the Code of Professional Conduct that provide the framework for the rules, which govern performance. Includes all services performed by a member while holding out as a CPA. Broad but specific descriptions of conduct that would violate the responsibilities stated in the principles in the Code of Professional Conduct. A federal government regulatory agency with responsibility for administering the federal securities laws. State government regulatory organizations. Each state government issues a license to practice within the particular state under that state s accountancy statute. Voluntary organizations of CPAs within each individual state. SSTS superseded and replaced the AICPA s Statements on Responsibilities in Tax Practice (SRTP). They are enforceable standards of conduct for tax practice under the Code of Professional Conduct. Fees for: 1) audit, and 2) other professional services that relate to certain prior periods that are delinquent as of the date the current year s audit engagement begins, if the client is an SEC registrant, or the date the audit report is issued for non-sec clients (i.e., AICPA rule). Governmental Auditing Standards issued by the Government Accountability Office. Glossary G-4

INDEX C code of professional conduct, 2-4, 2-25, 2-26, 2-31 conflict of interest, 2-5, 3-10, 3-13 contingent fees, 2-30, 2-31 continuing education, 1-14, 1-15, 1-20, 2-11, 2-19, 2-20, 2-21, 2-49, 3-6, 3-9 P peer review, 1-3, 1-7, 1-13, 2-8, 2-11, 2-21, 2-22, 2-23, 2-24, 2-25, 2-35, 3-9, 3-10 penalties, 1-6, 1-10, 1-19, 1-26, 3-5, 3-6 R reciprocity, 3-3, 3-4, 3-5 reinstatement, 1-5, 1-6, 1-7, 1-8, 1-20, 2-8, 2-14, 2-15, 3-9 Index