Ethics for the Tennessee CPA

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

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

3. What is “the Board”? Eleven Members – Appointed by Governor Serve Terms of 3 Years Nine are CPAs One is Attorney One is Public Member Meets Quarterly- usually in January, May, July and October

4. Current Members of the Board Trey Watkins, CPA, Chairman – Memphis Casey Stuart, CPA, Vice Chair – Chattanooga William Blaufuss, CPA, Sec. – Nashville Henry Hoss, CPA – Chattanooga Stephen Eldridge, CPA – Jackson Vic Alexander, CPA - Nashville Troy Brewer, CPA – Nashville Stan Sawyer, CPA – Memphis Don Royston, CPA – Kingsport Jennifer Brundige, JD – Nashville, Public Member John Roberts, Attorney-at-Law – Nashville, Attorney Member

5. Administrative Support Staff Executive Director – Mark H. Crocker, CPA, CGMA Investigator – Don Mills, CPA, CFE Investigator – Ray Butler, CPA Advisory Attorney – Chris Whittaker, Esq. Education Coordinator – Kathy Riggs, Ph.D. Licensing Coordinator – Brenda Demastus Disciplinary Coordinator – Karen Condon Office Manager – Patricia Turner Admin. Assistant – Sandy Cooper

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

7. How many CPAs are there in Tennessee?

8. CPAs in Tennessee

9. What Are the Requirements to Maintain a License in Good Standing? Tennessee State Board of Accountancy

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

11. Can you explain the CPE requirements one more time? All Licensees Holding Active License 80 Approved Hours every two years – add 8 penalty hours if you don’t 40 Technical Hours (A&A, Taxes, Ethics & Management Advisory) 2 Hours Ethics – Both must be State Specific Ethics (New this year) Minimum of 20 Hours Each Year – add 8 penalty hours if you don’t Special Areas: Attest Services – 20 Hours A&A Expert Witness Services – 20 Hours in Area If you are short on Technical or Ethics hours but have your 80 hours, make them up without penalty.

12. Is Carry Over CPE worth the headache? Limited to 24 Hours Carries Over as “Other” Hours Cannot be used to meet 20 Hour Minimum Must Have Actually Completed More Than 80 Hours in the Preceding Licensing Period

13. Example of Carryover CPE

14. Its December 31 and I don’t have enough CPE. What can I do? First – Renew your license. Answer “no” to the CPE question. Do not make things worse by practicing on a delinquent license and accruing late fees. Then get busy and finish your hours along with the “penalty hours”. Or: Change License to Inactive or Retired Close License and return wall certificate Request an Extension of time (max 6 months) and have a really good reason.

15. What about CPE for reinstatement and reactivation? Reactivate: You must have a viable license (Inactive, Retired or Closed) Complete 80 hours of technical CPE within 24 months of reactivation that counts toward your renewal hours Pay a $120 fee.

16. What about CPE for reinstatement and reactivation? Reinstate: You do not have a viable license (Expired) Complete 80 hours of technical CPE within 6 months of your request for reinstatement. These are penalty hours and do not count towards renewal Pay all back fees plus a $250 penalty.

17. Any other rule changes I need to know about? Penalty for Late Renewal of License – Changed from two $50 penalties applied in February and April to one $100 penalty applied in February. Address Change – New rule requires notification to the Board of any changes in email address within 30 days. Education- If you were not approved to sit for the exam on 6/24/12, you must now complete 30 semester hours accounting education and 24 of those hours must be in upper division accounting courses.

18. I have a large client… who calls and asks if I know anything about a CPA from Nevada who has applied for a position with the corporation. Is there any way I can help?

19. Go online to CPAverify.org, maintained by the NASBA. It contains licensee information from 31 states and Puerto Rico. It will tell you if the individual is properly licensed and, in some cases, if that person has been disciplined by their respective board. Now call your client and earn some brownie points.

20. How Long Must I Keep My Working Papers? A firm issues an audit report on an entity for the fiscal year ended June 30, 2009. The auditors’ report is dated October 15, 2009. The Board requires that working papers be kept for five years after the period in which the report is issued.

21. How Long Must I Keep My Working Papers? Answer: In this case, the period in which the audit report was issued is June 30, 2010. The working papers must be retained until July 1, 2015.

22. I have this friend… who works for a private corporation and does a few tax returns on the side. Does he have to open a firm?

23. “YES”

24. If you are a licensed CPA in the state and you provide accounting services – you must be affiliated with a CPA firm. Definition of accounting services: Tax return preparation Attest services Any other services in which you hold out as a CPA

25. I work in private industry but volunteer my time … at a nonprofit agency where I perform basic bookkeeping services. I do not prepare financial statements. Do I need a firm permit?

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

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

28. Do your bookkeeping services consist of more than: • Recording transactions to the client’s general ledger which have been coded by management. • Posting client approved entries to the trial balance. • Preparation of reconciliations for bank accounts, accounts receivable, etc. • Do your clients know that you are a CPA?

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

30. $50

31. CPA Firm Licensure Requirements Basic Application Physical Information – Where is your office. Ownership- Must be 51% owned by CPAs Experience of Resident Manager Peer Review Selection or Exempt Request – Sign up with TSCPA upon application for firm permit

32. When is Peer Review Required? Tennessee requires peer review for any firm that performs the attest function. Tennessee defines the attest function to include compilations. Only engagements conducted under SSARS #8 may be excluded from the requirement. (Be careful, this is a high risk area) Notice to the Board of change in a firm’s requirement for peer review is required

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

34. A management-use-only compilation is issued without a report when a CPA does not reasonably expect the financial statements to be used by a third party. Instead, document an understanding with the entity through the use of an engagement letter, preferably signed by management. • Since financial statements compiled for management’s use only do not include a report, they are theoretically outside the purview of peer review.

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

36. Complaint History • Historically, the Board opens an average of 68 complaints each year.

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

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

39. Rule 0020-4-.03 (2)(d) states in part: • Conduct reflecting adversely upon the licensee’s fitness to perform services includes…concealment of information regarding violations by other licensees of the Act or the Rules….

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

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

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

44. What actions can the Board take concerning a complaint?

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

46. Board Action 2006-2011

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

48. JAIL

49. Can you explain mobility? Case Study: A firm is contracted to perform the independent audit of a Tennessee municipality. The firm is licensed in good standing with the State of Mississippi, but not in Tennessee. A review of the audit reveals apparent failures to meet the fieldwork standards required by the “Yellow Book” and a complaint against the firm is initiated by the Tennessee Board.

50. Mobility-doing bad work in Tennessee Case Study: In its response to the complaint, the firm asserts that the Tennessee Board has no jurisdiction to impose disciplinary action on a Mississippi firm and that any action against the firm must be taken by the Mississippi Board of Accountancy.