professional ethics and conduct for north carolina cpas pittard perry & crone, inc. 2010 all...

Professional Ethics Professional Ethics and Conduct for and Conduct for

North Carolina CPAsNorth Carolina CPAs

Pittard Perry & Crone, Inc. 2010Pittard Perry & Crone, Inc. 2010All Rights ReservedAll Rights Reserved

Materials in this manual may not be reproduced in any Materials in this manual may not be reproduced in any form without written permission.form without written permission.

Professional Ethics and Professional Ethics and Conduct for Conduct for

North Carolina CPAsNorth Carolina CPAsDisclaimer: This course is Disclaimer: This course is

that of Pittard Perry & that of Pittard Perry & Crone, Inc. (PPC) and has Crone, Inc. (PPC) and has been approved by the North been approved by the North Carolina State Board of Carolina State Board of Certified Public Accountant Certified Public Accountant Examiners (State Board) for Examiners (State Board) for the purpose of qualifying the purpose of qualifying continuing professional continuing professional education in relation to the education in relation to the State Board’s ethics State Board’s ethics requirement. Opinions and requirement. Opinions and comments are that of PPC comments are that of PPC and not the State Board.and not the State Board.

Continuing Professional Continuing Professional Education (CPE) Education (CPE) Table of ContentsTable of ContentsTopics/Contents : PageTopics/Contents : Page

Participant information sheet : 4Participant information sheet : 4 CPE course specifics : 5CPE course specifics : 5 CPE course background : 6CPE course background : 6 CPE course objectives : 7CPE course objectives : 7 CPE course outline : 8CPE course outline : 8 Definitions : 9Definitions : 9 Other Issues : 10Other Issues : 10 Ethics Background : 11 – 16Ethics Background : 11 – 16 AICPA PEEC : 17 – 18AICPA PEEC : 17 – 18 AICPA JEEP : 19AICPA JEEP : 19 AICPA SSARs No. 19 Exposure Draft : 20AICPA SSARs No. 19 Exposure Draft : 20 AICPA Code of Professional Conduct : 21 – AICPA Code of Professional Conduct : 21 –

2424 AICPA Test Your Knowledge : 25 – 26AICPA Test Your Knowledge : 25 – 26 NC State Board of CPA Examiners : 27 – 33NC State Board of CPA Examiners : 27 – 33 Other Sources & Fraud Triangle : 34 – 35Other Sources & Fraud Triangle : 34 – 35 NC State Board Activity Review : 36 – 43NC State Board Activity Review : 36 – 43 Surveys : 44 – 45Surveys : 44 – 45 Final Questions : 46Final Questions : 46

Participant Information Participant Information SheetSheet

Name:Name:

Firm:Firm:

CPA Lic #:CPA Lic #:

Title:Title:

CPA Field:CPA Field:

Date:Date:

____________________________________

____________________________________

____________________________________

____________________________________

____________________________________

____________________________________

Continuing Professional Continuing Professional Education (CPE):Education (CPE):

SpecificsSpecificsBasic courseBasic courseNo prerequisitesNo prerequisitesNo advance preparationNo advance preparation2 hours CPE credit2 hours CPE creditApplies to all NC CPAsApplies to all NC CPAsPPC course not CPA Board PPC course not CPA Board

coursecourse

Professional Ethics and Professional Ethics and Conduct:Conduct:

CPE BackgroundCPE Background ““As part of the annual CPE requirement, all As part of the annual CPE requirement, all

active CPAs shall complete CPE on active CPAs shall complete CPE on professional ethics and conduct as set out professional ethics and conduct as set out in 21 NCAC 8N. They shall complete either in 21 NCAC 8N. They shall complete either two hours in a group study format or four two hours in a group study format or four hours in a self-study format. These courses hours in a self-study format. These courses shall be approved by the Board pursuant to shall be approved by the Board pursuant to 21 NCAC 8G .0400. This CPE shall be 21 NCAC 8G .0400. This CPE shall be offered by a CPE sponsor registered with offered by a CPE sponsor registered with the Board pursuant to 21 NCAC 8G .0403(a) the Board pursuant to 21 NCAC 8G .0403(a) or (b).”or (b).”

This requirement is effective as of January This requirement is effective as of January 1, 2005.1, 2005.

This course fulfills the CPE requirement and This course fulfills the CPE requirement and qualifies for 2 hours of CPE in a group study qualifies for 2 hours of CPE in a group study setting.setting.

The course is designed to help NC CPAs The course is designed to help NC CPAs keep abreast of current rules and keep abreast of current rules and regulations regarding ethics and conduct.regulations regarding ethics and conduct.

Make sure the class is an approved one by Make sure the class is an approved one by the Boardthe Board


CPE Course ObjectivesCPE Course Objectives

At the end of the course, you At the end of the course, you will have a better will have a better understanding of:understanding of:

The ethics and conduct The ethics and conduct required of NC CPAs within required of NC CPAs within certain areas relating to certain areas relating to A&A and Tax.A&A and Tax.

The laws applicable to NC The laws applicable to NC CPAsCPAs

Rules and regulations of Rules and regulations of the AICPA and NC CPA the AICPA and NC CPA BoardBoard


CPE Course OutlineCPE Course Outline Trying to determine what Trying to determine what

ethics are and how they apply ethics are and how they apply to NC CPAs to NC CPAs (Can one who has (Can one who has been in practice for several or been in practice for several or many years learn ethics?)many years learn ethics?)

Trying to determine what laws, Trying to determine what laws, rules and guidelines are the rules and guidelines are the applicable NC CPAsapplicable NC CPAs

Activity Review from CPA Activity Review from CPA Board newsletter – Case Board newsletter – Case Studies and Other IssuesStudies and Other Issues


DefinitionsDefinitions

WHAT ARE ETHICS? WHAT ARE ETHICS?

__________________________________________________________________________________________________

HOW DOES ONE DEFINE ETHICS?HOW DOES ONE DEFINE ETHICS?

__________________________________________________________________________________________________

WHAT ARE SOME EXAMPLES OF ETHICS?WHAT ARE SOME EXAMPLES OF ETHICS?

__________________________________________________________________________________________________

WIKIPEDIA:WIKIPEDIA:

Ethics (also known as moral philosophy) is a Ethics (also known as moral philosophy) is a branch of philosophy which seeks to address branch of philosophy which seeks to address questions about morality, such as what the questions about morality, such as what the fundamental semantic, ontological, and fundamental semantic, ontological, and epistemic nature of ethics or morality is epistemic nature of ethics or morality is (meta-ethics), how moral values should be (meta-ethics), how moral values should be determined (normative ethics), how a moral determined (normative ethics), how a moral outcome can be achieved in specific situations outcome can be achieved in specific situations (applied ethics), how moral capacity or moral (applied ethics), how moral capacity or moral agency develops and what its nature is (moral agency develops and what its nature is (moral psychology), and what moral values people psychology), and what moral values people actually abide by (descriptive ethics).actually abide by (descriptive ethics).


Other Issues & ExamplesOther Issues & Examples Ethics – Different meaning for Ethics – Different meaning for

everyone.everyone.

Federal versus State versus Federal versus State versus Local lawsLocal laws

Example ____________________Example ____________________Example ____________________Example ____________________Example ____________________Example ____________________

Primarily grounded in parental Primarily grounded in parental teachings.teachings.


BackgroundBackgroundWhy do we need to take an Why do we need to take an

annual ethics course?annual ethics course?The result of legislation in The result of legislation in

the wake of national the wake of national scandalsscandalsThere still remains questions There still remains questions

regarding:regarding: Independence (appearance & Independence (appearance &

fact)fact)Laws cannot answer all our Laws cannot answer all our

questionsquestions


BackgroundBackgroundThe Accounting Society The Accounting Society

continues to update rules, continues to update rules, principles, regulations, etc. principles, regulations, etc. continually, but one must continually, but one must realize that the accounting realize that the accounting profession, as a profession, as a professional career, is professional career, is roughly 150 years old.roughly 150 years old.Physicians and Attorneys Physicians and Attorneys

have much longer histories have much longer histories which has enabled them to which has enabled them to sort most issues.sort most issues.


BackgroundBackgroundAccountants make Accountants make

judgments (ethical judgments (ethical decisions) each day. Some decisions) each day. Some are small and some are are small and some are large.large.Estimates within financial Estimates within financial

statementsstatementsDepreciation and amortization Depreciation and amortization

(estimated useful life)(estimated useful life)Net realizable value of Net realizable value of

receivablesreceivables


BackgroundBackgroundCan ethics survive where:Can ethics survive where:

A corporation’s stock price is A corporation’s stock price is dependent on earnings dependent on earnings which are controlled by one which are controlled by one or few individual(s) who also or few individual(s) who also benefit from a higher stock benefit from a higher stock price?price?

A person’s earnings are A person’s earnings are based upon budgets or other based upon budgets or other target and that person is target and that person is also in control of financial also in control of financial reporting?reporting?


BackgroundBackgroundAuditing relationships:Auditing relationships:

Client / Creditors / Client / Creditors / Governments / Investors / All Governments / Investors / All FS usersFS usersWe have been contracted by We have been contracted by

one company but we are one company but we are responsible to the world with responsible to the world with regards to audited financial regards to audited financial statements, whether public or statements, whether public or private.private.

The public relies upon our The public relies upon our audit to help maintain order audit to help maintain order within business financial within business financial reporting.reporting.

Professional Ethics and Professional Ethics and Conduct:Conduct:AnalysisAnalysis

Objectivity and Objectivity and IndependenceIndependenceImpartialityImpartialityIntellectual honestyIntellectual honestyFree of conflicts of interestFree of conflicts of interest

Integrity in Financial Integrity in Financial ReportingReportingDo what is right, not Do what is right, not

expedientexpedientFollow the spirit and intentFollow the spirit and intent

No manipulation, stretching or No manipulation, stretching or bendingbending


AICPA IntroductionAICPA Introduction Professional Ethics DivisionProfessional Ethics Division

The Professional Ethics The Professional Ethics Executive Committee (PEEC) is Executive Committee (PEEC) is a senior technical committee of a senior technical committee of the AICPA charged with the the AICPA charged with the responsibility of interpreting responsibility of interpreting and enforcing the AICPA Code and enforcing the AICPA Code of Professional Conduct (Code). of Professional Conduct (Code).


AICPA IntroductionAICPA Introduction PEEC ProjectPEEC Project

10/13/2009, the AICPA began a project to 10/13/2009, the AICPA began a project to create a single source of easy-to-use create a single source of easy-to-use guidance on Ethics and Independence guidance on Ethics and Independence matters .matters .

Restructure of AICPA Code of Professional Restructure of AICPA Code of Professional ConductConduct

Primary Objectives /BenefitsPrimary Objectives /Benefits Improve compliance by creating info that is Improve compliance by creating info that is

simpler, easier to use and more intuitivesimpler, easier to use and more intuitive Include guidance from other sourcesInclude guidance from other sources Improve research capabilityImprove research capability

Other BenefitsOther Benefits Converge existing guidance with internationalConverge existing guidance with international Eliminate redundant rulesEliminate redundant rules Ability to sort and aggregate applicable sectionsAbility to sort and aggregate applicable sections

Timing and ProcessTiming and Process 3 year project (2009-2011)3 year project (2009-2011) State Board input will be soughtState Board input will be sought Due process of exposure will be followedDue process of exposure will be followed


AICPA IntroductionAICPA Introduction Joint Ethics Enforcement Program (JEEP) Joint Ethics Enforcement Program (JEEP)

The AICPA and each of the state societies The AICPA and each of the state societies have respective codes of professional conduct have respective codes of professional conduct that their members are obligated to observe that their members are obligated to observe as a condition of their membership. The as a condition of their membership. The provisions of the codes of many state provisions of the codes of many state societies are identical with, or similar to, the societies are identical with, or similar to, the provisions of the AICPA Code of Professional provisions of the AICPA Code of Professional Conduct. Because of this identity and Conduct. Because of this identity and similarity, and because it is not uncommon for similarity, and because it is not uncommon for a CPA to be a member of both the AICPA and a CPA to be a member of both the AICPA and one or more state societies, the AICPA and one or more state societies, the AICPA and virtually all of the state societies have joined virtually all of the state societies have joined together to create the Joint Ethics together to create the Joint Ethics Enforcement Program (JEEP). Enforcement Program (JEEP).


AICPA – SSARs No. 19AICPA – SSARs No. 19 SSARs No. 1 SSARs No. 1 Compilation and Review of FinancialCompilation and Review of Financial AICPA’s Accounting and Review Services AICPA’s Accounting and Review Services

Committee (ARSC) proposed various significant Committee (ARSC) proposed various significant changes to existing professional literature.changes to existing professional literature. Significant proposed changes to the Statements on Significant proposed changes to the Statements on

Standards for Accounting and Review Services Standards for Accounting and Review Services (SSARSs) include: (SSARSs) include:

The introduction the new terms such as The introduction the new terms such as moderate moderate assurance, review evidence assurance, review evidence and and review risk review risk to the to the review literature to harmonize with international review literature to harmonize with international review standards. review standards.

A discussion of materiality in the context of a review A discussion of materiality in the context of a review engagement. engagement.

A requirement that an accountant establish an A requirement that an accountant establish an understanding with management regarding the understanding with management regarding the services to be performed through a written services to be performed through a written communication, that is, an engagement letter. communication, that is, an engagement letter.

The establishment of enhanced documentation The establishment of enhanced documentation requirements for compilation and review requirements for compilation and review engagements. engagements.

Guidance for practitioners who are engaged to Guidance for practitioners who are engaged to perform a compilation or review engagement when perform a compilation or review engagement when they have also been engaged to perform nonattest they have also been engaged to perform nonattest services. The guidance includes reporting services. The guidance includes reporting requirements for instances in which the accountant’s requirements for instances in which the accountant’s independence is impaired due to the performance of independence is impaired due to the performance of these services. these services.

The ability for an accountant to include a general The ability for an accountant to include a general description in the accountant’s compilation report description in the accountant’s compilation report regarding the reason(s) for an independence regarding the reason(s) for an independence impairment.impairment.


AICPA IntroductionAICPA Introduction

AICPA -AICPA -The Code of Professional The Code of Professional

Conduct contains 2 parts: 1) Conduct contains 2 parts: 1) the Principles and (2) the the Principles and (2) the Rules. Rules.

Principles are the framework Principles are the framework for the Rules. for the Rules.

The membership of the AICPA The membership of the AICPA adopted the Code of adopted the Code of Professional Conduct for all Professional Conduct for all members.members.

Compliance depends upon a Compliance depends upon a members' understanding, self members' understanding, self regulation, peer review. regulation, peer review.


AICPA PrinciplesAICPA PrinciplesAICPA Code of Professional Conduct- AICPA Code of Professional Conduct-

-Principles express the profession's -Principles express the profession's recognition of its responsibilities to the recognition of its responsibilities to the public, to clients, and to colleagues. public, to clients, and to colleagues.

-Principles guide members in the -Principles guide members in the performance of their professional performance of their professional responsibilities and express the basic responsibilities and express the basic tenets of ethical and professional tenets of ethical and professional conduct.conduct.

-Principles call for an unswerving -Principles call for an unswerving commitment to honorable behavior, even commitment to honorable behavior, even at the sacrifice of personal advantage.at the sacrifice of personal advantage.

-Rules govern the performance of -Rules govern the performance of professional services by members. professional services by members.


AICPA Other GuidanceAICPA Other GuidanceInterpretations of Interpretations of

RulesRules:: Interpretations Interpretations

which provide which provide guidelines as to guidelines as to the scope and the scope and application of application of the Rules.the Rules.

Ethics RulingsEthics Rulings::

Formal rulings Formal rulings made by the made by the professional professional ethics ethics division's division's executive executive committee. committee. These rulings These rulings summarize the summarize the application of application of Rules of Rules of Conduct and Conduct and Interpretations Interpretations to a particular to a particular set of factual set of factual circumstances.circumstances.


AICPAAICPACode of Professional ConductCode of Professional Conduct

IntroductionIntroduction Section 50 - Principles of ProfessionalSection 50 - Principles of Professional

ConductConduct Section 90 - Rules: Applicability andSection 90 - Rules: Applicability and

Definitions Definitions Section 100 - Independence, Integrity, andSection 100 - Independence, Integrity, and

Objectivity Objectivity Section 200 - General StandardsSection 200 - General Standards

Accounting Principles Accounting Principles Section 300 - Responsibilities to Clients Section 300 - Responsibilities to Clients Section 400 - Responsibilities to ColleaguesSection 400 - Responsibilities to Colleagues Section 500 - Other Responsibilities andSection 500 - Other Responsibilities and

Practices Practices ET Appendixes ET Appendixes ET Topical IndexET Topical Index


AICPA – Test Your KnowledgeAICPA – Test Your Knowledge

QUESTION:QUESTION:A bank retains a CPA firm to perform an audit. A bank retains a CPA firm to perform an audit. During the period of the engagement, a During the period of the engagement, a manager in the CPA firm obtains a mortgage manager in the CPA firm obtains a mortgage from the bank. The CPA works in the same from the bank. The CPA works in the same office as the lead partner on the audit but does office as the lead partner on the audit but does not provide any services to the bank. Is the not provide any services to the bank. Is the firm’s independence impaired?firm’s independence impaired?

QUESTION:QUESTION:Assume the same facts as above, except the Assume the same facts as above, except the CPA works on the engagement? Is the firm’s CPA works on the engagement? Is the firm’s independence impaired?independence impaired?

QUESTION:QUESTION:A CPA firm is considering hiring the controller of A CPA firm is considering hiring the controller of one of its audit clients as a part-time one of its audit clients as a part-time independent contractor for tax season. She independent contractor for tax season. She would prepare tax returns for clients of the CPA would prepare tax returns for clients of the CPA firm, all of which are non-attest clients. The CPA firm, all of which are non-attest clients. The CPA firm has two offices and she would work in the firm has two offices and she would work in the office that does not provide any services to her office that does not provide any services to her primary employer. If she is hired, would the CPA primary employer. If she is hired, would the CPA firm’s independence be impaired with respect to firm’s independence be impaired with respect to that client?that client?


AICPA – Test Your KnowledgeAICPA – Test Your Knowledge

Answers:Answers: No – according to Interpretation 101-1, because No – according to Interpretation 101-1, because

the manager does not fall within the “covered the manager does not fall within the “covered person” definition.person” definition.

Yes – by providing attest services, the manager Yes – by providing attest services, the manager now falls within the definition of “covered now falls within the definition of “covered person”.person”.

Yes – the independent contractor would be Yes – the independent contractor would be considered a professional employee of the firm considered a professional employee of the firm since she would provide professional services to since she would provide professional services to the firm’s clients. Interpretation 101-1C states the firm’s clients. Interpretation 101-1C states that because the professional employee of the that because the professional employee of the CPA firm would be associated simultaneously CPA firm would be associated simultaneously with the client as an employee independence with the client as an employee independence would be impaired.would be impaired.

North Carolina State Board of North Carolina State Board of Certified Public Accountant Certified Public Accountant

ExaminersExaminers(NC State Board)(NC State Board)

Established by Chapter 93 of Established by Chapter 93 of the North Carolina General the North Carolina General Statutes, the North Carolina Statutes, the North Carolina State Board of Certified Public State Board of Certified Public Accountant Examiners is an Accountant Examiners is an occupational licensing board occupational licensing board that grants certificates of that grants certificates of qualification as certified public qualification as certified public accountants (CPAs) to those accountants (CPAs) to those individuals who meet the legal individuals who meet the legal requirements. The Board also requirements. The Board also adopts and enforces the rules of adopts and enforces the rules of professional ethics and conduct professional ethics and conduct to be observed by CPAs in this to be observed by CPAs in this StateState


NC State BoardNC State Board

Focus will be on:Focus will be on:

North Carolina North Carolina Administrative CodeAdministrative Code

Title 21 Title 21 - Occupational - Occupational Licensing BoardsLicensing Boards

Chapter 8 - Chapter 8 - Board of Board of Certified Public Accountant Certified Public Accountant ExaminersExaminers

Subchapter N - Subchapter N - Professional Professional Ethics and ConductEthics and Conduct

Reference is 21 NCAC 8NReference is 21 NCAC 8N


NC State BoardNC State Board

Listing of RulesListing of Rules SUBCHAPTER 8ASUBCHAPTER 8A - -

Departmental Rules Departmental Rules SUBCHAPTER 8BSUBCHAPTER 8B - Rule-making - Rule-making

Procedures Procedures SUBCHAPTER 8CSUBCHAPTER 8C - Contested - Contested

Cases Cases SUBCHAPTER 8FSUBCHAPTER 8F - -

Requirements for Certified Requirements for Certified Public Accountant Examination Public Accountant Examination and Certificate Applicants and Certificate Applicants


NC State BoardNC State Board SUBCHAPTER 8GSUBCHAPTER 8G - Continuing - Continuing

Professional Education (CPE) Professional Education (CPE) SUBCHAPTER 8HSUBCHAPTER 8H - Reciprocity - Reciprocity SUBCHAPTER 8ISUBCHAPTER 8I - Revocation of - Revocation of

Certificates and Other Certificates and Other Disciplinary Action Disciplinary Action

SUBCHAPTER 8JSUBCHAPTER 8J - Renewals - Renewals and Registrations and Registrations


NC State BoardNC State Board SUBCHAPTER 8KSUBCHAPTER 8K - Professional - Professional

Corporations and Professional Corporations and Professional Limited Liability Companies Limited Liability Companies

SUBCHAPTER 8MSUBCHAPTER 8M - Peer Review - Peer Review Program Program

SUBCHAPTER 8NSUBCHAPTER 8N - Professional - Professional Ethics and Conduct Ethics and Conduct


NC State BoardNC State BoardSUBCHAPTER 8NSUBCHAPTER 8N - Professional - Professional

Ethics and Conduct Ethics and Conduct Section .0100Section .0100 - Scope and - Scope and

Applicability (3 subsections)Applicability (3 subsections) Section .0200Section .0200 - Rules Applicable - Rules Applicable

to all CPAs to all CPAs (14 subsections)(14 subsections) Section .0300Section .0300 - Rules Applicable - Rules Applicable

to All CPAs Who Use the CPA to All CPAs Who Use the CPA Title In Offering or Rendering Title In Offering or Rendering Products or Services to Clients Products or Services to Clients (8 subsections)(8 subsections)

Section .0400Section .0400 - Rules Applicable - Rules Applicable to CPAs Performing Attest to CPAs Performing Attest Services (8 subsections)Services (8 subsections)


NC State BoardNC State BoardPlease note that many of Please note that many of

the NC rules are similar to the NC rules are similar to the AICPA rules.the AICPA rules.

But remember that the But remember that the AICPA is a voluntary group AICPA is a voluntary group where as the NC State where as the NC State Board is a mandatory Board is a mandatory group for CPAs.group for CPAs.


Rules and Regulations Rules and RegulationsOther sources:Other sources:

-- Securities and Securities and Exchange Exchange CommissionCommission

-- Government Government Accountability Accountability Office Office (Yellow Book)(Yellow Book)

-- Public Company Public Company Accounting Accounting Oversight Oversight BoardBoard

Professional Ethics Professional Ethics and Conductand Conduct

Fraud Triangle Fraud Triangle

(3 Points of the triangle)(3 Points of the triangle)

Pressure

Opportunity

Rationalization

NC State Board NC State Board Activity ReviewActivity Review

No. 9-2009 – No. 9-2009 – Disciplinary Action Disciplinary Action resulting from CPE auditresulting from CPE auditCPA failed to gather CPA failed to gather

sufficient hours of CPE for a sufficient hours of CPE for a particular year:particular year:Result:Result:

Denied renewal of certificate for Denied renewal of certificate for one yearone year

$1,000 civil penalty$1,000 civil penaltyMake up lost hours which do not Make up lost hours which do not

count towards current or future count towards current or future periodsperiods


No. 10-2009 – No. 10-2009 – Disciplinary Action Disciplinary Action resulting from CPE auditresulting from CPE auditCPA failed to gather CPA failed to gather

sufficient hours of CPE for a sufficient hours of CPE for a particular year but self-particular year but self-reported the infraction:reported the infraction:Result:Result:

Denied renewal of certificate for Denied renewal of certificate for ninety daysninety days




No. 9-2009 – No. 9-2009 – Disciplinary Action Disciplinary Action resulting from CPEresulting from CPECPA obtained the Ethics CPE CPA obtained the Ethics CPE

in a different state for a in a different state for a particular year:particular year:Result:Result:

CPA was not licensed in that CPA was not licensed in that state, therefore the CPE does not state, therefore the CPE does not count towards the annual NC count towards the annual NC requirementrequirement

Denied renewal of certificate for Denied renewal of certificate for one year (ninety days with self-one year (ninety days with self-reporting)reporting)




No. 10-2008 FAQ’s about Ethics No. 10-2008 FAQ’s about Ethics CPECPE Does the ethics CPE count towards the Does the ethics CPE count towards the

40 hour requirement?40 hour requirement? YES (2 hour, 4 hour, or 8 hour)YES (2 hour, 4 hour, or 8 hour)

Does the ethics CPE count towards the Does the ethics CPE count towards the 40 hour requirement?40 hour requirement?

YES, only approved courses by the YES, only approved courses by the Board / some sponsors listed by Board / some sponsors listed by NASBA qualifyNASBA qualify

Do all ethics CPE courses used to meet Do all ethics CPE courses used to meet the Board requirement have to be the Board requirement have to be approved?approved?

Yes, the Board must approve the Yes, the Board must approve the coursecourse

How do I know if an ethics course has How do I know if an ethics course has been approved by the Board?been approved by the Board?

Board approved courses are listed on Board approved courses are listed on the website: www.nccpaboard.govthe website: www.nccpaboard.gov


No. 10-2008 Moved? No. 10-2008 Moved? Changed Jobs?Changed Jobs? 21 NCAC 08J .0107 requires all 21 NCAC 08J .0107 requires all

licenses and firms to notify the licenses and firms to notify the Board in writing within 30 days of Board in writing within 30 days of any change in address or any change in address or business locations.business locations.

CPA can access the website to CPA can access the website to record a change of addressrecord a change of address

If not changed on-line, all If not changed on-line, all notifications must be in writing, notifications must be in writing, no oral, by fax, email, or letterno oral, by fax, email, or letter

Be careful if you are using home Be careful if you are using home address for the address on recordaddress for the address on record


No. 08-2009 CPA MobilityNo. 08-2009 CPA MobilityJuly 27, 2009, Gov. Perdue July 27, 2009, Gov. Perdue

signs law allowing non-resident signs law allowing non-resident CPAs from other jurisdictions to CPAs from other jurisdictions to perform, or offer to perform, perform, or offer to perform, services for NC clients without services for NC clients without obtaining a reciprocal license, obtaining a reciprocal license, also applies to CPA firms (Tax also applies to CPA firms (Tax Practice)Practice)

CPA firms who provide certain CPA firms who provide certain assurance and attest services assurance and attest services must register with the Boardmust register with the Board

CPA firm name, advertising and CPA firm name, advertising and peer review all applypeer review all apply


Various IssuesVarious Issues No. 4-2008, Responding to a Subpoena for Client or No. 4-2008, Responding to a Subpoena for Client or

Employer Records: Disclosure of Confidential Client or Employer Records: Disclosure of Confidential Client or Employer RecordsEmployer Records

Is it ever acceptable to disclose confidential client or Is it ever acceptable to disclose confidential client or employer information or records? 21 NCAC 08N .0205, employer information or records? 21 NCAC 08N .0205, ConfidentialityConfidentiality, states, “A CPA shall not disclose any , states, “A CPA shall not disclose any confidential information obtained in the course of confidential information obtained in the course of employment or a professional engagement except with the employment or a professional engagement except with the consent of the employer or client.” consent of the employer or client.”

How is this rule applied when a subpoena for client or How is this rule applied when a subpoena for client or employer records is served on a CPA? 21 NCAC employer records is served on a CPA? 21 NCAC 08N .0205(b) requires that the confidentiality rule must not 08N .0205(b) requires that the confidentiality rule must not be interpreted “to affect in any way the CPA’s compliance be interpreted “to affect in any way the CPA’s compliance with a validly issued subpoena or summons enforceable by with a validly issued subpoena or summons enforceable by this Board or by order of a court.”this Board or by order of a court.”

In accordance with the Rules of Civil Procedure, specifically In accordance with the Rules of Civil Procedure, specifically Rule 45, a subpoena signed only by an attorney does not in Rule 45, a subpoena signed only by an attorney does not in and of itself compel the disclosure of information held by a and of itself compel the disclosure of information held by a CPA which is subject to 21 NCAC 08N .0205. Rule 45(c)(2) CPA which is subject to 21 NCAC 08N .0205. Rule 45(c)(2) provides that “Nothing contained herein shall be provides that “Nothing contained herein shall be construed…to require any privileged communication under construed…to require any privileged communication under law to be disclosed.” Furthermore, Rule 45(c)(4) allows law to be disclosed.” Furthermore, Rule 45(c)(4) allows that if a CPA objects to the subpoena, then the CPA can that if a CPA objects to the subpoena, then the CPA can only be forced to produce the documents specified in the only be forced to produce the documents specified in the subpoena if the party seeking the information obtains an subpoena if the party seeking the information obtains an order of the court. order of the court.

A subpoena or summons issued by the NC Department of A subpoena or summons issued by the NC Department of Revenue or the IRS qualify under 21 NCAC 08N .0205(b)(7) Revenue or the IRS qualify under 21 NCAC 08N .0205(b)(7) as exceptions that do not require that the CPA obtain as exceptions that do not require that the CPA obtain written permission from the client or employer or an order written permission from the client or employer or an order of the court to release the information or records to the of the court to release the information or records to the Department of Revenue or IRS. However, a CPA may Department of Revenue or IRS. However, a CPA may disclose confidential client or employer information disclose confidential client or employer information without a subpoena if the CPA obtains written permission without a subpoena if the CPA obtains written permission from the client or employer prior to the disclosure of the from the client or employer prior to the disclosure of the records or information to a third-party.records or information to a third-party.


Various IssuesVarious Issues Responding to Requests for Comfort

Letters There are a few issues with this type of letter that

should concern CPAs. First, the proposed letter asks the CPA to attest, when

the CPA has not specifically been engaged for that purpose. The report would be issued to a third party that has not contracted with the preparer for that specific purpose.

According to Auditing Standards Board Statement on Standards for Attestation Engagements No. 10, Attest Engagements, an attestation engagement is called for if the client wants a written report providing assurance about a specific subject.

Of course, performing an attestation engagement is not prohibited in the case of a lender’s comfort letter request, but CPAs must follow the procedures required in an attestation engagement. The client will likely not want to incur the expense of a formal attestation engagement.

It is also important to know what is not permitted under the standards. AT Section 9101, Attest Engagements: Attest Engagements Interpretations of Section 101, No. 2, ¶ 25 states that practitioners should not provide any form of assurance that an entity is not insolvent or would not be rendered insolvent upon a proposed condition, or that an entity has the ability to pay debts as they mature.

When asked to provide a comfort letter for a client, a CPA can best avoid risk by sticking to the professional standards and not caving in to pressure from a client or lender. While clients need to have the flexibility to obtain credit, the responsibility for underwriting the loan lies with the lender, not the CPA.

Professional Ethics and Professional Ethics and Conduct:Conduct:SurveysSurveys

PWC 2007 SurveyPWC 2007 SurveyFraud is pervasive: over 40% Fraud is pervasive: over 40%

of companies interviewed of companies interviewed reported suffering one or more reported suffering one or more significant economic crimessignificant economic crimes

Internal audit discovered 19% Internal audit discovered 19% of the economic crimesof the economic crimes

Total dollar loss increased Total dollar loss increased from $1.7M in 2005 to $2.4M from $1.7M in 2005 to $2.4M in 2007in 2007

Internal controls are not Internal controls are not enoughenoughThere needs to be a stronger There needs to be a stronger

tone at the toptone at the topZero tolerance policies should be Zero tolerance policies should be

put into placeput into place

Professional Ethics and Professional Ethics and Conduct:Conduct:SurveysSurveys

2007 National Business 2007 National Business Ethics SurveyEthics SurveyThree forms of misconduct Three forms of misconduct

on the rise:on the rise:Dishonesty / LyingDishonesty / LyingEmail and interest abuseEmail and interest abuseOne’s own interest first to the One’s own interest first to the

detriment of the companydetriment of the company


Final QuestionsFinal QuestionsEach of us must ask:Each of us must ask:

Is it legal?Is it legal?Is it balanced?Is it balanced?Is it right?Is it right?

professional ethics and conduct for north carolina cpas pittard perry & crone, inc. 2010 all...

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