ethical business decisions by texas cpas · ethical business decisions by texas cpas (4 hours of...

Ethical Business Decisions By Texas CPAs

(4 hours of required Texas Ethics CPE) (Revised & updated for 2016 / 2017)

Author & Instructor: David W. Holt, CPA, CFE

830-486-5222 [email protected] (e-mail) www.holtcpe.com (website)

mailto:[email protected]

http://www.holtcpe.com/

Ethical Business Decisions by Texas CPAs This seminar has the following learning objectives:

Familiarity with the State Board’s Rules of Professional Conduct (“Ethics” rules)

Emphasizing the core values of the CPA profession: integrity, objectivity, and independence

Discussing “ethical decision making “ through case studies and “real world” situations faced by CPAs in public practice and industry / government

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites of this course nor is there any advanced preparation required. This seminar is offered on the dates and locations listed at our website: (www.holtcpe.com) David Holt Seminars is the marketing company that represents: H. Garland Granger, CPA, CIA, CFE David W. Holt, CPA, CFE Professional Accounting Seminars, Inc. (NASBA CPE Sponsor # 107952) Professional Accounting Seminars, Inc. is registered with the National Association of State Boards of Accountancy as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be addressed to the National Registry of CPA sponsors, 150 Fourth Avenue North, Nashville, Tennessee 37219-2417. Website: www.nasba.org Florida CPE Sponsor # 0003246 (Provider # 423) Illinois CPE Sponsor – Public Accountancy Act Section 1420.70 North Carolina – recognized sponsor listed on the NASBA Registry Texas CPE Sponsor - # 007467 Professional Accounting Seminars, Inc.

(dba David Holt Seminars) 215 Acacia N., Uvalde, Texas 78801 830-486-5222, [email protected]

http://www.holtcpe.com/

http://www.nasba.org/

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Ethical Business Decisions by Texas CPAs Table of Contents

Page

Overview of the Texas Ethics “Rules”

CPE Requirements 4

Texas Administrative Code 5

Terms and Definitions 6 Re-Codified AICPA Ethics Rules (December, 2014) 8 Ethical Considerations # 1 11 Gallup Poll on Honesty / Ethics 12 Rules of Professional Conduct for Texas CPAs: (The Ethics Rules) General Provisions (Subchapter A) 15 Professional Standards (Subchapter B) 17 Ethical Considerations # 2 19 Responsibilities to Clients (Subchapter C) 22 Responsibilities to the Public (Subchapter D) 26 Ethical Considerations #3 30 Responsibilities to the Board / Profession (Subchapter E) 33 Ethical Considerations #4 38

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OVERVIEW OF THE RULES Ethics CPE Requirement (Rule 523.130) 1. A candidate applying for certification or registration must complete a board-

approved four hour ethics course designed to thoroughly familiarize the applicant with the board’s Rules of Professional Conduct no more than six months prior to submission of the application. Proof of completion of this course must be submitted with the application.

2. A licensee must take a four hour ethics course that has been approved by

the board pursuant to 523.131 of this title (relating to Board Approval of Ethics Course Content) every two years.

3. A licensee (who is) retired, (has a) permanent disability, or other exempt

status is not required to complete the ethics course during the licensee’s exempt status. Exemptions are considered on a case-by-case basis, primarily for individuals who are (either) no longer employed or no longer associated with accounting work (523.113).

4. A licensee must take the ethics course in a live classroom program or in a

self-study interactive program as defined in 523.102 of this title.

5. A person who does not reside in the state of Texas, who has no clients within this state, and who is current with the ethics course requirements of his state of residence is not required to take this ethics course.

6. The Board has a complete list of approved ethics courses and sponsors at its

website: www.tsbpa.state.tx.us 7. The ethics course (including this one) should achieve the following primary

objectives (Rule 523.131):

Encourage licensees to become educated in the ethics of the profession;

Convey the intent of the Board’s Rules of Professional Conduct in the licensee’s performance of professional accounting services or professional accounting work, and not mere technical compliance;

Apply ethical judgment in interpreting the rules and determining the public interest. The public interest should be placed ahead of self-interest, even if it means a loss of job or client;

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OVERVIEW OF THE RULES

Emphasize the ethical standards of the profession as described in this section; and

Review and discuss the Board’s Rules of Professional Conduct and their implications for persons in a variety of practices, including at least one example from subparagraph A (client practice of public accountancy who performs attest and non-attest services); and at least one example from either subparagraph B (a licensee employed in industry who provides internal accounting and auditing services); or C (a licensee employed in education or in government accounting or auditing).

8. Both the instructor and the course material must be approved by the Board 9. The course must be taught in a single session (4 CPE hours)

TEXAS ADMINISTRATIVE CODE (Title 22, Examining Boards, Part 22, Texas State Board of Public

Accountancy) Chapter 501 Rules of Professional Conduct (“Ethics Rules”) 502 Peer Assistance 505 The Board 507 Employees of the Board 509 Rulemaking Procedures 511 Eligibility 512 Certification by Reciprocity 513 Registration 514 Certification as a CPA 515 Licenses 517 Practice by Certain Out of State Firms and Individuals 518 Unauthorized Practice of Public Accountancy 519 Practice and Procedure 520 Fifth-year Accounting Students Scholarship Program 521 Fee Schedule 523 Continuing Professional Education 525 Criminal Background Investigations 526 Board Opinions 527 Peer Review

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OVERVIEW OF THE RULES Key Terms and Definitions 1. The Rules (see previous page, for Texas Administrative Code contents)

Written by the Texas State Board of Public Accountancy (in Austin)

Empowered by the Public Accountancy Act 2. Ethics Rules

Primarily Chapter 501 “Rules of Professional Conduct”

Contained in the Texas Administrative Code (available at the Board’s website)

3. The Board

Texas State Board of Public Accountancy

Appointed by the Governor of Texas

Performs administration and enforcement of the Law (for CPAs) 4. The Law (the Act)

The Public Accountancy Act, Chapter 901, Occupations Code

Last major amendment September, 2003 (updated for most recent revisions in September, 2009)

Authorizes the Board (and its employees and agents) to determine the Rules for CPAs in Texas

5. Licensee means the holder of a license issued by the Board to a certificate or

registration holder pursuant to the Act, or pursuant to provisions of a prior Act (Rule 501.52)

6. Client means a party who enters into an agreement with a license holder or a

license holder’s employer to receive a professional accounting service (by a CPA firm) or professional accounting work (by CPAs in industry or government)

7. Person means an individual, sole proprietorship, partnership, limited liability

partnership, limited liability company, corporation or other legally recognized business entity that provides or offers to provide professional accounting services or professional accounting work

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OVERVIEW OF THE RULES 8. Professional accounting services or professional accounting work

means services or work that requires the specialized knowledge or skills associated with Certified Public Accountants, including: (502.52)

Issuing reports on financial statements or performing preparation engagements (without a report)

Providing management or financial advisory or consulting services

Preparing tax returns or providing advice on tax matters

Providing forensic accounting services, and

Providing internal audit services 9. Client practice of public accountancy is the offer to perform or the

performance by a person (see definition) for a client or potential client of professional accounting services or professional accounting work (see definition) and also includes:

The advice or recommendations in connection with the sale or offer for sale of products (including the design and implementation of computer software), when the advice or recommendations routinely require or imply the possession of accounting or auditing skills or expert knowledge in auditing or accounting; and

The performance of litigation support services The Ethics Rules contain 5 “subchapters”, which are the focus of the remainder of this course material: (501)

Subchapter A General Provisions

Subchapter B Professional Standards

Subchapter C Responsibilities to Clients

Subchapter D Responsibilities to the Public

Subchapter E Responsibilities to the Board/Profession Texas Ethics CPE Course (523.131(b) “components should be approximately”)

25% ethical principles & values

25% ethical reasoning & dilemmas

15% Rules of Professional Conduct (5 subchapters of 501)

35% cases that require the application of ethical principles, values, and ethical reasoning

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ETHICAL DECISIONS BY CPAs

Key Words (The New American Webster College Dictionary) 1. Ethics

The principles of honor and morality

Accepted rules of conduct

Moral principles of an individual 2. Integrity

Fidelity to moral principles

Honesty (telling “the truth”)

Soundness, completeness (the “whole truth”) 3. Objectivity

Free from personal prejudices

Unbiased AICPA Code of Professional Conduct (selected guidance from “ethics rules”, re-codified December 15, 2014 and updated through October 26, 2015) 1. Preamble (ET 0.300.010)

Membership in the AICPA is voluntary. By accepting membership, a member (CPA) assumes an obligation of self-discipline above and beyond the requirements of laws and regulations.

These Principles of the Code of Professional Conduct of the AICPA express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage. (e.g. your salary or audit fee)

2. Responsibilities (ET 0.300.020)

In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

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Members have responsibilities to all those who use their professional services (including: SEC, investors, lenders, employees, pension plans of employees, IRS, creditors, and the accounting profession). We have this same responsibility, whether as an external auditor, internal auditor, CFO or cost accountant.

3. The Public Interest (ET 0.300.030)

… (many groups) rely on the objectivity and integrity of CPAs to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on members (CPAs).

In discharging their professional responsibilities, members may encounter conflicting pressures from each of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients’ and employers’ interests are best served.

4. Integrity (ET 0.300.040)

Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions.

Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle.

5. Objectivity and Independence (ET 0.300.050)

Independence – in fact and appearance (For public practitioners for all audit and attestation engagements)

Objectivity – impartial, intellectually honest, and free from conflicts of interest (For all CPAs in any professional accounting work)

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Professional Judgment (for CPAs) Making the right decision, based on:

Relevant facts and circumstances

Applicable professional standards, rules and laws (e.g. AICPA, FASB, GAO, GASB, IRS)

“Ethics Rules” for CPAs (TSBPA and AICPA)

A Framework for Resolving Ethical Dilemmas An ethical dilemma in general is any situation one faces where one must choose between conflicting behaviors. In many situations, there are six (6) common steps to resolving ethical dilemmas: 1. Obtain the relevant facts (as objectively as possible). 2. Identify the ethical issue(s) from the facts.

3. Determine who is affected by the outcome of the dilemma and how each

individual or group is affected.

4. Identify the alternatives available to the individual who must resolve the dilemma.

5. Identify the likely consequences of each alternative.

6. Decide the appropriate action (If considered necessary, communications

with the Texas State Board and/or AICPA and/or other regulatory authorities may provide valuable guidance, prior to making an ethical decision)

.

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ETHICAL CONSIDERATIONS #1

1. Subchapter D of the Texas “Ethics Rules” is titled Responsibilities to the Public. (pp. 26 - 29 in this course material)

2. The ‘p’ in the CPA license stands for “The Public”.

3. The purpose of CPE is to help ensure that licensees continue to be able to

serve the public in a competent manner. (523.102(b))

4. The AICPA “Ethics Rules” (see pp. 8 - 9) require a CPA to :

Assume an obligation of self-discipline above and beyond the requirements of laws and regulations

(Have) an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage (money)

Responsibilities to all those who use their professional services

Maintain the orderly functioning of commerce

Fulfill their responsibility to the public, clients and employers

Service and the public trust should not be subordinated to personal gain and advantage

5. The re-codified AICPA Ethics standards (2014 - 2015) say that CPAs have a “responsibility” to: (0.300.020.02)

Improve the art of accounting

Maintain the public’s confidence

Carry out the profession’s special responsibilities for self-governance

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ETHICAL CONSIDERATIONS #1 (Gallup Poll on HONESTY / ETHICS)

What the Public Thinks About our Honesty / Ethics Since 1976, Gallup has asked the American public to rate various professions regarding the characteristic of “honesty / ethics”. The most recent survey that included “Accountants” was 2015. The following depicts the percentage of ratings that were either “high” or “very high” (other rating choices were “average”, “low”, or “very low”) for various professions in December, 2015. The survey results are based on a random sample of almost 1,000 adults (18+) in all 50 states. The margin of error is +/- 4% at a 95% confidence level. Rated by the public as either “very high” or “high” on “honesty / ethics” 2015 2013 2011 2009 Nurses (1) 85% 82% 84% 83% Pharmacists 68% 70% 73% 66% Doctors 67% 69% 70% 65% Teachers (HS) 60% 70% 62% 54% Police officers 56% 54% 54% 63% Clergy 45% 47% 52% 50% Accountants (2) 39% - 43% 38% (2007) Journalists 27% 20% 26% 23% Bankers 25% 23% 25% 19% Lawyers 21% 20% 19% 13% Business execs 17% 22% 18% 12% Stockbrokers 13% - 12% 9% Car sales 8% 9% 7% 6% Congress 8% 8% 7% 9%

(1) Nurses have been #1 since this type of poll began in 1999 (2) Accountants (who are not included in the survey every year) were

39% (2004), 35% (2002), 32% (2001), 41% (2000) and 38% (1999)

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Discussion Questions 1. Based on recent public opinion (Gallup) polls (p. 12), the employers of CPAs

in industry and the clients of CPA firms (business executives), the primary users of financial statements (bankers), and the people who write the income tax laws (congress) do not appear to be “very honest or ethical”.

Does it seem fair, appropriate and/or realistic in this 21st century (not very honest) culture to require CPAs to perform “beyond (above) the requirements of laws & regulations” (p. 8, AICPA 0.300.010.01)? Explain why or why not? (In your professional opinion)

Most of the intended users of our professional services are “not considered very honest”. What additional “difficulties or challenges” does this create for a CPA that desires / aspires to “maintain & enhance the traditions of the profession” (AICPA Code of Professional Conduct, 0.300.020.02)? List or explain primary problems or even your personal experiences with this issue.

2. The polls on p. 12 show that the public doesn’t consider accountants to be

very honest for almost 2 decades (less than 50% since the late 1990s). In contrast, accountants were considered “very honest” for the prior 2 decades (mid 70s through mid 90s). In your professional opinion:

What are the primary reasons why America does not consider accountants to be very honest? Explain, list and/or give examples.

The AICPA & other groups have attempted for years to improve the image of the CPA profession (with apparently little success). Are there any actions we can take to improve our perception as honest / ethical professionals?

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ETHICAL CONSIDERATIONS #1 3. Should our clients and / or employers be more formally (explicitly)

“informed” about our responsibilities to the Public (pp. 8-9)? If so, how? (e.g. listing examples [names] of groups or entities that comprise the Public in an employment contract or engagement letter) If not, why not? Use each of the following to illustrate your answer:

A. You are the CFO of a privately owned business and prepare financial statements and tax returns (which are distributed to lenders, bonding / insurance providers, shareholders and the IRS).

B. You are a CPA firm that prepares tax returns and performs audits, reviews, and compilations (which are distributed to lenders, bonding / insurance providers, shareholders / owners, and the IRS).

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GENERAL PROVISIONS

Contents of General Provisions (Subchapter A, Chapter 501, of the Rules)

501.51 Preamble and General Principles

501.52 Definitions

501.53 Applicability of Rules of Professional Conduct

501.55 Definition of Acronyms Summary of Key General Provisions 1. Primary purposes of the Rules, described by the Act (the Law):

Establish and maintain high standards of competence and integrity in the practice of public accounting, and

Insure that the conduct and competitive practices of (all) licensees serve the purposes of the Act and the best interest of the public

2. The services usually and customarily performed by those in the public,

industry, or government practice of accountancy involve a high degree of skill, education, trust, and experience which are professional in scope and nature. The use of professional designations carries an implication of possession of the competence associated with a profession. The public, in general, and the business community, in particular, rely on this professional competence by placing confidence in reports and other services of accountants. The public’s reliance, in turn, imposes obligations on persons utilizing professional designations, both to their clients and to the public in general. These obligations include maintaining independence of thought and action, continuously improving professional skills, observing generally accepted accounting principles and generally accepted auditing standards, promoting sound and informative financial reporting, holding the affairs of clients in confidence, upholding the standards of the public accountancy profession, and maintaining high standards of personal and professional conduct in all matters.

3. Finally, these rules also recognize the duty of certified public accountants to

refrain from committing acts discreditable to the profession. These acts, whether or not related to the accountant’s practice, impact negatively upon the public’s trust in the profession.

4. In the interpretation and enforcement of these rules, the Board may consider

relevant interpretations, rulings, and opinions issued by the boards of other jurisdictions, but will not be bound thereby.

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GENERAL PROVISIONS

5. All of the rules of professional conduct shall apply to and must be observed

by a certificate or registration holder engaged in the client practice of public accountancy.

6. No certificate or registration holder shall issue, or otherwise be associated

with, financial statements that do not conform to the accounting principles described in Section 501.61 of this title (relating to Accounting Principles).

7. The following rules of professional conduct shall apply to and be required to

be observed by certificate or registration holders when not employed in the client practice of public accountancy: (501.53)

501.73 Integrity and Objectivity

501.74 Competence

501.77 Acting through Others

501.78 Withdrawal or Resignation

501.90 Discreditable Acts

501.91 Reportable Events

501.92 Frivolous Complaints

501.93 Responses

501.94 Mandatory Continuing Education Reporting

The above “Rules” for CPAs “not in client practice” are addressed in the sections of this course material on Responsibilities to Clients (Subchapter C, Sections 501.70 - 501.78) and Responsibilities to the Board / Profession (Subchapter E, Sections 501.90 – 501.94)

8. These rules recognize the First Amendment rights of the general public as

well as licensees and do not restrict the availability of accounting services. However, public accountancy, like other professional services, cannot be commercially exploited without the public being harmed. While information as to the availability of accounting services and qualifications of licensees is desirable, such information should not be transmitted to the public in a misleading fashion (501.51(d)).

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PROFESSIONAL STANDARDS

Contents of Professional Standards (Subchapter B)

501.60 Auditing Standards

501.61 Accounting Principles

501.62 Other Professional Standards

501.63 Reporting Standards Summary of Key Guidance 1. A person shall not permit his name to be associated with financial statements

in such a manner as to imply that he is acting as an auditor with respect to such financial statements, unless he has complied with generally accepted auditing standards (GAAS), and must justify any departures from such. GAAS may include:

AICPA Statements on Auditing Standards (SAS)

GAO Government Auditing Standards (GAGAS)

PCAOB (public company audits)

Other pronouncements having similar generally recognized authority 2. A person or person practicing under a practice privilege (901.462 of the Act,

relating to Practice by Out-of-State Practitioner With Substantially Equivalent Qualifications) shall not issue a report asserting that financial statements are presented in conformity with generally accepted accounting principles if such financial statements contain any departure from such accounting principles which has a material effect on the financial statements taken as a whole, unless the person can demonstrate that by reason of unusual circumstances the financial statements would otherwise have been misleading. In such a case, the report must describe the departure, the approximate effects thereof, if practicable, and the reasons why compliance with the generally accepted accounting principles would result in a misleading statement. For purposes of this section, generally accepted accounting principles are considered to be defined by pronouncements issued by the Financial Accounting Standards Board and its predecessor entities and similar pronouncements issued by other entities having similar generally recognized authority.

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PROFESSIONAL STANDARDS

3. A person in the performance of consulting services, accounting and review services, any other attest service, or tax services shall conform to the professional standards applicable to such services. For purposes of this section, such professional standards are considered to be interpreted by:

Statements on Standards on Consulting Services (SSCS) issued by the AICPA

Statements on Standards for Accounting and Review Services (SSARS) issued by the AICPA (SSARS 21, effective December, 2015)

Statements on Standards for Attestation Engagements (SSAE) issued by the AICPA

Statements on Standards for Tax Services (SSTS) issued by the AICPA (the most recent codification completely replaced previous standards, effective January 1, 2010)

Statements on Standards for Financial Planning Services (SSFPS) issued by the AICPA

Statements on Standards for Valuation Services (SSVS) issued by the AICPA

Pronouncements by other professional entities having similar national or international authority recognized by the Board (e.g. IASB, IFRS, GASB, AICPA Code of Professional Conduct)

4. A licensee in the client practice of public accountancy must comply with SAS

or SSARS or another similar standard of a national or international accountancy organization recognized by the Board when transmitting a client’s financial statements to the client or a third party (501.63).

5. A licensee not employed in the client practice of public accountancy may

prepare his employer’s financial statements and may issue non-attest transmittals or information regarding non-attest transmittals without a firm license, provided those transmittals do not purport to be in compliance with SSARS or any other similar standard of a national or international accountancy organization recognized by the board (501.63).

This means that CPAs (in industry or government) may issue reports (to third parties) on their financial statements, as long as they do not purport to comply with AICPA (or similar standards) guidance for external CPA firm reports on compilations, reviews or audits.

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ETHICAL CONSIDERATIONS # 2

Based on 2006 tax returns, the IRS estimated (in January, 2012) that voluntary compliance on federal tax returns was about 83% (which means they estimate a 17% noncompliance rate, very similar to 2001 tax returns). They estimated that noncompliance (annually) was around $345 billion for 2001 returns filed and $450 billion for 2006 returns (that were filed). 2001 2006 Form 1040 $250 billion $296 billion Form 941 50 billion 76 billion Form 1120 30 billion 71 billion Others 15 billion 7 billion Additional Information: (as of December, 2015 no more recent IRS info was available at their website – www.irs.gov) 1. The IRS collects more than $2 trillion a year in taxes, from voluntary filers.

2. Accordingly, the amount of income reported (by individuals and

corporations) probably exceeds $10 trillion annually.

3. Based on 2006 returns filed with the IRS either voluntary or as a result of IRS audit or enforcement action, the Tax Gap ($450 billion) was comprised of:

Underreporting Underpayments Non-filing

Form 1040 $235 billion $36 billion $25 billion Form 941 72 billion 4 billion - Form 1120 67 billion 4 billion - Other 2 billion 2 billion 3 billion 4. Although difficult to estimate, there are millions of entities and individuals that

never file tax returns or pay federal income taxes or payroll taxes. Recent studies (primarily based on consumption items sold or purchased) indicate that the underground economy (that does not file any tax returns with the IRS) is approximately $2 trillion annually (estimated revenue, income, or wages probably not reported to the IRS).

5. Based on worldwide estimates of a variety of frauds and “underground”

economies (ranging from 10-20% globally), if Americans report over $10 trillion to the IRS and do not report approximately $2 trillion, this would fall within the global range and appear to be a reasonable estimate.

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ETHICAL CONSIDERATIONS # 2

Please answer the following questions, based on:

IRS information at p. 19

Texas and AICPA Ethics Rules

Your professional judgment

1. Should CPA tax preparers (CPA firms or corporate employees) protect the

“best interest of the public” (501.51) by actively trying to reduce the “Tax Gap” for noncompliant or non-filing tax returns? (Including the most fraudulent tax returns = 1040, 941 and 1120) Explain your position.

2. What are the most effective & efficient ways to increase compliance and

decrease noncompliance for the most fraudulent tax returns? Make a list.

Form 1040 (especially Schedules C, D, E & F)

Form 941

3. Should we implement laws and/or take actions to more actively pursue the income and payroll taxes on the estimated $2 trillion of underground economy (not reported on tax returns)? Explain your position, including actions that should be taken (if any).

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ETHICAL CONSIDERATIONS # 2 The following questions are based on guidance contained in the AICPA Statements on Standards for Tax Services (SSTS), also known as “how to prepare ethical tax returns”. 4. In general, a CPA should have a good-faith belief that the tax position being

recommended has a realistic possibility of being sustained administratively or judicially on its merits, if challenged (SSTS #1). Interpretation # 1-1 of SSTS requires a CPA to determine whether a “realistic possibility exists” by performing all of the following, except:

Establish relevant facts

Search for authoritative answers, based on the facts

Consider the likelihood that the IRS will challenge the position

Arrive at a conclusion supported by the authorities (IRS rules & rulings) 5. Determine if the following statements are “True” or “False”:

A. A CPA should not recommend a tax return position or prepare or sign a tax return reflecting a position that the CPA knows exploits the audit selection process of a taxing authority (SSTS #1)

B. When recommending a tax return position, a CPA has both the right and

responsibility to be an advocate for the taxpayer (SSTS #1)…unlike auditing standards, which prohibit being an advocate for the client

C. A CPA should make a reasonable effort to obtain from the taxpayer the information to provide appropriate answers to all questions on a tax return before signing as preparer (SSTS #2)

D. A CPA may in good faith rely on information from a taxpayer, without verification, even if such substantiating documentation is required by tax law and the amount of the deduction appears to be “excessive” for the intended business or personal deduction (SSTS #3)

E. Although oral advice may serve a taxpayer’s needs in routine matters, written communications should be used in important, unusual, substantial dollar value or complicated transactions (SSTS #7)

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RESPONSIBILITIES TO CLIENTS

Contents of Responsibilities to Clients (Subchapter C)

501.70 Independence

501.71 Receipt of Commissions and Other Compensation

501.72 Contingency Fees

501.73 Integrity and Objectivity

501.74 Competence

501.75 Confidential Client Communications

501.76 Records and Work Papers

501.77 Acting through Others

501.78 Withdrawal or Resignation Summary of Key Responsibilities to Clients 1. A person in the performance of professional accounting services (or work),

including those who are not members of the AICPA, shall conform in fact and in appearance to the independence standards established by the AICPA and the Board, and, where applicable, the SEC, GAO, PCAOB, and other national or international regulatory or professional standard setting bodies.

AICPA independence rules (e.g. ET 101 – 3) are more specific and more restrictive than State Board Rules

GAO independence rules are more specific and more restrictive than State Board Rules and AICPA rules

2. A person shall not for a commission, compensation or other benefit

recommend or refer to a client any product or service or refer any product or service to be supplied to a client, or receive a commission, when the licensee or the licensee’s firm also performs services for that client requiring independence under Rule 501.70 of this chapter (relating to Independence).

3. A person who receives, expects or agrees to receive, pays, expects or agrees

to pay other compensation in exchange for services or products recommended, referred, or sold by him to another person shall, no later than the making of such recommendation, referral, or sale, disclose to the client in writing (the transactions with) such other persons, including: the nature, source, and amount of all such other compensation.

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4. A person shall not perform for a contingent fee any professional services for, or receive such a fee from, a client for whom the certificate or registration holder performs services requiring independence under Rule 501.70 of this chapter (relating to Independence).

5. A person shall not prepare an original or amended federal, state, local or

other jurisdiction tax return for a contingent fee for any client during the period in which the licensee or the licensee’s firm is engaged to perform any of the services requiring independence. Fees are not contingent if they are fixed by courts or governmental entities acting in a judicial or regulatory capacity, or in tax matters if determined based on the results of judicial proceedings or the findings of governmental agencies acting in a judicial or regulatory capacity, or if there is a reasonable expectation of substantive review by a taxing authority.

6. A person shall not perform an engagement as a testifying accounting

expert for a contingent fee. A testifying accounting expert is one that at any time during the proceeding becomes subject to disclosure and discovery under the procedural rules of the forum where the matter for which his services were engaged is pending.

7. A person in the performance of professional accounting services or

professional accounting work shall maintain integrity and objectivity, shall be free of conflicts of interest and shall not knowingly misrepresent facts nor subordinate his or her judgment to others. In tax practice, however, a person may resolve doubt in favor of his client as long as any tax position taken complies with applicable standards such as those set forth in Circular 230 issued by the Internal Revenue Service and AICPA Statements on Standards for Tax Services.

8. Certain professional engagements, such as audits, reviews, and other

services, require independence. Independence impairments under Rule 501.70 (relating to Independence), its interpretations and rulings cannot be eliminated by disclosure and consent.

9. A person shall not concurrently engage in the practice of public

accountancy and in any other business or occupation which impairs independence or objectivity in rendering professional services, or which is conducted so as to augment or benefit the accounting practice unless these Rules are observed in the conduct thereof.

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RESPONSIBILITIES TO CLIENTS 10. A person shall not undertake any engagement for the performance of

professional services which he cannot reasonably expect to complete with due professional competence, including compliance, where applicable, with Rule 501.60 of this title (relating to Auditing Standards), Rule 501.61 of this title (relating to Accounting Principles), and Rule 501.62 of this title (relating to Other Professional Standards).

Competence to perform professional services involves both the technical qualifications of the person and the person’s staff and the ability to supervise and evaluate the quality of the work being performed.

In some cases, additional research or consultation with others may be necessary during the performance of the professional services. If a certificate or registration holder is unable to gain sufficient competence through these means, the person shall suggest to the client the engagement of someone competent to perform the needed professional service, either independently or as an associate.

11.Except by permission of the client or the authorized representatives of the

client, a person (CPA) or any partner, officer, shareholder, or employee of a certificate or registration holder shall not voluntarily disclose information communicated to him by the client relating to, and in connection with, professional services (or work) rendered to the client by the person. Such information shall be deemed confidential. (501.75) However, nothing herein shall be construed as prohibiting the disclosure of information required to be disclosed by:

The professional standards for reporting on the examination of a financial statement (501.60 – 501.63)

Applicable federal laws, federal government regulations, including the PCAOB

A summons under the provisions of the Internal Revenue Code or SEC or a court order signed by a judge, if the summons or court order: (A) is addressed to the license holder (CPA), (B) mentions the client by name, and (C) requests specific information concerning the client

A congressional or grand jury subpoena

An investigation or proceeding conducted by the Board

Ethical investigations conducted by a private professional organization of public accountants (e.g. AICPA or other state boards)

Peer reviews

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12. A person shall not permit others including non-CPA owners and

employees, to carry out on his behalf, either with or without compensation, acts, which, if carried out by the certificate or registration holder, would place him in violation of these Rules of Professional Conduct. (501.77)

13. The Board shall consider that the conduct of any non-CPA owner or

employee in connection with the business of a licensed firm is the conduct of that licensed firm for the purposes of the Rules of Professional Conduct.

14. If a person cannot complete an engagement to provide public accounting

services and public accounting work or employment assignment in a manner that complies with the requirements of this chapter, the person shall withdraw from the engagement or resign from the employment assignment. (501.78)

15. If a person withdraws from an engagement or resigns from an employment

assignment pursuant to this section, the person shall inform the client or employer of the withdrawal or resignation.

16. Interpretive Comment: Any withdrawal or resignation shall preferably be in

writing. A person shall comply with the requirements of 501.75 of this title (relating to Confidential Client Communications) and 501.90(16) of this title (relating to Discreditable Acts) regarding confidential information of clients and employers during and after a withdrawal or resignation executed pursuant to this section. For purposes of this section, an engagement commences once an engagement letter is signed by the client, time is charged to the engagement, or compensation is received by a person in connection with an engagement or employment assignment.

26

RESPONSIBILITIES TO THE PUBLIC

Contents of Responsibilities to the Public (Subchapter D)

501.80 Practice of Public Accountancy

501.81 Firm License Requirements

501.82 Advertising

501.83 Firm Names

501.84 Form of Practice

501.85 Complaint Notice Summary of Key Responsibilities 1. A person may not engage in the practice of public accountancy unless he

holds a valid license issued by the Board. A person may not use the title or designation “certified public accountant”, the abbreviation “CPA”, or any other title, designation, word, letter, abbreviation, sign, card, or device tending to indicate that the person is a certified public accountant unless he holds a valid license issued by the Board. A license is not valid for any date or for any period prior to the date it is issued by the Board and it automatically expires and is no longer valid after the end of the period for which it is issued.

2. Any licensee of the Board in good standing as a certified public accountant or

public accountant may use such designation whether or not the licensee is in the client, industry, or government practice of public accountancy. However, a licensee who is not in the client practice of public accountancy may not in any manner, through use of the CPA designation or otherwise, claim or imply independence from his employer or that the licensee is in the client practice of public accountancy.

3. A firm may not provide attest services or use the title “CPA”, “CPAs”, “CPA

Firm”, “Certified Public Accountants”, “Certified Public Accounting Firm”, or “Auditing Firm” or any variation of those titles unless the firm holds a firm license.

4. An individual may not provide attest services unless:

The individual has a license or registration issued under the Act; and

The individual offers the attest services through an entity holding a firm license.

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RESPONSIBILITIES TO THE PUBLIC

5. Each advertisement or written promotional statement that refers to a CPA’s designation and his or her association with an unlicensed entity in the client practice of public accountancy must include the disclaimer: “This firm is not a CPA firm.” The disclaimer must be included in conspicuous proximity to the name of the unlicensed entity and be printed in type not less bold than that contained in the body of the advertisement or written statement. If the advertisement is in audio format only, the disclaimer shall be clearly declared at the conclusion of each such presentation. (501.81)

6. The requirements of this subsection do not apply with regard to a certificate

or registration holder performing services:

As a licensed attorney at law of this state while in the practice of law or as an employee of a licensed attorney when acting within the scope of the attorney’s practice of law; or

As an employee, officer, or director of a federally-insured depository institution, when lawfully acting within the scope of the legally permitted activities of the institution’s trust department.

7. A person shall not use or participate in the use of: (501.82)

Any communication that refers to the person’s professional services that contains a false, fraudulent, misleading or deceptive statement or claim; nor (e.g. info at the company’s website; statements or schedules or returns remitted to shareholders, lenders, IRS or regulators; audit opinions; review reports; etc.)

Any communication that refers to the person’s professional services that is accomplished or accompanied by coercion, duress, compulsion, intimidation, threats, overreaching, or vexatious or harassing conduct.

8. When a person receives a complaint that an alleged violation of the Act or

Rules of Professional Conduct has occurred, a person shall provide to the complainant a statement that: Complaints concerning Certified Public Accountants may be addressed in writing to the Texas State Board of Public Accountancy at 333 Guadalupe, Tower 3, Suite 900, Austin, Texas 78701-3900, telephone (512)305-7866, email to [email protected] or fax (512)305-7854.

28

DEFINITIONS Advertising / Communications – Rule 501.82

1. A “false, fraudulent, misleading, or deceptive statement or claim” includes, but

is not limited to, a statement or claim which:

A. Contain a misrepresentation of fact; B. Is likely to mislead or deceive because it fails to make full disclosure of

relevant facts; C. Is intended or likely to create false or unjustified expectations of

favorable results; D. Implies educational or professional attainments or licensing recognition

not supported in fact; E. Represents that professional services can or will be completely performed

for a stated fee when this is not the case, or makes representations with respect to fees for professional services that do not disclose all variables that may reasonably be expected to affect the fees that will in fact be charged;

F. Contains other representations or implications that in reasonable

probability will cause a reasonably prudent person to misunderstand or be deceived;

G. Implies the ability to improperly influence any court, tribunal, regulatory

agency or similar body or official due to some special relations; H. Consists of self-laudatory statements that are not based on verifiable

facts; I. Make untrue comparisons with other accountants; or J. Contains testimonials or endorsements that are not based upon verifiable

facts. 2. Broadcast – Any transmission over the airwaves or over a cable, wire line,

Internet, cellular, e-mail system or any other electronic means.

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DEFINITIONS Advertising / Communications – Rule 501.82

3. Coercion – Compelling by force so that one is constrained to do what his free

will would otherwise refuse. 4. Compulsion – Driving or urging by force or by physical or mental constraint to

perform or forbear from performing an act. 5. Direct personal communication – Either a face-to-face meeting or a

conversation by telephone. 6. Duress – Any conduct which overpowers the will of another. 7. Harassing – Any word, gesture, or action which tends to alarm and verbally

abuse another person. 8. Intimidation – Willfully to take, or attempt to take, by putting in fear of bodily

harm. 9. Overreaching – Tricking, outwitting, or cheating anyone into doing an act

which he would not otherwise do. 10. Threats – Any menace of such a nature and extent as to unsettle the mind

of anyone on whom it operates, and to take away from his acts that free and voluntary action which alone constitutes consent.

11. Vexatious – Irritating or annoying.

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Responsibilities to Clients (pp. 22-25) and the Public (pp. 26-29) A Texas CPA’s responsibilities to clients (employers or service recipients) and to the public (lenders, SEC, IRS, shareholders) often create a potential (or real) ethical dilemma in preparing and presenting financial statements and tax returns. Some of the most common potential conflicts include:

If I propose financial adjustments and/or disclosures (in compliance with GAAP), net income may go down; making my employer or client very unhappy (I might even lose my job or audit engagement)

If I tell my client or employer that we have to give all of our employees W-2s (rather than 1099s or no tax form at all) and pay the related payroll tax, my employer or client will fire me

If I don’t sign the tax return that includes some very aggressive (highly questionable) deductions, the CEO will transfer me to accounts payable

Reminder: Business executives (employers) and CPA firms (accountants) are not as passionate about “honest / ethical” employees, tax preparers, auditors or accountants in the 21st century as they were in the 1980s or 1990s (see p. 12). The contemporary business world is much more passionate about “team players” with “open minds” and the willingness to take risks for immediate financial rewards. Assignment: For each of the following (real life) dilemmas, perform the following:

Indentify in the course material (or based on your professional knowledge) the applicable “ethics rules” (Texas and/or AICPA) that may be applicable to the situation

Identify any additional guidance, rules or laws that may apply

Recommend specific actions that the CPA should take, based on your professional judgment (and applicable CPA rules)…list “step by step” (sequential) actions, depending on the relevant outcomes of initial steps

Describe “probable” outcomes for the CPA and the employer or client

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Dilemma #1 (from a Texas CPA in 2014) I have a married couple (tax client) with “apparently a small rift going on”. The wife wants a copy of their prior year(s) jointly filed tax returns (Form 1040). The husband says “don’t give them to her”. I (the CPA) have been putting her off for the last couple of days. So what’s next? What are some sources of guidance for this situation? What should the CPA do? (Step by step, list the actions to take that address and respond to both taxpayers) Dilemma #2 (frequent question) What title / position can we use on our business cards and correspondence, regarding our employees that perform professional services for our CPA firm, but have not yet passed the exam and do not have a CPA license? Source of guidance: Titles / positions that may be used: Titles or words that should not be used:

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ETHICAL CONSIDERATIONS #3 Dilemma #3 (conversation with an ethics attendee in 2015) An attendee approached me (Holt) during the half-time break of an ethics course in 2015. In response to certain news articles that I referenced during the seminar, the attendee (CPA) said to me (summarized statements):

I am an internal auditor for AIG

You do not understand the culture at AIG (prior to the 2008 bailout)

It was “either Hank’s way or the highway” (with the clear implication that no one at AIG would ever be able to keep their job, if they challenged the actions or directives to employees of the domineering CEO, Hank Greenberg)

Additional facts about AIG and the 2008 / 2009 bailout:

According to the SEC, AIG perpetrated one of the largest financial reporting frauds in American history (2000-2004) involving sham (fraudulent) insurance deals

AIG paid a $1.6 billion fine in 2006 to settle the SEC claims

The outside auditors (Pricewaterhouse Coopers) issued a clean opinion each year of the fraudulent financial statements (2000-2004), without any AICPA or State Board of New York sanction

Under the authority of President Bush and Treasury Secretary Paulson (former CEO at Goldman Sachs, a business associate of AIG), the federal government took (stole) the shares owned by former CEO Maurice “Hank” Greenberg, with no compensation to Greenberg

The government & the federal reserve bank of New York (under Tim Geithner) “ran the company” after forcing Greenberg out of AIG…total bailout money invested in and loaned to AIG exceeded $200 billion

On June 15, 2015, a federal court ruled that “the government illegally took a controlling stake in AIG during the 2008 financial crisis” and that “nothing in the law would permit a federal reserve bank to take over a private corporation and run its business as if the government were the owner”

What should a CPA (employee) or outside audit firm (CPA) do when you know or strongly suspect that the executives of your company and many of your business associates are performing illegal acts and issuing fraudulent financial statements or tax returns? List numerous actions that should be considered.

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RESPONSIBILITIES TO THE BOARD / PROFESSION

Contents of Responsibilities to the Board/Profession (Subchapter E)

501.90 Discreditable Acts

501.91 Reportable Events

501.92 Frivolous Complaints

501.93 Responses

501.94 Mandatory Continuing Professional Education

502.1 Peer Assistance to Licensees

502.2 Peer Assistance Oversight Committee Discreditable Acts (501.90) A person shall not commit any act that reflects adversely on his fitness to engage in the practice of public accountancy. A discreditable act includes but is not limited to: 1. Fraud or deceit in obtaining a certificate as a certified public accountant or in

obtaining registration under the Act or in obtaining a license to practice public accounting

2. Dishonesty, fraud or gross negligence in the practice of public accountancy 3. Violation of any of the provisions of Subchapter J or Rule 901.458 of the Act

applicable to a person certified or registered by the Board 4. Final conviction of a felony or imposition of deferred adjudication or

community supervision in connection with a criminal prosecution of a felony under the laws of any state or the United States

5. Final conviction of any crime or imposition of deferred adjudication or

community supervision in connection with a criminal prosecution, an element of which is dishonesty or fraud under the laws of any state or the United States, a criminal prosecution for a crime of moral turpitude, a criminal prosecution involving alcohol abuse or controlled substances, or a criminal prosecution for a crime involving physical harm or the threat of physical harm to a person

6. Cancellation, revocation, suspension or refusal to renew authority to practice

as a certified public accountant or a public accountant by any other state for any cause other than failure to pay the appropriate registration fee in such other state

34


7. Suspension or revocation of or a voluntary consent decree concerning the right to practice before any state or federal agency for a cause which in the opinion of the Board warrants its action

8. Knowingly participating in the preparation of a false or misleading financial

statement or tax return 9. Fiscal dishonesty or breach of fiduciary responsibility of any type 10. Failure to comply with a final order of any state or federal court or conviction

or final finding of unethical conduct by any federal or state agency 11. Repeated failure to respond to a client’s inquiry within a reasonable time

without good cause 12. Intentionally misrepresenting facts or making a misleading or deceitful

statement to a client, the Board or an agent of the Board 13. False swearing or perjury in any communication to the Board or any other

federal or state regulatory or licensing authority 14. Threats of bodily harm or retribution to a client 15. Public allegations of a lack of mental capacity of a client which cannot be

supported in fact 16. Violating any Board order or consent agreement 17. Voluntarily disclosing information communicated to the person by an

employer, past or present, or through the person’s employment in connection with accounting services rendered to the employer, except:

By permission of the employer

Pursuant to the Government Code, Chapter 554 (commonly referred to as the “Whistle Blowers Act”)

Pursuant to a subpoena or other compulsory process (IRS, SEC, etc.)

In an investigation or proceeding by the Board under the Public Accountancy Act

In an ethical investigation conducted by a professional organization of certified public accountants or peer review

Information required to be disclosed by financial reporting standards (SAS or SSARS)

35


Reportable Events (501.91) A licensee shall report in writing to the Board the occurrence of any of the following events within 30 days of the date the licensee has knowledge of these events: (see p. 27 for the address, phone number, and email address of the TSBPA) 1. The conviction or imposition of deferred adjudication of the licensee of any of

the following: (even if sentencing or subsequent appeals have not yet occurred)

A felony

A crime of moral turpitude (defined in this chapter as a crime involving grave infringement of the moral sentiment of the community)

Any crime of which fraud or dishonesty is an element or that involves alcohol abuse or controlled substances

Any crime related to the qualification, functions, or duties of a public accountant or certified public accountant, or to acts or activities in the course and scope of the practice of public accountancy or as a fiduciary

2. The cancellation, revocation, or suspension of a certificate, other authority to

practice or refusal to renew a certificate or other authority to practice as a CPA, by any state, foreign country or other jurisdiction

3. The cancellation, revocation, or suspension of the right to practice as a

certified public accountant or a public accountant before any governmental body or agency or other licensing agency

4. An unappealable adverse finding in any state or federal court or an agreed

settlement in a civil action against the licensee concerning professional accounting services or professional accounting work

5. The loss of a professional license from another state or federal regulatory

agency such as an insurance license or a securities license, resulting from an unappealable adverse finding.

36


Responses to the Board (501.93) 1. A person shall substantively respond in writing to any communication from

the Board requesting a response, within 30 days. The Board may specify a shorter time for response in the communication when circumstances so require. The time to respond shall commence on the date the communication was mailed, delivered to a courier or delivery service, faxed or e-mailed to the last address, facsimile number, or e-mail address furnished to the Board by the applicant, certificate or registration holder.

2. A person shall provide copies of documentation and/or working papers in

response to the Board’s request at no expense to the Board within 30 days. The Board may specify a shorter time for response in the communication when circumstances so require.

3. Failure to timely respond substantively to written Board communications, or

failure to furnish requested documentation and/or working papers, constitutes conduct indicating lack of fitness to serve the public as a professional accountant.

4. Each applicant and each person required to be registered with the Board

under the Act shall notify the Board, in writing, of any and all changes in either such person’s mailing address or telephone number and the effective date thereof within 30 days before or after such effective date.

Mandatory CPE (501.94)

Each certificate or registration holder shall comply with the mandatory continuing professional education reporting and the mandatory continuing professional education requirements of Chapter 523 of this title. Once an individual’s license has been suspended a third time by the Board for failing to complete the 120 hours of continuing professional education required by Rule 523.63 of this title (relating to mandatory CPE Attendance), the individual’s certificate shall be subject to revocation and may not be reinstated for at least 12 months from the date of the revocation.

37


Peer Assistance to Licensees (502.1) 1. The board adopts the provisions contained in the Health & Safety Code,

Chapter 467, Peer Assistance Programs, in its entirety, including any amendments enacted by the Texas Legislature.

2. Should the board receive information regarding a licensee indicating possible

substance abuse or other mental health issue, the board may, in addition to any other action:

Refer the licensee to an approved peer assistance program; or

Require the licensee to participate in or complete a course of treatment or rehabilitation.

3. An approved peer assistance program that receives a report or referral under

subsection (b) of this section or a report under 467.005(a) of the Health and Safety Code, may intervene to assist the licensee to obtain and complete a course of treatment and rehabilitation.

Peer Assistance Oversight Committee (502.2) 1. The Texas State Board of Public Accountancy has established the Peer

Assistance Oversight committee to oversee the activities of the Texas Society of Certified Public Accountants’ peer assistance program as mandated under the Texas Health and Safety Code, Chapter 467.

2. The Peer Assistance Oversight Committee operates under the premise that

impairments caused by substance abuse and mental illness are treatable. Accountants Confidential Assistance Network (ACAN)

Alcohol, drugs, mental health & other related problems are not uncommon in our profession. As many as 10,000 Texas CPAs are impacted by these issues. (Thomas Prothro, CPA, TSBPA Presiding Officer, February, 2015)

ACAN is a statutory peer assistance program dedicated to helping Texas CPAs, CPA candidates & accounting students.

If you or someone you know needs help, please call the 24 hour, toll-free hotline (866-766-2226)…completely confidential, by law (Chapter 467 of the Texas Health & Safety Code).

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Don’t Mess with Texas (…Ethics Rules) 1. What happens if a person without a valid CPA license “holds

themselves out” to be an “accountant” or “CPA”?

Over a 3 year period (2012 - 2014) the Board has identified more than 1,700 unlicensed individuals and firms claiming to be CPAs or offering accounting or attest services to the public.

If you (70,000 licensed Texas CPAs) suspect signage, business cards, letterheads or other marketing materials are false or misleading, you may report it by calling 512-305-7866 or emailing [email protected]

Investigation #15-03-16N (July 23, 2015) Respondent: Fernando J. Elizondo of McAllen, Texas used the title “accountant” and provided attest services (compilations), although he does not hold a license in Texas. He was ordered & agreed to cease & desist such actions until (unless) he obtains a valid Texas license.

Investigation #14-06-27N (November 20, 2014) Respondent: Kevin Stockwell, dba Akin Business Service of Austin, Texas used the CPA designation although he does not hold a license in Texas. He was ordered & agreed to cease & desist such actions until (unless) he obtains a valid Texas license.

2. What happens if a Texas CPA (or CPA firm) performs an audit and

issues a “clean opinion” on fraudulent financial statements (similar to AIG, General Motors or the “bailout” banks / companies) and gets caught by the Texas State Board and/or another regulatory agency?

Hint: Not the same answer that you might get in Michigan or New York

Investigation #13-12-01L (May 21, 2015) Respondent: Randall Alan Stone of Austin, Texas had his license suspended for 3 years & was ordered to pay a penalty of $25,000 for his participation in an audit of ArthroCare Corporation, performed by lead auditor Pricewaterhouse Coopers (based on a sanction by the Public Accounting Oversight Board).

mailto:[email protected]

39


Investigations #10-05-02L, #12-12-04L, #11-06-18L (May 21, 2015) Respondents: BDO Seidman, LLP; BDO USA, LLP; Carlos Ancira of Dallas & Austin, Texas…Ancira had his license suspended for 3 years & BDO agreed to pay the State of Texas (not the State Board of Accountancy) $2,650,000 and to pay the State Board administrative costs of $250,000 for asserting that the financial statements of Stanford Group Company were presented fairly in accordance with GAAP, when such statements contained material departures.

3. What happens if a Texas CPA gets a DWI or DUI?

Investigation #14-07-05L (November 20, 2014) Respondent: Barton Payne of Oak Ridge North, Texas (Houston area) was placed on 3 years probation, with any subsequent violation during probation triggering an immediate revocation of his CPA license. Barton was convicted of misdemeanor DWI & sentenced to 2 years community supervision & ordered to pay $3,462 in fines & court costs and to complete 100 hours of community service.

Investigation #15-01-06L (July 23, 2015) Respondent: William Lloyd West of San Antonio, Texas was placed on 2 years probation & must pay $75 in administrative costs for being convicted of misdemeanor DWI & sentenced to 2 years of community supervision.

See also p. 35 (Reportable Events for Texas CPAs)

See also p. 37 (Accountants Confidential Assistance Program for Texas CPAs)

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ETHICAL CONSIDERATIONS #4 4. What would a Texas CPA do to use his or her “specialized knowledge &

skills” (p. 7) and the “ethical responsibility” to “serve the public” and “maintain the orderly functioning of commerce” (pp. 8 - 9) if the CPA found out that the country we live in was about to financially self-destruct (i.e. NOT a going concern)?

Additional facts & details:

See GAO annual reports & warnings for the past 15 years (www.gao.gov)

During the entire 21st century, we have accumulated approximately $20,000,000,000,000 in deficit spending (cash basis only), while half of that period we paid almost zero (0.25) % short-term interest, because of nationally manipulated currency (by the Federal Reserve – not China)

We now have a social security & medicare obligation maturing the next 20 years (+/-) of $80 - $100 trillion & the SSA, TSCPA & AICPA are all telling CPAs to warn your clients & the public that the money for this obligation will run out in 8 to 15 years (depending on who you believe)

We collect (cash basis) a little more than $3 trillion a year (primarily from income tax), but only slightly more than 50% of working age Americans pay income tax

We spend (cash basis) more than $4 trillion a year, including $200 - $300 billion of fraud, waste & abuse (see GAO.gov)

Inflation adjusted, the median family income in 2015 is still less than 2007…so the joke about “the economic recovery” starting in 2009 has zero relevance to the majority of America (if you wanted to serve / protect the public, in a democracy, the measurement / evaluation would include “a majority of the people”…not just the 25% that own stocks or real estate)

Your assignment: (…should you decide to accept it) Treat the above “problem” as a cash flow (accounting) issue (not a political, self-interest issue), using your specialized knowledge & skills, and objectively recommend actions that represent the best interest of the public (majority)

…before it’s too late!!!

http://www.gao.gov/

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