2007 Required Ethics CPE for Virginia Registered CPAs and CMAs/CFMs

1. 2007 Required Ethics CPE for Virginia Registered CPAsandCMAs/CFMs Based on Virginia Board of Accountancy Outline published in December 06 And Institute of Management Accountants

2. Dr. Doug Ziegenfuss • Department of Accounting • Constant Hall, Room 2157 • Old Dominion University • Norfolk, Virginia 23529-0229 • Office 757-683-3514 • FAX 757-683-3258 • E-Mail dziegenf@odu.edu

3. Ground Rules! • This session must be 100 minutes long. • You must attend the entire session. • The session must contain the material in the Virginia Board of Accountancy Outline as shown on their website www.boa.state.va.us • The session should be principally in the area of management accounting and financial management (IMA)

4. Ground rules!(Continued) • PLEASE TURN OFF YOUR CELL PHONES AND PAGERS! • DO NOT LEAVE THE ROOM OR THIS SESSION WILL NOT COUNT!

5. Outline • Part I - Updates on current ethics and regulatory developments (15-25 minutes) • Part II - Process for ethical decision making (5 minutes) • Part III - Core Contents (75-90 minutes)

6. Updates on current ethics and regulatory developments • Virginia Board of Accountancy (BOA) • AICPA Professional Ethics Executive Committee (PEEC)

7. Virginia Board of Accountancy (BOA) • Practice without a current license • Check BOA website for license expiration date. • BOA disciplinary process. • Importance of resolving issues with clients and others. • Complaint remains on CPA’s record permanently. • Handouts of actual BOA enforcement cases

8. BOA Disciplinary Process • Virginia BOA Complaint Form • Please see handout - .pdf file

9. Board of Accountancy Complaint and Investigation Complaint received in Board Office (mailed, Faxed or e-mailed) Letter to complainant – cannot investigate and if possible, giving agency that can assist. NO Complaint reviewed by Enforcement Coordinator – Does the Board have jurisdiction? YES Complaint reviewed by Enforcement Coordinator – Is there enough information to open an investigation? CASE CLOSED Letter to complainant – additional information is provided to BOA. Information is received? NO NO YES YES 2nd request to respondent requesting response in 10 days. Response received? Complaint sent to respondent requesting response in 10 days. Response received? 4 NO NO YES YES 2 2

10. 2 Enforcement Committee (EC) Review Enforcement Coordinator prepares Investigator’s report & sends to EC for review – EC agrees – no violations Is more information needed? Consent Order is offered by EC and accepted by respondent? Can the case be mediated? 3 NO NO No NO YES YES YES CASE CLOSED EC refers case to mediation and the case is resolved through this confidential process Consent Order is presented to BOARD and is accepted by BOARD NO 2 4 3 NO YES No 4 6 Does Respondent offer a negotiated settlement? 4 YES CASE CLOSED Administrative Process Act starts here. See next slide Informal Fact-Finding Conference (IFF) Scheduled YES Consent Order is presented to the Board for review and is accepted. NO Respondent is notified of terms and conditions which will be monitored for compliance by Enforcement Coordinator. 4 CASE CLOSED YES 6 6

11. IFF is scheduled in accordance with the APA – 30 days notice to regulant Administrative Process Act (APA) and the IFF IFF is conducted with Presiding Board Member & Staff and PBM recommends appropriate action to the Board. (APA requires final decision within 120 (90 & 30) days from the date of IFF if requested by the respondent) Board makes a final case decision within 120 days. Respondent requests continuance and Board grants it. No YES 7 IFF is rescheduled. No YES Case is automatically decided in favor of the respondent. Will create an issue if case is appealed. 7 Notice of the Board’s final decision (Final Order) is sent to respondent within 5 days of the date of the decision by the Board. No FINAL ORDER MAY BE APPEALED TO THE CIRCUIT COURT WITHIN 30 DAYS FROM THE MAILING DATE +3 DAYS. APPEALS PROCEDURES ARE PROVIDED UNDER THE RULES OF THE STATE SUPREME COURT AND ARE VERY SPECIFIC. CASE DECISION IS APPEALED. No Case decision is final and all terms and conditions must be met as provided for in the Final Order. Monetary penalties not paid are sent to collections an debt setoff. Wait to hear from Appeal YES

12. Why do CPAs get in trouble? • BOA - one year of disciplinary proceedings • AICPA - five years of published results in CPA Newsletter

13. BOA Disciplinary Actions2005

14. Final Order54.1-4413 18 VAC 5-21-120-(M) Acts Discretable Failure to uphold the Standards of Practice-Felony conviction for the distribution and use of Ecstasy. Sentenced to 71 months of incarceration. IFF held, Respondent participated by way of conference call

15. Board Action The Board suspended the Respondent’s certificate for a period of two years allowing time to complete his sentence and re-establish himself professionally. The board may lift the suspension upon satisfactory presentation before the Board, demonstrating that he has been rehabilitated and has an adequate support system to sustain his sobriety. Entered June 14, 2005

16. Final Order54.1-4413 18 VAC 5-21-120 (E) - Failure to maintain professional competence in the performance of services. 18 VAC 5-21-110- Failure to respond to the Board within the required thirty days.

17. Board Action The Board denied the Respondent’s request for reinstatement for a period of five years. Imposed a monetary penalty of $10,000. Entered June 14, 2005

18. Consent Order54.1-4413.1 54.1-4414(A) of Prohibited Acts. A person who does not hold a valid CPA certificate shall not: 1. Claim to hold a valid CPA certificate. 4. Describe himself as or assume any of the following titles or designations: certified public accountant, CPA, public accountant, PA, certified accountant, CA, chartered accountant, licensed accountant, LA, registered accountant, RA, independent auditor, IA or auditor.

19. Board Action The Board imposed a monetary penalty of $5,000 to be paid within 90 days of the entry date of the order. Entered June 3, 2005

20. Final Order54.1-4413 18 VAC 5-21-120- Due Professional Care - Failure to exercise due professional care in the performance of professional service. Failure to communicate and respond in a timely manner to numerous attempts by the client to obtain information concerning the status of their income tax preparation.

21. Final Action The Board placed the Respondent’s certificate on probation for an indefinite period of time with terms and conditions as follows: Preparation and submission of a Practice Continuation Agreement (PCA) with a licensed CPA in good standing. The PCA must be effective until the Respondent can show the Board that he is able to provide competent services as a solo practitioner. The PCA shall remain in effect until the Respondent is released by the Board. Entered October 28, 2005

22. Final Order54.1-4413 18 VAC 5-21-110 A - Failed to respond to the Board within the required thirty days. Used the CPA designation in providing services to the public on an expired certificate. Used the CPA designation on expired license.

23. Board Action The Board denied any future request for reinstatement for a period of not more than five years from the date of such request. The Board imposed a monetary penalty of $30,000. Entered October 28, 2005

24. Final Order54.1-4413 18 VAC 5-21-120 (M) Acts discreditable to the profession by admitting to the unauthorized copying of client files.

25. Board Action The Board imposed probation of the Respondent’s certificate for one year with terms and conditions as follows: 24 hours of CPE in “conflict resolutions and professional ethics”. Preparation and submission of a 1,000 word essay explaining how the Respondent will utilize the knowledge gained from the behavior training classes to be presented and read before the Board within one year from the entry date of the order. Entered September 24, 2004

26. Consent Order54.1-4413 18 VAC 5-21-40 (C) Fraud or deceit in obtaining a CPA certificate and failure to disclose revocation or suspension of the right to practice before any state or federal agency

27. Board Action Immediate consensual revocation of CPA certificate. The return of the Respondent’s wall certificate to the Board office. Entered November 10, 2004

28. Consent Order54.1-4413 (A) 5,6 7 18 VAC 5-21-120 (A) Responsibilities (C) Integrity and Objectivity (M) Acts Discreditable The respondent prepared a check for $50,000 without authorization and for personal gain, admitted to it, and confessed to the FBI.

29. Board Action The board imposed the sanction of immediate consensual revocation of the Respondent’s certificate for a period of no less than five years from the entry date of the order. After this period, if the Respondent submits an initial application, pays the requisite fees and meets all eligibility requirements at the time of the application, the Board will determine her eligibility for licensure at that time. Entered January 21, 2003

30. AICPA Disciplinary Proceedings2001 - 2005 • Source: AICPA Newsletters • http://www.aicpa.org/pubs/cpaltr/discipli.htm 409 Total Cases Expelled – 44 or 11% Terminated – 217 or 53%

31. Any Discussion or Comments?

32. BOA Regulatory Process(Please refer to the handout for a complete description of this process) • Three stages: • Stage 1 Notice of Intended Regulatory Action (NOIRA) • Stage 2 Proposed Regulation • Stage 3 Final Regulation • Source: Section 2.2-4006 through 2.2-4017 of the Code of Virginia (Article 2 of Administrative Process Act) and Executive Order 21 (2002) • For more information visit: townhall.virginia.gov

33. BOA Regulatory ProcessStage One: Notice of Intended Rulemaking (NOIRA) • Agency approves NOIRA and submits it for executive branch review. • Executive Branch Review: Department of Planning and Budget, Cabinet Secretary, and Governor. • Agency sends NOIRA to The Virginia Register of Regulations via the Virginia Regulatory Town Hall. • (1) Email notification is sent to registered Town Hall users and (2) the public may view the NOIRA and supporting documents on the Town Hall. • 14 Days after Town Hall notice, NOIRA is published in the Register (register.state.va.us/issfiles.htm). • 30-day period (minimum) for public comment to Town Hall Public Comment Forum. • Agency considers public comment, drafts proposed regulation, and must submit the proposed regulation within 180 days of the close of the public comment period.

34. BOA Regulatory ProcessStage 2: Proposed Regulation • Agency submits proposed regulation for review. • Executive Branch Review: Office of the Attorney General, Department of Planning and Budget, Cabinet Secretary, and Governor. • Agency sends proposed regulation to the Register via the Town Hall. • (1) Email notification is sent to registered Town Hall users and (2) the public may view the proposed regulation and supporting documents on the Town Hall. • 14 days after Town Hall notice, proposed stage is published in the Register. • 60-day period (minimum) for public comment begins. Submit your comment to Town Hall Public Comment Forum. • Agency/board considers public comment, adopts final regulation, and must submit the final regulation within 150 days of the close of the public comment period.

35. BOA Regulatory ProcessStage 3: Final Regulation • Agency submits final regulation for review. • Executive Branch Review: Department of Planning and Budget, Cabinet Secretary, and Governor. • Agency sends final regulation to the Register via the Town Hall • (1) Email notification is sent to registered Town Hall users and (2) the public may view the final regulation and supporting documents on the Town Hall. • 14 days after Town Hall notice, final stage is published in the Register. • 30-day final adoption period begins. • Final Regulation becomes effective, or the regulation may be suspended, or, if changes with substantial impact were made between the proposed and the final stages and 25 members of the public and/or Governor petition the agency, an additional public comment period must be held.

36. AICPA PEEC Update • ET Section 100.01: Conceptual Framework for AICPA Independence Standards

37. ET Section 100.01: Conceptual Framework for AICPA Independence Standards • The risk-based approach entails evaluating the risk that the member would not be independent or would be perceived by a reasonable and informed party having knowledge of all relevant information as not being independent.

38. ET Section 100.01: Conceptual Framework for AICPA Independence Standards • Risk is at an acceptable level when threats are at an acceptable level, either because of the types of threats and their potential effect, or because safeguards have sufficiently mitigated or eliminated the threats.

39. ET Section 100.01: Conceptual Framework for AICPA Independence Standards • Threats are at an acceptable level when it is not reasonable to expect that the threat would compromise professional judgment (independence).

40. ET Section 100.01: Conceptual Framework for AICPA Independence Standards • The risk-based approach involves the following steps: • Identifying and evaluating threats to independence • Determining whether safeguards already eliminate or sufficiently mitigate identified threats or threats that have not been mitigated can be eliminated or sufficiently mitigated by safeguards • If no safeguards are available to eliminate an unacceptable threat or reduce it to an acceptable level then independence is impaired.

41. ET Section 100.01: Conceptual Framework for AICPA Independence Standards • Types of threats to Independence: • Self-review threat • Advocacy threat • Adverse Interest threat • Familiarity threat • Undue Influence threat • Financial Self-Interest threat • Management participation threat

42. ET Section 100.01: Conceptual Framework for AICPA Independence Standards • Safeguard effectiveness is dependent on the following: • The facts and circumstances specific to a particular situation • The proper identification of threats • Whether the safeguard is suitably designed to meet its objective • The party or parties that will be subject to the safeguard • How the safeguard is applied • The consistency with which the safeguard is applied • Who applies the safeguard.

43. ET Section 100.01: Conceptual Framework for AICPA Independence Standards • Types of Safeguards: • Safeguards created by the profession, legislatures, or regulation • Safeguards implemented by the attest client • Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements.

44. Other PEEC Rulemaking • Forensic Accounting and Tax Compliance Services effect on independence. • Revision to “Other Considerations” in Interpretation 101-1. • Acceptance of gifts and entertainment – Ethics ruling #113 under Rule 102

45. Discussion Question • What does your firm or organization do to protect its independence? • Have you applied this ERM approach to independence issues? • How could you do it? • What affect do Forensic Accounting and Tax Compliance services have on your independence?

46. Process for Ethical Decision Making

47. Making Ethical Decisions • The Importance of corporate culture (importance of “Tone At the Top”) • “Final Accounting” by Barbara Ley Toffler • ISBN 0-7679-1383-3 • Most important issue is whether your employees: • Are sensitive to ethical issues. • Desire to act ethically. • Have the right guidance concerning ethical issues. • Are comfortable with the organization’s procedures for handling ethical issues – mentoring and whistleblowing procedures. • Do not fear retribution for reporting and resolving ethical issues.

48. What are ethical dilemmas? • An ethical dilemma occurs whenever two or more stakeholders have conflicting stakes on your loyalty or outcome from a decision. • Who are your stakeholders?

49. What is the best way to prevent ethical dilemmas? • Prevention! • Prevention! • Prevention!

50. How to resolve ethical dilemmas once they occur?