2014 Professional Ethics & Conduct

1. 2014 Professional Ethics & Conduct

2. Are you a robot? Are you a robot?

3. Levels of Ethical Maturity

4. Ethical Issues Will we agree??

5. Ethical Theories • Utilitarianism: Promotion of the best long-term interest of everyone should be the moral standard • Maximize good over harm • Consequences of acts are moral justification • Rights and duties have no independent standing • Benefits can be defined and measured and added

6. Ethical Theories • Deontology: • Consequences are not the only criteria for determining the morality of the action. Act is what matters • Emphasizes maxims, rules, principles • Morals are based on fundamental principles not upon mere results • Kant’s imperative - one should take that action that he/she would wish everyone to take in all circumstances, irrespective of the consequences of the single action

7. Example of Conflict • Eight hostages are about to be executed for no significant crime. You are given the opportunity to shoot and kill one of the hostages and the rest will be freed. If you do not take this action all will be killed. • What will you do? • What would a utilitarian do? • What would a deontologist do?

9. ETHICAL DILEMMAS • INDIVIDUAL • CORPORATE • SOCIETAL

10. Ethical Drift • organizations suffer from ethical drift – a gradual, unconscious lowering of moral standards. While businesses compete for profit, the boundaries between right and wrong become blurred and people’s ethical frame of reference shifts. Human biases like being unrealistically optimistic about an outcome, believing ourselves to be all-powerful, all-knowing and invincible, and the tendency to justify our own behavior  no matter how morally hollow • Sternberg

11. Silent Saboteurs • Spectacular scandals account for only about 10% of the business losses attributable to poor ethical behavior. • The other 90% accounts for billions of dollars annually across the U.S. and appear in the way • we treat each other when we try to protect our own turf, or • get ahead at the expense of others, or • do the wrong thing because we believe that is what our company wants us to do

12. Silent Saboteurs • Scapegoating • Abdicating • Budget Games • Overpromising • Turf-guarding • Endless meetings and memos • Under delivering • Risk aversion • Sharp penciling Frank Navran, Training and Development Magazine

13. More “Silent Saboteurs” • I’ve Got a Secret • Credit Taking • Lack of Recognition • Attention to Detail • Let People Know • Nursing a Grievance • Smoke, but No Fire • Emergency, or Just Poor Planning • Robin Hood • Pushing the Limits Frank Navran, Training and Development Magazine

14. Sweat the Small Stuff A recent company shared from their ethics compliance office that the most complaints result from an employee observing another employee’s improper use of the company’s assets. The thoughts are: • It’s only a pen • Nobody will care • Everybody does it • It doesn’t belong to anybody • Nobody will find out Ethical issues that should concern us the most are the ones we face everyday.

15. Wall Street Ethics • 52% felt it likely their competitors had engaged in unethical acts. • 24% felt it likely their company co-workers had engaged in unethical acts. • 24% said they would engage in insider trading to make $10 million if they could get away with it. • 28% felt the financial services industry does not put the interests of clients first. • 29% believe financial services professionals may need to engage in unethical or illegal activity in order to be successful. Online survey of 250 financial professionals conducted by LabatonSucharow, a New York City law firm in USA Today July 16, 2013

17. The Ultimatum Game

18. Is it ever OK to lie? If you were interviewing someone for a job and it was brought up that he lied to his current employer about where he was, would it affect your views on his trustworthiness?

19. “When all else fails, tell the truth.''  — Donald T. Regan

20. What time is it?

21. To contact: N.C. State Board of Certified Public Accountant Examiners www.nccpaboard.gov North Carolina Accountancy Rules North Carolina State Law

22. Character and Courage –Doing the Right Thing Moral Right and Wrong Personal Integrity Hierarchy of Ethical Behavior N.C. Code of Professional Ethics and Conduct Professional Regulation/ Accounting Standards Legal Regulation

23. The Oath of a CPA • I Will Support the Laws And Regulations of the State of North Carolina and the United States. • I Will Perform my Professional Duties to the Best of my Ability and Abide by The Rules Of Professional Conduct; and • I Will Uphold the Honor And Dignity of the Accounting Profession by Serving with Integrity, Objectivity, and Competence.

24. Registered North Carolina CPA’s(approx. 19,500) NC CPAs Residing in NC – approx. 16,000 NC CPAs Residing in other States – approx. 3,500 CPAs Nationwide – Approx. 600,000 Numbers taken from October Activity Review

25. 2013 State Board Activity

26. Disciplinary Orders

27. 2014 ChangesNC Rules and Regulations • Active and Inactive status only – there is no longer a retired status • Certificate applicants are required to disclose any arrests, charges, convictions, PFJs, continuations, or nolo contenderepleas to any criminal offense. • Previously, this was only done at the Exam Application. • Reporting to the Board – notify the Board within 30 days of any settlements, investigations or liens; • Notification required regardless of any confidentiality clause in the settlement

28. CPE – Professional Ethics • Annual ethics course – 2 hour group study or self study; • NEW: The ethics course must be presented by an approved NASBA sponsor • The course must provide you with a certificate of completion. • Any ethics hours in excess of 2 hours can be carried over, but cannot be used for the annual ethics requirement in succeeding years.

29. So this happened…

31. NEW: Qualifications of CPE Sponsors • The Board does not register sponsors of CPE courses. • The Board does not register CPE courses. • CPE sponsors in good standing with NASBA shall be in compliance with CPE requirements.

32. Qualifications of CPE Sponsors • CPE that is not a NASBA sponsor must: • Have an individual that did not prepare the course review the course; • Provide documentation that states: • The general content of the course and skill level taught, • Any prerequisites or preparation required, • The level of the course (basic, intermediate, etc.), • The teaching methods used, • The amount of recommended CPE credit, and • The date the course is offered.

33. Time for an obvious question Is CPE important?

34. Is CPE Important? Frequent Answers • An integral part of professional development • Does little to improve professional competency • Too expensive • Doesn’t apply to my job • Not enough time to meet the requirement each year • The requirements are too confusing

35. CPE Requirements • 40 hours each calendar year • Up to 20 hours of CPE can be carried over • Up to 10 hours for publications and 20 hours for teaching; • Prorated based on date of approval of application (30, 20, or 10 hours) • A course must increase your professional competency • You must maintain records substantiating CPE credits for five years (includes current year) • No CPE requirement for inactive • You must have a certificate of completion for each course

36. Do you take CPE seriously? • Reading the paper • Texting • Checking email • Facebook • Shopping online • Playing games • Preparing a tax return • Reviewing workpapers • Knitting • Taking online CPE during live class

37. CPEasy? • 184 licensees admitted they completed some of their 2012 calendar year CPE between 1/1/13 and 6/30/13. • What’s the fate of these 184? • In accordance with 21 NCAC 08G .0406, each was issued a Letter of Warning from the Board.

38. CPEasy? • 3-5% of the 1,000-1,200 licensees audited are unable to provide certificates of completion. • How long are CPA’s required to maintain their CPE records for purposes of a CPE audit? • In accordance with 21 NCAC 08G .0401(i), it is the CPA’s responsibility to maintain records substantiating the CPE credits claimed for the current year and for each of the four calendar years prior to the current year.

39. 08N - Professional Ethics & Conduct

40. Rules for All CPAs (Section 200) • Confidentiality • Violation of tax laws • Reporting Convictions and Judgments • Accounting Principles • Responsibilities in Tax Practice • Competence • Outsourcing to third parties • IFRS Integrity Deceptive Conduct Prohibited Discreditable Conduct Prohibited Discipline by Federal/State Authorities-30 days Cooperation with Board Inquiry - 21 days to respond

41. North Carolina Code - Integrity The reliance of the public and the business community on sound financial reporting and advice on business affairs imposes on the accounting profession an obligation to maintain high standards of technical competence, morality, and integrity. To this end, a CPA shall at all times maintain independence of thought and action, hold the affairs of clients in strict confidence, strive continuously to improve professional skills, observe generally accepted accounting principles and standards, promote sound and informative financial reporting, uphold the dignity and honor of the accounting profession, and maintain high standards of personal conduct.

42. Discreditable Conduct Prohibited • A CPA shall not engage in conduct discreditable to the accounting profession: • Acts that reflect adversely on the CPA’s honesty, integrity, trustworthiness, or good moral character • Stating or implying an ability to improperly influence a governmental agency or official • Failing to comply with any order issued by the Board; or • Failing to fulfill the terms of a peer review engagement contract

43. Deceptive Conduct Prohibited A CPA shall not engage in deceptive conduct. Deception includes fraud or misrepresentation and representations or omissions which a CPA either knows or should know have a capacity or tendency to deceive. Deceptive conduct is prohibited whether or not anyone has been actually deceived.

44. Reporting Convictions, Judgments & Disciplinary Actions • Criminal Actions - A CPA shall notify the Board within 30 days of any conviction or finding of guilt of, pleading of nolo contendere, or receiving a prayer for judgment continued to any criminal offense. • Civil Actions - A CPA shall notify the Board within 30 days of any judgment or settlement in a civil suit, bankruptcy action, administrative proceeding, or binding arbitration, the basis of which is grounded upon an allegation of professional negligence, gross negligence, dishonesty, fraud, misrepresentation, incompetence, or violation of any federal or state tax law and which was brought against either the CPA or a North Carolina office of a CPA firm of which the CPA was a managing partner.

45. Reporting Convictions, Judgments & Disciplinary Actions • Settlements - Notify within 30 days of any settlement in lieu of a civil suit or criminal charge grounded upon an allegation of professional negligence; gross negligence; dishonesty; fraud; misrepresentation; incompetence; or violation of any federal, state, or local law. Notification is required regardless of any confidentiality clause in the settlement. • Investigations - Notify within 30 days of any inquiry or investigation by the IRS or any state DOR criminal investigation divisions pertaining to any personal or business tax matters. • Liens - Notify within 30 days of the filing of any liens by the IRS or any state DOR regarding the failure to pay or apparent failure to pay for any amounts due any tax matters.

46. Advertising vs. Networking

47. Volunteer Opportunities David is a CPA and the Controller for a retail company. He and his family are very involved in local church activities and he was recently asked to be chair of the finance committee. He thought this would be a good way to serve the church and agreed to take the position. The minister had been at the church for 12 years and was highly respected member of the community. The finance committee worked closely with the church bookkeeper, a part-time position held by a long-time member of the congregation and a close friend of the minister. She prepared a monthly report of collections and expenses for the finance committee and everything seemed to run smoothly. Three months after accepting the chair position Anne, the church secretary asked for a private meeting with David. She reluctantly began her story of how she believed the minister was embezzling church funds with the assistance of the church bookkeeper.

48. Anne’s husband was head usher and although not required, he often counted the collections before locking them in the church safe On Monday the book-keeper would count the collections, report totals to the minister and one of them would take the deposit to the bank. The past two Monday’s the bookkeeper was ill so the minister asked Mary to take the deposit to the bank. She noticed the amount was less than her husband told her was collected. She initially thought her husband made a mistake, but then got curious and looked at past deposits. Most were less than what her husband counted.

49. Serving on a Board of Directors • What are the duties? • Are the Duties Heightened for CPAs? • Typical Claims Brought against Board Members • What are the Risks? • How Can the Risks be Mitigated? • What are the Key Steps to Consider before Accepting?

50. ETHICS TODAY 2013 National Business Ethics Survey KPMG Integrity Survey 2013