Ethical Business Decisions By Texas CPAs


Ethical Business DecisionsBy Texas CPAs(4 hours of required Texas Ethics CPE)(Revised & updated for 2016 / 2017)Author & Instructor:David W. Holt, CPA, (e-mail) (website)

Ethical Business Decisions by Texas CPAsThis 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 independenceDiscussing “ethical decision making “ through case studies and “realworld” situations faced by CPAs in public practice and industry /governmentThe method of presentation is group-live instruction and the program level isbasic. There are no prerequisites of this course nor is there any advancedpreparation required.This seminar is offered on the dates and locations listed at our website:( Holt Seminars is the marketing company that represents:H. Garland Granger, CPA, CIA, CFEDavid W. Holt, CPA, CFEProfessional Accounting Seminars, Inc. (NASBA CPE Sponsor # 107952)Professional Accounting Seminars, Inc. is registered with the NationalAssociation of State Boards of Accountancy as a sponsor of continuingprofessional education on the National Registry of CPE Sponsors. State boardsof accountancy have final authority on the acceptance of individual courses forCPE credit. Complaints regarding registered sponsors may be addressed to theNational Registry of CPA sponsors, 150 Fourth Avenue North, Nashville,Tennessee 37219-2417. Website: www.nasba.orgFlorida CPE Sponsor # 0003246 (Provider # 423)Illinois CPE Sponsor – Public Accountancy Act Section 1420.70North Carolina – recognized sponsor listed on the NASBA RegistryTexas CPE Sponsor - # 007467 Professional Accounting Seminars, Inc.(dba David Holt Seminars)215 Acacia N., Uvalde, Texas 78801830-486-5222,

Ethical Business Decisions by Texas CPAsTable of ContentsPageOverview of the Texas Ethics “Rules” CPE Requirements Texas Administrative Code Terms and Definitions456Re-Codified AICPA Ethics Rules (December, 2014)8Ethical Considerations # 111Gallup Poll on Honesty / Ethics12Rules of Professional Conduct for Texas CPAs: (The Ethics Rules)General Provisions (Subchapter A)15Professional Standards (Subchapter B)17Ethical Considerations # 219Responsibilities to Clients (Subchapter C)22Responsibilities to the Public (Subchapter D)26Ethical Considerations #330Responsibilities to the Board / Profession (Subchapter E)33Ethical Considerations #4383

OVERVIEW OF THE RULESEthics CPE Requirement (Rule 523.130)1. A candidate applying for certification or registration must complete a boardapproved four hour ethics course designed to thoroughly familiarize theapplicant with the board’s Rules of Professional Conduct no more than sixmonths prior to submission of the application. Proof of completion of thiscourse must be submitted with the application.2. A licensee must take a four hour ethics course that has been approved bythe board pursuant to 523.131 of this title (relating to Board Approval of EthicsCourse Content) every two years.3. A licensee (who is) retired, (has a) permanent disability, or other exemptstatus is not required to complete the ethics course during the licensee’sexempt status. Exemptions are considered on a case-by-case basis,primarily for individuals who are (either) no longer employed or no longerassociated with accounting work (523.113).4. A licensee must take the ethics course in a live classroom program or in aself-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 clientswithin this state, and who is current with the ethics course requirements of hisstate of residence is not required to take this ethics course.6. The Board has a complete list of approved ethics courses and sponsors at itswebsite: www.tsbpa.state.tx.us7. The ethics course (including this one) should achieve the following primaryobjectives (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 thelicensee’s performance of professional accounting services or professionalaccounting work, and not mere technical compliance; Apply ethical judgment in interpreting the rules and determining thepublic interest. The public interest should be placed ahead of selfinterest, even if it means a loss of job or client;4

OVERVIEW OF THE RULES Emphasize the ethical standards of the profession as described in thissection; and Review and discuss the Board’s Rules of Professional Conduct and theirimplications for persons in a variety of practices, including at least oneexample from subparagraph A (client practice of public accountancy whoperforms attest and non-attest services); and at least one example fromeither subparagraph B (a licensee employed in industry who providesinternal accounting and auditing services); or C (a licensee employed ineducation or in government accounting or auditing).8. Both the instructor and the course material must be approved by the Board9. 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 14515517518519520521523525526527Rules of Professional Conduct (“Ethics Rules”)Peer AssistanceThe BoardEmployees of the BoardRulemaking ProceduresEligibilityCertification by ReciprocityRegistrationCertification as a CPALicensesPractice by Certain Out of State Firms and IndividualsUnauthorized Practice of Public AccountancyPractice and ProcedureFifth-year Accounting Students Scholarship ProgramFee ScheduleContinuing Professional EducationCriminal Background InvestigationsBoard OpinionsPeer Review5

OVERVIEW OF THE RULESKey Terms and Definitions1. 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 Act2. Ethics Rules Primarily Chapter 501 “Rules of Professional Conduct” Contained in the Texas Administrative Code (available at the Board’swebsite)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 recentrevisions in September, 2009) Authorizes the Board (and its employees and agents) to determine theRules for CPAs in Texas5. Licensee means the holder of a license issued by the Board to a certificate orregistration 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 alicense holder’s employer to receive a professional accounting service (by aCPA firm) or professional accounting work (by CPAs in industry orgovernment)7. Person means an individual, sole proprietorship, partnership, limited liabilitypartnership, limited liability company, corporation or other legally recognizedbusiness entity that provides or offers to provide professional accountingservices or professional accounting work6

OVERVIEW OF THE RULES8. Professional accounting services or professional accounting workmeans services or work that requires the specialized knowledge or skillsassociated with Certified Public Accountants, including: (502.52) Issuing reports on financial statements or performing preparationengagements (without a report)Providing management or financial advisory or consulting servicesPreparing tax returns or providing advice on tax mattersProviding forensic accounting services, andProviding internal audit services9. Client practice of public accountancy is the offer to perform or theperformance by a person (see definition) for a client or potential client ofprofessional accounting services or professional accounting work (seedefinition) and also includes: The advice or recommendations in connection with the sale or offer forsale of products (including the design and implementation of computersoftware), when the advice or recommendations routinely require orimply the possession of accounting or auditing skills or expertknowledge in auditing or accounting; andThe performance of litigation support servicesThe Ethics Rules contain 5 “subchapters”, which are the focus of theremainder of this course material: (501) Subchapter A General ProvisionsSubchapter B Professional StandardsSubchapter C Responsibilities to ClientsSubchapter D Responsibilities to the PublicSubchapter E Responsibilities to the Board/ProfessionTexas Ethics CPE Course (523.131(b) “components should be approximately”) 25% ethical principles & values25% ethical reasoning & dilemmas15% Rules of Professional Conduct (5 subchapters of 501)35% cases that require the application of ethical principles, values,and ethical reasoning7

ETHICAL DECISIONS BY CPAsKey Words (The New American Webster College Dictionary)1. Ethics The principles of honor and morality Accepted rules of conduct Moral principles of an individual2. Integrity Fidelity to moral principles Honesty (telling “the truth”) Soundness, completeness (the “whole truth”)3. Objectivity Free from personal prejudices UnbiasedAICPA 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, amember (CPA) assumes an obligation of self-discipline above andbeyond the requirements of laws and regulations. These Principles of the Code of Professional Conduct of the AICPAexpress the profession’s recognition of its responsibilities to the public,to clients, and to colleagues. They guide members in the performance oftheir professional responsibilities and express the basic tenets of ethicaland professional conduct. The Principles call for an unswervingcommitment to honorable behavior, even at the sacrifice of personaladvantage. (e.g. your salary or audit fee)2. Responsibilities (ET 0.300.020) In carrying out their responsibilities as professionals, members shouldexercise sensitive professional and moral judgments in all theiractivities.8

ETHICAL DECISIONS BY CPAs Members have responsibilities to all those who use their professionalservices (including: SEC, investors, lenders, employees, pension plans ofemployees, IRS, creditors, and the accounting profession). We have thissame 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 tomaintain the orderly functioning of commerce. This reliance imposes apublic interest responsibility on members (CPAs). In discharging their professional responsibilities, members mayencounter conflicting pressures from each of those groups. Inresolving those conflicts, members should act with integrity, guided bythe 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 professionalrecognition. It is the quality from which the public trust derives and thebenchmark against which a member must ultimately test all decisions. Integrity requires a member to be, among other things, honest and candidwithin the constraints of client confidentiality. Service and the public trustshould not be subordinated to personal gain and advantage. Integritycan accommodate the inadvertent error and the honest difference ofopinion; 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 allaudit and attestation engagements) Objectivity – impartial, intellectually honest, and free from conflicts ofinterest (For all CPAs in any professional accounting work)9

ETHICAL DECISIONS BY CPAsProfessional 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 DilemmasAn ethical dilemma in general is any situation one faces where one must choosebetween conflicting behaviors. In many situations, there are six (6) commonsteps 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 eachindividual or group is affected.4. Identify the alternatives available to the individual who must resolve thedilemma.5. Identify the likely consequences of each alternative.6. Decide the appropriate action (If considered necessary, communicationswith the Texas State Board and/or AICPA and/or other regulatory authoritiesmay provide valuable guidance, prior to making an ethical decision).10

ETHICAL CONSIDERATIONS #11. Subchapter D of the Texas “Ethics Rules” is titled Responsibilities to thePublic. (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 toserve 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 therequirements of laws and regulations (Have) an unswerving commitment to honorable behavior, even at thesacrifice 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 employ

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: Florida CPE Sponsor # 0003246 (Provider # 423) Illinois CPE Sponsor – Public Accountancy Act Section 1420.70 North .