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2014 Professional Ethics & Conduct
Accounting
It Is Not Just An Occupation;
It Is A Profession.
A Profession Is:
A Group’s Collective Effort
To Pursue A Learned Art
With A Common Calling
To Act In The Spirit Of Public Service
For The End Good Of The Public.
2
The Accounting Profession
A discipline that is practiced by a credentialed individual with a complex body of knowledge.
Has standards for admission.
Is vital to continuing social organization.
Requires public confidence.
Failure on the part of one
diminishes the whole
3
The 7 Characteristics Of A Profession
1. A body of specialized knowledge.
2. A formal education process.
3. Standards governing admission.
4. A code of ethics.
5. Recognized status indicated by a license.
6. A public interest in the work performed.
7. Recognition of a social obligation.
4
Levels of Ethical Maturity
• Self-Actualization
• Societal Influence
• Comparative Authority
• Exclusive Authority
What do you see?
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
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
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.
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?
The Ultimatum Game
What time is it?
Time to Decide: Why are We Here?
Can accounting ethics be taught?
OR
Can we teach accountants to be ethical?
13
To contact:
N.C. State Board of Certified Public
Accountant Examiners
www.nccpaboard.gov
Registered North Carolina CPA’s (approx. 19,500)
39%
40%
6%
7%
2% 6% Public - 39%
Industry (accounting)- 40%
Industry (non-accounting)- 6%
Other - 7%
Education - 2%
Government - 6%
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
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
Labaton Sucharow, a New York City law firm in USA
Today July 16, 2013
2013 State Board Activity
0
50
100
150
200
250
300
350
400
Matters Opened Cases Unauthorized CPA Use
Disciplinary Orders
2012
2013
Disciplinary Orders
Others
Substandard Audits
Tax Shelters
941 Nonpayment
Firm Registration
Peer Review
CPE
0 5 10 15 20 25 30 35
2012
2013
Time for an obvious question
Is CPE important?
Is CPE Important?
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
So this happened…
Do you take CPE seriously?
Reading the paper
Texting
Checking email
Shopping online
Playing games
Preparing a tax return
Reviewing workpapers
Knitting
Taking online CPE during live class
Time for another obvious question
Why do we have a CPE requirement?
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
_______________________________.
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 ____________________________
___________________________.
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
CPE: 7 Fields of Study
1. Accounting and auditing
2. Consulting services
3. Ethics
4. Management
5. Personal development
6. Special knowledge and applications
7. Tax
CPE – Professional Ethics
Annual ethics course – 2 hour group study or self study;
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.
08N - Professional Ethics & Conduct
Rules For All CPAs (Section 200)
Rules For All CPAs Using the CPA Title (Section 300)
Rules for All CPAS Performing Attest and Assurance Services (Section 400)
2014 Changes NC 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 contendere
pleas 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
Rules for All CPAs (Section 200)
Integrity
Deceptive Conduct
Prohibited
Discreditable Conduct
Prohibited
Discipline by
Federal/State Authorities-
30 days
Cooperation with Board
Inquiry - 21 days to
respond
Confidentiality
Violation of tax laws
Reporting Convictions
and Judgments
Accounting Principles
Responsibilities in Tax
Practice
Competence
Outsourcing to third
parties
IFRS
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.
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.
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
Saving Mr. Banks Just this year, you decided to start your own CPA firm
specializing in individual and small business taxes. Business has
not been coming in as quickly as you’d hoped. You set up a
meeting with Mr. Banks, a small business owner, to go over his
prior year returns and current tax situation. In looking over his
2012 return, it becomes obvious that certain deductions were
taken that are clearly not allowed and has grossly
underreported income. You ask Mr. Banks about this and he says
his former CPA firm, Grey & Gray LLP, told him it was perfectly
legal to claim those expenses since he started his business in
2010. G&G has since sold their firm and both partners, while
still licensed, are planning on retiring at the end of the year.
What do you do?
When Do I get Involved?
Susan is a tax manager in a regional CPA firm. Tom an audit
partner with the firm lives in her neighborhood and his son,
Joey, is the same age as Susan’s son. The boys are friends and
participate in similar activities. Kelly, an audit manager who
works with Tom, mentioned to Susan at lunch that she
thought Tom was drinking at work and before client meetings.
Susan shrugged off the conversation thinking it was office
gossip. That evening her son told her he didn’t want to ride to
a soccer game Saturday with Joey because Joey talked about
his Dad drinking and using drugs and said his Dad got very
angry at Joey last time they rode together.
What should Susan do? 36
What Should You Do?
• Mary is a family friend.
• You suspect her annual salary is around $35,000 and her
husband has recently become unemployed.
• Recently, she has been posting on Facebook about several
new purchases, country club memberships, trips, etc.
• She has just remodeled her home and bought a boat.
• You started wondering about their finances over a year ago,
but recent activities have raised your suspicions.
• You are wondering if Mary may be involved in some sort of
fraud scheme.
What should you do? 37
Rules for All CPAs Using the CPA Title (Section 300)
Professional Judgment
Forms of Practice
Practice Privileges
Objectivity and Conflicts of Interest
Retention of Clients Records
Advertising /Solicitation
CPA Firm Names
Advertising vs. Networking
Rules for All CPAs Performing Attest & Assurance Services (Section 400)
Public Reliance
Independence
Standards (SAS, SSARS, GASB, GAGAS, peer review)
Competitive Bidding
Scenario Volunteer Opportunities
David is a CPA and the Controller for a retail company. He has two
children that are very active with school and sporting activities.
Both of his children participate on the swim team in their
neighborhood. The team has a board of directors that is elected
annually by the members and all positions are completely voluntary.
In a recent notification to the members, the board requested a
volunteer for bookkeeping purposes. David feels like this would be
a good opportunity to get involved and support the team.
David would be responsible for writing checks, making deposits,
recording all transactions in QuickBooks, reconciling the bank
account and reporting the financial status to the board of Directors.
Are there any issues for David as a CPA?
Scenario 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?
Are you a robot?
Are you a
robot?
2013 National Business Ethics Survey
Observed Misconduct is in Decline
Ethics Resource Center 2013
Ethics Culture Has Strengthened
Ethics Resource Center 2013
Misconduct Declines as Ethics Culture Improves
Ethics Resource Center 2013
Tone at the Top is Bottoming Out
Ethics Resource Center 2013
Moving Up the Ranks
You have been with the company for 7 years and moved up the
ranks now supervising 12 employees. Your company has just
announced a merger with a larger company. Some layoffs in your
department are inevitable. Your supervisor, Pat, asks you to rank
your 12 employees and turn in the list in a week. After wrestling
with the list all week by using performance metrics, former
evaluations, observation and input from peers and clients, you turn
the list in to Pat. After looking at the list, Pat says it looks good,
but to switch #5 (Corey) and #9 (Jamie). Pat hired Jamie 2 years
ago who moved from Pennsylvania for this job.
What do you do?
Lone Wolves or Wolf Pack?
Ethics Resource Center 2013
Reporting & Retaliation
Ethics Resource Center 2013
Making the Whistle Louder
Ethics Resource Center 2013
Generational Differences in the Workplace
Generational Differences in the Workplace
Which one are you?
2013 NBES
How Do the Generations Compare in 2011?
Overall Traditionalists Boomers Gen X Millennials
13% Felt
Pressure 22% 9% 13% 15%
45% Observed
Misconduct 36% 44% 45% 49%
65% Reported
Misconduct 39% 64% 69% 67%
22% Perceived
Retaliation 16% 18% 21% 29%
Ends and Means
% of workers who agree to look the other way if the
company did something questionable
2013 NBES
Recommendations
Best way to address challenges of
a workplace spanning multiple
generations is…
Implement effective ethics and
compliance program
Build strong ethics culture that
encourages employees to do
right thing
Do this in a way that reaches
and influences each generation
Case Study
Susan, a senior manager, notices as she walks by Andrew’s desk (a new
employee) that he is on the social media site LinkedIn. When Andrew
realized that Susan was looking at his computer screen he quickly
exited the website.
Susan proceeded to walk away while thinking to herself that she was
going to have to talk to Andrew and remind him about the Company’s
policy regarding company resources used for personal reasons. She
also considers what else Andrew is doing that he feels the need to
cover up.
Andrew grimaces as Susan walks by shaking her head. Even though he
was screening the website, as well as other social media sites, for
opportunities and networking possibilities with potential business
partners, Andrew worries that these activities are not understood or
valued.
Stopping the Tsunami
Employees are engaging in social
networking at work
Increasingly, it’s how business gets
done
Stopping it is not feasible
They don’t need your network or
computers to do it!
They have smartphones and tablets that can
access the internet
Their devices are small and portable
2012 NBES-SN
CPA’s are doing it, though they
probably don’t know why
SocialCPAs 2012 Social Media Survey
Frequency of Social Networking at Work
2012 NBES-SN
Risks Associated with Social Networking
2012 NBES-SN
2012 NBES-SN
Social Networking Policies = Increased Mindfulness
Policy Best Practices
Don’t manage social media risks
in a silo
Create a true custom policy
for your organization; don’t just
use a policy off the internet
Be realistic about the rules
Understand the legal landscape
Update your policy regularly
(every 6 months)
Get legal advice
2012 NBES-SN
Training Reduces Risky Behavior
Training Best Practices
Select the right method (Live,
eLearning, blended)
Make it continuous
Refresher training
Burst Training (periodic 5-7
minute reminders)
Compliance communication
materials
Company intranets
Redistribute key policies via
training program
Make it engaging
Scenario-based
Realistic (contemporary) issues
and stories
Focus on behaviors not the law
Not overly legalistic – make
the content accessible
2012 NBES-SN
It’s Not Just Facebook & YouTube
Significant missteps are
happening in HR and recruiting: Profiling
Third party recruitment practices
LinkedIn New connections = leak of confidential
information
Endorsements = job search
Endorsements destroy your reference
policy
Email notices continue long after you have
left your company
Resume fraud and material
misrepresentations
2012 NBES-SN
How Can We Use Social Media to Our Advantage?
2012 NBES-SN
How Can We Use Social Media to Our Advantage?
How Can We Use Social Media to Our Advantage?
Companies can learn from social
networking employees to get a
better picture of what employees
do and how they communicate.
Engaging social networkers will
ultimately help:
Enhance the company’s
reputation
Strengthen employees’ ethical
performance
Create a closer relationship
between company and
employees
2012 NBES-SN
The Future Ethical/Fraud Issues: What’s Coming
IT Security
Cybercrime
Kroll Global Fraud Report 2013-2014
2012-2013 2011-2012
Prevalence:
Companies affected
66% 60%
Areas of frequent loss:
% of firms reporting loss to
this type of fraud
Mgmt conflict of int (21%)
Info theft or attack (20%)
Theft of phys assets (20%)
Mgmt conflict of int (16%)
Info theft or attack (26%)
Theft of phys assets (24%)
Increase in exposure:
Companies where exposure
to fraud has increased
81% 66%
Biggest drivers of
increased exposure:
Most widespread factor
leading to greater fraud
exposure and
% of firms affected
IT complexity (44%) IT complexity (35%)
Loss:
Avg % revenue lost
1.2% 1.1%
We are building our lives around our wired and wireless networks. The question is, are we ready to work together to defend them?
Cal Christian
Melissa Critcher
Jonathan Kraftchick
Joanne Rockness
Appendix
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.
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.
Qualifications of CPE Sponsors
Ensure the instructors are qualified
Evaluate the performance of the instructor
Attendees must have an opportunity to evaluate the quality of
the course,
Systematically review the evaluation process.
Encourage participation by those with appropriate
education and experience level
Distribute course materials
Use appropriate physical facilities
Qualifications of CPE Sponsors
Accurately assign the number of CPE credits by either
Monitoring attendance or
Testing to see if material was learned
Inform instructors the results of their evaluations
Retain for five years
A record of participants
An outline of the course
The date and location of presentation
The participant evaluations
Documentation of the presenters qualifications and
The number of contact hours recommended
Qualifications of CPE Sponsors
Have a visible, continuous, and identifiable contact person,
Develop and promulgate policies and procedures for
grievances, and
Provide persons completing course requirements with a
written proof of completion.
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.
AICPA Ethics Interpretation 101-3
• Revisions to the “Activities Related to Attest Services”
are effective for engagements covering periods
beginning on or after December 15, 2014.
• Has involvement become so extensive that it would
constitute performing a separate service:
• The following are considered outside of the scope of
an attest engagement:
• Financial statement preparation,
• Cash-to-accrual conversions, and
• Reconciliations
AICPA Ethics Interpretation 101-3
1. The member should not assume management
responsibilities for the attest client.
2. Before performing nonattest service, the member should
determine that the client has agreed to:
Assume all management responsibilities.
Oversee the service
Evaluate the adequacy and results of the services performed.
Accept responsibility for the results of the services
AICPA Ethics Interpretation 101-3
3. Before performing nonattest services, the member
should establish and document in writing his or her
understanding with the client (board of directors, audit
committee, or management, as appropriate in the
circumstances) regarding the following:
Objectives of the engagement
Services to be performed
Client's acceptance of its responsibilities
Member's responsibilities
Any limitations of the engagement
False Claims Act & The Qui Tam Whistleblower Reward
False Claims Act is intended to encourage people to come
forward with information and assist the government in
stopping Medicare fraud, defense contractor fraud and other
kinds of federal fraud.
The qui tam reward for the whistleblower ranges from 15% to
30%, depending on the extent to which the whistleblower and
his counsel contribute to the prosecution of the case.
In addition, the False Claims Act provides for the recovery of
attorney fees and expenses.
These two provisions combine to encourage whistleblowers
to come forward
Reporting Federal Funds Fraud
FraudNet/Reporting Fraud
Fill out a FraudNet form - http://www.gao.gov/fraudnet
E-mail: [email protected]
Call toll-free: (800) 424-5454
What information to submit:
Provide as much detail as possible. You do not need to provide
your name.
What happens to information you submit:
The FraudNet form is transmitted over a secure connection, and
all information is safeguarded against unauthorized disclosure.
Reporting State Funds Fraud
Report on-line at http://www.ncauditor.net/HotTips/
Call the Hotline toll-free at 1-800-730-TIPS (1-800-730-
8477) during regular business hours to discuss your
concerns with an investigator.
You may report your concerns anonymously, or you may
choose to include contact information.
Dodd Frank & Consumer Protection Act
SEC law providing whistleblowers with “monetary
rewards”.
Information must lead to recovery of $1 million or
more.
Reward is between 10-30% of monetary sanction.
Must be securities fraud against a public company
SEC Whistleblower Statistics
3,001 tips, complaints or referrals online
3,050 phone calls in the 1st four months
18.2% corporate disclosure
15.5% fraud
15.2% manipulation
23.4% other
83.5% from US
SEC Investor Fund = $453M from settlements of SEC
cases, penalties, interest
Computer Intrusions
Bots
Worms
Viruses
Spyware
Malware
Hacking
Methods of Attack – Verizon 2012 Study of Data Thefts
0% 10% 20% 30% 40% 50% 60%
Hacking
Malware
Physical
Social
Misuse
Error
Data Theft
Time from initial compromising to discovery – Verizon 2012
Months Weeks
Days
Hours
Years
Minutes
PWC 2013 State of Cybercrime Survey
1. Leaders do not know who is responsible for their
organization’s cybersecurity, nor are security experts
effectively communicating on cyberthreats, cyberattacks,
and defensive technologies.
2. Leaders underestimate their cyber-adversaries’
capabilities and the strategic financial, reputational, and
regulatory risks they pose.
PWC 2013 State of Cybercrime Survey
3. Leaders are unknowingly increasing their digital
attack vulnerabilities by adopting social
collaboration, expanding the use of mobile devices,
moving the storage of information to the cloud,
digitizing sensitive information, moving to smart grid
technologies, and embracing workforce mobility
alternatives—without first considering the impact these
technological innovations have on their cybersecurity
profiles.
HP & Ponemon Institute 2013 Cost of Cyber Crime Study
HP & Ponemon Institute 2013 Cost of Cyber Crime Study
Average annualized cost of cybercrime incurred per organization was $11.56 million, with a range of $1.3 million to $58 million.
an increase of 26%, or $2.6 million, over the average cost reported in 2012.(3)
Organizations experienced an average of 122 successful attacks per week, up from 102 attacks per week in 2012.(4)
The average time to resolve a cyberattack was 32 days, with an average cost incurred during this period of $1,035,769, or $32,469 per day
55% increase over 2012’s estimated average cost of $591,780 for a 24-day period.(1)
HP & Ponemon Institute 2013 Cost of Cyber Crime Study
Most costly cybercrimes are caused by denial-of-service,
malicious-insider and web-based attacks, together
accounting for more than 55% of all cybercrime costs per
organization on an annual basis.(5)
Information theft continues to represent the highest
external costs, with business disruption a close second.(6)
On an annual basis, information loss accounts for 43% of total
external costs, down 2 percent from 2012. Business disruption
or lost productivity accounts for 36% of external costs, an
increase of 18% from 2012. (1)
HP & Ponemon Institute 2013 Cost of Cyber Crime Study
Recovery and detection are the most costly internal activities. For the past year, recovery and detection combined accounted for 49% of the total internal activity cost, with cash outlays and labor representing the majority of these costs.
Cybercrime cost varies by company size, but smaller organizations incur a significantly higher per-capita cost than larger organizations.
Organizations in financial services, defense, and energy and utilities experience substantially higher cybercrime costs than those in retail, hospitality and consumer products.
Heads Up
Stephen and John both started around the same time at
their company 6 years ago and have become close friends.
Stephen becomes aware that John is going to be accused of
sexual harassment in the next few days. John knows that
Stephen would never do anything like this.
What does John do?
