Ethics for Accountants: Floridaexam if you do not pass it on the first attempt (no charge). Complete the course by following the learning objectives listed on the following page ,

Ethics for Accountants:

Florida

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51A Middle Street Newburyport MA 01950

Phone: 800-588-7039 Fax: 877-902-4284 [email protected] www.bhfe.com

Course Information Course Title: Ethics for Accountants: Florida #11467

Number of CPE credits recommended for this course:

CPA Hours Approved: 4 In accordance with the standards of the National Registry of CPE Sponsors, CPE credits have been granted based on a 50-minute hour.

Florida Department of Business and Professional Regulation Ethics Provider #: 004761

National Registry of CPE Sponsors ID Number: 107615.

Course Description This course meets the ethics CPE requirement for CPAs licensed in Florida. It covers current ethical issues and special topics in the accounting profession, an introduction to the latest edition of the AICPA Code of Professional Conduct, and the 2016 Florida State Board of Accountancy Administrative Rules (61H1-21 through 61H1-26) with selected cross-references to the AICPA Rules. Numerous examples and case studies are included, as well as the Florida Board of Accountancy Rules 61H1-33, 34, 36, and 39 and the Florida State Statutes, Chapters 455 and 473.

Program Delivery Method: (NASBA) QAS Self-Study/Interactive

Subject Codes/Field of Study: CPE: Professional/Regulatory Ethics

Course Content Publication/Revision date: 6/7/2016 Course book: Ethics for Accountants: Florida ©2016 by Beacon Hill Financial Educators, Inc. Final exam (online): 20 questions (multiple-choice).

Course Level, Prerequisites, and Advance Preparation Requirements Level: Overview Prerequisites: None Preparation: None

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Instructions for taking this course You must complete this course within one year of the date of purchase (if you do not complete the course within one year, contact us to determine whether an updated edition of the course is available, in which case we will provide you with a PDF of the updated course and the online exam at no charge).

A passing grade of at least 80% is required on the final exam for this course. You may retake the exam if you do not pass it on the first attempt (no charge).

Complete the course by following the learning objectives listed on the following page, studying the text, and studying the review questions at the end of each major section. Once you have completed studying the course and you are confident that the learning objectives have been met, answer the final exam questions (online).

Instructions for Taking the Final Exam Online · Login to your account online at www.bhfe.com. · Go to “My Account” and view your course. · Select “Take Exam” for this course and follow instructions. Additional Information

· The exam may be started, stopped, then resumed at a later date. · The exam is "open book," it is not timed, and it may be retaken if not passed on the

first attempt (no charge). · Results (correct, incorrect answers) and certificate appear immediately upon passing the

exam. Have a question? Call us at 800-588-7039 or email us at [email protected].

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Learning Assignments and Objectives After studying the assignments, you should be able to meet the objectives listed below. Assignment: I. Current Ethical Issues in the Accounting Profession

Objectives: 1. Define ethics in the context of being ethical versus acting ethically. 2. Identify the types of accounting services in which the fiduciary standard applies. 3. Recognize the circumstances under which conflicts of interest can arise when a

variety of accounting services are offered by a CPA or firm. 4. Differentiate between rules-based, principles-based, and objectives-oriented

accounting. 5. Recognize the recent developments in reporting and standards-setting for small

and medium-sized businesses and firms conducting business overseas. 6. Interpret recent ethical inquires received by the AICPA.

Assignment: II. AICPA Code of Professional Conduct

Objectives: 7. Recognize the primary components that serve as the foundation of the AICPA

ethical standards. 8. Differentiate between the AICPA Principles of the Code of Professional Conduct.

Assignment: III. Florida Board of Accountancy Rules

Objective: 9. Recognize the general provisions of the Rules of the Board of Regents.

Assignment: IV. Glossary of Florida Terminology

Objective: 10. Define the key terms used in the Florida Statutes and Florida Board of

Accountancy Administrative Rules.

Copyright ã 2016 by Beacon Hill Financial Educators, a division of Diane Freed Publishing Services, Inc. All rights reserved. No part of this course may be reproduced in any form or by any means, without permission in writing from the publisher. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. All numerical values in this course are examples subject to change. The current values may vary among different lenders depending on the type of loan and the lending institute's loan policies.

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Table of Contents Course Information ....................................................................................................... ii Learning Assignments and Objectives .................................................................. iv Section I. Current Ethical Issues in the Accounting Profession ......... 1

Understanding Ethics ................................................................................................................................ 1 A Definition of Ethics ............................................................................................................................................. 1 How do you act when no one is looking? .............................................................................................................. 1

Special Topics: Managing Ethics .............................................................................................................. 1 Analytical Model for Ethical Decisions ................................................................................................................... 1 Fiduciary Standard of Care ................................................................................................................................... 3 Managing Conflicts of Interest When Providing a Range of Professional Services ............................................... 3 Third-Party Verification Letter Requests ................................................................................................................ 7

Special Topics: Regulatory Ethics ............................................................................................................. 8 Objectives-Oriented Accounting, ........................................................................................................................... 8 AICPA Financial Reporting Framework for Small and Medium-Sized Entities .................................................... 11

Relevant, Reliable, Simplified Reporting: 11 A New, Standardized Approach: 11

AICPA: Recent Ethics Inquiries ........................................................................................................................... 12 Blind Trusts 12 Campaign Contributions 12 Disclosure of Commissions 12 Independent Contractors 13 Letter of Intent to Purchase Practice 13 Pro Bono/Below Cost Fees 13 Compliance with SSCS’s when member does not hold out as CPA 14

Review Questions ................................................................................................................................... 15 Section II. AICPA Code of Professional Conduct ......................................... 16

Overview of the AICPA Code of Professional Conduct .......................................................................... 16 Applicability ......................................................................................................................................................... 16

Principles of Professional Conduct ......................................................................................................... 16 Rules Are Not Enough ......................................................................................................................................... 16 The AICPA Principles .......................................................................................................................................... 17

ET Section 0.300.010 - Preamble 17 ET Section 0.300.020 - Responsibilities 17 ET Section 0.300.030 - The Public Interest 17 ET Section 0.300.040 - Integrity 17 ET Section 0.300.050 - Objectivity and Independence 17 ET Section 0.300.060 – Due Care 17 ET Section 0.300.070 – Scope and Nature of Services 17

Using the Principles in Practice ........................................................................................................................... 18 Independence, Integrity, and Objectivity: The Core Values of the Accounting Profession 20

Rules of the Code of Professional Conduct ............................................................................................ 21 Independence, Integrity, and Objectivity: The Core Values of the Accounting Profession ................................. 21

Review Questions ................................................................................................................................... 22 Section III. Florida Board of Accountancy Rules (61H1-21-61H1-26) .... 23

Note to Reader - Organization of the Florida Board of Accountancy Section: ....................................... 23 Independence .......................................................................................................................................... 23

Introduction to Independence .............................................................................................................................. 23 What Is Independence? 23 AICPA Conceptual Framework for Analyzing Threats to Independence 23

Florida 61H1-21.001 Independence. ................................................................................................................... 25 Florida State Board of Accountancy: Standards for Determining Independence 26

Integrity and Objectivity ........................................................................................................................... 44 61H1-21.002 Integrity and Objectivity. ................................................................................................................ 44 Ethical Conflicts (AICPA 1.000.020) .................................................................................................................... 44

Example of Misrepresentation 45 Examples of Conflicts of Interest 45

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Example of an Ethical Issue Relating to Integrity and Objectivity 46 Commissions, Referral Fees, and Contingent Fees ............................................................................... 47

61H1-21.003 Commissions or Referral Fees. ..................................................................................................... 47 61H1-21.005 Contingent Fees ............................................................................................................................ 47

Examples of Instances Where a Contingent Fee Would Be Permitted 48 Example of a Circumstance Where a Contingent Fee Would Not Be Permitted 48

Client Request for Second Opinion ......................................................................................................... 48 C61H1-21.006 Communication with Client of Another Certified Public Accountant. ........................................... 48

Competence and Technical Standards ................................................................................................... 48 61H1-22.001 Competence (General Standards). ................................................................................................ 48

Example of a Violation of Competence and Technical Standards–Auditing Standards 49 The AICPA Interpretation Regarding Competence 49 Example of an Issue Relating to Competence 50

Responsibilities to Clients ....................................................................................................................... 51 61H1-23.001 Confidential Client Information. ...................................................................................................... 51 Selected AICPA Ethical Rulings on Confidential Client Information .................................................................... 51

AICPA Ethical Ruling on Third-party providers 51 Example of an Issue Relating to Confidential Client Information 51

61H1-23.002 Records Disposition Responsibility ................................................................................................ 52 AICPA Terminology: Records 52 AICPA Interpretation on Client Requests for Records 53 Example of How Certain Records Should be Treated 54

Advertising and Solicitation ..................................................................................................................... 54 61H1-24.001 Advertising. .................................................................................................................................... 54 61H1-24.002 Solicitation (Repealed) ................................................................................................................. 56

Responsibility for Other Persons ............................................................................................................. 56 61H1-25.001 Responsibility for Other Persons. .................................................................................................. 56

Firm Name, Form of Practice, Firm Licensure ........................................................................................ 56 61H1-26.001 Form of Practice and Name-Shared Office Space. ........................................................................ 56

Examples of AICPA Rulings Regarding Form of Organization and Name 57 61H1-26.002 Minimum Capitalization or Adequate Public Liability Insurance for Florida Firms with the Exception of a Sole Proprietorship. ..................................................................................................................... 57 61H1-26.003 Licensure of Firm Names. .............................................................................................................. 59 61H1-26.004 Licensure of Changes by Firms. .................................................................................................... 59 61H1-26.005 Address of Record. ........................................................................................................................ 60

Review Questions ................................................................................................................................... 61 Case Studies ........................................................................................................................................... 62

1. Stop Thief! The Case of the Almost Stolen Clients.......................................................................................... 62 2. Oops! The Case of the Harmless Mistakes ..................................................................................................... 63 3. Do You Have What It Takes? The Case of the Inadequate Accountant .......................................................... 65

Section IV. Glossary of Florida Terminology ................................................ 67 61H1-20 Terminology Used in the Florida Board of Accountancy Rules............................................... 67

61H1-20.001 Definitions. (updated 6/7/2016) ...................................................................................................... 67 61H1-20.002 “Attest to the Reliability or Fairness of Presentation,” “Expression of Opinion.” ............................. 67 61H1-20.003 Client. ............................................................................................................................................ 68 61H1-20.004 Enterprise. ..................................................................................................................................... 68 61H1-20.005 Financial Statements. .................................................................................................................... 68 61H1-20.0051 Assembled Financial Statements. ............................................................................................... 68 61H1-20.0052 Offer to Perform or Perform Services Involving Assembled Financial Statements. ..................... 69 61H1-20.0053 Standards for Assembled Financial Statements. ......................................................................... 69 61H1-20.006 Firm or Firms of Certified Public Accountants (Repealed) ............................................................ 72 61H1-20.007 Generally Accepted Accounting Principles (Repealed) ................................................................ 72 61H1-20.008 Generally Accepted Auditing Standards (Repealed) .................................................................... 72 61H1-20.009 Standards for Accounting and Review Services (Repealed) ........................................................ 72 61H1-20.0092 Government Auditing Standards (Repealed) .............................................................................. 72 61H1-20.0093 Rules of the Auditor General. ...................................................................................................... 72 61H1-20.0095 Standards for Consulting Services (Repealed) ........................................................................... 73 61H1-20.0096 Services for Tax Practice (Repealed) ......................................................................................... 73 61H1-20.0097 Standards for Personal Financial Planning (Repealed) .............................................................. 73 61H1-20.0098 Standards for Valuation Services (Repealed) ............................................................................. 73

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61H1-20.0099 Standards for Attestation Engagements (Repealed) .................................................................. 73 61H1-20.010 Engagement. ................................................................................................................................. 73 61H1-20.013 Employee. ...................................................................................................................................... 73 61H1-20.016 Non-CPA Shareholders, Partners, and Members. ......................................................................... 73

Terminology Used in the Standards for Determining Independence ...................................................... 74 Appendix I. Florida Board of Accountancy Rules 61H1-33, 34, 36, 39 .. 77

61H1-33 Reestablishment of Professional Knowledge and Competency ............................................. 77 61H1-33.001 Certified Public Accountants Required to Comply with this Chapter. ............................................. 77 61H1-33.002 Organization and Administration. ................................................................................................... 77 61H1-33.003 Continuing Professional Education. ............................................................................................... 78 61H1-33.0031 Continuing Professional Education/Ethics. .................................................................................. 81 61H1-33.0035 Continuing Professional Education/Governmental Auditing......................................................... 81

61H1-34 Persons Other Than Certfied Public Accountants .................................................................. 82 61H1-34.001 Preparation of Financial Statements by Persons Other than Active or Inactive CPAs. .................. 82 61H1-34.002 Notice to Public by Non-Licensed Persons. ................................................................................... 83

61H1-36 Discipline ................................................................................................................................. 83 61H1-36.002 Return of Certificates or Licenses. ................................................................................................. 83 61H1-36.003 Time for Payment of Civil Penalties. .............................................................................................. 83 61H1-36.004 Disciplinary Guidelines; Range of Penalties; Aggravating and Mitigating Circumstances. ............ 83 61H1-36.005 Citations. ........................................................................................................................................ 88 61H1-36.0055 Minor Violation, Notice of Non-Compliance. ................................................................................ 89 61H1-36.006 Mediation. ...................................................................................................................................... 90

61H1-39 Peer Review ............................................................................................................................ 90 61H1-39.001 Definitions. ..................................................................................................................................... 90 61H1-39.002 Peer Review Program Standards. ................................................................................................. 91 61H1-39.003 Peer Review Administering Entities. .............................................................................................. 91 61H1-39.004 Peer Review Oversight Committee Composition and Responsibilities. ......................................... 92 61H1-39.005 Compliance with Peer Review Requirements. ............................................................................... 93

Appendix II. Florida Statutes, Chapters 455 and 473 .................................... 94 Chapter 455 - Business and Professional Regulation: General Provisions ............................................ 94

455.224 Authority to issue citations ..................................................................................................................... 94 455.225 Disciplinary proceedings ....................................................................................................................... 94 455.2255 Classification of disciplinary actions .................................................................................................... 98 455.227 Grounds for discipline; penalties; enforcement...................................................................................... 98 455.2273 Disciplinary guidelines ....................................................................................................................... 101 455.2274 Criminal proceedings against licensees; appearances by department representatives. ................... 101 455.2275 Penalty for giving false information. ................................................................................................... 102 455.2277 Prosecution of criminal violations ...................................................................................................... 102 455.228 Unlicensed practice of a profession ..................................................................................................... 102 455.2281 Unlicensed activities; fees; disposition .............................................................................................. 103 455.2285 Annual report: finances, administrative complaints, disciplinary actions, recommendations ............. 104 455.2286 Automated information system .......................................................................................................... 104 455.229 Public inspection of information required from applicants; exceptions; examination hearing .............. 105 455.232 Disclosure of confidential information .................................................................................................. 105

Chapter 473-Regulation of Professions and Occupations: Public Accountancy .................................. 106 Table of Contents (Statutes not included in course are noted) .......................................................................... 106 473.301 Purpose .......................................................................................................................................... 106 473.302 Definitions........................................................................................................................................... 107 473.303 Board of Accountancy ........................................................................................................................ 108 473.3035 Division of Certified Public Accounting ............................................................................................. 108 473.304 Rules of board; powers and duties; legal services ............................................................................ 108 473.309 Practice requirements: partnerships, corporations, limited liability companies; business entities practicing public accounting .............................................................................................................................. 109 473.311 Renewal of license ............................................................................................................................. 110 473.312 Continuing education .......................................................................................................................... 110 473.3125 Peer Review ..................................................................................................................................... 111 473.315 Independence, technical standards .................................................................................................... 112 473.316 Communications between the accountant and client privileged ......................................................... 112 473.318 Ownership of working papers ............................................................................................................. 114 473.319 Contingent fees .................................................................................................................................. 114

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473.3205 Commissions or referral fees............................................................................................................ 114 473.321 Fictitious names ................................................................................................................................. 115 473.322 Prohibitions; penalties ........................................................................................................................ 115 473.323 Disciplinary proceedings .................................................................................................................... 116

Appendix III. AICPA Glossary ................................................................................... 118 Appendix IV. Answers and Explanations to Review Questions .............. 127

Section I. Current Ethical Issues in the Accounting Profession ........................................................... 127 Section II. AICPA Code of Professional Conduct ................................................................................ 129 Section III. Florida State Board of Accountancy Rules ........................................................................ 131

Index ................................................................................................................................... 134 Endnotes........................................................................................................................... 135

Current Ethical Issues in the Accounting Profession

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Section I. Current Ethical Issues in the Accounting Profession

Understanding Ethics

A Definition of Ethics

In their book Ethical Obligations and Decision-Making in Accounting, Mintz and Morris define ethics as follows:

Ethics deals with well-based standards of how people ought to act. Ethics does not describe the way people do act. Ethics relates to the way people should act, and it is prescriptive, not descriptive. Ethical people always strive to make the right decision in all circumstances. They do not rationalize their actions based on their own perceived self-interests. Ethical decision making entails following certain well-established norms of behavior.1

How do you act when no one is looking?

Being an ethical person means trying to lead a “good” life: a life worth living. As we strive to be morally “good,” we draw on our moral character and ethical principles to guide us in how we live our lives. It is the difference between acting ethically and being ethical.2

Ethics is all about how we act when no one is looking. Actions that we take without regard to what others may think are driven by our sense of what is right and what is wrong. The key to ethics has to do with how we define right and wrong. Knowing the difference between the two is a product of our moral character and ethical principles.3

We can also know the difference between right and wrong if rules or laws exist that define it for us. However, when rules aren’t always clear or they don’t exist for a given situation, or when the logical path to take is unclear, we have to rely on our ethical principles to guide us through a process of ethical reasoning.4 With reasoning and thought, we can make better judgments and proceed with a course of action that is true to our moral character.

One of the goals of studying ethics, then, is to enhance our ethical reasoning and judgment so we can work through ambiguous ethical situations. For professionals such as accountants, this requires calling on an inherent ethicality that is grounded in personal ethical principles, knowledge of the principles established by the profession, and the ability for practical reasoning to determine what course of action to take in a given situation.

Special Topics: Managing Ethics

Analytical Model for Ethical Decisions

An article in Managerial Auditing Journal determined the top nine factors that contributed to ethical failures for accountants based on a survey of 66 members of the International Federation of Accountants. The factors include (in order of most significant): "self-interest,

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failure to maintain objectivity and independence, inappropriate professional judgment, lack of ethical sensitivity, improper leadership and ill-culture, failure to withstand advocacy threats, lack of competence, lack of organizational and peer support, and lack of professional body support." The main factor, self-interest, is the motivation by an accountant to act in his/her best interest when facing a conflict of interest. For example, if an auditor has an issue with an account he/she is auditing, but is receiving financial incentives to ignore these issues, the auditor may act unethically.5

Ethical codes are informative and helpful as a means of avoiding such ethical failures. However, the motivation to behave ethically must come from within oneself and not just from the fear of penalties for violating professional codes. Presented below is a sequence of steps that provide a framework for analyzing ethical issues. These steps can help you apply your own sense of right and wrong to ethical dilemmas:

Step 1. Determine the facts of the situation. This involves determining the “who, what, where, when, and how.”

Step 2. Identify the ethical issue and the stakeholders. Stakeholders may include shareholders, creditors, management, employees, and the community.

Step 3. Identify the values related to the situation. For example, in some situations confidentiality may be an important value that may conflict with the right to know.

Step 4. Specify the alternative courses of action.

Step 5. Evaluate the courses of action specified in step 4 in terms of their consistency with the values identified in step 3. This step may or may not lead to a suggested course of action.

Step 6. Identify the consequences of each possible course of action. If step 5 does not provide a course of action, assess the consequences of each possible course of action for all of the stakeholders involved.

Step 7. Make your decision and take any indicated action.6


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Fiduciary Standard of Care

A fiduciary has a legal duty to act solely in the best interests of the client. Although CPAs are normally not considered to be a fiduciary to their clients, the Florida Board of Accountancy Rules and the AICPA Code of Professional Conduct embody standards of conduct which are closely analogous to a fiduciary relationship—objectivity, integrity, freedom from conflicts of interest, and truthfulness.

A fiduciary is someone who is in a position of trust. In fiduciary accounting, a trusted person is required to keep detailed financial records when administering a trust or when acting as the executor of the estate of a deceased person. The fiduciary may also be managing assets for a minor child until he or she reaches the age of majority. The records may be filed with the court as part of a legal proceeding, and it is essential that they be accurate. 7

Courts have found that CPAs can be a fiduciary to their clients when providing certain professional services including tax services, asset management, general business consulting, and investment advisory services. On the other hand, CPAs who provide audit services cannot be held to a fiduciary standard, given their duty to the public.

Generally, if the following three elements are present in a client relationship, a CPA may be deemed to be a fiduciary to his or her client:

(i) the CPA holds himself or herself out as an expert in an aspect of business,

(ii) the client places a high degree of trust and confidence in the CPA and

(iii) the client is heavily dependent upon the CPA’s advice. 8

Where a fiduciary relationship exists between a CPA and a client, the CPA has a higher level of duty to the client and hence a greater potential for liability. Thus, it is important for CPAs to consider when they might be stepping over the fiduciary line, and what the moral and legal responsibilities are that come with that enhanced status.

Managing Conflicts of Interest When Providing a Range of Professional Services

The myriad of client engagements ranging from attest, tax, and management advisory services that are performed by public accountants may produce conflicting ethical issues. A CPA must be independent when providing attest services, for example, but at the same time the CPA might be called on to serve as client advocate when providing tax services. When providing consulting services to a client, a CPA must avoid acting or even appearing to act as a member of management for the client, but at the same time the CPA might have a significant financial interest, be a member of management, or be in a position of influence in a company that is a major competitor of that consulting client. Certain types of engagements may pose a higher risk of conflict than others, such as buy-sell transactions and providing litigation support as an expert witness. Therefore, CPAs must pay close attention to their ethical responsibilities, which can vary and sometimes even be in conflict, depending on the type of services being performed.

Of particular importance is the need to be sensitive to potential conflicts of interest—ones that may be in violation of Florida Board of Accountancy Rule 61H1 21.002 Integrity and Objectivity and the AICPA Integrity and Objectivity Rule. In their article in CPA Journal,

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Gardner, Lawrence, and Willey describe some of the most commonly-encountered situations in which conflicts of interest can arise in accounting:

Family Tax Planning. Accountants may confront conflicts of interest when representing clients during a marital dissolution. For example, where an accountant has provided tax planning services for a married couple for many years, the parties may ask the accountant to continue providing such services for the couple during amicable divorce proceedings. Even where both parties give "knowledgeable consent" to the practitioner's proposed role, there may be a conflict of interest under Florida Rule 61H1 23.001 Confidential Client Information and the AICPA Rule Confidential Client Information Rule arising from the practitioner's capacity to maintain the confidentiality of information provided by each of the parties. In addition, if either spouse is unsophisticated about family financial matters in comparison to the other spouse, there is a question about whether that party has the capacity to even provide "knowledgeable consent."

Some firms secure formal permission to complete the couple's last joint or separate tax returns and provide advice regarding distribution of jointly owned property. In community property states (Florida is not one-it is a pure no fault divorce state), it is particularly essential that each party to the divorce be represented by competent counsel, even though only one CPA may complete the tax engagement for both divorcing parties. In addition, even amicable divorce proceedings can become contentious, and the CPA must ensure that no confidential information is communicated to parties in violation of client confidentiality.

CPAs must clearly identify for whom they are working in such situations. They should not distribute any client information without permission unless required to do so by law. Practitioners are also advised to consult their own legal counsel to determine if the divorce context places them in a fiduciary capacity under Federal or state law or requires the CPA to involuntarily disclose information.

Succession and Estate Planning. CPAs working with attorneys, investment advisors, and other professionals in multi-generational tax planning situations, may encounter disputes over division of property, ownership of businesses, and charges of either favoritism or conflicts of interest from disgruntled beneficiaries. Although it may be preferable for all parties to the planning engagement to be represented by independent professionals, this may not be practical due to cost factors and other realities of the professional environment.

CPAs should have a clear engagement letter that outlines their responsibilities in any planning situation. The engagement letter should explicitly detail whether the CPA firm is assuming the primary responsibility for the planning or is merely acting in an ancillary or secondary team role to other professionals. The CPA firm should fully disclose potential conflicts of interest and secure written approval from all parties if it undertakes to represent multiple parties in the transaction. All engagement letters or contracts should clearly specify for whom the practitioner is working and to whom information may be disclosed.


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Insurance companies often discourage CPAs who represent more than one party in a succession or estate planning engagement from completing the tax return for any beneficiary. Since the CPA has access to personal financial information that could be used to the beneficiary's disadvantage, a conflict of interest may arise. If so, both the CPA firm and attorneys may be named in a liability claim for not fully disclosing the details of the succession plan or will. While the realities of practice may preclude such representation, the CPA should secure written permission from the client to engage in such work. The CPA should also keep written records of any discussion with the clients.

Litigation Support. Accountants may be asked to perform litigation support services for a current client in connection with a lawsuit filed against a former client of the accountant's firm. Under the AICPA Confidential Client Information Rule this situation produces a conflict of interest if any part of the subject matter of the suit relates in any way to the work the accountant performed for the former client. In addition, if the accountant's knowledge of the former client was gained through the former practitioner/client relationship and could be used to disadvantage the former client, a conflict of interest arises.

Representing Both the Entity and Its Owners. A tax practitioner may be asked to prepare both the tax information return for a partnership and the individual returns for each of the partners. Even if the partnership and each of the partners give "knowledgeable consent" for the practitioner to prepare these returns, it is questionable whether the practitioner can keep confidential the information provided by each of the separate parties.9

In Interpretation of Conflicts of Interest, the AICPA defines conflict of interest (see examples of typical potential conflict of interest situations under Section III, Florida Rule 61H1-21.002 Integrity and Objectivity):

A conflict of interest creates adverse interest and self-interest threats to the member’s compliance with the "Integrity and Objectivity Rule" [1.100.001]. For example, threats may be created when

a) the member or the member’s firm provides a professional service related to a particular matter involving two or more clients whose interests with respect to that matter are in conflict, or

b) the interests of the member or the member’s firm with respect to a particular matter and the interests of the client for whom the member or the member’s firm provides a professional service related to that matter are in conflict.

Certain professional engagements, such as audits, reviews, and other attest services, require independence. Independence impairments under the AICPA Independence Rule, its interpretations, and rulings cannot be eliminated by such disclosure and consent.10

Another area in which conflicts of interest can arise is client advocacy in tax practice and other engagements. Under the AICPA Code of Professional Conduct, professional services include tax or consulting services involving advocacy for a client or the client's position on accounting, or on reporting issues with standard-setters, regulators, or others.

In the AICPA Interpretation of Client Advocacy, specifically warns that "there is a possibility that some requested professional services involving client advocacy may appear to stretch the bounds of performance standards, may go beyond sound and reasonable professional practice, or


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may compromise credibility and thereby pose an unacceptable risk of impairing the reputation of the member or his or her firm with respect to independence, integrity, and objectivity."11

CPAs should recognize that competing obligations of objectivity and integrity that can come from providing a broader range of services may substantially increase the potential for conflicts of interest. Gardner, Lawrence, and Williey, describe how CPAs can stay alert to the existence of potential conflicts of interest by tracking the right kind of information on clients and transactions through better recordkeeping and/or more sophisticated software. Clients and engagements can even be classified in a manner that improves the recognition of conflict of interest risks. These defensive measures are especially important for mutli-office firms.

In assessing the risks of conflict of interest, practitioners should maintain objectivity both in fact and in appearance—much as they do in an audit context regarding independence and the appearance of independence.

Other prudent measures to take in a conflict of interest-prone environment include client disclosures as a means of informing, for example, multiple parties with potentially conflicting interests who request a CPA or firm to provide professional services. This would serve to verify that the clients understand the situation. Consent and/or release documentation may also be necessary, as well as the CPA documenting the rational for determining that a situation does not pose a conflict of interest. The CPA may also need to consult a liability insurance carrier.

Overall, the entire process for assessing and alleviating the risk of conflicts of interest should be regularly reviewed by others, such as the firm’s tax director, another partner, or an outside authority.12


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Third-Party Verification Letter Requests

An ongoing ethical concern of CPAs is the issue of being asked by third parties for verification, confirmation, certification, corroboration, authentication, or substantiation of their clients’ financial information. The AICPA has found that more members are seeing a rise in these types of requests, particularly for assurance on client accounting, tax information, or financial condition. This type of request can carry risks: liability concerns, client alienation, confidentiality breaches, ethical issues, possible Gramm-Leach-Bliley Act* violations, professional standard prohibitions, and Internal Revenue Code penalties.

According to Sue Coffey of the AICPA,

“Every few years, the issue of providing clients with ‘comfort letters’–or verification documents–rears its head among our members. Regulators or banks often look for verification that certain items within a financial statement (e.g., revenue) or a tax return (e.g., income) is ‘right’ and they want a CPA to verify it. AICPA members have even received requests for comfort letters from adoption agencies, health insurance providers, and state taxing authorities. According to the AICPA’s Professional Liability Insurance Program, examples of third party verification information requested by lenders and loan brokers include:

Confirmation of a client’s self-employment status;

Verification of income from self-employment;

Verification of a self-employed borrower’s business ownership percentage;

Profitability or sustainability of a self-employed client’s business; and

The impact on a self-employed client’s business if money is withdrawn to fund the down payment on a real estate purchase.”13

*Financial services company disclosures that are required for consumers.

The AICPA’s Statements on Standards for Tax Services and the IRS Circular 230 due diligence standards do not specifically address the issue of verifying client information for third parties. They only state that CPAs and tax professionals can rely on the information provided by clients and third parties, although an inquiry must be made if inconsistencies or conflicting information is discovered.

The AICPA is developing guidance on this issue. In general, the primary concern surrounding a CPA providing a third-party verification letter or certification is in relation to client confidentiality. As required by Florida Rule 61H1 23.001 Confidential Client Information and the AICPA Confidential .Client Information Rule, a CPA-member must first obtain specific consent of the client before providing third-parties, such as lenders, with factual information on a client. And further, CPAs may not provide any assurance on matters relating to solvency in response to a request by a third party.

AU-C section 920, Letters for Underwriters and Certain Other Requesting Parties (AICPA, Professional Standards), defines a comfort letter as a letter issued by an auditor in accordance with AU-C section 920 to requesting parties in connection with an entity’s financial statements included in a securities offering.

The requests that CPAs are actually receiving from third parties pertain to verification letters. The requested information may relate to a pending loan, employee medical insurance, child adoption applications, or use-tax certification. Mortgages originated by private mortgage companies, which were resold to Fannie Mae and Freddie Mac and past due, are subject to required quality reviews. Quality review standards may require the mortgage originator to contact CPAs whose comfort letters/third party verification are contained within the loan file to confirm the statements made in such letters. http://www.aicpa.org/interestareas/frc/pages/concernsregardingcomfortletters.aspx


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The AICPA has recently added an expanded frequently asked questions document to its webpage dedicated to third-party verification letters. These non-authoritative responses now include tax information to help practitioners navigate the complex Internal Revenue Code section 7216 disclosure rules. One of the FAQs even includes some sample text that members can use when responding to a third-party verification request for a tax-only client. Additional resources on aicpa.org/verifications, include a video on matters of solvency and the types of responses CPAs can provide to third-party verification requests.14

Special Topics: Regulatory Ethics

Objectives-Oriented Accounting,

The Sarbanes-Oxley Act of 2002 ("the Act") sought, among other things, to improve our system of financial reporting by reinforcing the checks and balances that are critical to investor confidence. The Act requires changes in many facets of the financial reporting by and analysis of companies. Some of the important changes implemented are:

(1) required certification of information by company CEOs and CFOs,

(2) empowerment of audit committees to engage and approve the services provided by independent auditors,

(3) more stringent auditor independence standards,

(4) greater oversight of auditors through the establishment of the Public Company Accounting Oversight Board, and

(5) greater independence for the accounting standard setter.

The Act also directed the Securities and Exchange Commission ("SEC") to conduct a study on the adoption by the United States financial reporting system of a principles-based standard setting process that addresses the imperfections that exist when standards are established on either a rules-based or a principles-only basis.

Rules-based standards, because of their high level pf specificity, often provide a vehicle for circumventing the intention of the standard—they can provide a roadmap to avoidance of the accounting objectives inherent in the standard. Internal inconsistencies, exceptions, and bright-line tests reward those looking for ways to engineer their way around the intent of standards.

In a rules-based system, financial reporting may well come to be seen as an act of compliance rather than an act of communication. Additionally, because the multiple exceptions lead to internal inconsistencies, significant judgment is needed in assessing the accuracy of what is being reported.

At the other extreme, a principles-only approach typically provides insufficient guidance to make the accounting standards reliably operational. As a consequence, principles-only standards require preparers and auditors

Bright-line rule (or bright-line test)-is a clearly defined rule or standard, generally used in law, composed of objective factors which leaves little or no room for varying interpretation. The purpose of a bright-line rule is to produce predictable and consistent results in its application.

Bright-line rules are usually standards established by courts in legal precedent or by legislatures in statutory provisions. Bright-line rules are often contrasted with its opposite balancing tests (or "fine line testing"), where a result is dependent on weighing several factors, which could lead to inconsistent application of law or reduce objectivity.

http://www.aicpa.org/InterestAreas/FRC/Pages/ConcernsRegardingComfortLetters.aspx


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to exercise significant judgment in applying overly-broad standards to more specific transactions and events, and often do not provide a sufficient structure to frame the judgment that must be made. The result of principles-only standards can be a significant loss of comparability among reporting entities. Furthermore, under a principles-only standard setting system, the increased reliance on the capabilities and judgment of preparers and auditors could increase the likelihood of disagreements on accounting treatments. In turn, this could result in an increased risk of litigation.

Those favoring rules-based standards argue that the detailed guidance contained in such standards reduces diversity in application of the standards, thereby enhancing financial statements’ consistency and comparability. However, critics of rules-based standards argue that such standards encourage firms to structure transactions in such a way that they comply with a strict reading of the rules while avoiding the intent of such rules.

Proponents of principles-based standards, while acknowledging the potential for diversity in application, assert that the likelihood of varied interpretation decreases when well-trained professionals apply good judgment. The proponents also suggest the increased disclosure required under principles-based guidance reduces the need for the use of judgment. Critics argue that, due to their lack of specificity, principles-based standards are harder to enforce.

Both the Financial Accounting Standards Board (FASB) and the SEC suggest that standards without bright lines may force preparers to look beyond the form of the transaction to concentrate on its economic substance (FASB 2002; SEC 2003). However, critics of a principles-based approach to standard setting argue that, because principles-based standards require extensive professional judgment, such standards lead to more diverse financial reporting results.15

As a result of the study, the SEC recommended that those involved in the standard-setting process seek out a middle ground by developing standards on an “objectives-oriented” basis. These standards should have the following characteristics:

Be based on an improved and consistently applied conceptual framework;

Clearly state the accounting objective of the standard;

Provide sufficient detail and structure so that the standard can be operationalized and applied on a consistent basis;

Minimize exceptions from the standard;

Avoid use of percentage tests ("bright-lines") that allow financial engineers to achieve technical compliance with the standard while evading the intent of the standard.

The SEC went on to define an optimal standard as follows:

A concise statement of substantive accounting principle where the accounting objective has been included at an appropriate level of specificity as an integral part of the standard and where few, if any, exceptions or conceptual inconsistencies are included in the standard. Further, such a standard should provide an appropriate amount of implementation guidance given the nature of the class of transactions or events and should be devoid of bright-line tests. Finally, such a standard should be consistent with, and derive from, a coherent conceptual framework of financial reporting.16


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Objectives-oriented standards explicitly charge management with the responsibility for capturing within the company's financial reports the economic substance of transactions and events-not abstractly, but as defined specifically and framed by the substantive objectives built into each pertinent standard. In turn, auditors would be held responsible for reporting whether management has fulfilled that responsibility.

Accordingly, objectives-oriented standards place greater emphasis on the responsibility of both management and auditors to ensure that the financial reporting captures the objectives of the standard—something that rules-based standards or principles-only standards do not do. Further, if properly constructed, the SEC believed objectives-oriented standards could require less use of subjective judgment than either rules-based or principles-only standards, and thus, may serve to better facilitate consistency and compliance with the intent of the standards.

Other benefits of the objectives-oriented approach include:

Classification of objectives-the ability to establish the objectives and the accounting model for the class of transactions, providing management and auditors with a framework that is sufficiently detailed for the standards to be operational;

Clearer results-providing users and regulators with sufficient detail to better comprehend and properly gauge the results reported by management and attested to by the auditors;

Improved compliance-serving to better facilitate compliance with the intent of the standards;

Increased accountability-providing the means by which management and auditors may be held accountable for reporting the substance of transactions within the financial statements, resulting in more meaningful and informative financial statements;

Reduced cost of understanding standards-cost to investors and analysts of comprehending the standards themselves is expected to be lower;

Enhanced standard-setting process-serving to enhance the quality, consistency, and timeliness of the standard setting process itself; and

GAAP/IFRS convergence-facilitating a greater convergence between U.S. GAAP and international standards.

The study also explored potential disadvantages of an objectives-oriented approach, including:

Higher costs of accounting services;

Standard-comparability issues/lack of consistency from company to company and industry to industry;

Certain transition costs, and

Litigation uncertainty.

According to the SEC, the U.S. standard setters will continue to move towards objectives-oriented standard setting on a transitional or evolutionary basis. Operationalizing an objectives-oriented approach to standard setting in the U.S. will require the standard setters to undertake the following key steps:

Ensure that newly-developed standards articulate the accounting objectives and are devoid of scope exceptions, bright-lines and excessive detail;

When developing new standards, ensure that they are aligned with an improved conceptual framework;


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Address current standards that are more rules-based;

Address deficiencies in the conceptual framework;

Redefine the GAAP hierarchy; and

Continue efforts on GAAP/IFRS convergence.17

AICPA Financial Reporting Framework for Small and Medium-Sized Entities

The Financial Reporting Framework (FRF) for Small and Medium-Sized Entities (SME) is a lower cost accounting option for preparing more streamlined, relevant financial statements for privately held owner-managed businesses that are not required to use GAAP. The FRF for SMEs framework draws upon a blend of traditional methods of accounting with some accrual income tax methods. The framework was developed by a working group of CPA professionals and AICPA staff who have years of experience serving small businesses.

All financial statements are prepared in accordance with a financial reporting framework. The term financial reporting framework is defined as a set of criteria used to determine measurement, recognition, presentation, and disclosure of all material items appearing in the financial statements. Examples of financial reporting frameworks are generally accepted accounting principles (GAAP) in the United States of America, International Financial Reporting Standards (IFRSs), and special purpose frameworks (also known as other comprehensive bases of accounting (OCBOA)).

Relevant, Reliable, Simplified Reporting: Small businesses will use the FRF for SMEsTM to prepare financial statements that clearly and concisely report what a business owns, what it owes and its cash flow. Lenders, insurers and other financial statement users will find this new accounting framework helps them clearly understand key measures of a business and its creditworthiness, including:

Business profitability

Cash available

Assets to cover expenses

Concise disclosures

A New, Standardized Approach: The framework’s streamlined common-sense requirements are based on traditional and proven accounting methods to ensure consistent application. Specifically, the FRF for SMEs™:

Uses historical cost–steering away from complicated fair value measurements;

Offers a degree of optionality–businesses can tailor the presentation of statements to their users;

Includes targeted disclosure requirements;

Reduces book-to-tax differences;

Produces reliable financial statements that can be compiled, reviewed or audited.

“I think this new accounting framework is exactly what business owners, CPAs and community bankers have been looking for as a viable and reliable alternative to the options already available,” said Richard J. Caturano, chairman of the AICPA Board of Directors. “The FRF for SMEs™ expands


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the accounting options for CPAs and private companies, while providing comprehensive, consistent and cost-beneficial financial statements.”

The FRF for SMEs™ issued by the AICPA was developed by a working group of experts from the CPA profession with a solid understanding of what users of private company financial statements need. This new accounting framework has also undergone public comment and professional scrutiny, and incorporates significant feedback from CPAs, bankers and other relevant stakeholders.”18

AICPA: Recent Ethics Inquiries

In March 2015, the AICPA’s Professional Ethics Division staff issued a FAQ regarding recent ethics inquiries. The answers to these frequently asked questions (FAQs) are based on guidance the AICPA Professional Ethics Division staff provided in response to members’ inquiries and cover the following topics:

Blind Trusts

Campaign Contributions

Disclosure of Commissions

Independent Contractors

Letter of Intent to Purchase Practice

Pro Bono/Below-Cost Fees

Blind Trusts Question: A covered member creates a blind trust and transfers assets into the blind trust. The covered member will not supervise or participate in the trust’s investment decisions during the term of the trust. Will the trust and the underlying assets be considered the covered member’s direct financial interests?

Answer: Although the covered member will not supervise or participate in the trust’s investments decisions during the term of the trust, the trust and the underlying investments will be considered the covered member’s direct financial interest if: (1) the covered member retains the right to amend or revoke the trust, or (2) the underlying trust investments will ultimately revert to the covered member as the grantor of the trust.

Campaign Contributions Question: May a member make a political contribution to the campaign of an individual that is associated with an attest client in a key position (AICPA, Professional Standards, Joint Closely-Held Investments and Key Position) or holds a financial interest in the attest client that is material and/or enables the individual to exercise significant influence over the attest client without impairing independence or violating any other rule of conduct?

Answer: Yes. A member would not impair independence or be in violation of any other rule of conduct, provided the political contribution is not made with the intention of influencing the procurement of professional services or in contravention of federal or state laws or regulations.

Disclosure of Commissions Question: When is a member required to disclose to a client that a commission will be received under the AICPA Commissions and Referral Fee Rule?


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Answer: A member should disclose that a commission would be received at the time the referral is being made so that the client can decide whether to act on the recommendation.

Independent Contractors Question: Would independence be impaired if a CPA firm retained an independent contractor (as defined by IRS regulations and other federal regulatory guidance such as case law and revenue rulings) on a part-time basis that is employed by or associated with an attest client in a key position?19

Answer: Yes. Independence would be impaired if an independent contractor retained by the firm was simultaneously employed by or associated with an attest client in a key position.

However, if the independent contractor is employed by or associated with the attest client in a non-key position, a member should consider the following criteria when determining if independence (in fact and appearance) is impaired:

Location of the firm office where the independent contractor will work in relation to the location of the office providing services to the attest client.

Whether the independent contractor performs services for other firms or entities or solely to the member’s firm. Factors to consider include, but are not limited to:

The percentage of income the individual derives from the member’s firm in relation to the individual’s total “self-employed” or earned income;

The percentage of income the individual derives from the client entity in relation to the individual’s total earned income;

The amount of time the individual devotes to the member’s firm versus time devoted to the attest client;

The amount of time the individual devotes to the member’s firm versus time devoted to other firms or entities.

Even in situations where the threats to compliance with the Independence Rule (in fact or appearance) are deemed to be at an acceptable level, the member and/or the member’s firm should consider the potential for conflict of interest under the Integrity and Objectivity Rule. If threats to compliance with the rule are deemed to be at an unacceptable level, the member should consider whether safeguards are available to eliminate or reduce the threats to an acceptable level. If no safeguards are available to eliminate or reduce the threats to an acceptable level, threats to compliance with the Integrity and Objectivity Rule would be at an unacceptable level and, in turn, independence would be impaired.20

Letter of Intent to Purchase Practice Question: Would independence be impaired if a member enters into a non-binding letter of intent to sell his or her practice to a purchaser that is not independent with respect to one or more of the member’s attest clients?

Answer: No. A non-binding letter of intent to sell the member’s practice would not impair the independence of the member if the purchaser is not independent with respect to one or more of the member’s attest clients.

Pro Bono/Below Cost Fees Question: May a member perform professional services for a client for no fee, or for a fee that is below cost without impairing independence or violating any other rule of conduct?


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Answer: Yes. However, regardless of what fee is charged, members are required to comply with all professional standards that are applicable to the services performed. For example, a member must comply with the General Standards rule, which requires members to:

Only undertake those professional services that the member or the member’s firm can reasonably expect to be completed with professional competence;

Exercise due professional care in the performance of professional services;

Adequately plan and supervise the performance of professional services;

Obtain relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.

The member’s state board(s) of accountancy may have rules that are more restrictive than provided in the above guidance. Accordingly, members should consult with their state board(s) of accountancy for guidance.

Compliance with SSCS’s when member does not hold out as CPA Question. The “Compliance with Standards Rule” requires that a member who performs professional services, including consulting services, comply with standards promulgated by bodies designated by Council, regardless of whether the member is holding out as a CPA. The standards applicable to members performing consulting services are set forth in the Statements on Standards for Consulting Services (SSCSs) and specifically state that such standards apply to members holding out as a CPA while providing consulting services. Would a member who does not hold out as a CPA be in compliance with “Compliance with Standards Rule” if the member did not comply with the SSCSs while performing consulting services for a client?

Answer. Yes. Since the SSCSs apply to those members holding out as CPAs, a member who does not hold out as a CPA would not be in violation of “Compliance with Standards Rule” if the member performed consulting services that did not comply with the SSCSs. The member must still comply with all other rules of the Code, including the “General Standards Rule” which requires that the member comply with the following standards:

a. Professional Competence. Undertake only those professional services that the member or the member's firm can reasonably expect to be completed with professional competence.

b. Due Professional Care. Exercise due professional care in the performance of professional services.

c. Planning and Supervision. Adequately plan and supervise the performance of professional services.

d. Sufficient Relevant Data. Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.21


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Review Questions (Answers and explanations are in Appendix IV.)

1. How is being ethical different than acting ethically?

A. Being ethical is how we act when we are being observed. B. Being ethical is being driven by what others may think. C. Being ethical requires moral character and ethical principles. D. Being ethical means relying on rules and laws.

2. An accountant would generally be deemed to be a fiduciary to his or her client if which of the following elements are present in the client relationship in which the accountant is providing professional services?

I. The accountant holds himself or herself out as an expert in an aspect of business. II The client places a high degree of trust and confidence in the accountant. III The client is heavily dependent upon the accountant’s advice. IV The accountant provides investment advisory services as a registered investment

adviser to his or her advisory clients. A. I, II, and III are correct. B. II and III are correct. C. I, III, and IV are correct D. I, II, III, and IV are correct

3. An accountant fulfilling a request to verify a client’s financial information for a third party

A. is prohibited by the AICPA Statement on Standards for Tax Services. B. is prohibited by the IRS under Circular 230. C. is addressed by the AICPA (Statement on Standards for Tax Services) and the (IRS Circular

230), with specific rules to adhere to. D. Is not addressed by either the SSTS or Circular 230.

4. Benefits of an objectives-oriented accounting system include all of the following except

A. Users and regulators would receive more detailed information and thus clearer results on management and attest reports.

B. Transition to the system would be relatively less expensive as would the cost of accounting services overall.

C. The system enables greater accountability from management and auditors with respect to reporting the substance of transactions within the financial statements.

D. The system would aid convergence between U.S. GAAP and international standards.

5. Which of the following is correct with respect to the fees an accountant may charge and its impact on the accountant’s independence?

A. Providing services at no fee does not impair independence. B. Providing services at below cost impairs independence. C. Providing services at cost impairs independence. D. There are no rules for how much an accountant can charge for fees.

AICPA Code of Professional Conduct

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Section II. AICPA Code of Professional Conduct

Overview of the AICPA Code of Professional Conduct

Applicability

The AICPA Code of Professional Conduct was originally adopted in January of 1988 and has since received several periodic updates. In the latest revision, effective December 15, 2014, the AICPA issued a codification of the Code’s Principles, Rules, and Interpretations. In addition, the AICPA adopted a conceptual framework to assist members with evaluating whether certain relationships or circumstances that are not specifically addressed by a rule, interpretation, or other guidance pose a threat to the members’ compliance with the rules. Although implementation of the conceptual framework does not become effective until December 15, 2015, members are permitted to apply the framework prior to that date once they have implemented the entire revised code.

AICPA members should become familiar with the AICPA Rules as well as the rules and regulations of the Florida Board of Accountancy, as there may be differences between the two, in which case members should follow the Florida Board’s rules and regulations.

Note to Reader: In this section, we provide a brief overview of the AICPA principles and rules. In the next section, we cover the Florida rules, with references to individual AICPA rules, where applicable.

Principles of Professional Conduct

Rules Are Not Enough

The Principles established by the AICPA provide the framework in which the Rules can be interpreted and followed. The Principles exist to serve as the “spirit” in which the Rules can be interpreted.22

Due to the complexity of ethical dilemmas found in the accounting profession, applying and interpreting the Rules of Conduct can be difficult. In their book Understanding Accounting Ethics, Cheffers and Pakaluk identified six reasons why rules, no matter how detailed and comprehensive, are insufficient in their own right to decide many of the ethical dilemmas commonly faced by accountants. These are:

Rules state only necessary, not sufficient conditions. They are essentially open-ended and cannot take into account all possible cases.

Rules make use of terms that require interpretation. We cannot indefinitely clarify rules with further rules: at some point we must rely upon good judgment to interpret the rules.

We must appeal to idealizations in order to interpret the rules: rules are useless if used by someone who lacks a good sense of these idealizations.

Even to care about interpreting the rules correctly, we need to place our getting them right over considerations of self-interest, convenience, comfort, and inclination. Rules are useless except for someone with the correct motivation.


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Rules on their own are unmanageable: practically speaking, we can make sense of them, remember them, and use them as guides for action only if we understand them in relation to the principles they are meant to embody.

We cannot be said actually to follow a rule unless we can recognize when our actions are in conformity with that rule; yet our successfully recognizing this is itself not contained in the rule, and it must presuppose some other disposition.

Cheffers and Pakaluk conclude: “It is clear, then, that it would not be possible for someone to act with intelligence and integrity by simply trying to follow rules, no matter how well-crafted or carefully qualified those rules may be. Someone who is attempting to follow rules must, at nearly every point, rely on good judgment, draw upon deeper principles, and view her action in relation to various idealizations. The ability to do this well is an ethical capacity. Thus, simply to follow rules well requires an appropriate ethical orientation.”23 The core elements of this ethical orientation are principles and good character.

The AICPA Principles

ET Section 0.300.010 - Preamble

Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a certified public accountant assumes an obligation of self-discipline above and beyond the requirements of laws and regulations.

ET Section 0.300.020 - Responsibilities

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

ET Section 0.300.030 - The Public Interest

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.

ET Section 0.300.040 - Integrity

To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

ET Section 0.300.050 - Objectivity and Independence

A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

ET Section 0.300.060 – Due Care

A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability.

ET Section 0.300.070 – Scope and Nature of Services

A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.24


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Using the Principles in Practice

In their book Understanding Accounting Ethics, Cheffers and Pakaluk describe how the term principle can be thought of in two different ways: as external principles and internal principles. External principles are high level principles or rules that are “apart from the self”—that one recognizes and to which one aspires. In general, professional codes of conduct consist of both internal and external principles. The AICPA principle calling on accountants to act in the public interest is an example of an external principle: “Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.” 25 In the AICPA Code, the accounting profession’s “public” includes clients, credit grantors, governments, employers, investors, and the business and financial community.

Cheffers and Pakaluk describe internal principles as relating to “one’s internal understanding of, and commitment to, external principles. In formulating a code of ethics, one must recognize the importance of internal principles and assume that the focus of the code is on people who are ’principled’. Good rules are not enough, but neither are good principles, in the ’external’ sense. Good rules and principles must be interpreted and applied by a person who is inherently ’good’—one who has good internal principles. That is the aim of ethics in accounting: How do we become, in the relevant respects, good professionals?” 26

In the AICPA Principles of Professional Conduct, most of the principles are “internal” in nature, calling on members to draw on their moral character and motivation to be good professionals. As stated in the Preamble, a member “assumes the obligation of self-discipline above and beyond the requirements of laws and regulations,” and the Principle of Responsibilities states: “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.” 27

While striving to adhere to principles that are external in nature, such as acting in the public interest, accountants can encounter conflicting pressures that require them to look to their internal principles—such as integrity, objectivity, and due care—as moral links to the fulfilling of their obligation to protect the rights of the public, clients, and employers. The Principle of Integrity is defined in the Code as “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 observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment” 28

In order to act with integrity, a CPA must adhere to the principles of objectivity, independence and due care. In their book, Ethical Obligations and Decision Making in Accounting, Mintz and Morris argue that a CPA cannot maintain integrity without judging situations with objectivity.29 The Principle of Objectivity, as defined by the AICPA, is a “state of mind, a quality that lends value to a member's services. It is a distinguishing feature of the profession. The Principle of Objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest.” 30 Consider, for example, a situation where a CPA borrows a significant amount of money from a friend who happens to be the CEO of a client entity under audit. This CPA lacks objectivity because of the possible influence of that relationship over the CPA’s ability to be independent in decision making. The Principle of Independence is related to objectivity: “Independence precludes relationships that may appear to impair a member’s objectivity in rendering attestation services.”31


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One of the fundamental ethical violations committed by accounting firms providing services for Enron, WorldCom, and other companies during the scandals of 2001 was in relation to independence. In his article Ethics for a Post-Enron America, John Boatright identified three factors that led to the high-profile scandals at Enron, WorldCom, Global Crossing, Tyco, and the “spectacular dissolution” of the accounting firm Arthur Andersen. First, there had been a growing interest in share price at publicly held companies, which was the result of efforts to ward-off hostile takeovers. The higher the share price, the less incentive there was for a predator company to attempt a takeover. To ensure that the share price did increase, CEOs were offered lucrative compensation packages that were tied to performance.

Second, a trend toward deregulation in the 1980s and 1990s created an environment for aggressive accounting that was the result of companies in cutting-edge fields such as energy and telecommunication striving to develop new business models that would predict “a future that no one could predict.” The novelty of these companies required new accounting methods that “tested generally accepted accounting principles (GAAP).” Compounding the problem was a 1994 court decision that held that accounting firms and investment advisers could not be held liable for “aiding and abetting” fraud in securities transactions. This had the effect of reducing the legal liability of accounting firms and investment banks during this period.

The third factor contributing to the scandals was the compensation structures established for executives, accountants, and investment bankers that included stock options that were to be exercised within a narrow time-period. This, along with the already existing pressure to meet analyst’s expectations to achieve short-term financial results, lead to the manipulation of financial statements to enhance earnings. As part of this climate of “earnings management,” accounting firms were discovering that the consulting services that they were performing for these companies were far more lucrative than the audit services they were also providing. In order to keep the consulting business, firms had an incentive to “go easy” on audits. “Accountants, who had formerly policed financial reports to protect the public, now had a strong incentive to help executives do whatever was necessary to boost share price so as to keep them as consulting clients.” 32

With respect to the accounting firms involved in the scandals, the moral wrong committed was a conflict of interest brought about by impaired independence. Boatright describes the root of the problem as a lack of “compartmentalization” of the professional roles of those with fiduciary duties who serve clients—or, in the case of public accountants—the public. In the case of the Enron and WorldCom scandals, this compartmentalization was seriously compromised in the accounting firms offering multiple services, as this put them in conflict with their fiduciary duties.33

The Principles of Professional Conduct describe due care as a “quest for excellence” and provide that a member is to “discharge professional responsibilities with competence and diligence.” Competence is further described: “Each member should undertake to achieve a level of competence that will assure that the quality of the member’s services meets the high level of professionalism required by these Principles.”34 This quest comes from within, and is therefore an internal principle. It imposes the obligation to perform professional services “to the best of a member's ability with concern for the best interest of those for whom the services are performed and consistent with the profession's responsibility to the public.” 35

The Principle of Due Care also calls on members to be “responsible for assessing his or her own competence—of evaluating whether education, experience, and judgment are adequate for


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the responsibility to be assumed. According to Raspante, in his article “Common Ethical Problems for CPAs,” on a study of professional liability claims for an insurance company, the three most common complaints made against small-to mid-sized CPA firms involve:

Failure to return client records on a timely basis;

Failure to exercise due professional care; and

Conflicts of interest. 36

The Scope and Nature of Services Principle stresses the need for members to consider each of the principles in the Code in determining whether or not to provide specific services in individual circumstances: “The public interest aspect of certified public accountants' services requires that such services be consistent with acceptable professional behavior for certified public accountants. Integrity requires that service and the public trust not be subordinated to personal gain and advantage. Objectivity and independence require that members be free from conflicts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence.” 37

Each of these principles should be considered by members in determining whether or not to provide specific services in individual circumstances. No hard-and-fast rules can be developed to help members reach these judgments, but members must be satisfied that they are meeting the spirit of the principles in this regard.

In order to accomplish this, members should:

Practice in firms that have in place internal quality-control procedures to ensure that services are competently delivered and adequately supervised;

Determine, in their individual judgments, whether the scope and nature of other services provided to an audit client would create a conflict of interest in the performance of the audit function for that client;

Assess, in their individual judgments, whether an activity is consistent with their role as professionals. 38

In the accounting profession, meeting ethical obligations requires virtues that are inherent in the practice and that serve as the standards of excellence for the profession. Virtues of impartiality, independence, open-mindedness, and objectivity are what enable an accountant to make appropriate judgments and resolve conflicts with duties and loyalties in a morally appropriate way. Virtue ethics relates to the ethical principles that exist in the accounting profession’s codes of conduct: due diligence, integrity, objectivity, and independence.39 These are the guidelines that are used for interpreting rules and, through ethical reasoning, for making ethical decisions that are applicable in practice.

Independence, Integrity, and Objectivity: The Core Values of the Accounting Profession Independence, integrity, and objectivity have been paramount to all other issues faced by members over the 120-year history of the AICPA. Integrity and objectivity represent the core values that are rooted in one’s ability to not only act ethically but to be ethical. ”Virtues such as integrity, honesty, open-mindedness, and impartiality enable accountants to withstand pressures to lose their objectivity or to allow their independence to be impaired.” 40


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Rules of the Code of Professional Conduct The Principles in the AICPA Code of Professional Conduct provide the framework for the Rules, and the Rules govern the performance of professional services by members. The Council of the AICPA is charged with designating bodies to put into effect technical standards under the Rules. Adherence to the Rules and standards are required by the Bylaws. It is through the Rules that the AICPA enforces the Code of Professional Conduct. To assist CPAs in determining the applicability of a rule in certain circumstances, the AICPA has developed Interpretations of the Rules.

Independence, Integrity, and Objectivity: The Core Values of the Accounting Profession

Independence, integrity, and objectivity have been paramount to all other issues faced by members over the 120-year history of the AICPA. Integrity and objectivity represent the core values that are rooted in one’s ability to not only act ethically but to be ethical. ”Virtues such as integrity, honesty, open-mindedness, and impartiality enable accountants to withstand pressures to lose their objectivity or to allow their independence to be impaired.”41

In the following section, individual AICPA Rules and Interpretations are covered as they relate to the Florida Rules.


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Review Questions Review Questions (Answers and explanations are in Appendix IV.)

6. Which of the following statements best explains the importance that the accounting profession places on ethical standards and the need to establish a means for ensuring their observance? A. A distinguishing mark of a profession is its acceptance of responsibility to the public. B. A requirement for a profession is to establish ethical standards that primarily stress a

responsibility to clients and colleagues. C. Ethical standards that emphasize excellence in performance over material rewards serve to

establish a reputation for competence and character. D. Vigorous enforcement of an established code of ethics is the best way to prevent

unscrupulous acts. 7. In the AICPA Code of Professional Conduct, observing both the form and the spirit of technical

and ethical standards relates to the principle of A. Objectivity. B. Integrity. C. Independence. D. Wisdom.

8. The AICPA Code of Professional Conduct states that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA’s ability A. To maintain impartiality on all matters that come under the CPA’s review. B. To independently distinguish between those accounting practices that are acceptable and

those that are not. C. To be unyielding in all matters dealing with auditing procedures. D. To effectively adhere to different rules and standards, depending on the services provided.

Florida Board of Accountancy Rules -Independence

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Section III. Florida Board of Accountancy Rules (61H1-21-61H1-26) Note to Reader - Organization of the Florida Board of Accountancy Section: The Board of Accountancy Rules are presented in two parts: Rules 61H1-21 through 26, wihch are described below, and are the rules that are most closely associated with the AICPA Rules. Rules 61H1-33, 34, and 36, which address requirements specific to Florida licensees, are located in Appendix I. The Florida State Statutes (Chapters 455 and 473) are located in Appendix II.

Please refer to the Glossary of Florida Terms in Section IV.

The Appendix sections are for reference purposes−they are not covered in the exam.

Independence

Introduction to Independence

What Is Independence?

Independence is defined by the AICPA as:

Independence of mind. The state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.

Independence in appearance. The avoidance of circumstances that would cause a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or CPA of the attest engagement team had been compromised. 42

This definition reflects the long-standing professional requirement that CPAs who provide services to entities for which independence is required a covered member be independent both in fact (that is, of mind) and in appearance.

AICPA Conceptual Framework for Analyzing Threats to Independence

Interpretations and other guidance provided by the AICPA serve to address particular relationships or circumstances that may be encountered by a covered member and that may pose threats to compliance with the Independence Rule. In the absence of such guidance, the member must take steps to evaluate whether a certain relationship or circumstance creates a situation in which the appearance of independence could be in question. In making such an evaluation, the covered member should apply the conceptual framework approach to analyze the threats to independence. In applying the conceptual framework, the covered member should:43


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1. Identify and evaluate threats to independence:

Threats need to be identified and evaluated, both individually and in the aggregate, because threats can have a cumulative effect on a covered member’s independence. The AICPA has identified seven categories of threats to independence:

Adverse interest-a covered member’s interests are in opposition to the interests of an attest client. For example, a client commences litigation against a covered member.

Advocacy-a covered member promotes an attest client’s interests or position to such a level that the covered member’s independence is compromised. For example: A covered member provides expert witness services to an attest client.

Familiarity-a covered member has such a close relationship with an attest client that the member is too sympathetic to the client’s interests. For example: A covered member of the attest engagement team has a close friend who is in a key position at the attest client.

Management Participation-a covered member takes on a management role for an attest client. For example: A covered member accepts responsibility for designing, implementing, or maintaining internal controls for the attest client.

Self-Interest-a covered member is in a position to benefit financially from an interest in or relation with an attest client. For example: A covered member has a loan from the attest client, an officer or a director of the attest client, or an individual who owns 10 percent or more of the attest client’s outstanding equity securities.

Self-Review-a covered member relies on the results of a previous judgment made or service performed in forming a judgment as part of an attest engagement without appropriately evaluating the results of the previous judgment. For example: a covered member fails to perform a self-review of source documents used to generate an attest client’s financial statements.

Undue Influence-a covered member subordinates his or her judgment to an individual associated with an attest client. For example: Management pressures the covered member to reduce necessary audit procedures in order to reduce audit fees.

2. Apply safeguards to reduce or eliminate the threats to independence.

Where threats are identified, but due to the types of threats and their potential effects, such threats are considered to be at an acceptable level (that is, it is not reasonable to expect that the threats would compromise professional judgment), the consideration of safeguards is not required. If identified threats are not considered to be at an acceptable level, safeguards should be considered. In some circumstances, even the application of safeguards cannot reduce the independence threat to an acceptable level.

If threats to compliance with the Independence Rule are not at an acceptable level and require the application of safeguards, the covered member must document the threats identified and the safeguards applied to eliminate the threats or reduce them to an acceptable level. 44


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Example of an application of a safeguard to reduce or eliminate a threat to the Independence Rule

A covered member invests in a Section 529 savings plan. At the time the member invests in the plan, the plan does not have an investment in the covered member’s attest client, and, as a result there is no threat to the member’s independence. However, if the plan later invests in the attest client, threats to the covered member’s compliance with the Independence Rule would not be at an acceptable level and the member should apply certain safeguards to reduce the threat to independence to an acceptable level. For example, the covered member could:

Transfer the account to another sponsor’s Section 529 savings plan;

Transfer the account to another account owner who is not a covered member.45

Florida 61H1-21.001 Independence.

(Cross-reference: Fl Statute on Independence and Technical Standards)

A firm shall not express an opinion on financial statements (as that term is defined in the Standards for Independence, which follows) of an enterprise or on the reliability of an assertion by one party for use by another (third) party unless the firm is active licensed and independent with respect to such enterprise or the party making the assertion.

A licensed firm is also precluded from expressing such an opinion if the firm is aware that an individual in the firm is not independent and that individual is a covered certified public accountant or is otherwise required to be independent.

A certified public accountant shall not express such an opinion unless the certified public accountant is independent with respect to such enterprise or the party making the assertion.

A certified public accountant is also precluded from expressing such an opinion if he or she is aware that an individual in the firm is not independent and that individual is a covered certified public accountant or is otherwise required to be independent.

All covered certified public accountants and all other individuals who are required to be independent are required to disclose to the firm that they are not independent prior to the issuance of such an opinion; failure to do so is a violation of this rule.

All firms are required to adopt appropriate policies to implement the disclosure requirement and to monitor compliance therewith.

In order to delineate the standards against which a certified public accountant’s independence or lack thereof is to be judged, the Board has created “Standards for Determining Independence in the Practice of Public Accountancy for CPAs Practicing Public Accountancy in the State of Florida,” which follows. These standards are similar to those contained in the AICPA Code of Professional Conduct .

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.315 FS. History–New 12-4-79, Amended 2-3-81, 10-28-85, Formerly 21A-21.01, Amended 10-20-86, Formerly 21A-21.001, Amended 5-21-03, 1-31-05, 12-10-09.

Florida State Board of Accountancy Standards for Determining Independence

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Florida State Board of Accountancy: Standards for Determining Independence (Terms that appear in bold are defined in Terminology Used in the Florida Standards for Determining Independence (end of Section IV.).)

In order to be considered independent a certified public accountant must comply with the requirements set out in these standards and the requirements of Rule 61H1 21.001.

Section 101-1. Independence-General Provisions

Independence shall be considered to be impaired if:

(1) During the period of the professional engagement a covered licensee: (a) Had or was committed to acquire any direct or material indirect financial interest in the

client. (b) Was a trustee of any trust or executor or administrator of any estate if such trust or estate

had or was committed to acquire any direct or material indirect financial interest in the client and

1. The covered licensee had the authority to make (individually or with others) investment decisions for the trust or estate; or

2. The trust or estate owned or was committed to acquire more than 10 percent of the client’s outstanding equity securities or other ownership interests; or

3. The value of the trust’s or estate’s holdings in the client exceeded 10 percent of the total assets of the trust or estate.

(c) Had a joint closely held investment that was material to the covered licensee. (d) Except as specifically permitted in Section 101-5 herein, had any loan to or from the

client, any officer or director of the client, or any individual owning ten percent or more of the client’s outstanding equity securities or other ownership interests.

(2) During the period of the professional engagement, a firm, a partner or professional employee of the firm, his or her immediate family, or any group of such persons acting together owned more than five percent of a client’s outstanding equity securities or other ownership interests.

(3) During the period covered by the financial statement or during the period of the professional engagement, a partner or professional employee of the firm was simultaneously associated with the client as a(n)

(a) Director, officer, or employee, or in any capacity equivalent to that of a member of management;

(b) Promoter, underwriter, or voting trustee; or (c) Trustee for any pension or profit-sharing trust of the client.

Application of the Independence Rules: Licensees Formerly Employed by Client /Associated With Client

An individual who was formerly (i) employed by a client or (ii) associated with a client as a(n) officer, director, promoter, underwriter, voting trustee, or

trustee for a pension or profit-sharing trust of the client would impair his or her firm’s independence if the individual

(1) Participated on the attest engagement or was an individual in a position to influence the attest engagement for the client when the attest engagement covers any period that includes his or her former employment or association with that client; or

(2) Was otherwise a covered licensee with respect to the client unless the individual first dissociates from the client by


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(a) Terminating any relationships with the client described in Subsection 101-1(1)(c); (b) Disposing of any direct or material indirect financial interest in the client; (c) Collecting or repaying any loans to or from the client, except for loans specifically

permitted or grandfathered under Section 101-5. (d) Ceasing to participate1 in all employee benefit plans sponsored by the client,

unless the client is legally required to allow the individual to participate in the plan (for example, COBRA) and the individual pays 100 percent of the cost of participation on a current basis; and1

(e) Liquidating or transferring all vested benefits in the client's defined benefit plans, defined contribution plans, deferred compensation plans, and other similar arrangements at the earliest date permitted under the plan. However, liquidation or transfer is not required if a penalty2 significant to the benefits is imposed upon liquidation or transfer.

Application of the Independence Rules to a Covered Licensee’s Immediate Family

Except as stated in the following paragraph, a covered licensee’s immediate family is subject to Rule 61H1- 21.001 and these Standards. The exceptions are that independence would not be considered to be impaired solely as a result of the following:

(1) An individual in a covered licensee’s immediate family was employed by the client in a position other than a key position.

(2) In connection with his or her employment, an individual in the immediate family of one of the following covered licensees participated in a retirement, savings, compensation, or similar plan that is a client, is sponsored by a client, or that invests in a client (provided such plan is normally offered to all employees in similar positions): (a) A partner or manager who provides ten or more hours of non-attest services to the

client; or (b) Any partner in the office in which the lead attest engagement partner primarily practices

in connection with the attest engagement. For purposes of determining materiality under this Rule the financial interests of the covered licensee and his or her immediate family should be aggregated.

Application of the Independence Rules to Close Relatives

Independence would be considered to be impaired if

(1) An individual participating on the attest engagement team has a close relative who had (a) A key position with the client, or (b) A financial interest in the client that

(i) Was material to the close relative and of which the individual has knowledge; or (ii) Enabled the close relative to exercise significant influence over the client.

1 If a licensee participates in or receives benefits from a health and welfare plan (the “plan”) sponsored by a client and that licensee is a covered licensee then that covered licensee’s participation in a plan sponsored by a client would impair independence with respect to the client sponsor and the plan. However, if the covered licensee’s participation in the plan, or benefits received thereunder, arises as a result of the permitted employment of the covered licensee’s immediate family, independence would not be considered to be impaired provided that the plan is normally offered to all employees in equivalent employment positions.


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(2) An individual in a position to influence the attest engagement or any partner in the office in which the lead attest engagement partner primarily practices in connection with the attest engagement has a close relative who had (a) A key position with the client; or (b) A financial interest in the client that

(i) Was material to the close relative and of which the individual or partner has knowledge; and

(ii) Enabled the close relative to exercise significant influence over the client.

Other Considerations It is impossible to enumerate all circumstances in which the appearance of independence might be questioned. Licensees should consider whether personal and business relationships between the licensee and the client or an individual associated with the client would lead a reasonable person aware of all the relevant facts to conclude that there is an unacceptable threat to the licensee's and the firm’s independence.

Section 101-2. Employment or Association with Attest Clients A firm’s independence will be considered to be impaired with respect to a client if a partner or professional employee leaves the firm and is subsequently employed by or associated with that client in a key position unless all of the following conditions are met:2

1. Amounts due to the former partner or professional employee for his or her previous interest in the firm and for unfunded, vested retirement benefits are not material to the firm, and the underlying formula used to calculate the payments remains fixed during the payout period. Retirement benefits may be adjusted for inflation and interest may be paid on amounts due.

2. The former partner or professional employee is not in a position to influence the accounting firm’s operations or financial policies.

3. The former partner or professional employee does not participate in or appear to participate in, and is not associated with the firm, whether or not compensated for such participation or association, once employment or association with the client begins. An appearance of participation or association results from such actions as:

The individual provides consultation to the firm.

The firm provides the individual with an office and related amenities (for example, secretarial and telephone services).

The individual’s name is included in the firm’s office directory.

The individual’s name is included as a member of the firm in other membership lists of business, professional, or civic organizations, unless the individual is clearly designated as retired.

4. The ongoing attest engagement team considers the appropriateness or necessity of modifying the engagement procedures to adjust for the risk that, by virtue of the former partner or professional employee’s prior knowledge of the audit plan, audit effectiveness could be reduced.

5. The firm assesses whether existing attest engagement team members have the appropriate experience and stature to effectively deal with the former partner or professional employee

2 A penalty includes an early withdrawal penalty levied under the tax law but excludes other income taxes that would be owed or market losses that may be incurred as a result of the liquidation or transfer.


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and his or her work, when that person will have significant interaction with the attest engagement team.

6. The subsequent attest engagement is reviewed to determine whether the engagement team members maintained the appropriate level of skepticism when evaluating the representations and work of the former partner or professional employee, when the person joins the client in a key position within one year of disassociating from the firm and has significant interaction with the attest engagement team. The review should be performed by a professional with appropriate stature, expertise, and objectivity and should be tailored based on the position that the person assumed at the client, the position he or she held at the firm, the nature of the services he or she provided to the client, and other relevant facts and circumstances. Appropriate actions, as deemed necessary, should be taken based on the results of the review.

Responsible members within the firm should implement procedures for compliance with the preceding conditions when firm professionals are employed or associated with attest clients.

With respect to conditions 4, 5 and 6, the procedures adopted will depend on several factors, including whether the former partner or professional employee served as a member of the engagement team, the positions he or she held at the firm and has accepted at the client, the length of time that has elapsed since the professional left the firm, and the circumstances of his or her departure. 3

Considering Employment or Association with the Client When a member of the attest engagement team or an individual in a position to influence the attest engagement intends to seek or discuss potential employment or association with an attest client, or is in receipt of a specific offer of employment from an attest client, independence will be impaired with respect to the client unless the person promptly reports such consideration or offer to an appropriate person in the firm, and removes himself or herself from the engagement until the employment offer is rejected or employment is no longer being sought. When a covered licensee becomes aware that a member of the attest engagement team or an individual in a position to influence the attest engagement is considering employment or association with a client, the covered licensee should notify an appropriate person in the firm.

The appropriate person should consider what additional procedures may be necessary to provide reasonable assurance that any work performed for the client by that person was performed with objectivity and integrity as required under Rule 61H1-21.002. Additional procedures, such as performance of work already done, will depend on the nature of the engagement and individual involved.

3 An inadvertent and isolated failure to meet conditions 4, 5 and 6, would not impair independence provided that the required procedures are performed promptly upon discovery of the failure to do so, and all other provisions of Section 101-2 are met.


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Section 101-3. Performance of Nonattest Services. Before a covered licensee or firm performs nonattest services for an attest client,4 the covered licensee shall determine that the requirements described in this section have been met. In cases where the requirements have not been met during the period of the professional engagement or the period covered by the financial statements, the covered licensee's independence would be impaired.

Engagements Subject to Independence Rules or Certain Regulatory Bodies. This section requires compliance with independence regulations of authoritative regulatory bodies (such as the Securities and Exchange Commission [SEC], the General Accounting Office [GAO], the Department of Labor [DOL], where a covered licensee performs nonattest services for a client and is required to be independent of the client under the regulations of the applicable regulatory body. Accordingly, failure to comply with the nonattest services provisions contained in the independence rules of the applicable regulatory body that are more restrictive than the provisions of this interpretation would constitute a violation of this section if so determined by the applicable regulatory body.

General Requirements for Performing Nonattest Services (1) The covered licensee should not perform management functions or make management

decisions for the attest client. However, the covered licensee may provide advice, research materials, and recommendations to assist the client's management in performing its functions and making decisions.

(2) The client must agree to perform the following functions in connection with the engagement to perform nonattest services:

(a) Make all management decisions and perform all management functions;

(b) Designate a competent employee, preferable within senior management, to oversee the services;

(c) Evaluate the adequacy and results of the services performed;

(d) Accept responsibility for the results of the services; and

(e) Establish and maintain internal controls, including monitoring ongoing activities. The covered licensee should be satisfied that the client will be able to meet all of these criteria and make an informed judgment on the results of the member's nonattest services. In assessing the competency of the client's designated employee, the covered licensee should be satisfied that such individual understands the services to be performed sufficiently to oversee them. In cases where the client is unable or unwilling to assume these responsibilities (for example, the client does not have an individual with the necessary competence to oversee the nonattest services provided, or is unwilling to perform such functions due to lack of time or desire), the covered licensee’s or firm’s provision of these services would impair independence.

4 A covered licensee who performs a compilation engagement for a client should modify the compilation report to indicate a lack of independence if the covered licensee or firm does not meet all of the conditions set out in this section when providing a nonattest service to that client (see Statement of Standards for Accounting and Review Services No. 1, Compilation and Review of Financial Statements.


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(3) Before performing nonattest services, the covered licensee should establish and document in writing5 the licensee’s or firm’s understanding with the client (board of directors, audit committee, or management, as appropriate in the circumstances) regarding the following:

(a) Objective of the engagement

(b) Services to be performed

(c) Client's acceptance of its responsibilities

(d) Covered licensee’s or firm 's responsibilities

(e) Any limitations of the engagement

The documentation requirement does not apply to certain routine activities performed by the covered licensee such as providing advice and responding to the client's technical questions as part of the normal client-covered licensee relationship.

General Activities The following are some general activities that would impair a covered licensee’s or firm’s independence:

Authorizing, executing, or consummating a transaction, otherwise exercising authority on behalf of a client, or having the authority to do so

Preparing source documents,6 in electronic or other form, evidencing the occurrence of a transaction

Having custody of client assets

Supervising client employees in the performance of their normal recurring activities

Determining which recommendations of the covered licensee should be implemented

Reporting to the board of directors on behalf of management

Serving as a client's stock transfer or escrow agent, registrar, general counsel or its equivalent

Specific Examples of Nonattest Services

The examples in the following table identify the effect that performance of certain nonattest services for an attest client can have on a covered licensee’s or firm 's independence. These examples presume that the general requirements in the previous subsection “Performance of Nonattest Services” have been met and are not intended to be all-inclusive of the types of nonattest services performed by covered licensee.

5 An isolated and inadvertent failure to prepare the required documentation would not impair independence, provided that the licensee did establish the understanding with the client, the licensee documents the understanding promptly upon discovery of the failure to do so, and all other provisions of the interpretation are met. 6 Source documents are the documents upon which evidence of an accounting transaction are initially recorded. Source documents are often followed by the creation of many additional records and reports, which do not, however, qualify as initial recordings. Examples of source documents are purchase orders, payroll time cards, and customer orders.


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Impact on Independence of Performance of Nonattest Services

Type of Nonattest Service

Independence Would Not Be Impaired

Independence Would Be Impaired

Bookkeeping Record transactions for which management Prepare financial statements Post client-approved entries to a client's trial balance. Propose standard, adjusting, or correcting journal entries or other changes affecting the financial statements to the client provided the client reviews the entries and the covered licensee is satisfied that management understands the nature of the proposed entries and the impact the entries have on the financial statements.

Determine or change journal entries, account codings or classifications for transactions, or other accounting records without obtaining client approval. Authorize or approve transactions. Prepare source documents. Make changes to source documents without client approval.

Payroll and other disbursements

Using payroll time records provided and approved by the client, generate unsigned checks, or process client’s payroll. Transmit client-approved payroll or other disbursement information to a financial institution provided the client has authorized the member to make the transmission and has made arrangements for the financial institution to limit the corresponding individual payments as to amount and payee. In addition, once transmitted, the client must authorize the financial institution to process the information. Make electronic payroll tax payments in accordance with U.S. Treasury Department or comparable guidelines provided the client has made arrangements for its financial institutions to limit such payments to a named payee.

Accept responsibility to authorize payment of client funds, electronically or otherwise, except as specifically provided for with respect to electronic payroll tax payments. Accept responsibility to sign or cosign client checks, even if only in emergency situations. Maintain a client's bank account or otherwise have custody of a client's funds or make credit or banking decisions for the client. Sign payroll tax return on behalf of client management. Approve vendor invoices for payment.

Benefit plan administration

Communicate summary plan data to plan trustee Advise client management regarding the application or impact of provisions of the plan documented. Process transactions (e.g., investment/benefit elections or increase/decrease contributions to the plan; data entry; participant confirmations; and processing of distributions and loans) initiated by plan participants through the covered licensee’s or firm’s electronic medium such as an interactive voice response system or Internet connection or other media. Prepare account valuations for plan

Make policy decisions on behalf of client management. When dealing with plan participants, interpret the plan document on behalf of management without first obtaining management's concurrence. Make disbursements on behalf of the plan. Have custody of assets of a plan. Service a plan as a fiduciary as defined by ERISA.


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participants using data collected through the covered licensee’s or firm’s electronic or other media. Prepare and transmit participant statements to plan participants based on data collected through the covered licensee’s or firm’s electronic or other medium.

Investment— Advisory or management

Recommend the allocation of funds that a client should invest in various asset classes, depending upon the client’s desired rate of return, risk tolerance, etc., Perform recordkeeping and reporting of client's portfolio balances including providing a comparative analysis of the client's investments to third-party benchmarks. Review the manner in which a client's portfolio is being managed by investment account managers, including determining whether the managers are (1) following the guidelines of the client's investment policy statement; (2) meeting the client's investment objectives; and (3) conforming to the client's stated investment styles. Transmit a client's investment selection to a broker-dealer or equivalent provided the client has authorized the broker-dealer or equivalent to execute the transaction.

Make investment decisions on behalf of client management or otherwise have discretionary authority over a client's investments. Execute a transaction to buy or sell a client's investment. Have custody of client assets, such as taking temporary possession of securities purchased by a client.

Corporate finance—consulting or advisory

Assist in developing corporate strategies. Assist in identifying or introducing the client to possible sources of capital that meet the client's specifications or criteria. Assist in analyzing the effects of proposed transactions including providing advice to a client during negotiations with potential buyers, sellers, or capital sources. Assist in drafting an offering document or memorandum. Participate in transaction negotiations in an advisory capacity. Be named as a financial adviser in a client's private placement memoranda or offering documents.

Commit the client to the terms of a transaction or consummate a transaction on behalf of the client. Act as a promoter, underwriter, broker-dealer, or guarantor of client securities, or distributor of private placement memoranda or offering documents. Maintain custody of client securities.

Executive or employee search

Recommend a position description or candidate specifications. Solicit and perform screen of candidate and recommend qualified candidates to a client based on the client-approved criteria (e.g., required skills and experience. Participate in employee hiring or compensation discussions in an advisory capacity.

Commit the client to employee compensation or benefit arrangements Hire or terminate client employees.


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Business risk consulting

Provide assistance in assessing the client's business risks and control processes. Recommend a plan for making improvements to a client's control processes and assist in implementing these improvements.

Make or approve business risk decisions. Present business risk considerations to the Board or others on behalf of management.

Information systems—design, installation or integration

Install or integrate a client's financial information that was not designed or developed by the covered licensee (e. g. an off-the-shelf accounting package) Design, develop, install or integrate a client’s information system that is unrelated to the client’s financial statements or accounting records. Assist in setting up the client's chart of accounts and financial information system that is unrelated to the client's financial statements or accounting records. Provide training and instruction to client employees on an information and control system.

Design or develop a client's financial information system.. Make other than insignificant modifications to source code underlying a client's existing financial information system. Supervise client personnel in the daily operation of a client's information system. Operate a client's local area network (LAN) system.

7, 8

Appraisal, Valuation, and Actuarial Services (1) Independence would be impaired if a covered licensee performs an appraisal, valuation, or

actuarial service for an attest client where the results of the service, individually or in the aggregate, would be material to the financial statements and the appraisal, valuation, or actuarial service involves a significant degree of subjectivity.

(2) Valuations performed in connection with, for example, employee stock ownership plans, business combinations, or appraisals of assets or liabilities generally involve a significant degree of subjectivity. Accordingly, if these services produce results that are material to the financial statements, independence would be impaired.

(3) An actuarial valuation of a client's pension or postemployment benefit liabilities generally produces reasonably consistent results because the valuation does not require a significant degree of subjectivity. Therefore, such services would not impair independence. In additional, appraisal, valuation, and actuarial services performed for nonfinancial statement purposes would not impair independence.9 However, in performing such services, all other requirements of this section should be met, including that all significant assumptions and matters of judgment are determined or approved by the client and the client is in a position to have an informed judgment on, and accepts responsibility for, the results of the service.

7 Although this type of transaction may be considered by some to be similar to signing checks or disbursing funds, making electronic payroll tax payments under the specified criteria would not impair a covered licensee’s or firm’s independence. 8 When auditing plans subject to the Employee Retirement Income Security Act (ERISA), Department of Labor (DOL) regulations, which may be more restrictive, must be followed. 9 Examples of such services may include appraisal, valuation, and actuarial services performed for tax planning or tax compliance, estate and gift taxation, and divorce proceedings.


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Internal Audit Assistance Services (1) Internal audit services involve assisting the client in the performance of its internal audit

activities. sometimes referred to as “internal audit outsourcing.” In evaluating whether independence would be impaired with respect to an attest client, the nature of the service needs to be considered.

(2) Assisting the client in performing financial and operational10 internal audit activities would impair independence unless the covered licensee takes appropriate steps to ensure that the client understands its responsibility for establishing and maintaining the internal control system11 and directing the internal audit function, including the management thereof. Accordingly, any outsourcing of the internal audit function to the covered licensee whereby the covered licensee in effect manages the internal audit activities of the client would impair independence.

(3) In addition, to the general requirements of this interpretation, the covered licensee should ensure the client management: Designates a competent12 individual or individuals, preferable within senior management, to be responsible for the internal audit functions; Determines the scope risk and frequency of internal audit activities, including those to be performed by the covered licensee providing internal audit assistance services;

Evaluates the findings and results arising from the internal audit activities, including those performed by the covered licensee providing internal audit assistance services; and

Evaluates the adequacy of the audit procedures performed and the findings resulting from the performance of those procedures by, among other things, obtaining reports from the licensee.

(4) The covered licensee should also be satisfied that the client's board of directors, audit committee, or other governing body is informed about the covered licensee’s or firm’s and management's respective roles and responsibilities in connection with the engagement. Such information should provide the client's governing body a basis for developing guidelines for management and the licensee to follow in carrying out these responsibilities and monitoring how well the respective responsibilities have been met.

(5) The covered licensee is responsible for performing the internal audit procedures in accordance with the terms of the engagement and reporting thereon. The performance of such procedures should be directed, reviewed, and supervised by the covered licensee. The report should

10 For example, a covered licensee may assess whether performance is in compliance with management's policies and procedures, to identify opportunities for improvement, and to develop recommendations for improvement or further action for management consideration and decision making. 11 As part of its responsibility to establish and maintain internal control, management monitors internal control to assess the quality of its performance over time. Monitoring can be accomplished through ongoing activities, separate evaluations, or a combination of both. Ongoing monitoring activities are the procedures designed to assess the quality of internal control performance over time and built into the normal recurring activities of an entity; they include regular management and supervisory activities, comparisons, reconciliations, and other routine actions. A licensee's independence would not be impaired by the performance of separate evaluations of the effectiveness of a client's internal control, including separate evaluations of the client's ongoing monitoring activities. [Footnote added, effective December 31, 2003, by the Professional Ethics Executive Committee. 12 A competent individual would have an understanding of internal audit activities sufficient to oversee the services performed by the covered licensee.


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include information that allows the individual responsible for the internal audit function to evaluate the adequacy of the audit procedures performed and the findings resulting from the performance of those procedures. This report may include recommendations for improvements in systems, processes, and procedures. The covered licensee may assist the individual responsible for the internal audit function in performing preliminary audit risk assessments, preparing audit plans, and recommending audit priorities.

However, the covered licensee should not undertake any responsibilities that are required, as described above, to be performed by the individual responsible for the internal audit function.

(6) The following are examples of activities (in addition to those listed in the “General Activities” section of this interpretation) that, if performed as part of an internal audit assistance engagement, would impair independence:

Performing ongoing monitoring activities or control activities (for example, reviewing loan originations as part of the client's approval process or reviewing customer credit information as part of the customer's sales authorization process) that affect the execution of transactions or ensure that transactions are properly executed, accounted for, or both, and performing routine activities in connection with the client's operating or production processes that are equivalent to those of an ongoing compliance or quality control function

Determining which, if any, recommendations for improving the internal control should be implemented

Reporting to the board of directors or audit committee on behalf of management or the individual responsible for the internal audit function

Approving or being responsible for the overall internal audit work plan including the determination of the internal audit risk and scope, project priorities, and frequency of performance of audit procedures

Being connected with the client as an employee or in any capacity equivalent to a licensee of client management (for example, being listed as an employee in client directories or other client publications, permitting himself or herself to be referred to by title or description as supervising or being in charge of the client's internal audit function, or using the client's letterhead or internal correspondence forms in communications) The foregoing list is not intended to be all-inclusive.

(7) Services involving an extension of the procedures that are generally of the type considered to be extensions of the covered licensee’s or firm’s audit scope applied in the audit of the client's financial statements, such as confirming of accounts receivable and analyzing fluctuations in account balances, are not considered internal audit assistance services and would not impair independence even if the extent of such testing exceeds that required by generally accepted auditing standards. In addition, engagements performed under the attestation standards would not be considered internal audit assistance services and therefore would not impair independence.

Transition Independence would not be impaired as a result of the more restrictive requirements of this Section, provided the provision of any such nonattest services are pursuant arrangements in existence on December 31, 2004, and are completed December 31, 2005, and the covered licensee was in compliance with the preexisting requirements of Rule 61H1-21.001.


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Section 101-4. Honorary Directorships and Trusteeships of Not-for-profit Organization. Partners or professional employees of a firm (individual) may be asked to lend the prestige of their names to not-for-profit organizations that limit their activities to those of a charitable, religious, civic, or similar nature by being named as a director or a trustee. An individual who permits his or her name to be used in this manner would not be considered to impair independence under Rule 61H1-21.001, provided his or her position is clearly honorary, and he or she cannot vote or otherwise participate in board or management functions. If the individual is named in letterheads and externally circulated materials, he or she must be identified as an honorary director or honorary trustee.

Section 101-5. Permitted Loans

This section describes the conditions a covered licensee (or his or her immediate family) must meet in order to have any loan to or from the client, any officer or director of the client, or any individual owning ten percent or more of the client’s outstanding equity securities or other ownership interests. Acceptable loans are termed "Grandfathered Loans" or "Other Permitted Loans."

Grandfathered Loans

Unsecured loans that are not material to the covered licensee's net worth, home mortgages,13 and other secured loans14

are grandfathered if:

(1) they were obtained from a financial institution under that institution's normal lending procedures, terms, and requirements,

(2) after becoming a covered licensee they are kept current as to all terms at all times and those terms do not change in any manner not provided for in the original loan agreement,15

and (3) they were:

(a) obtained from the financial institution prior to its becoming a client requiring independence; or

(b) obtained from a financial institution for which independence was not required and were later sold to a client for which independence is required; or

(c) were obtained prior to April 1, 2003 and met the requirements of previous provisions of Rule 61H1-21.001; or

(d) obtained after April 1, 2003 from a financial institution client requiring independence by a borrower prior to his or her becoming a covered licensee with respect to that client. In determining when a loan was obtained, the date a loan commitment or line of credit is granted must be used, rather than the date a transaction closes or funds are obtained.

For purposes of applying the grandfathered loans provision when the covered licensee is a partner in a partnership: a loan to a limited partnership (or similar type of entity) or a general partnership

13 The value of the collateral securing a home mortgage or other secured loan should equal or exceed the remaining balance of the grandfathered loan during the term of the loan. If the value of the collateral is less than the remaining balance of the grandfathered loan, the portion of the loan that exceeds the value of the collateral must not be material to the covered licensee's net worth. 14 See Footnote 4. 15 Changes in the terms of the loan include, but are not limited to, a new or extended maturity date, a new interest rate or formula, revised collateral, or revised or waived covenants.


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would be ascribed to each covered licensee who is a partner in the partnership on the basis of their legal liability as a limited or general partner if:

the covered licensee's interest in the limited partnership, either individually or combined with the interest of one or more covered licensees, exceeds 50 percent of the total limited partnership interest;

or the covered licensee, either individually or together with one or more covered licensees, can control the general partnership.

Even if no amount of a partnership loan is ascribed to the covered licensee(s) identified above, independence is considered to be impaired if the partnership renegotiates the loan or enters into a new loan that is not one of the permitted loans described below.

Other Permitted Loans This provision permits only the following new loans to be obtained from a financial institution client for which independence is required. These loans must be obtained under the institution's normal lending procedures, terms, and requirements and must, at all times, be kept current as to all terms.

(1) Automobile loans and leases collateralized by the automobile. (2) Loans fully collateralized by the cash surrender value of an insurance policy. (3) Loans fully collateralized by cash deposits at the same financial institution (e.g., "passbook

loans"). (4) Credit cards and cash advances where the aggregate outstanding balance on the current

statement is reduced to $10,000 or less by the payment due date. Related prohibitions that may be more restrictive are prescribed by certain state and federal agencies having regulatory authority over such financial institutions. Broker-dealers, for example, are subject to regulation by the Securities and Exchange Commission.

Section 101-6. The Effect of Actual or Threatened Litigation on Independence. In some circumstances, independence may be considered to be impaired as a result of litigation or the expressed intention to commence litigation as discussed below.

Litigation between client and licensee The relationship between the management of the client and a covered licensee must be characterized by complete candor and full disclosure regarding all aspects of the client's business operations. In addition, there must be an absence of bias on the part of the covered licensee so that he or she can exercise professional judgment on the financial reporting decisions made by the management. When the present management of a client company commences, or expresses an intention to commence, legal action against a covered licensee, the covered licensee and the client's management may be placed in adversarial positions in which the management's willingness to make complete disclosures and the covered licensee's objectivity may be affected by self-interest. For the reasons outlined above, independence may be impaired whenever the covered licensee and the covered licensee's client or its management are in threatened or actual positions of material adverse interests by reason of threatened or actual litigation. Because of the complexity and diversity of the situations of adverse interests which may arise, however, it is difficult to prescribe precise points at which independence may be impaired. The following criteria are offered as guidelines:

1. The commencement of litigation by the present management alleging deficiencies in audit work for the client would be considered to impair independence.


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2. The commencement of litigation by the covered licensee against the present management alleging management fraud or deceit would be considered to impair independence.

3. An expressed intention by the present management to commence litigation against the covered licensee alleging deficiencies in audit work for the client would be considered to impair independence if the covered licensee concludes that it is probable that such a claim will be filed.

4. Litigation not related to performance of an attest engagement for the client (whether threatened or actual) for an amount not material to the covered licensee's firm16 or to the client company17 would not generally be considered to affect the relationship in such a way as to impair independence. Such claims may arise, for example, out of disputes as to billings for services, results of tax or management services advice or similar matters.

Litigation by security holders A covered licensee may also become involved in litigation ("primary litigation") in which the covered licensee and the client or its management are defendants. Such litigation may arise, for example, when one or more stockholders bring a stockholders' derivative action or a so-called "class action" against the client or its management, its officers, directors, underwriters and covered licensees under the securities laws. Such primary litigation in itself would not alter fundamental relationships between the client or its management and the covered licensee and therefore would not be deemed to have an adverse impact on independence. These situations should be examined carefully, however, since the potential for adverse interests may exist if cross-claims are filed against the covered licensee alleging that the covered licensee is responsible for any deficiencies or if the covered licensee alleges fraud or deceit by the present management as a defense. In assessing the extent to which independence may be impaired under these conditions, the covered licensee should consider the following additional guidelines:

1. The existence of cross-claims filed by the client, its management, or any of its directors to protect a right to legal redress in the event of a future adverse decision in the primary litigation (or, in lieu of cross-claims, agreements to extend the statute of limitations) would not normally affect the relationship between client management and the covered licensee in such a way as to impair independence, unless there exists a significant risk that the cross-claim will result in a settlement or judgment in an amount material to the covered licensee's firm18 or to the client.

2. The assertion of cross-claims against the covered licensee by underwriters would not generally impair independence if no such claims are asserted by the client or the present management.

3. If any of the persons who file cross-claims against the covered licensee are also officers or directors of other clients of the covered licensee, independence with respect to such other clients would not generally be considered to be impaired.

Other third-party litigation Another type of third-party litigation against the covered licensee may be commenced by a lending institution, other creditor, security holder, or insurance company who alleges reliance on financial statements of the client with which the covered licensee is associated as a basis for extending credit 16 Because of the complexities of litigation and the circumstances under which it may arise, it is not possible to prescribe meaningful criteria for measuring materiality; accordingly, the covered licensee should consider the nature of the controversy underlying the litigation and all other relevant factors in reaching a judgment. 17 See Footnote 7. 18 See Footnote 7.


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or insurance coverage to the client. In some instances, an insurance company may commence litigation (under subrogation rights) against the covered licensee in the name of the client to recover losses reimbursed to the client. These types of litigation would not normally affect independence with respect to a client who is either not the plaintiff or is only the nominal plaintiff, since the relationship between the covered licensee and client management would not be affected. They should be examined carefully, however, since the potential for adverse interests may exist if the covered licensee alleges, in his defense, fraud, or deceit by the present management. If the real party in interest in the litigation (e.g., the insurance company) is also a client of the covered licensee ("the plaintiff client"), independence with respect to the plaintiff client may be impaired if the litigation involves a significant risk of a settlement or judgment in an amount which would be material to the covered licensee's firm19 or to the plaintiff client.

Effects of impairment of independence If the covered licensee believes that the circumstances would lead a reasonable person having knowledge of the facts to conclude that the actual or intended litigation poses an unacceptable threat to independence, the covered licensee shall either (a) disengage himself or herself, or (b) disclaim an opinion because of lack of independence. Such disengagement may take the form of resignation or cessation of any attest engagement then in progress pending resolution of the issue between the parties.

Termination of impairment The conditions giving rise to a lack of independence are generally eliminated when a final resolution is reached and the matters at issue no longer affect the relationship between the covered licensee and client. The covered licensee should carefully review the conditions of such resolution to determine that all impairments to the covered licensee's objectivity have been removed.

Section 101-8. Effect on Independence: Financial Interests in Nonclients, Investor/Investee Relationships with Client.

Introduction Financial interests in nonclients that are related in various ways to a client may impair independence. Situations in which the nonclient investor is a partnership are covered in other rulings.

The Following Definitions are to be used only in Section 101-8.

The following specifically identified terms are used in Section 101-8 as indicated:

1. Client. The term client means the person or entity with whose financial statements a covered licensee is associated.

2. Investor. The term investor means (a) a parent, (b) a general partner, or (c) a natural person or corporation that has the ability to exercise significant influence.

3. Investee. The term investee means (a) a subsidiary or (b) an entity over which an investor has the ability to exercise significant influence.

Interpretation

Where a nonclient investee is material to a client investor, any direct or material indirect financial interest of a covered licensee in the nonclient investee would be considered to impair independence

19 See Footnote 7.


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with respect to the client investor. If the nonclient investee is immaterial to the client investor, a covered licensee's material investment in the nonclient investee would cause an impairment of independence.

Where a client investee is material to nonclient investor, any direct or material indirect financial interest of a covered licensee in the nonclient investor would be considered to impair independence with respect to the client investee. If the client investee is immaterial to the nonclient investor, and if a covered licensee's financial interest in the nonclient investor allows the covered licensee to exercise significant influence over the actions of the nonclient investor, independence would be considered to be impaired.

Other relationships, such as those involving brother-sister common control or client-nonclient joint ventures, may affect the appearance of independence. The covered licensee should make a reasonable inquiry to determine whether such relationships exist, and if they do, careful consideration should be given to whether the financial interests in question would lead a reasonable observer to conclude that the specified relationships pose an unacceptable threat to independence.

In general, in brother-sister common control situations, an immaterial financial interest of a covered licensee in the nonclient investee would not impair independence with respect to the client investee, provided the covered licensee could not exercise significant influence over the nonclient investor. However, if a covered licensee's financial interest in a nonclient investee is material, the covered licensee could be influenced by the nonclient investor, thereby impairing independence with respect to the client investee. In like manner, in a joint venture situation, an immaterial financial interest of a covered licensee in the nonclient investor would not impair the independence of the covered licensee with respect to the client investor, provided that the covered licensee could not exercise significant influence over the nonclient investor.

If a covered licensee does not and could not reasonably be expected to have knowledge of the financial interests or relationship described in this Section, independence would not be considered to be impaired under this Section.

Section 101-10. The Effect on Independence: Relationships with Entities in Govt. Financial Statements.20 For purposes of this Section, a financial reporting entity's basic financial statements, issued in conformity with generally accepted accounting principles in the United States of America, include the government-wide financial statements (consisting of the entity's governmental activities, business-type activities, and discretely presented component units), the fund financial statements (consisting of major funds, non-major governmental and enterprise funds, internal service funds, blended component units, and fiduciary funds) and other entities disclosed in the notes to the basic financial statements. Entities that should be disclosed in the notes to the basic financial statements include, but are not limited to, related organizations, joint ventures, jointly governed organizations, and component units of another government with characteristics of a joint venture or jointly governed organization.

20 Except for a financial reporting entity's general purpose financial statements, which is defined within the text of this interpretation, certain terminology used throughout the interpretation is specifically defined by the Governmental Accounting Standards Board.


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Auditor of Financial Reporting Entity A covered licensee issuing a report on the basic financial statements of the financial reporting entity must be independent of the financial reporting entity, as defined in the preceding paragraph of this Section. However, independence is not required with respect to any major or non-major fund, internal service fund, fiduciary fund, or component unit or other entities disclosed in the financial statements, where the primary auditor explicitly states reliance on other auditors reports thereon. In addition, independence is not required with respect to an entity disclosed in the notes to the basic financial statements, if the financial reporting entity is not financially accountable for the organization and the required disclosure does not include financial information. For example, a disclosure limited to the financial reporting entity's ability to appoint the governing board members would not require a licensee to be independent of that organization.

However, the covered licensee and his or her immediate family shall not hold a key position with a major fund, non-major fund, internal service fund, fiduciary fund, or component unit of the financial reporting entity or other entity that should be disclosed in the notes to the basic financial statements.

Auditor of a Fund, Component Unit of the Financial Reporting Entity, or Other A covered licensee who is auditing the financial statements of a major fund, non-major fund, internal service fund, fiduciary fund, or component unit of the financial reporting entity or an entity that should be disclosed in the notes to the basic financial statements of the financial reporting entity, but is not auditing the primary government, must be independent with respect to those financial statements that the covered licensee is reporting upon. The covered licensee is not required to be independent of the primary government or other funds or component units of the reporting entity or entities that should be disclosed in the notes to the basic financial statements. However, the covered licensee and his or her immediate family should not hold a key position within the primary government. For purposes of this Section, a covered licensee and immediate family member would not be considered employed by the primary government if the exceptions provided for in the definition of a client are met.

Section 101-12. Independence and Cooperative Arrangements with Clients. Independence will be considered to be impaired if, during the period of a professional engagement, a licensee or his or her firm had any cooperative arrangement with the client that was material to the licensee's firm or to the client.

Cooperative Arrangement A cooperative arrangement exists when a licensee's firm and a client jointly participate in a business activity. The following are examples, which are not all inclusive, of cooperative arrangements:

1. Prime/subcontractor arrangements to provide services or products to a third party 2. Joint ventures to develop or market products or services 3. Arrangements to combine one or more services or products of the firm with one or more

services or products of the client and market the package with references to both parties 4. Distribution or marketing arrangements under which the firm acts as a distributor or marketer

of the client's products or services, or the client acts as the distributor or marketer of the products or services of the firm Nevertheless, joint participation with a client in a business activity does not ordinarily constitute a cooperative arrangement when all the following conditions are present:


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The participation of the firm and the participation of the client are governed by separate agreements, arrangements, or understandings.

The firm assumes no responsibility for the activities or results of the client, and vice versa.

Neither party has the authority to act as the representative or agent of the other party. In addition, the licensee's firm should consider the requirements of Section 473.319 and Section 473.3205.

End Florida State Board of Accountancy: Standards for Determining Independence section.

Florida Board of Accountancy Rules Integrity, Objectivity, Conflicts of Interest

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Integrity and Objectivity

61H1-21.002 Integrity and Objectivity.

A certified public accountant shall not knowingly misrepresent facts, and, when engaged in the practice of public accounting, shall not subordinate his/her judgment to others including but not limited to clients, employers or other third parties. In tax practice, a certified public accountant may resolve doubt in favor of his/her client as long as there is reasonable support for his/her position.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.315 FS. History–New 12-4-79, Formerly 21A-21.02, Amended 6-4-86, Formerly 21A-21.02, 21A-21.002, Amended 12-10-09.

Ethical Conflicts (AICPA 1.000.020)

.1 An ethical conflict arises when a member encounters one or both of the following: a. Obstacles to following an appropriate course of action due to internal or external

pressures b. Conflicts in applying relevant professional standards or legal standards

For example, a member suspects a fraud may have occurred, but reporting the suspected fraud would violate the member’s responsibility to maintain client confidentiality.

.2 Once an ethical conflict is encountered, a member may be required to take steps to best achieve compliance with the rules and law. In weighing alternative courses of action, the member should consider factors such as the following:

a. Relevant facts and circumstances, including applicable rules, laws, or regulations b. Ethical issues involved c. Established internal procedures

.3 The member should also be prepared to justify any departures that the member believes were appropriate in applying the relevant rules and law. If the member was unable to resolve the conflict in a way that permitted compliance with the applicable rules and law, the member may have to address the consequences of any violations.

.4 Before pursuing a course of action, the member should consider consulting with appropriate persons within the firm or the organization that employs the member.

.5 If a member decides not to consult with appropriate persons within the firm or the organization that employs the member and the conflict remains unresolved after pursuing the selected course of action, the member should consider either consulting with other individuals for help in reaching a resolution or obtaining advice from an appropriate professional body or legal counsel. The member also should consider documenting the substance of the issue, the parties with whom the issue was discussed, details of any discussions held, and any decisions made concerning the issue.

.6 If the ethical conflict remains unresolved, the member will in all likelihood be in violation of one or more rules if he or she remains associated with the matter creating the conflict. Accordingly, the member should consider his or her continuing relationship with the engagement team, specific assignment, client, firm, or employer.46


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AICPA Interpretation on Knowing Misrepresentation in Preparation of Financial Statements or Records

A CPA is considered to have knowingly misrepresented facts in violation of this rule if the CPA

Makes, or permits or directs another to make, materially false and misleading entries in an entity’s financial statements or records; or

Fails to correct an entity’s financial statements or records that are materially false and misleading when he or she has the authority to record an entry; or

Signs, or permits or directs another to sign, a document containing materially false and misleading information.47

Example of Misrepresentation

Example of Misrepresentation A CPA who is not in public practice uses her CPA designation in connection with financial statements and correspondence of the CPA’s employer, and the CPA uses the CPA designation along with her employment title on business cards. In this case, the CPA would be allowed to use the CPA designation in these manners providing that the CPA designation is not used in a manner that implies that the CPA is independent of the employer.48

Conflicts of Interest A conflict of interest can occur due to the belief by a client, employer, or other party that a CPA’s objectivity is impaired as a result of a relationship with another person, entity, product, or service.

Examples of Conflicts of Interest

Examples of Conflicts of Interest: · A CPA has been asked to perform litigation services for the plaintiff in connection with a lawsuit

filed against a client of the CPA's firm.

· A CPA has provided tax or personal financial planning (PFP) services for a married couple who are undergoing a divorce, and the CPA has been asked to provide the services for both parties during the divorce proceedings.

· In connection with a PFP engagement, a CPA plans to suggest that the client invest in a business in which the CPA has a financial interest.

· A CPA provides tax or PFP services for several CPAs of a family who may have opposing interests.

· Providing corporate finance services to a client seeking to acquire an audit client of the firm, when the firm has obtained confidential information during the course of the audit that may be relevant to the transaction.49

AICPA Interpretation on Subordination of Judgment by a Covered CPA Under this rule, if a CPA and his or her supervisor have a disagreement or dispute relating to the preparation of financial statements or the recording of transactions, the CPA should take the following steps to ensure that the situation does not constitute a subordination of judgment:

1. The CPA should consider whether (a) the entry or the failure to record a transaction in the records, or (b) the financial statement presentation or the nature or omission of disclosure in the financial statements, as proposed by the supervisor, represents the use


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of an acceptable alternative and does not materially misrepresent the facts. If, after appropriate research or consultation, the CPA concludes that the matter has authoritative support and/or does not result in a material misrepresentation, the CPA need do nothing further.

2. If the CPA concludes that the financial statements or records could be materially misstated, the CPA should make his or her concerns known to the appropriate higher level(s) of management within the organization (for example, the supervisor's immediate superior, senior management, the audit committee or equivalent, the board of directors, the company's owners). The CPA should consider documenting his or her understanding of the facts, the accounting principles involved, the application of those principles to the facts, and the parties with whom these matters were discussed.

3. If, after discussing his or her concerns with the appropriate person(s) in the organization, the CPA concludes that appropriate action was not taken, he or she should consider his or her continuing relationship with the employer. The CPA also should consider any responsibility that may exist to communicate to third parties, such as regulatory authorities or the employer's (former employer's) external accountant. In this connection, the CPA may wish to consult with his or her legal counsel.

4. The CPA should at all times be cognizant of his or her obligations under the Interpretation.50

Example of an Ethical Issue Relating to Integrity and Objectivity

Example of an Ethical Issue Relating to Integrity and Objectivity The outsourcing of tax preparation services to overseas companies has been increasing steadily since the advent of electronic communication. U.S. accounting firms have been outsourcing primarily for two reasons: (1) they have had difficulty in finding qualified part-time staff during tax season, and (2) there is a significant cost savings realized by having the work done abroad—as much as 50% of what the services would cost in the U.S.

From an ethical standpoint, there is a potential violation of AICPA Integrity and Objectivity Rule, which requires that “in the performance of any professional service, a CPA shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others.” In addition, the Code’s Principle of Integrity calls on CPAs to be “honest and candid within the constraints of client confidentiality.”

Has the client been informed that personal and tax information is being transmitted electronically overseas for processing? Even though the CPA maintains control over the source documents and reviews and approves the return, failing to disclose this information to the client would mean that the CPA was not acting with honesty in communicating with the client.51

Florida Rules-Commissions, Fees, Competence, Technical Standards

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Commissions, Referral Fees, and Contingent Fees

61H1-21.003 Commissions or Referral Fees.

(Cross-reference: FL Statute on Commissions, Referral Fees.)

(1) A certified public accountant shall not pay or accept a commission or referral fee in connection with the sale of a product or referral of any services as defined in Section 473.302(7)(a), F.S., or prohibited to non-certified public accountants as listed in Section 473.322, F.S. These services include:

(a) Audit, review or compilation services.

(b) Services for any prospective financial data including forecasts or projections.

(c) Any special procedures engagement resulting in an expression of an opinion when the services fall within the definitions as set forth in Section 473.302(7)(a) and Section 473.322, F.S.

(2) The certified public accountant must have an engagement letter signed by the client prior to beginning any engagement for which the certified public accountant will receive a commission. The letter must include complete details of the financial arrangements involving compensation for the services rendered.

(3) The certified public accountant must hold appropriate licenses as required. (4) If the certified public accountant is not independent as described in Rule 61H1-21.001, F.A.C.,

it must be disclosed in the engagement letter. However, if the only reason for not being independent is the fact that the certified public accountant is being compensated by a commission or contingent fee then the lack of independence does not have to be disclosed.

Rulemaking Authority 473.304, 473.3205 FS. Law Implemented 473.3205 FS. History–New 12-4-79, Formerly 21A-21.03, Amended 3-28-89, Formerly 21A-21.003, Amended 2-23-98, 8-16-99, 12-21-09.

61H1-21.005 Contingent Fees

(Cross-reference: FL Statute on Contingent Fees.) (1) No certified public accountant or firm shall accept a fee contingent upon the findings or results

of such services if the service is of the type for which a commission or referral fee could not be accepted (See Rule 61H1-21.003, F.A.C.).

(2) No certified public accountant or firm shall accept a contingent fee for tax filings with the federal, state, or local government unless the findings are those of the tax authorities and not those of the certified public accountant or firm. Unless the certified public accountant or firm has specific reason to know that the filing will be reviewed in detail by the taxing authorities, the findings will be presumed to be those of the certified public accountant or firm and a contingent fee is not permissible. An original or amended federal tax return or a claim for refund cannot be prepared for a contingent fee since the findings are not considered to be those of the taxing authority. If the taxing authority has begun an audit, any findings will be considered those of the taxing authority and a contingent fee may be accepted. Fees to be fixed by courts or other public authorities, which are of an indeterminate amount at the time a public accounting service is undertaken, shall not be regarded as contingent fees for the


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purposes of this rule. However, a certified public accountant’s or firm’s fee may vary depending, for example, on the complexity of the service rendered.

Rulemaking Authority 473.304, 473.319 FS. Law Implemented 473.319 FS. History–New 12-4-79, Formerly 21A-21.05, 21A-21.005, Amended 11-30-93, 2-23-98, 12-10-09.

Examples of Instances Where a Contingent Fee Would Be Permitted

Examples of Instances Where a Contingent Fee Would Be Permitted · Representing a client in an examination by a revenue agent of the client's federal or state

income tax return

· Filing an amended federal or state income tax return claiming a tax refund based on a tax issue that is either the subject of a test case (involving a different taxpayer) or with respect to which the taxing authority is developing a position.

· Filing an amended federal or state income tax return (or refund claim) claiming a tax refund in an amount greater than the threshold for review by the Joint Committee on Internal Revenue Taxation or state taxing authority.52

Example of a Circumstance Where a Contingent Fee Would Not Be Permitted Example of a Circumstance Where a Contingent Fee Would Not Be Permitted Preparing an amended federal or state income tax return for a client claiming a refund of taxes because a deduction was inadvertently omitted from the return originally filed. There is no question as to the propriety of the deduction; rather, the claim is filed to correct an omission.53

Client Request for Second Opinion

C61H1-21.006 Communication with Client of Another Certified Public Accountant.

If a client of one certified public accountant or firm requests a second certified public accountant or firm to provide professional advice on accounting or auditing matters in connection with an expression of opinion, the second certified public accountant or firm must consult with the first certified public accountant or firm, after obtaining the client’s consent, to make certain that the (the second certified public accountant or firm) is aware of all the relevant facts.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.315 FS. History–New 12-4-79, 6, 21A-21.006, Amended 12-10-09.

Competence and Technical Standards

61H1-22.001 Competence (General Standards).

A certified public accountant shall comply with the following general standards and must justify any departures therefrom:

(1) Professional competence. A certified public accountant shall undertake only those engagements which he or his firm can reasonably expect to complete with professional competence. A certified public accountant must be in charge of all public accounting services performed by the firm.

(2) Due professional care. A certified public accountant shall exercise due professional care in the performance of an engagement.


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(3) Planning and supervision. A certified public accountant shall adequately plan and supervise an engagement.

(4) Sufficient relevant data. A certified public accountant shall obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to an engagement.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.315 FS. History–New 12-4-79, Amended 2-3-81, Formerly 21A-22.01, 21A-22.001, Amended 12-30-97, 12-10-09.

Example of a Violation of Competence and Technical Standards–Auditing Standards

Example of a Violation of Competence and Technical Standards – Auditing Standards XYZ CPAs PC (XYZ) provided audit services to a state agency (Agency) for the fiscal year ending June 30, 200x. XYZ assigned CPA Brown to manage the Agency’s audit. Brown prepared a cash disbursements audit work paper that stated the following:

“ Five checks have missing documentation. Used alternative procedures to review the validity of disbursements, also reviewed check signature, which was by Board member, not Agency Administrator. Appears transactions are properly recorded as of June 30, 200x;”

Brown’s work papers did not include the following information about XYZ’s audit procedures:

-Information describing whether XYZ reviewed the original cancelled checks, copies of cancelled checks, or only the cash disbursements journal;

-Description of alternative procedures used to review and verify cash disbursements; -Description of procedures used to verify that selected checks were signed by an authorized signatory (Board member); XYZ issued a clean opinion dated December 5, 200x on Agency’s financial statements and submitted the audit report with a copy of the audit working papers to the State.

The State initiated an investigation based on evidence of embezzlement by the Agency’s sole employee. The State obtained copies of cancelled checks and reviewed five of the twenty-five checks that Brown tested. The following irregularities were found on two of the five checks:

-The checks were not issued to or cashed by the vendor posted in the Agency cash disbursements journal; -The checks were issued to the Agency Administrator; -The signature of the Board Chair was forged on each check; -The checks were endorsed by the Agency Administrator and deposited to the Administrator’s personal account.

The AICPA Interpretation Regarding Competence General standards establish the requirement for the CPA to ensure that services are performed “with the necessary competence to complete those professional services according to professional standards, applying his or her knowledge and skill necessary with reasonable care and diligence.” Services must be performed with “both the technical qualifications of the member and his or her staff and the ability to supervise and evaluate the quality of the work performed.”54

Using the AICPA Audit Standards as an illustration, an auditor should

Possess the degree of skill commonly possessed by other auditors and should exercise it with reasonable care and diligence. (professional competence)

Exercise due professional care in the “planning and performance of an audit and preparation of the report.” Exercising due professional care requires professional


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skepticism, which is an attitude that includes a questioning mind and a critical assessment of audit evidence.

Be assigned to tasks and supervised commensurate with their level of knowledge, skill, and ability so that they can evaluate the audit evidence they are examining.” (planning and supervision)

Gather and objectively evaluate audit evidence and “consider the competency and sufficiency of the evidence.” (sufficient relevant data)

Example of an Issue Relating to Competence

Example of an Issue Relating to Competence Referring back to our example on the outsourcing of tax preparation services overseas (in Section 61H1-21.002 Integrity and Objectivity), there is an ethical issue concerning competence with respect to the exercise of due care. The CPA must adequately plan and supervise the performance of professional services. Although a CPA might argue that the returns completed through outsourcing are reviewed and approved, outsourcing these services would most likely violate the “spirit” of the rules. According to the AICPA, competence to perform professional services involves both the technical qualifications of the CPA and the CPA's staff, and the ability to supervise and evaluate the quality of the work performed. Competence relates both to knowledge of the profession's standards, techniques, and the technical subject matter involved and to the capability to exercise sound judgment in applying such knowledge in the performance of professional services.55

Examples of Departures from Generally Accepted Accounting Principles: AICPA Interpretation This interpretation addresses instances in which a literal application of GAAP would have the effect of rendering financial statements misleading. In such cases, the proper accounting treatment is that which will render the financial statements not misleading.

In these circumstances, the member should use professional judgment in determining whether a departure from GAAP is justified, in that adherence to GAAP in this instance would be regarded generally by reasonable persons as producing misleading financial statements.

Examples of circumstances that may justify a departure from GAAP are new legislation and the evolution of a new form of business transaction. An unusual degree of materiality and the existence of conflicting industry practices are examples of circumstances that would not ordinarily be regarded as unusual in the context of the AICPA Rule.

A member may not state that financial statements or other financial data of an entity are presented in conformity with GAAP if such statements or data contain any departure from an accounting principle that has a material effect on the statements or data taken as a whole.56

Florida Rules-Firm Name, Form of Practice, Firm Licensure

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Responsibilities to Clients (Cross-reference: FL Statute on Accountant/Client Communication.)

61H1-23.001 Confidential Client Information.

A certified public accountant shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule shall not be construed to relieve a certified public accountant of his or her obligation under Rules 61H1-22.008 and 61H1-22.007, F.A.C., or to contravene or contradict any of the provisions of Chapter 473, F.S. Furthermore, this rule shall not prohibit a confidential review of a certified public accountant’s professional practice as a part of a quality review program.

Rulemaking Authority 473.304, 473.315, 473.316 FS. Law Implemented 473.315, 473.316 FS. History–New 12-4-79, Formerly 21A-23.01, 21A-23.001, Amended 1-17-11.

Selected AICPA Ethical Rulings on Confidential Client Information

Any disclosing of confidential client information should not be done without the specific consent of the client.

Distribution of client information to trade associations (for research purposes, the results of which would be made available to association CPAs) is allowable with client permission.

Information to a successor accountant about tax return irregularities is allowable with client permission obtained by the successor.

Revealing names of clients for marketing purposes or for advising a third party requires the client’s consent, preferably in writing.

CPAs reviewing a practice in connection with a prospective purchase or merger must not use to their advantage, or otherwise disclose, any CPA's confidential client information that comes to their attention.57

AICPA Ethical Ruling on Third-party providers An ethical ruling was written to address the issue of whether obtaining client consent is required before a CPA can disclose confidential client information to the third-party provider. The ruling states that a CPA must be reasonably assured that the third-party service provider has appropriate procedures in place to prevent the unauthorized release of confidential information to others. For third-party providers who operate overseas, for example, this requirement may be difficult to meet.58

Example of an Issue Relating to Confidential Client Information Example of an Issue Relating to Confidential Client Information Referring back to our example on outsourcing of tax preparation services overseas, there is also an ethical issue concerning AICPA Confidential Client Information Rule. A client should be informed by a CPA that his or her personal and tax information is being electronically transmitted to an overseas party for processing. This knowledge would undoubtedly be of concern to a client, given that the information conveyed would include social security numbers and financial information from bank or brokerage accounts.


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61H1-23.002 Records Disposition Responsibility

(Cross-reference: FL Statute on Ownership of Working Papers)

(1) A certified public accountant shall furnish to a client or former client upon request and reasonable notice: (a) Any accounting or other records belonging to, or obtained from or on behalf of, the client

that were provided to the certified public accountant; the certified public accountant may make and retain copies of such documents of the client when they form the basis for work done by the certified public accountant.

(b) Any accounting or other records that the certified public accountant was not specifically engaged to prepare that are related to an issued work product of the certified public accountant and that are not in the client’s books and records or are otherwise not available to the client, with the result that the client’s financial information is complete.

(c) A copy of any deliverable as set forth in the terms of the engagement that has been issued by the certified public accountant.

(2) This rule shall not preclude a certified public accountant from making reasonable charges for costs incurred. Once the certified public accountant has complied with the requirements in subsection (1) above, the certified public accountant is under no obligation to comply with subsequent requests from the client to again provide such records or work products. However, if subsequent to complying with a request, a client experiences a loss of records due to a natural disaster or act of war, the certified public accountant shall comply with an additional request to provide such records or work products.

(3) Provisions of this rule apply to Licensed Firms and to all certified public accountants practicing public accounting.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.315, 473.318 FS. History–New 12-4-79, Amended 12-11-83, Formerly 21A-23.02, Amended 9-1-87, Formerly 21A-23.002, Amended 10-28-98, 10-26-09, 12-2-14.

Response to Requests by Clients and Former Clients for Records

AICPA Terminology: Records The following terms are defined below solely for use with this interpretation:

Client provided records are accounting or other records belonging to the client that were provided to the CPA by or on behalf of the client, including reproductions of such records.

Client records prepared by the CPA are accounting or other records (for example, tax returns, general ledgers, subsidiary journals, and supporting schedules such as detailed employee payroll records and depreciation schedules) that the CPA was engaged to prepare for the client.

Supporting records refer to information not reflected in the client's books and records that is otherwise not available to the client with the result that the client's financial information is incomplete. For example, supporting records include adjusting, closing, combining, or consolidating journal entries (including computations supporting such entries) that are produced by the CPA during an engagement (for example, an audit).


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CPA's working papers include, but are not limited to, audit programs, analytical review schedules, and statistical sampling results, analyses, and schedules prepared by the client at the request of the CPA.59

AICPA Interpretation on Client Requests for Records When a client or former client makes a request for client-provided records, client records prepared by the CPA, or supporting records that are in the custody or control of the CPA or the CPA's firm (CPA) that have not previously been provided to the client, the CPA should respond to the client's request as follows:

Client-provided records that are in the CPA's custody or control should be returned to the client.

CPA-prepared records relating to a completed and issued work product should be provided to the client, except that such supporting records may be withheld

o if there are fees due to the CPA for the specific work product;

o if the work product is incomplete;

o for purposes of complying with professional standards (for example, withholding an audit report due to outstanding audit issues); or

o if threatened or outstanding litigation exists concerning the engagement or CPA's work.

Once the CPA has complied with these requirements, he or she is under no ethical obligation to comply with any subsequent requests to again provide such records or copies of such records. However, if subsequent to complying with a request a client experiences a loss of records due to a natural disaster or an act of war, the CPA should comply with an additional request to provide such records.

CPA's working papers are the CPA's property and need not be provided to the client under provisions of this interpretation; however, such requirements may be imposed by state and federal statutes and regulations, and contractual agreements. In connection with any request for client-provided records, client records prepared by the CPA, or supporting records, the CPA may:

Charge the client a reasonable fee for the time and expense incurred to retrieve and copy such records, and require that such fee be paid prior to the time such records are provided to the client;

Provide the requested records in any format usable by the client; and Make and retain copies of any records returned or provided to the client.

Where a CPA is required to return or provide records to the client, the CPA should comply with the client's request as soon as practicable but, absent extenuating circumstances, no later than forty-five days after the request is made.

The fact that the statutes of the state in which the CPA practices grants the CPA a lien on certain records in his or her custody or control does not relieve the CPA of his or her obligation to comply with this interpretation.60


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Example of How Certain Records Should be Treated Example of How Certain Records Should be Treated If the licensee prepares schedules of account balances that the client does not ordinarily prepare, and the licensee reported on these schedules, copies must be made available to the client. Examples of such schedules may include:

Investments Accounts payable Owners´ equity Accounts receivable Bad Debts Prepaid expenses Accrued liabilities Current portion of long-term debt Income tax expenses and payable If the client is able to determine the account balances and provided schedules based on information in his or her possession, then the licensee’s notes and conclusions are not required to be provided to the client. Copies of the licensee’s notes or conclusions on any accounts or transactions are only required to be provided to the client if the account balances or transactions reported on cannot be understood without consulting the licensee’s notes or conclusions.

Therefore, the decision whether to provide copies of all or part of the licensee´s work papers depends on whether the client´s records include the same information as the licensee´s work product. The client must have sufficient documentation to explain or prove transactions or events that are reported by the licensee in the client´s tax returns or financial statements when called upon to do so. If the documentation is sufficient and can be used for such explanation and proof, no copies are necessary. If the documents are not sufficient, copies are required.61

Advertising and Solicitation

61H1-24.001 Advertising.

(1) No certified public accountant shall disseminate or cause the dissemination of any advertisement or advertising which is in any way fraudulent, false, deceptive, or misleading, if it, among other things:

(a) Contains a misrepresentation of facts; or

(b) Makes only a partial disclosure of relevant facts; or

(c) Creates false or unjustified expectations of beneficial assistance; or

(d) Appeals primarily to a layperson’s fears, ignorance, or anxieties regarding his state of financial well-being; or

(e) Contains any representation or claims, as to which the certified public accountant, referred to in the advertising, does not expect to perform; or

(f) Contains any other representation, statement, or claim which misleads or deceives; or

(g) In the event that a certified public accountant uses the term “specialty” or “specialist” or any other term tending to indicate an advanced standing in any aspect of the practice of public accountancy, in any advertisement or offering to the public, the advertisement must state that the use of the term is a self-designation and is not sanctioned by the state or

https://www.flrules.org/gateway/ruleNo.asp?id=61H1-24.001


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federal government. This requirement shall not apply to any statement indicating the certified public accountant has received any bona fide formal recognition or attainment; or

(h) Represents that professional services can or will be competently 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 affecting the fees that will in fact be charged; or

(2) “Advertising” shall mean:

(a) Any statements, oral or written, disseminated to or before the public or any portion thereof, with the intent of furthering the purpose, either directly or indirectly, of selling public accounting services, or offering to perform public accounting services, or including members of the public to enter into any obligation relating to such public accounting services. For purposes of this rule, oral or written statements include:

1. Business cards;

2. Letterhead;

3. Signs;

4. Listings in telephone and other media or communication directories;

5. Display of certificate or license from this or any other state;

6. Business reports;

7. Transmittal letters or other written communication issued or associated with accompanying financial statements;

8. Brochures;

9. Forms filed with state and federal regulatory agencies;

10. Press releases;

11. Paid promotional listing in any media;

12. Display of membership in CPA associations;

13. Listings in professional directories;

14. Presentation during court proceedings;

15. Website, e-mail, or any other electronic communication.

(b) “Advertisement,” “advertising” and “advertising as a part of a certified public accountant’s business activities” as defined terms by this rule does not include:

1. Verbal statements in a social context, or

2. Use of the designation by authors when used only for identification as authors of books, articles or other publications, provided that such publications, do not offer the performance of services or the sale of products (other than books, articles or other publications).

Rulemaking Authority 473.304, 473.323 FS. Law Implemented 473.323(1)(f) FS. History–New 12-4-79, Amended 2-3-81, 12-29-83, Formerly 21A-24.01, Amended 5-20-91, Formerly 21A-24.001, Amended 2-12-95, 5-7-96, 10-8-97, 11-18-07, 12-10-09, 12-2-14.


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61H1-24.002 Solicitation (Repealed)

Responsibility for Other Persons

61H1-25.001 Responsibility for Other Persons.

A certified public accountant shall not permit others to carry out on his/her behalf, either with or without compensation, acts which, if carried out by the certified public accountant would place him/her in violation of Chapters 455 and 473, F.S., or rules promulgated thereto. (See also 61H1-22 Competence and Technical Standards, above.)

Rulemaking Authority 473.304, 473.323 FS. Law Implemented 473.322, 473.323 FS. History–New 12-4-79, Formerly 21A-25.01, 21A-25.001, Amended 10-26-09.

Firm Name, Form of Practice, Firm Licensure

61H1-26.001 Form of Practice and Name-Shared Office Space.

(Cross-reference: Fl Statute on Practice Requirements-Business Entities.) (1) A Florida certified public accountant may practice public accounting, whether as an owner or

employee, only in the form of a proprietorship, a partnership or a corporation, or a limited liability company. A Florida certified public accountant shall not allow any person to practice in his name that is not a partner or shareholder with him or in his employ. A Florida certified public accountant shall not practice under a name which is misleading or deceptive as to the legal form of the firm or as to persons who are partners, or shareholders of the firm or as to any other matter. In this regard:

(a) A Florida certified public accountant may practice public accounting under a fictitious name which is not misleading or deceptive as to the persons who are sole proprietors, partners, or shareholders; and

(b) A firm name may include the names of retired or deceased partners or shareholders or members who were active partners or shareholders or members of the entity. This provision permits a firm, in the same line of succession, to change from one form of business to another and continue to use the names of retired or deceased partners, shareholders or members.

(c) Use of the term “and Company” or “and Associates” requires at least one other fully employed Florida certified public accountant or non certified public accountant owner other than those named in the firm name; however, this rule does not preclude a Florida certified public accountant initially meeting this requirement from using the above-mentioned terms if the Florida certified public accountant subsequently does not fully employ at least one Florida certified public accountant other than those named in the firm name.

(d) A firm may use the term “Certified Public Accountants” in the firm’s name if all owners are certified public accountants. If there are non certified public accountant owners, the firm may use the terms “CPA Firm” “CPAs and Associates” or “Certified Public Accountants and Associates” provided the firm has more than one certified public accountant. Further, a certified public accountant firm with non certified public accountant owners may not use


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the term Certified Public Accountants without indicating there are other owners such as Associates or Consultants.

(e) A firm may only use the term “CPA,” “CPA Firm,” “CPAs and Associates,” “Certified Public Accountants and Associates,” or any other title, designation, words, letters, abbreviations, or device indicating that it is a CPA Firm if it holds a license issued pursuant to Section 473.3101, F.S.

(2) The term “certified public accountant(s)” or the abbreviation “CPAs” must appear with the name of a certified public accountant when used in connection with an expression of opinion.

(3) Florida certified pubic accountants may share office facilities provided there is adequate disclosure that would enable a reasonable person to determine the practice is not associated with the profession or occupation not regulated by the Board, such as written agreements, signs, ect.

Rulemaking Authority 473.304, 473.3101, 473.321 FS. Law Implemented 473.3101, 473.321 FS. History–12-4-79, Amended 11-7-84, 10-28-85, Formerly 21A-26.01, Amended 10-20-86, 12-28-89, 7-1-91, 1-7-93, Formerly 21A-26.001, Amended 11-30-93, 12-30-97, 8-16-99, 9-20-00, 12-10-0, 12/21/15.

Examples of AICPA Rulings Regarding Form of Organization and Name

Examples of AICPA Rulings Regarding Form of Organization and Name · A CPA who is in partnership with non-CPAs can sign reports with the firm name and below it affix

his or her own signature with the designation "Certified Public Accountant" as long as it is clear the partnership itself is not being held out as composed entirely of CPAs.

· If two partnerships merge, it permissible for the newly merged firm to practice under a title which includes the name of a partner who had retired from one of the two firms prior to the merger. Since the retired partner was once a partner in one of the merged firms, it would be proper for his or her name to appear in the title of a newly created firm.

· A CPA who is also admitted to the Bar may represent him or herself on his or her letterhead as both an attorney and a CPA, as the Code does not prohibit the simultaneous practice of accounting and law by a CPA licensed in both professions. Either a single or separate letterheads may be used, provided the information with respect to the CPA designation complies with the Advertising and Other Forms of Solicitation Rule. However, the CPA should also consult the rules of the applicable Bar Association.

· A CPA not in public practice, who is controller of a bank, may permit the bank to use his or her CPA title on bank stationery and in paid advertisements listing the officers and directors of the bank.62

61H1-26.002 Minimum Capitalization or Adequate Public Liability Insurance for Florida Firms with the Exception of a Sole Proprietorship.

A Florida firm, with the exception of a sole proprietorship, shall not engage in the practice of public accounting in this state unless:

(1) Assets in excess of liabilities and professional liability insurance combined are at least equal to $50,000 per shareholder, officer, member, or partner and any Florida licensed certified public accountant to a maximum of $2,000,000 or


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(2) It has an irrevocable letter of credit of at least equal to $50,000 per shareholder, officer, member, or partner and any Florida licensed certified public accountant to a maximum of $2,000,000, which meets the following criteria:

(a) The responsibility for repayment of any sums disbursed under the letter of credit is not an obligation of the Florida firm, its owners, or any entity affiliated with the Florida firm;

(b) The letter of credit contains an “evergreen clause,” which automatically renews the letter of credit unless the issuer of the letter of credit notifies the Florida firm and the Board within sixty (60) days of the decision not to renew; and

(c) The letter of credit is issued by a financial institution authorized to do so under applicable state or federal banking laws; or

(3) The corporation, each shareholder, and each officer who has authority over the practice of public accountancy, the LLC or the limited liability company and each member of the LLC, or the LLP and each partner have executed the waiver of limitation on liability approved by the Board which must be set forth as follows:

WAIVER ON LIMITATION

The shareholders, officers, members, or partners of ___ (Name of Firm), do jointly and severally convenant and agree that they will pay any award or judgment arising out of any claim the basis of which is grounded upon an allegation of negligence, incompetence, misconduct, fraud or deceit in the firm’s or its owners’, officers’, members’, or employees’ practice of public accounting as soon as the same shall become payable regardless of any limitation on liability provided by Chapter 621 and Chapter 608, and Chapter 620, F.S. (2009). Unless executed by a partnership and its partners, the members intend this agreement as a mutual covenant of assumption and not as a partnership, but should any court of competent jurisdiction construe same to be a partnership then it is the intention of the parties that such partnership be limited in scope to the uses for which this contract is executed and no other. Any individual who, subsequent to the date of this instrument, becomes a shareholder, officer, member, or partner in ____________ (Name of Firm), shall immediately become a party to this waiver and be bound to the conditions thereof. Said shareholder, officer, member, or partner shall execute an amended Waiver on Limitation of Liability which shall become a part of the original Waiver on Limitation of Liability. We the undersigned shareholders, officers, members, or partners in ___________________________ (Name of Firm), do hereunto set our hands and seals to certify our acceptance of the Waiver on Limitation of Liability dated this ________ day of ____, 20___.

_____________________________ _______________________________

_____________________________ _______________________________

_____________________________ _______________________________

_____________________________ _______________________________ (Signatures of all shareholders, officers, members, or partners)

Rulemaking Authority 473.304, 473.309 FS. Law Implemented 473.309 FS. History–New 12-4-79, Formerly 21A-26.02, Amended 10-20-


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86, Formerly 21A-26.002, Amended 11-30-93, 5-23-94, 6-10-96, 10-6-96, 12-30-97, 9-21-00, 12-10-09, 2-6-13.

61H1-26.003 Licensure of Firm Names.

Every Florida firm and non-Florida firm required to be licensed pursuant to Section 473.3101, F.S., shall be certified for licensure by the Board on a biennial basis, and shall furnish its firm name, addresses and telephone numbers of main office as well as the names of all licensed professional staff and all non-licensed owners. Said firms must also disclose whether any non-certified public accountant owners have convictions or findings of guilt, regardless of adjudication, of a crime in any jurisdiction and judgment or settlements of civil lawsuits, or having been acted against including denial of licensure by any regulatory agency by a court or regulatory agency and any other matters which show a lack of good moral character. (good moral character is defined in Section 473.308(6)(a), F.S.).

Rulemaking Authority 473.304, 473.3101 FS. Law Implemented 473.3101 FS. History–New 12-4-79, Amended 2-3-81, Formerly 21A-26.03, Amended 6-4-86, Formerly 21A-26.003, Amended 2-3-94, 12-30-97, 1-26-10, 10-7-12, 12/21/15.

61H1-26.004 Licensure of Changes by Firms.

(1) A firm licensed pursuant to Rule 61H1-26.003, F.A.C., shall file a written notification with the Department within thirty (30) days after the occurrence of any of the following events:

(a) The admission or addition of a non-CPA co-partner, shareholder or member in any Florida office, including whether any non-CPA co-partners, shareholders or members have convictions or findings of guilt, regardless of adjudication, of a crime in any jurisdiction; judgement or settlements or civil lawsuits; having been acted against, including denial of licensure, by any regulatory agency or by a court; and any other matters which show a lack of good moral character as defined in Section 473.308(6)(a), F.S.;

(b) The admission or addition of a CPA co-partner, shareholder or member in any Florida office, including whether any CPA co-partners, shareholders or members have convictions or findings of guilt, regardless of adjudication, of a crime in any jurisdiction; judgment or settlements of civil lawsuits (excluding domestic matters); having the right to practice acted against, including denial of licensure, by the Securities Exchange Commission (SEC), Internal Revenue Service (IRS), or any other regulatory agency or court; and any other matters which show a lack of good moral character as defined in Section 473.306(4)(a), F.S.;

(c) The retirement or death of a co-partner, shareholder or member in any Florida office;

(d) A change in the name of the partnership, corporation or limited liability company;

(e) The termination of the partnership, corporation or limited liability company.

(f) When the firm or any existing CPA or Non-CPA co-partner, shareholder or member has been the recipient of a conviction or finding of guilt, regardless of adjudication, of a crime in any jurisdiction; has been the subject of a judgment or settlements of a civil lawsuit (excluding domestic matters); has had the right to practice public accountancy acted against, including denial of licensure, by the Securities Exchange Commission (SEC), Internal Revenue Service (IRS), or any other regulatory agency or court; and any other matters which show a lack of good moral character as defined in Section 473.306(4)(a), F.S.

(2) In the event of the formation of a new sole proprietorship, partnership, corporation or limited liability company, or any other legal entity engaged in the practice of public accounting or a


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change in the name of a sole proprietorship, partnership, corporation, or limited liability company, or any other legal entity engaged in the practice of public accounting, such sole proprietorship, partnership, corporation, or limited liability company shall, within thirty (30) days of the event, become certified for licensure by the Board in accordance with Rule 61H1-26.003, F.A.C., and Section 473.3101, F.S. and pay the license fee required by Rule 61H1-31.010, F.A.C.

Rulemaking Authority 473.304, 473.3101 FS. Law Implemented 473.3101 FS. History–New 12-4-79, Amended 2-3-81, Formerly 21A-26.04, Amended 6-4-86, Formerly 21A-26.004, Amended 11-3-97, 7-16-98, 8-17-98, 1-31-05, 8-28-06, 1-26-10, 2-6-13, 12/21/15.

61H1-26.005 Address of Record.

(1) All Florida certified public accountants, and licensed firms are required to have their correct street address on file with the Board office as their address of record. A post office box may be used for a mailing address, but it must be in addition to the address of record.

(2) Any time a Florida certified public accountant or licensed firm changes their address of record or mailing address, the Board office must be notified in writing within thirty days.

Specific Authority 473.304 FS. Law Implemented 473.304 FS. History–New 12-2-92, Formerly 21A-26.005, Amended 7-23-06, 12/21/15.


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Review Questions (Answers and explanations are in Appendix IV.)

9. A licensee lacks independence if, during the period of a professional engagement, A. The licensee was a trustee of a trust that had a 5% ownership interest in the client. B. The licensee was an executor of an estate that had holdings valued at 8% of the total

assets of the client. C. The licensee has a credit card account with a client that has an outstanding balance of

$9,000. D. The licensee owns 12% of a client’s outstanding equity securities.

10. A certified public accountant who has knowingly misrepresented facts when engaged in the practice of public accounting is in violation of which Florida Rule? A. Confidential client information. B. Independence. C. Conflict of interest. D. Integrity and objectivity.

11. A licensee may receive a commission or referral fee A. for compilation services. B. for the sale of products to a client without a written disclosure. C. for providing projections regarding prospective financial data. D. for a consulting service that is delineated in an engagement letter.

12. Objectively evaluating audit evidence for its competency and sufficiency is most closely associated with which of the following general standards for competence? A. Only undertake services that can be completed with professional competence. B. Exercise due professional care. C. Use adequate planning and supervision. D. Obtain sufficient relevant data.

Case Studies

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Case Studies The following case studies were written by Howard A. Kanter, Ph.D, DePaul University School of Accountancy, and are maintained on the Illinois CPA Society (ICPAS) website.

1. Stop Thief! The Case of the Almost Stolen Clients

RULES THAT APPLY:

61H1-24—Advertising

THE PLAYERS:

Respondent: Mr. Knotmee Complaint Submitted by: The Firm

CASE DETAILS:

In a letter to the Illinois CPA Society (ICPAS), The Firm indicated that Mr. Knotmee, a former employee, improperly solicited clients of The Firm after his departure. In particular, The Firm stated that:

At time of Mr. Knotmee’s termination, he was asked to return all copies of any client lists and information. However, he failed to comply with this request.

Prior to Mr. Knotmee’s termination, his personnel file disappeared, which contained the non-compete agreement.

In a solicitation (marketing) letter, Mr. Knotmee claims to employ current employees of The Firm. However, these employees have stated that they indeed do not work for Mr. Knotmee.

The Firm disputed some of the claims that Mr. Knotmee made in his marketing letter. Among the disputed claims:

Mr. Knotmee stated he was a consulting manager at The Firm. The Firm argued that he was classified as staff.

Mr. Knotmee stated that he parted company with The Firm on April 15, 20xx. The Firm stated that Mr. Knotmee was terminated on March 31 in the same year and that the reasons Mr. Knotmee gave for his dismissal are not representative of reality.

Mr. Knotmee stated that many of The Firm’s associates worked in conjunction with Mr. Knotmee’s company. The Firm stated that there are NO employees at The Firm who work for Mr. Knotmee’s company.

In Mr. Knotmee’s resume, he stated that he is a member of the AICPA. The Firm knows this to be false.

The ICPAS contacted Mr. Knotmee to inform him of the complaint made by The Firm, and to request a meeting. In the meeting between Mr. Knotmee and the ICPAS, Mr. Knotmee conceded that he should not have claimed to be member of AICPA, since he is not. He stated that it was an oversight and he did not attempt to be deceptive. He also said that he was under the impression that it is the responsibility of The Firm to prove advertising material is false. The Ethics Committee informed him that it is the obligation of the member to verify his own advertising materials. Mr. Knotmee supported his fee claims by presenting invoices by The Firm and by other accounting firms. However, since that type

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of information is confidential, it could not be disclosed, otherwise it would violate another ethics rule (61H1-23 and AICPA Rule 1.700 Confidential Client Information).

Mr. Knotmee said that although he has no employees now except himself, the persons he listed on his solicitation letter would work with him on his request. Mr. Knotmee did not receive any clients from the marketing letter. He promised to refrain from soliciting The Firm's clients in the future.

CONCLUSION:

The ICPAS found prima facie evidence that Mr. Knotmee had violated Florida Rule 61H1-24) and ICPA Rule 1.6002-Advertising and Solicitation.

CORRECTIVE ACTION:

The ICPAS and the AICPA instructed Mr. Knotmee to immediately comply with the ICPAS Code of Professional Conduct, to take and pass the AICPA course, Professional Ethics for CPAs, and to submit evidence that he has passed the course.

LESSONS LEARNED:

While we all like to make our resumes as informative as possible, make sure the information is correct, and that you don’t pretend to be who you are not. Information that is false, misleading, or deceptive can get you into big trouble!

2. Oops! The Case of the Harmless Mistakes

RULES THAT APPLY:

61H1-22 Competence and Technical Standards (also AICPA1.300-General Standards)

THE PLAYERS:

Respondent: Mr. Happy Complainant: Mr. Grumpus Client: Company RED

CASE DETAILS:

In a letter to the ICPAS, Mr. Grumpus indicated that Mr. Happy and his company billed excessively for work done for Company RED that was considered substandard because it contained errors in projected financial statements. Mr. Grumpus also claimed that the overly aggressive collections method that Mr. Happy used was of low professional conduct. Mr. Happy is a former employee of Mr. Grumpus and his company.

Mr. Happy responded via an interview with the ICPAS and indicated that the error in the projected financial statements was a failure to include the amount of interest expense in the determination of net income. Mr. Happy indicated that the mistake was in the software formula, causing the subtotal to be incorrect. Mr. Happy said that the error was immaterial. If materiality is based on projected revenue, the errors amounted to less than two percent for each of the three years in question. If it is based on percentage of error on net income, the errors amount to 40%, 15%, and 6% for the same years. Mr. Grumpus relied on the PPC Forecasts and Projections Guide in determining materiality issue. As stated in the PPC guide, materiality could be as high as twice that used for the historical financial statements.

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Mr. Happy also said that the projected financial statements were not relied upon and that the users were sophisticated financial professionals who caught the error and made manual and mental corrections to the statements. The error had no effect on the complainant’s analysis of the projected venture and did not affect their conclusions about not pursuing the venture. The ICPAS investigator contacted Company RED and discovered that had the numbers been correct, the merger would not have been completed anyway due to seller related issues. Mr. Happy said that an offer to reissue the financial statements was made and that Company RED declined. The ICPAS investigator told Mr. Happy that he should have notified Company RED in writing to state that the financial statements should be reissued.

The second issue is concerns unpaid fees that are being contested by Company RED as being too high due to excessive hours and credits that have not been applied as stated. Mr. Happy has not issued the billing credit on the advice of legal counsel. The interest charges per the respondent and the complainant have been eliminated from the statements submitted. The ethics committee feels that at this point, the fees should be settled between the parties and will not be an issue in the ethics investigation.

CONCLUSION:

The case was closed with a determination that no violation of the Code of Professional Conduct occurred. In a letter to Mr. Happy, the committee suggested that as a protective measure, he should put in writing any offers to reissue financial reports should such circumstances arise in the future.

CORRECTIVE ACTION:

None.

LESSONS LEARNED:

While fee disputes are a common source of complaints to the Ethics Committee, they generally do not get involved in them. However in this case the Committee debated whether the work product was being relied on. The Committee determined that although the projection was materially flawed, the principle users had discovered the error and took the error into consideration during their negotiations. At this point, the projection was no longer being relied on.

If a document is in error and the accountant knows this, it is the accountant’s responsibility to take all efforts to make all users aware of this, typically through recalling a report and reissuing. However, if the report is not being relied on due to the "staleness" of the document, or the "special purpose" nature of the document having expired, there is no need to recall the report.

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3. Do You Have What It Takes? The Case of the Inadequate Accountant

RULES THAT APPLY:

61H1-22 Competence and Technical Standards (also AICPA Rule 1.310-Compliance with Standards)

THE PLAYERS:

Respondent: Mr. Indigo Complainant: Mr. Whiner Audited Party: Loser Township

CASE DETAILS:

Mr. Indigo performed an audit of the financial statements of the Loser Township for the year ended March 31, 20xx.

Mr. Whiner wrote in a letter to the ICPAS that Mr. Indigo’s audit contained major deficiencies. The ICPAS notified Mr. Indigo of the complaint. The ICPAS Ethics Committee investigators met with Mr. Indigo at his office.

At the meeting, Mr. Indigo made the following statements:

The Loser Township is one of three municipal clients. Their principle practice is in tax and monthly work.

The firm has not completed a quality review as of yet. The review was scheduled for March 20xx, but was not started. None of the governmental audit work appears to follow Yellow Book standards. The firm has available to it the AICPA audit guide Audits of State and Local Governmental Units and referred to it during the audit.

The firm also utilized a PPC Guide on Auditor’s Reports in drafting its report on the Loser Township financial statements.

The following deficiencies were discussed and noted at the meeting:

The financial statements presented a prior year column that was also audited by Mr. Indigo. However, the auditor’s opinion made no reference to the prior year. Other statements were inaccurate or missing.

Based on review of the footnotes to the financial statements, the following notes were not present:

Reporting entity note

Description of funds

Detail on property tax recognition

Change of general fixed asset-shown as an exhibit not part of the notes

Insurance coverage for cash and investment disclosure

Disclosure on interfund transfers.

The statements, including the footnotes, would not be a complete disclosure and, as such, are not "liftable" as presented.

The following items were not present in the work papers:

Assessment of Risk

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Determination of Materiality

Evidence of Review

Evidence of Planning

CONCLUSION:

The committee found evidence that Mr. Indigo violated AICPA Rule 1.310-Compliance with Standards, and AICPA Rule 1.320-Accounting Principles.

CORRECTIVE ACTION:

The Committee instructed Mr. Indigo to comply immediately with professional standards applicable to professional service he performs. They also instructed him to complete 16 hours of specified CPE courses within one year and show evidence of completion.

LESSONS LEARNED:

Don’t try to do work that is unfamiliar or new to you. Accounting standards have become very complex and specialized. This accountant mainly did monthly and tax work, and only had a few municipal clients. In a case such as this, he may have been better off referring the municipal client to an auditor with more expertise in this field. Another option is to do a joint venture with another firm that has more experience. The corrective action in this case focused on trying to educate the member in the area in which he had some inadequacy. But remember that all the CPE in the world can’t take the place of experience.

Glossary of Florida Terminology, Terminology Used in the Standards for Determining Independence

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Section IV. Glossary of Florida Terminology This section provides definitions for the terminology used in the Florida Board of Accountancy Rules and the Florida Standards for Determining Independence.

61H1-20 Terminology Used in the Florida Board of Accountancy Rules (Cross-reference: AICPA Glossary)

(Go back to beginning of Florida Rules)

61H1-20.001 Definitions. (updated 6/7/2016)

(1) “Certified public accountant,” or “CPA,” shall be deemed and construed to mean a person, who holds an active, inactive, delinquent, or temporary license issued under Chapter 473, F.S., or who is practicing public accounting in this state pursuant to the practice privilege granted in Section 473.3141, F.S.

(2) “Florida certified public accountant” shall be deemed and construed to mean a person who holds an active, inactive, delinquent, or temporary license issued under Chapter 473, F.S.

(3) “Non-Florida certified public accountant” shall be deemed and construed to mean a person who is practicing public accounting in this state pursuant to the practice privilege granted in Section 473.3141, F.S.

(4) “Firm,” “CPA Firm” or “Firms of certified public accountants” shall be deemed and construed to mean a sole proprietor, partnership, professional corporation, limited liability company, or any other legal entity engaged in the practice of public accounting, including individual partners, stockholders or members thereof, that holds an active, delinquent, or temporary license issued under Section 473.3101, F.S., or its state of domicile.

(5) “Florida firm” shall be deemed and construed to mean any sole proprietor, partnership, professional corporation, limited liability company, or any legal entity that holds an active, delinquent, or temporary license issued under Section 473.3101, F.S.

(6) “Non-Florida firm” shall be deemed and construed to mean any legal entity that is practicing public accounting pursuant to a license issued in its state of domicile.

(7) A “suspended certified public accountant” is prohibited from practicing public accounting as a sole proprietor, partner or shareholder and using the “CPA” designation. A suspended certified public accountant may be an employee under the supervision of a certified public accountant who holds an active license.

(8) Except as to a certified public accountant employed by a Florida firm, “office” shall be deemed and construed to mean a place in which public accounting is conducted or any place for which the physical address is identified in advertising. As to a certified public accountant employed by a Florida firm, “office” shall mean his/her designated address of record.

Rulemaking Authority 473.304 FS. Law Implemented 455.271, 473.3101, 473.3141 FS. History–New 12-4-79, Formerly 21A-20.01, Amended 10-20-86, Formerly 21A-20.001, Amended 8-13-06, 11-3-09, 3-18-10, 11-21-13, 12-24-15.

61H1-20.002 “Attest to the Reliability or Fairness of Presentation,” “Expression of Opinion.”

The terms “attest as an expert in accountancy to the reliability or fairness of presentation” and “expression of opinion” shall be deemed and construed to mean any report, transmittal letter or other written communication issued as a result of an examination or review of financial statements or financial information which contains either an expression of opinion or other assurance as to the


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fairness, accuracy or reliability of such financial statements within the meaning of generally accepted auditing standards or standards for accounting and review services. A report issued in connection with a review of financial statements is an “expression of opinion.” Statements, affidavits or signatures of preparers required on tax returns and reports issued in connection with a compilation of financial statements are not “expressions of opinion,” but compilations do provide a level of assurance.

Specific Authority 473.304, 473.315, 473.322 FS. Law Implemented 473.315, 473.322 FS. History–New 12-4-79, Amended 2-3-81, Formerly 21A-20.02, 21A-20.002, Amended 1-11-95.

61H1-20.003 Client.

“Client” shall be deemed and construed to mean the person(s) or entity which retains a certified public accountant or firm for the performance of public accounting services.

Rulemaking Authority 473.304, 473.323 FS. Law Implemented 473.317, 473.318, 473.319 FS. History–New 12-4-79, Formerly 21A-20.03, 21A-20.003, Amended 9-21-10.

61H1-20.004 Enterprise.

“Enterprise” shall be deemed and construed to mean any person(s) or entity, whether organized for profit or not, for which a certified public accountant or firm provides public accounting services.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.315 FS. History–New 12-4-79, Formerly 21A-20.04, 21A-20.004, Amended 9-21-10.

61H1-20.005 Financial Statements.

“Financial Statements” shall be deemed and construed to mean a presentation of financial data, including accompanying notes, derived from accounting records that purports to show actual or anticipated financial position and intended to communicate an entity's economic resources or obligations at a point in time, and the results of operations and cash flows for a period of time, in accordance with generally accepted accounting principles or a comprehensive basis of accounting other than generally accepted accounting principles. Financial presentations included in tax returns are not financial statements. The method of preparation (for example, manual or computer preparation) is not relevant to the definition of a financial statement.

Specific Authority 473.304, 473.315 FS. Law Implemented 473.315 FS. History–New 12-4-79, Amended 2-3-81, Formerly 21A-20.05, Amended 3-22-89, 12-2-92, Formerly 21A-20.005.

61H1-20.0051 Assembled Financial Statements.

(1) “Assembled Financial Statements” shall be deemed and construed to mean providing various manual or automated bookkeeping or data processing services the output of which is in the form of financial statements. The function of assembling financial statements includes preparing a working trial balance, assisting in adjusting the books of account, and consulting on accounting matters. The transmittal letter accompanying the assembled financial statements shall be prepared on the Licensed Audit Firm or unlicensed entities’ letterhead.

(2) The term “assembled financial statements” refers to any financial statements included in Section 473.302(8)(c), F.S.


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(3) There is provided a specific exemption to Rule 61H1-22.004, F.A.C., for certified public accountants who prepare assembled financial statements if, and only if, such assembled financial statements are prepared in accordance with Rule 61H1-20.0053, F.A.C.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.302, 473.322 FS. History–New 10-28-98, Amended 9-21-10.

61H1-20.0052 Offer to Perform or Perform Services Involving Assembled Financial Statements.

The term “offer to perform or perform services involving assembled financial statements” as used in Rule 61H1-20.0053, F.A.C., applies to an actively licensed certified public accountant who performs one or more types of services involving the preparation of assembled financial statements including:

(1) Being in charge of the engagement; or

(2) Reviewing the workpapers or financial statements; or

(3) Supervising the engagement; or

(4) Being the only certified public accountant involved with providing services involved in the preparinsurredation of financial statements.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.302, 473.322 FS. History–New 10-28-98, Amended 9-21-10.

61H1-20.0053 Standards for Assembled Financial Statements.

A certified public accountant holding an active license may offer to perform or perform services involving assembled financial statements so long as the certified public accountant complies with the standards for assembled financial statements, which are as follows:

(1) Understanding with the Entity – The certified public accountant shall establish a written understanding with the entity regarding the services to be performed. This written understanding shall include a description of the nature and limitations of the services to be performed. The understanding shall also provide:

(a) That the engagement cannot be relied upon to disclose errors, fraud, or illegal acts; and

(b) Disclose whether or not the entity preparing the financial statement is or is not licensed by the Florida Board of Accountancy. An example engagement letter is provided for illustrative purposes:


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(Appropriate Salutation) This letter is to confirm our understanding of the terms and objectives of our engagement to provide accounting services during (date), the output of which will be in the form of (monthly/quarterly/other frequency) assembled financial statements. • We will perform the following services (selected illustrations): • Assist you in recording transactions on a (monthly/quarterly/other frequency) basis. • Prepare a trial balance from your accounts and journals. • Assemble that information in the form of financial statements. • Provide comments of a business advisory nature. We do not undertake to, and will not, provide any opinion or form of assurance on the financial statements we assemble in connection with these services and, accordingly, we do not undertake to make inquiries or perform other procedures to verify, corroborate, or review information supplied by you. In addition, those statements may (will) contain departures from generally accepted accounting principles or another comprehensive basis of accounting. Our engagement to assemble financial statements cannot be relied upon to disclose errors, fraud, or illegal acts, including fraud or defalcations that may exist. These assembled financial statements are prepared by an entity that is (is not) licensed by the Florida Board of Accountancy. Our fees for these services. . . . We shall be pleased to discuss this letter with you at any time. If the foregoing is in accordance with your understanding, please sign the copy of this letter in the space provided and return it to us. Sincerely yours, _______________________________ (Signature of Certified Public Accountant) Accepted and agreed to: XYZ Company __________________ President __________________ Date (2) Any certified public accountant who offers to perform or performs assembled financial

statements must comply with the provisions of Rule 61H1-22.001, F.A.C. (3) Assembled financial statements are not prepared with an expression of any form of opinion or

assurance. (4) Assembled financial statements shall be accompanied by a transmittal letter. See example

standard transmittal letter following (12) below. (5) Before issuing the transmittal letter, the certified public accountant shall read the assembled

financial statements and consider whether such financial statements appear to be free from obvious material errors. In this context, the term error refers to mistakes in the assembly of financial statements, including arithmetical or clerical mistakes.

(6) The date of completion of the assembled financial statement(s) shall be used as the date of the transmittal letter.

(7) The transmittal letter shall include the name and license number of the certified public accountant who offers to perform or performs services involving assembled financial statements. If more than one certified public accountant offers to perform or performs such services, then the name and license number of the certified public accountant who assumes


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responsibility for the statements shall be included. If a Licensed Firm or Public Accounting Firm offers to perform or performs such services, the name and license number of the firm may be utilized instead of the name and license number of an individual certified public accountant.

(8) The following language shall be included in the transmittal letter and on each page of the assembled financial statements: These assembled financial statements are not prepared with an expression of any form of opinion or assurance and they are prepared by an entity that is (is not) licensed by the Florida Board of Accountancy.

(9) If the Licensed Firm, certified public accountant or the certified public accountant’s employer is not independent, as defined in Rule 61H1-21.001, F.A.C., the transmittal letter shall disclose the lack of independence.

(10) Transmittal letters may include comments of a business advisory nature to which the certified public accountant wishes to draw the client’s attention.

(11) An example standard transmittal letter is provided for illustrative purposes:

(Date) These assembled financial statements for XYZ Company as of (date) are prepared without an expression of any form of opinion or assurance and they are prepared by an entity that is (is not) licensed by the Florida Board of Accountancy. (Comments of a business advisory nature may be included in a separate paragraph(s). _____________________________ (Signature of Licensed Audit Firm), or _______________________ (Signature of Active Certified Public Accountant) __________________ (State of Issuance and License Number)

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.302, 473.322 FS. History–New 10-28-98, Amended 9-20-00, 8-28-06, 9-21-10., 12-21-15.


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61H1-20.006 Firm or Firms of Certified Public Accountants (Repealed)

61H1-20.007 Generally Accepted Accounting Principles (Repealed)

61H1-20.008 Generally Accepted Auditing Standards (Repealed)

61H1-20.009 Standards for Accounting and Review Services (Repealed)

61H1-20.0092 Government Auditing Standards (Repealed)

61H1-20.0093 Rules of the Auditor General.

(1) “Rules of the Auditor General” shall be deemed and construed to mean the following Rules of the Auditor General of the State of Florida in effect as follows:

Chapter Title

10.550 Local Governmental Entity Audits, effective 9/30/2015

10.650 Florida Single Audit Act Audits Nonprofit and For-Profit Organizations., effective 9/30/2015

10.700 Audits of Certain Nonprofit Organizations, effective 6/30/2015

10.800 Audits of District School Board, effective 6/30/2015

10.850 Audits of Charter Schools and Similar Entities, effective 6/30/2015

These rules hereby incorporated by reference and are available from https://www.flrules.org/gateway/reference or the State of Florida, Auditor General’s Office or from its website http://www.myflorida.com/audgen, under the Rules and Guidelines section.

(2) Certified public accountants performing accounting services in connection with Local Governmental Entity Audits required to be filed with the Auditor General of the State of Florida shall comply with the standards set forth in Rule Chapter 10.550-.559, Rules of the Auditor General of the State of Florida. Departures from such standards must be justified by those who do not follow them.

(3) Certified public accountants performing accounting services in connection with Standards for Florida Single Audit Act Audits for Nonprofit and For-Profit Organizations required by Section 215.97, F.S., to be filed with the Auditor General of the State of Florida shall comply with the standards set forth in Chapter 10.650, Rules of the Auditor General of the State of Florida. Departures from such standards must be justified by those who do not follow them.

(4) Certified public accountants performing accounting services in connection with Standards for Audits of Certain Nonprofit Organizations required by Section 215.981(1), 1001.453(4), 1004.28(5) or 1004.70(6), F.S., to be filed with the Auditor General of the State of Florida shall comply with the standards set forth in Chapter 10.700, Rules of the Auditor General of the State of Florida. Departures from such standards must be justified by those who do not follow them.

(5) Certified public accountants performing accounting services in connection with Standards for Audits of District School Boards required by Section 11.45 or 218.39, F.S., to be filed with the

https://www.flrules.org/gateway/reference


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Auditor General of the State of Florida shall comply with the standards set forth in Chapter 10.800, Rules of the Auditor General of the State of Florida. Departures from such standards must be justified by those who do not follow them.

(6) Certified public accountants performing accounting services in connection with Standards for Audits of Charter Schools and Similar Entities, Florida Virtual School, and Virtual Instruction Program Providers required by Section 218.39 or 1002.37, F.S., to be filed with the Auditor General of the State of Florida shall comply with the standards set forth in Chapter 10.850, Rules of the Auditor General of the State of Florida. Departures from such standards must be justified by those who do not follow them.

Rulemaking Authority 473.304, 473.315 FS. Law Implemented 473.315 FS. History–New 10-22-86, Amended 5-22-88, 4-8-90, 4-21-91, Formerly 21A-20.0093, Amended 9-30-97, 9-29-02, 9-21-10, 10-9-13, , 12-2-14., 1/27/2016.

61H1-20.0095 Standards for Consulting Services (Repealed)

61H1-20.0096 Services for Tax Practice (Repealed)

61H1-20.0097 Standards for Personal Financial Planning (Repealed)

61H1-20.0098 Standards for Valuation Services (Repealed)

61H1-20.0099 Standards for Attestation Engagements (Repealed)

61H1-20.010 Engagement.

“Engagement” shall be deemed and construed to mean the association between a client and a certified public accountant or firm relative to the performance of public accounting services by the certified public accountant or firm for the client. Rulemaking Authority 473.304, 473.314, 473.315, 473.317 FS. Law Implemented 473.314, 473.315, 473.317 FS. History–New 12-4-79, Formerly 21A-20.10, 21A-20.010, Amended 9-21-10.

61H1-20.013 Employee.

A certified public accountant would be considered an employee of a firm for purposes of Chapter 473, FS., if the certified public accountant has the status of an employee under the usual common law rules applicable in determining the employer-employee relationship. A certified public accountant may be leased to a firm through an employee leasing company as defined in Section 443.036(16), F.S., as long as the CPA firm has the power to hire and fire, has complete supervision and control over the certified public accountant’s work product, and accepts the certified public accountant as its responsibility for purposes of complying with Rule 61H1-26.002, F.A.C. Rulemaking Authority 473.304 FS. Law Implemented 473.302, 473.309(1)(b), 473.3101 FS. History–New 10-17-90, Formerly 21A-20.013, Amended 9-21-10.

61H1-20.016 Non-CPA Shareholders, Partners, and Members.

(1) For purposes of Chapter 473, F.S., and these rules, the terms non-CPA shareholders, partners, and members shall be deemed and construed to mean natural persons materially participating in the business conducted by the firm and when their participation ceases, their interest shall revert to the firm.



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(2) Non-CPA shareholders, partners, and members shall not hold themselves out as certified public accountants or public accountants.

Rulemaking Authority 473.304 FS., s. 1, Chapter 97-35, Laws of Florida. Law Implemented s. 1, Chapter 97-35, Laws of Florida. History–New 2-5-98, Amended 9-21-10.

Terminology Used in the Standards for Determining Independence (Back to Standards for Determining Independence.)

Attest engagement. An attest engagement is an engagement to perform services defined in Section 473.302(7)(a), Fla. Stat.

Attest engagement team. The attest engagement team consists of individuals participating in the attest engagement, including those who perform concurring and second partner reviews. The attest engagement team includes all employees and contractors retained by the firm who participate in the attest engagement, irrespective of their functional classification (for example, audit, tax or management consulting services). The attest engagement team excludes specialists as discussed in SAS No. 73, Using the Work of a Specialist [AU section 336] (incorporated herein), and individuals who perform only routine clerical functions, such as word processing and photocopying.

Client. A client is any person or entity, other than the licensee’s employer, that engages a licensee or a licensee’s firm to perform professional services or a person or entity with respect to which professional services are performed. For purposes of this paragraph, the term “employer” does not include— (a) Entities engaged in the practice of public accounting; or (b) Federal, state, and local governments or component units thereof provided the licensee performing professional services with respect to those entities— (i) Is directly elected by voters of the government or component unit thereof with respect to which professional services are performed; or (ii) Is an individual who is (1) appointed by a legislative body and (2) subject to removal by a legislative body; or (iii) Is appointed by someone other than the legislative body, so long as the appointment is confirmed by the legislative body and removal is subject to oversight or approval by the legislative body.

Close relative. A close relative is a parent, sibling, or nondependent child.

Covered licensee. A covered licensee is: (a) An individual on the attest engagement team; (b) An individual in a position to influence the attest engagement; (c) A partner or manager who provides nonattest services to the attest client beginning once he or she provides ten hours of nonattest services to the client within any fiscal year and ending on the later of the date (i) the firm signs the report on the financial statements for the fiscal year during which those services were provided or (ii) he or she no longer expects to provide ten or more hours of nonattest services to the attest client on a recurring basis; (d) A partner in the office in which the lead attest engagement partner primarily practices in connection with the attest engagement; (e) The firm, including the firm’s employee benefit plans; or (f) An entity whose operating, financial, or accounting policies can be controlled (as defined by generally accepted accounting principles (GAAP) for consolidation purposes) by any of the individuals or entities described in (a) through (e) or by two or more such individuals or entities if they act together.

Financial Statements. A presentation of financial data, including accompanying notes, if any, intended to communicate an entity’s economic resources and/or obligations at a point in time or the changes therein for a period of time, in accordance with generally accepted accounting principles or a comprehensive basis of accounting other than generally accepted accounting principles. Incidental financial data to support recommendations to a client or in documents for which the reporting is governed by Statements on Standards for Attestation Engagements as defined in Rule 61H1-20.0099 and tax returns supporting schedules do not, for this purpose, constitute financial statements. The statement, affidavit, or signature of preparers required on tax returns neither constitutes an opinion on financial statements nor requires a disclaimer of such opinion.

Financial Institution. A financial institution is considered to be an entity that, as part of its normal business operations, makes loans to the general public.

Firm. A firm means an entity or entities as defined in Rule 61H1-20.006.

Immediate family. Immediate family is a spouse, spousal equivalent, or dependent (whether or not related).


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Individual in a position to influence the attest engagement. An individual in a position to influence the attest engagement is one who: (a) Evaluates the performance or recommends the compensation of the attest engagement partner; (b) Directly supervises or manages the attest engagement partner, including all successively senior levels above that individual through the firm’s chief executive; (c) Consults with the attest engagement team regarding technical or industry-related issues specific to the attest engagement; or

Joint closely held investment. A joint closely held investment is an investment in an entity or property by the licensee and the client (or the client's officers or directors, or any owner who has the ability to exercise significant influence over the client) that enables them to control (as defined by GAAP for consolidation purposes) the entity or property.

Key position. A key position is a position in which an individual: (a) Has primary responsibility for significant accounting functions that support material components of the financial statements; (b) Has primary responsibility for the preparation of the financial statements; or (c) Has the ability to exercise influence over the contents of the financial statements, including when the individual is a licensee of the board of directors or similar governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position. For purposes of attest engagements not involving a client’s financial statements, a key position is one in which an individual is primarily responsible, or able to influence, the subject matter of the attest engagement, as described above.

Loan. A loan is a financial transaction, the characteristics of which generally include, but are not limited 5 to, an agreement that provides for repayment terms and a rate of interest. A loan includes, but is not limited to, a guarantee of a loan, a letter of credit, a line of credit, or a loan commitment.

Manager. A manager is a professional employee of the firm who has either of the following responsibilities: (a) Continuing responsibility for the overall planning and supervision of engagements for specified clients. (b) Authority to determine that an engagement is complete subject to final partner approval if required.

Licensee. A licensee as defined in Rule 61H1-20.001.

Normal lending procedures, terms, and requirements relating to a covered licensee's loan from a financial institution are defined as lending procedures, terms, and requirements that are reasonably comparable with those relating to loans of a similar character committed to other borrowers during the period in which the loan to the covered licensee is committed. Accordingly, in making such comparison and in evaluating whether a loan was made under "normal lending procedures, terms, and requirements," the covered licensee should 6 consider all the circumstances under which the loan was granted, including (a) The amount of the loan in relation to the value of the collateral pledged as security and the credit standing of the covered licensee. (b) Repayment terms. (c) Interest rate, including "points." (d) Closing costs. (e) General availability of such loans to the public.

Office. An office is a reasonably distinct subgroup within a firm, whether constituted by formal organization or informal practice, where personnel who make up the subgroup generally serve the same group of clients or work on the same categories of matters. Substance should govern the office classification. For example, the expected regular personnel interactions and assigned reporting channels of an individual may well be more important than an individual’s physical location.

Partner. A partner is a proprietor, shareholder, equity or non-equity partner or any individual who assumes the risks and benefits of firm ownership or who is otherwise held out by the firm to be the equivalent of any of the aforementioned.

Period of the professional engagement. The period of the professional engagement begins when a licensee either signs 7 an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client, whichever is earlier. The period lasts for the entire duration of the professional relationship (which could cover many periods) and ends with the formal or informal notification, either by the licensee or the client, of the termination of the professional relationship or by the issuance of a report, whichever is later. Accordingly, the period does not end with the issuance of a report and recommence with the beginning of the following year's attest engagement.

Practice of Public Accounting. Means activities defined in Section 473.302(7), Fla. Stat.


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Professional Services. Professional services include all services defined as the Practice of Public Accounting.

Significant influence. The term significant influence is as defined in Accounting Principles Board Opinion No. 18 [See Appendix ___ AC section I82] and its interpretations (incorporated herein).

Appendix I. Florida State Board of Accountancy Rules 61H1 -33, 34, 36, and 39

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Appendix I. Florida Board of Accountancy Rules 61H1-33, 34, 36, 39 Reader Note: The Appendix sections are for reference purposes only. They are not covered in the exam. The following Board of Accountancy Rules are not covered:

61H1-19 Purpose, Organization, Rulemaking Proceedings, Etc. 61H1-27 Educational and Experience Requirements 61H1-28 Examinations 61H1-29 Licensure by Endorsement 61H1-31 Fees 61H1-32 Probable Cause Panel 61H1-35 Foreign Licensure Examination 61H1-37 Reinstatement 61H1-38 Certified Public Accountant Education Minority Assistance Program To view these Rules, go to https://www.flrules.org/Gateway/Division.asp?DivID=280

61H1-33 Reestablishment of Professional Knowledge and Competency

61H1-33.001 Certified Public Accountants Required to Comply with this Chapter.

(1) Each Florida certified public accountant shall be required to reestablish his/her professional knowledge and competency in conformity with this rule by the completion of continuing professional education programs.

(2) Each Florida certified public accountant shall commence his/her reestablishment period on the date indicated on his/her Florida certificate. The initial designated reestablishment period for such Florida certified public accountant shall end on the third June 30th following the date indicated on his/her Florida certificate. Each succeeding reestablishment period shall begin on July 1, and end on June 30, two years thereafter.

(3) See Rule 61H1-33.006, F.A.C., for reinstatement of inactive Florida certified public accountants who desire to become active Florida certified public accountants, and the requirements related to continuing professional education.

Rulemaking Authority 473.304, 473.312, 473.313 FS. Law Implemented 473.311, 473.312, 473.313 FS. History–New 12-4-79, Amended 2-3-81, 12-19-82, Formerly 21A-33.01, Amended 4-8-86, Formerly 21A-33.001, Amended 5-24-07, 11-18-07, 12-10-09.

61H1-33.002 Organization and Administration.

There is created the Committee on Continuing Professional Education. Subject to the approval of the Board, said Committee shall:

(1) Evaluate and determine, either prospectively or retrospectively, whether specific courses, programs, education and training qualify as formal programs of learning which contribute directly to professional competency of an individual following licensure to practice public accounting, and the credit to be granted therefore;

(2) Determine in individual cases whether professional knowledge and competency have been reestablished by virtue of the completion of such programs; and

(3) Audit the continuing professional education records of Florida certified public accountants on a sample basis from time to time.

https://www.flrules.org/Gateway/Division.asp?DivID=280



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Rulemaking Authority 473.304, 473.312 FS. Law Implemented 473.312 FS. History–New 12-4-79, Amended 2-3-81, 7-2-85, Formerly 21A-33.02, 21A-33.002, Amended 10-26-09.

61H1-33.003 Continuing Professional Education.

(1)(a) In any given reestablishment period, each current/active Florida certified public accountant must have completed at any time or times during the two-year period, at least 80 hours of educational instruction or training in public accounting subjects or courses of study, as defined hereinafter, of which at least 20 hours must have been in accounting-related and/or auditing-related subjects and of which no more than 20 hours may be in behavioral subjects and at least four hours shall be in Florida Board-approved ethics.

(b) Florida certified public accountants who do not meet the requirements by June 30th will be granted an automatic extension until September 15th provided the Florida certified public accountant completes an additional 8 hours in Accounting and Auditing subjects. An automatic extension will be granted until December 31st provided the Florida certified public accountant completes an additional 16 hours in Accounting and Auditing subjects.

(2) Educational instruction or training in public accounting subjects or courses of study is hereby defined as formal programs of learning as defined below, which contribute directly to professional competency following licensure to practice public accountancy. Subjects or courses of study qualifying an individual for the purposes of this shall be limited to:

(a) Accounting and auditing subjects to consist of: Accounting and financial reporting subjects, the body of knowledge dealing with recent pronouncements of authoritative accounting principles issued by the standard-setting bodies, and any other related subject generally classified within the accounting discipline. Subjects include auditing subjects related to the examination of financial statements, operations systems, and programs; the review of internal and management controls; and the reporting on the results of audit findings, compilation and review. It also includes assurance services that relate to Standards for Attest Engagements.

(b) Technical business subjects to consist of:

1. Taxation including tax compliance and tax planning.

2. Consulting services including management advisory services; personal financial planning services; planning and control systems dealing with planning, organizing and controlling any phase of individual financial activity or business activity; designing, implementing, and evaluating operating systems as well as business advisory services and personal financial planning.

3. Management including practice management for the public practitioner; financial management of an organization including information systems, budgeting and asset management, planning, buying and selling businesses, contracting for goods and services and foreign operation; budgeting; cost analysis; human resource management; and financial management.

4. Specialized knowledge and applications including subjects related to specialized industries such as not for profit organizations, health care, oil and gas.


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(c) The ethics courses shall be obtained from a provider approved pursuant to Rule 61H1-33.0032, F.A.C., and consist of:

1. A review of Chapters 455 and 473, F.S., and the related administrative rules.

2. The ethics course may include other subjects including but not limited to: ethical conduct, core values and competencies, professional responsibility, responsibility to clients and the public, case studies that require the application of ethics principles, national professional standards and interpretations, and appropriate national issues related to the practice of accounting.

(d) Behavioral subjects including oral and written communications and the social environment of business. All courses not covered above are considered behavior except for business meetings, social functions, committee service and courses in elementary accounting or basic mathematics which do not qualify for credit.

(3) Credit may be prorated by the sponsor for courses that cover more than one area of study by (1) prorating the amount of time spent in each area or (2) awarding credit based on the lowest topic covered with accounting and auditing being the highest and behavioral the lowest. Therefore an eight-hour course that was 75% accounting and auditing and 25% management would receive six (6) hours of accounting and auditing credit and two (2) hours of technical business or eight (8) hours of all technical business. Hours cannot be prorated in less than half-hour increments.

(4) In order for a Florida certified public accountant to receive credit for programs of learning, as defined above, the following formalities and further requirements must be met:

(a) Courses taken at institutions of higher education:

1. Higher education credit courses taken from an accredited institution as defined in subsection 61H1-27.001(1), F.A.C., shall be credited for continuing professional education purposes at the rate of 15 hours for each semester hour of higher education credit and 10 hours for each quarter hour of higher education credit, provided the number of contact hours (hours in the classroom) totals at least 90% of the continuing professional education credit so determined. Otherwise, continuing professional education credit shall be limited to the actual number of contact hours.

2. Higher education non-credit courses shall be credited for continuing professional education purposes equivalent to the actual number of contact hours.

3. Continuing professional education credit for instructing a higher education course shall be twice the credit which would have been granted participants for the first presentation of a specific course of program, the same as the credit granted a participant for the second presentation and none thereafter, except as permitted by subparagraph 61H1-33.003(5)(b)4., F.A.C.

4. No continuing professional education credit shall be permitted for attending or instructing accounting courses considered to be elementary.

(b) Other professional education or training:

1. Professional development courses shall be credited for continuing professional education purposes in increments of not less than one half hour, equivalent to the actual number of contact hours (hours in the classroom which must include at least fifty minutes of


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continuous participation per contact hour or twenty-five minutes per contact half hour) provided an outline (defined as a schedule of activity listing major topics of discussion) is prepared in advance and retained; a course is at least one contact hour or half hour in length; the course conducted by a qualified instructor, lecturer or discussion leader; and a record of registration and attendance is maintained. For this purpose, a one-day program will be granted eight hours credit if the total lapsed time is at least eight hours and the contact time is approximately 400 minutes. An instructor, lecturer or discussion leader will be considered qualified if, through formal training or experience, he has obtained sufficient knowledge of the subject matter to competently instruct the course. A course participant will be granted credit for only that portion of a course actually attended. If a record of registration and attendance is not maintained by the sponsoring organization, the course participant must be able to prove registration and attendance.

2. Formal organization in-firm educational programs shall be credited for continuing professional education purposes to the same extent and by the same requirements as other professional development courses.

3. Instructors, lecturers, panelists and discussion leaders for professional development courses and formal organized in-firm educational programs shall be credited for continuing professional education purposes at twice the credit granted participants for the first presentation of a specific course or program, the same as the credit granted a participant for the second presentation and none thereafter, except as permitted in subparagraph 61H1-33.003(5)(b)4., F.A.C. Co-panelists and co-discussion leaders shall be credited for the portion of specific course or program they must prepare to discuss and lead as a co-panelist or co-discussion leader.

4. To the extent course content has been substantially revised, the revised portion shall be considered a first presentation for the purposes of subparagraph 61H1-33.003(5)(b)3., F.A.C.

(5) Each Florida certified public accountant shall, as a part of the biennial licensure renewal, on or before December 31 prior to his/her biennial license renewal, comply with the continuing professional education requirements during the applicable reestablishment period. Each Florida certified public accountant’s documentation supporting such compliance shall be retained through the two years following a two-year reestablishment period. Documentation is to be retained to support evidence of completion of the required hours to enable an audit by the Department of Business and Professional Regulation (DBPR) to determine compliance with the requirements. Documentation for each course shall be in a format to include course title and date, number of hours earned, attendee name, certified public accountant course provider name, number, and signature of the provider furnishing said certificate, and when requested shall be recorded using form DBPR CPA 41, entitled Continuing Professional Education Reporting Form, hereby incorporated by reference and effective January 2016, and available at http://www.myfloridalicense.com/dbpr/cpa/forms.html, or in electronic format prescribed by the Board at http://fl.cpetracking.com or at http://www.flrules.org/Gateway/reference.asp?No=Ref-06682. If staff review or review by the Committee on Continuing Professional Education determines that courses are either improperly classified or do not otherwise meet the requirements of the chapter, then the Florida certified public accountant shall be notified and given 60 days from the date of notification to comply

http://www.flrules.org/Gateway/reference.asp?No=Ref-06682


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with the continuing professional education requirements. Florida certified public accountants who complete the continuing professional education requirements timely but who are found to be deficient after December 31 of their renewal year must correct the error and pay a $50 fine within 60 days of the aforementioned notice. Failure to timely correct the error and pay the fine shall consititute grounds for disciplinary action pursuant to Section 455.227 or 473.323, F.S.

(6) Sponsors of formal correspondence or other individual study technical business and accounting and auditing programs must be approved by the National Association of State Board of Accountancy Quality Assurance Service.

Rulemaking Authority 455.213(6), 455.2179, 473.304, 473.312 FS. Law Implemented 455.213(6), 455.2179, 473.312(1)(a), (c) FS. History–New 12-4-79, Amended 2-3-81, 4-5-83, 10-19-83, 8-20-85, Formerly 21A-33.03, Amended 9-18-88, 7-7-92, 12-2-92, Formerly 21A-33.003, Amended 12-14-93, 1-26-98, 12-17-00, 8-21-01, 3-21-05, 5-18-05, 7-10-05, 7-23-06, 12-10-09, 7-7-10, 11-7-12, 8-7-13, 4-21-16.

61H1-33.0031 Continuing Professional Education/Ethics.

(1) A Florida certified public accountant must complete no less than four of the total hours required for any reestablishment period in ethics from a provider approved pursuant to Rule 61H1-33.0032, F.A.C.

(2) In the event the four hours is completed in two modules, Florida certified public accountants must complete the four-hour requirement with the same provider.

61H1-33.0035 Continuing Professional Education/Governmental Auditing.

(1) Any certified public accountant who is involved in governmental audits shall be required to comply with the continuing professional education (CPE) requirements imposed by Government Auditing Standards 2007 commonly referred to as the “Yellow Book,” effective July 2007, which is hereby incorporated by reference, if during the engagement:

(a) The certified public accountant is the in charge person, or

(b) The certified public accountant reviews the working papers or report or both, or

(c) The certified public accountant supervises others, or

(d) The certified public accountant is the only certified public accountant performing the work.

(2) Certified public accountants conducting audits controlled by either paragraph (a) or (b) below, shall be required to take 24 hours of governmental CPE and shall be required to comply with the CPE requirements imposed by Government Auditing Standards.

(a) Government Auditing Standards, 2007 Revision, issued by the U.S. Government Accountability Office, which may be obtained at http://www.gao.gov/govaud/ybk01.htm.

(b) The Rules of the Auditor General, Chapter 10.550, which may be obtained at http://www.myflorida.com/audgen/pages /rules.htm.

(3) The required 24 hours of governmental CPE may be used to meet the courses required in paragraph 61H1-33.003(1)(a), F.A.C., provided they meet the requirements of subsection 61H1-33.003(2), F.A.C.

Rulemaking Authority 473.312(3) FS. Law Implemented 473.312(3) FS. History–New 8-22-90, Amended 7-7-92, Formerly 21A-33.0035, Amended 5-26-96, 4-13-08, 12-10-09.


http://www.myflorida.com/audgen/pages


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61H1-34 Persons Other Than Certfied Public Accountants

61H1-34.001 Preparation of Financial Statements by Persons Other than Active or Inactive CPAs.

(1) As provided in Section 473.322, F.S., persons other than certified public accountants or certified public accountants on inactive status may prepare financial statements and submit them to others provided that:

(a) Such financial statements are issued without attestation as an expert in accountancy as to the reliability or fairness of the presentations shown therein or expression of opinion as defined in Rule 61H1-20.005.

(b) Such financial statements, or reports, transmittal letters or other written communication issued or associated with financial statements, shall not in any manner whatsoever state, show, claim or imply that the financial statements resulted from an audit examination or review.

(c) Any report, transmittal letter or other written communication issued with such financial statements, in addition to setting forth an address, salutation and reference to the completion and submission of a tax return, may identify and list the financial statements submitted, state that the financial statements are unaudited or prepared without audit from the records or books of account, and state that such financial statements are in agreement or have been reconciled with the tax return.

(d) Any such report, transmittal letter or other written communication issued with the financial statements as provided in subparagraph (c) above may also contain a listing of procedures (as distinguished from auditing procedures or standards and accounting principles or standards) used in preparing the financial statements, provided:

1. the procedures listed are not so extensive, or the listing worded in such manner, as to claim or imply that the financial statements are the result of an audit or examination performed in accordance with generally accepted auditing standards or a review as contemplated by standards for accounting and review services; and

2. the description of the procedures does not use words or terminology which connote or relate to an audit or examination in accordance with generally accepted auditing standards or the presentation of financial statements in conformity with generally accepted accounting principles (e.g., words or terminology such as audit, examination, opinion, certificate, certify, fairly present, auditing procedure, auditing standard, audit test, test of accounting records, accounting principle or standard, generally accepted auditing standard, generally accepted accounting principle or standard).

3. the listing of such procedures is followed by the statement, "these procedures do not constitute an audit or examination of these financial statements in accordance with generally accepted auditing standards, nor do they imply either an expression of opinion, or disclaimer of opinion, as to the fairness of the presentation of the financial statements or their conformity with generally accepted accounting principles" or a statement or words to that effect.

(2) The preparation of tax returns by persons other than certified public accountants, which is permitted by Section 473.322, F.S., may not include the preparation of financial statements


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and submission to others except in accordance with the guidelines contained in paragraph (1) above.

Specific Authority 473.304, 473.323 FS. Law Implemented 473.302(7)(b), 473.322 FS. History–New 12-4-79, Formerly 21A-34.01, 21A-34.001, Amended 2-3-94, 1-11-95, 10-28-98.

61H1-34.002 Notice to Public by Non-Licensed Persons.

A person or firm that is not a certified public accountant or authorized to practice public accounting pursuant to the practice privileges granted in Section 473.3141, F.S., shall not hold itself out as engaged in or as qualified to engage in the practice of public accounting; and shall not assume or use the titles or designations “certified public accountant” or “public accountant” or, a “CPA” or any other title, designation, words, letters, abbreviations, sign, card or device tending to indicate licensure to practice public accounting. Any such person or firm that is a member of, or is associated with any association, society or other group of accountants or public accountants, shall when indicating such membership association include the words “Not registered with the Board of Accountancy,” “Not licensed by the Department of Business and Professional Regulation,” or similar words in letters of equal size and prominence to those indicating association, society or other group membership or affiliation.

Rulemaking Authority 473.304, 473.323 FS. Law Implemented 473.322, 473.323 FS. History–New 12-4-79, Formerly 21A-34.02, 21A-34.002, Amended 12-10-09.

61H1-36 Discipline

61H1-36.002 Return of Certificates or Licenses.

Rulemaking Authority 473.304, 473.322, 473.323 FS. Law Implemented 473.322, 473.323 FS. History–New 12-4-79, Amended 2-3-81, Formerly 21A-36.02, 21A-36.002, Repealed 3-7-10.

61H1-36.003 Time for Payment of Civil Penalties. Specific Authority 455.227(2), 473.304 FS. Law Implemented 455.227(2) FS. History–New 2-3-81, Formerly 21A-36.03, 21A-36.003, Repealed 11/11/2015.

61H1-36.004 Disciplinary Guidelines; Range of Penalties; Aggravating and Mitigating Circumstances.

FL Statute on Grounds for Disclipline, Fl Statute on Prohibitions, Penalties)

(1)(a) The board sets forth below a range of disciplinary guidelines from which disciplinary penalties will be imposed upon practitioners guilty of violating Chapter 473, F.S. The purpose of the disciplinary guidelines is to give notice to licensees of the range of penalties which will normally be imposed upon violations of particular provisions of Chapter 473, F.S. The disciplinary guidelines are based upon a single count violation of each provision listed. The brief description of each violation is provided for quick reference and is not meant to convey all elements of any given statutory provsion; the full language of each statutory provision cited must be consulted in order to determine the conduct involved. All penalties at the upper range of the sanctions set forth in the guidelines, i.e., suspension, revocation, etc., include lesser penalties, i.e., fine, probation or reprimand which may be included in the final penalty at the board’s discretion.


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(b) Standard probationary terms will include, as applicable, a review of the licensee’s practice, including analysis of selected financial statements (including working papers), restriction of the scope of the licensee’s practice and review of internal controls put in place by the licensee in order to eliminate the violation. All of the above will usually include the use of a CPA consultant employed by the Department of Business and Professional Regulation or approved by the Board and will usually require the licensee to assume the cost of the consultant’s activities. Additional continuing education may also be required of a licensee where deficiencies in a particular practice area are noted. In all cases of probation or suspension a report showing compliance with the terms of the final order must be received and accepted by the Board prior to the termination of the probation or suspension. Other specific terms of probation or suspension may be imposed, as necessary, by the Board.

(2) The following disciplinary guidelines shall be followed by the board in imposing disciplinary penalties upon licensees for violation of the below mentioned statutes and rules:

VIOLATION PENALTY RANGE MINIMUM MAXIMUM (a) Attempting to procure license Revocation and $5,000 fine if by bribery or fraudulent misrepresentation licensed (denial of license and (Sections 455.227(1)(h), 473.323(1)(b), F.S.) refer to State Attorney if not licensed) (b) CPA License disciplined by another Same penalty as imposed in jurisdiction other jurisdiction or imposition (Section 455.227(1)(f), 473.323(1)(c), F.S.) of same range of penalties as those set forth in those rules for the

same type of violation.

(c) Criminal conviction relating to accountancy Misdemeanor: Reprimand Reprimand and $5,000 fine (Sections 455.227(1)(c), 473.323(1)(d), F.S.) Felony: One (1) year suspension; one (1) year suspension two (2) year probation $5,000 fine and two (2) year probation Revocation and $5,000 fine (d) Knowingly making or filing false report Reprimand, one (1) year probation Revocation and $5,000 fine (Sections 455.227(1)(g), (1)(l), 473.323(1)(e), F.S.)

(e) Fraudulent, false, deceptive or misleading $250 fine Reprimand one (1) year, Advertising (Section 473.323(1)(f), F.S,. probation and $5,000 fine Rule 61H1-24.001, F.A.C.) (f) Incompetence (mental or physical Suspension until ability to impairment) (Section 473.323(1)(g), F.S.) practice proved, followed by (Rule 61H1-36.001(3), F.A.C.) probation (g) Fraud, deceit or misleading (Sections 455.227(1)(a), (m), 473.323(1)(g), (k), F.S.)

Reprimand, one (1) year suspension two (2) years probation and $5,000 fine

$5,000 fine and revocation

(h) Negligence or misconduct $250 fine Reprimand and one (1) year


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1.Technical standards and professional competence (Sections 455.227(1)(o),

probation (continuing education and review of practice at

473.315, F.S.; Rule 61H1-21.006 and Chapter 61H1-22, F.A.C.)

licensee’s expense and limited area of practice)

2. Lack of independence Reprimand, Reprimand, (Sections 473.315, 473.319, 473.3205, F.S.; Rule 61H1-21.001, F.A.C.)

one (1) year probation with review of practice and continuing education

one (1) year suspension, two (2) years probation and review of practice and continuing education

3. Commissions and contingent fees Reprimand One (1) year suspension, (Rules 61H1-21.001, 61H1-21.003, 61H1-21.005, F.A.C.)

two (2) years probation $5,000 fine

4. Client records disposition $250 fine Suspension until records are (Rule 61H1-23.002, F.A.C.) returned (i) Practicing on suspended or revoked license Revoke if previously suspended; (Section 473.323(1)(i), F.S.) refer to State Attorney if previously revoked (j) Practicing on inactive or delinquent license Reprimand and fine based on (Sections 455.271, 473.323(1)(i), F.S.) length of time in practice while inactive; $100/month or $5,000

maximum (penalty will require licensure or cease practice)

(k) Licensees practicing in an unlicensed firm Reprimand and $100 per (including sole proprietors) or otherwise in month fine to maximum of violation of Sections 473.309, 473.3101, and $5,000 and suspension of right 473.323(1)(g), F.S.; Rule 61H1-26.001, F.A.C. to practice until corrected (l) Suspension of right to practice in front of any Same penalty as imposed by State or federal agency agency or imposition of same (Sections 455.227(1)(f), 473.323(1)(j), F.S.) range of penalties as those set forth in those rules for the same type of violation (m) Lack of Good Moral Character Reprimand; and one year Revocation (Section 473.323(1)(l), F.S.) probation (n) Failure to pay fines or administrative costs $100 per month late fee for Revocation Imposed by final order or citations set forth in every month the licensee is late Rule 61H1-36.005, F.A.C. to a maximum of $5,000 (o) Violation of CE requirements (Section 473.323(1)(a) by 473.312 or 473.323(1)(h), 455.227(1)(q), F.S., by Rule 61H1-33.003 and/or 61H1-33.0035, F.A.C.)

Reprimand, probation, make up missed CEs and penalty CEs

Suspension and $1,000 fine


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(p) Violation of client confidentiality (Section 473.323(1)(a) or 455.227(1)(q), F.S., by Rule 61H1-23.001, F.A.C.)

Reprimand, probation, and $1,000 fine


(q) Misleading or deceptive name (Section 473.323(1)(a) by 473.321, F.S.)



(r) Violation of Section 473.323(1)(a) by 473.322, F.S.:

1. Present license of another as one’s own (Section 473.322(1)(d), F.S.



2. Give false or forged evidence to Board or member thereof (Section 473.322(1)(e), F.S.)


Revocation and $5,000 fine

3. Use or attempt to use license that has been suspended, revoked, or placed on inactive or delinquent status (Section 473.322(1)(f), F.S.)



4. Employ unlicensed persons to practice public accounting; aiding or assisting unlicensed practice public accounting (Section 473.322(1)(g), F.S.)



5. Conceal information relative to violations of Chapter 473, F.S. (Section 473.322(1)(h), F.S.)



(s) Failure to provide legally-required written disclosure to client or public (violation of Section 473.323(1)(m), F.S.



(t) Violation of Section 473.323(1)(a) by 455.227(1), F.S.:

1. Improper influence on client (Section 455.227(1)(n), F.S.)



2. Improper delegation of professional responsibilities (Section 455.227(1)(p), F.S.)



3. Improper interference with investigation or disciplinary proceeding (Section 455.227(1)(r), F.S.)



4. Failure to perform statutory/legal obligations (Section 455.227(1)(k), F.S.)

Reprimand, probation and $1,000 fine


(u) Failure to maintain current address (violation of Sections 455.275, 455.227(1)(q), and 473.323(1)(h), F.S., by violating Rule 61H1-26.005, F.A.C.)

Reprimand and $500 fine Suspension and $1,000 fine

(v) Standards for assembly of financial statements (violation of Sections 455.227(1)(q) and 473.323(1)(h), F.S., by Rule 61H1-20.0053, F.A.C.)



(w) Violation of Sections 473.323(1)(h) and 455.227(1)(q), F.S., by Rule 61H1-25.001, F.A.C. Same as (t)2. subparagraph



(x) Minimum capital (violation of and Sections 455.227(1)(q) and 473.323(1)(h), F.S., by Rule

Reprimand, probation, $1,000 fine and corrective action. Must



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61H1-26.002, F.A.C.) document required capital (y) Licensure of firm names and changes (violation of Sections 455.227(1)(q) and 473.323(1)(h), F.S., by Rules 61H1-26.003 and 61H1-26.004, F.A.C.)

Reprimand, probation, $100/ month fine and corrective action. Must document licensure


(z) Failure to report discipline violation (Section 455.227(1)(i), F.S.)



(aa) Failure to timely report being convicted or found guilty of, or entering a plea of nolo contendere or guilty to, regardless of adjudication, a crime in any jurisdiction (more than 30 days late) (Section 455.227(1)(t), F.S.)

Reprimand Suspension and $5,000 fine

(3) The Board shall be entitled to deviate from the above-mentioned guidelines upon a showing of

aggravating or mitigating circumstances by clear and convincing evidence presented to the Board prior to the imposition of a final penalty.

(a) Aggravating circumstances; circumstances which may justify deviating from the above set forth disciplinary guidelines and cause the enhancement of a penalty beyond the maximum level of discipline in the guidelines shall include but not be limited to the following:

1. History of previous violations of the practice act and the rules promulgated thereto.

2. In the case of negligence; of the magnitude and scope of the engagement and the damage inflicted upon the general public by the licensee’s misfeasance.

3. Evidence of violation of professional practice acts in other jurisdictions wherein the licensee has been disciplined by the appropriate regulatory authority.

4. Violation of the provision of the practice act wherein a letter of guidance as provided in Section 455.225(3), F.S., has previously been issued to the licensee.

5. Multiple convictions of violations of the same provision of Chapter 473, F.S., or the rules promulgated thereto contained in the same administrative complaint.

(b) Mitigating circumstances; circumstances which may justify deviating from the above set forth disciplinary guidelines and cause the lessening of a penalty beyond the minimum level of discipline in the guidelines shall include but not be limited to the following:

1. In cases of negligence, the minor nature of the engagement in question and lack of danger to the public health, safety and welfare resulting from the licensee’s misfeasance.

2. Lack of previous disciplinary history in this or any other jurisdiction wherein the licensee practices his profession.

3. Restitution of any damages suffered by the licensee’s client.

4. The licensee’s professional standing among his peers including continuing education.

5. Steps taken by the licensee or his firm to insure the non-occurrence of similar violations in the future.

6. The degree of financial hardship incurred by a licensee as a result of the imposition of fines or the suspension of his practice.


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7. Cooperation with the Department of Business and Professional Regulation and the Board including understanding and admission of the violation by the Respondent.

Rulemaking Authority 455.2273 FS. Law Implemented 455.2273, 473.323(1)(m) FS. History–New 1-7-87, Amended 9-16-87, 8-25-88, 6-18-91, 12-30-91, Formerly 21A-36.004, Amended 12-7-93, 5-23-94, 8-16-99, 1-31-05, 7-28-10.

61H1-36.005 Citations.

(1) Pursuant to Section 455.224, F.S., the Board sets forth in subsection (3) of this rule those violations for which there is no substantial threat to the public health, safety and welfare; or, if there is a substantial threat to the public health, safety and welfare, such potential for harm has been removed prior to the issuance of the citation. Next to each violation is the fine to be imposed.

(2) Prior to issuance of the citation, the Department must confirm that the violation has been corrected or is in the process of being corrected. If the violation is a substantial threat to the public health, safety and welfare, such potential for harm must be removed prior to issuance of the citation.

(3) The following violations with accompanying fines may be disposed of by citation:

(a) Practicing on an inactive or delinquent license Reprimand and fine based on length of time in (Section 473.323(1)(i), F.S.) practice while inactive; $100/month or $5,000 maximum (penalty will require licensure or cease practice). (b) Licensees practicing in an unlicensed firm Reprimand and $100 per month fine to maximum (including sole proprietors)or otherwise in violation of of $5,000 and suspension of right to practice Sections 473.309, 473.3101, and 473.323(1)(g), F.S. until corrected. (c) Licensees who complete continuing professional education requirements timely but who are found to be deficient after December 1st of their renewal year (subsection 61H1-33.003(5), F.A.C.)

Submit documentation that deficient hours have been completed and pay $50 fine within 60 days.

(d) Licensees who fail to timely submit complete documentation for a CE audit

Fined $100 per month.

(e) Retention of client records when records are returned more than three months after the date requested and there is no evidence that the failure to return the records was due to any fees not being paid. (Rule 61H1-23.002, F.A.C.)

$500 fine.

(f) Failure to timely report being convicted or found guilty of, or entering a plea of nolo contendere or guilty to, regardless of adjudication, a crime in any jurisdiction (up to 30 days late) (Section 455.227(1)(t))

$250 fine.

(4) Once the citation becomes a final order, the citation and complaint become a public record

pursuant to Chapter 119, F.S., unless otherwise exempt from the provisions thereof. The citation and complaint may be considered as aggravating circumstances in future disciplinary actions pursuant to paragraph 61H1-36.004(3)(a), F.A.C.

(5) The procedures described herein apply only for an initial offense of the alleged violation. Subsequent violation(s) of the same rule or statute shall require the procedures of Section 455.225, F.S., to be applied. In addition, should an initial offense for which a citation could be


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issued occur in conjunction with violations not described herein, then the procedures of Section 455.225, F.S., shall apply.

Rulemaking Authority 455.224, 455.225, 473.304 FS. Law Implemented 455.224 FS. History–New 12-30-91, Formerly 21A-36.005, Amended 12-7-93, 5-23-94, 8-16-99, 5-11-03, 7-23-06, 7-28-10.

61H1-36.0055 Minor Violation, Notice of Non-Compliance.

(1) Pursuant to Section 455.225(3), F.S., the Department may issue a notice of non-compliance to a certified public accountant for an initial offense of a minor violation. Failure of the person to whom a notice of non-compliance is issued to take corrective action which is set forth in the notice of violation within 15 days of the receipt of the notice may result in further disciplinary action.

(2) The following violations are minor violations for which the Department may issue a notice of non-compliance:

(a) Retention of client records when records are returned within three months of the date requested and there is no evidence that the initial failure to return the records was due to any fees not being paid.

(b) Use of “& Associates” in a firm name when the firm does not have a licensee that qualifies as the “associate”.

(c) Licensees practicing in a firm which was not licensed within three months of the date the firm began doing business. Any late fees shall still apply.

(d) Practicing on a delinquent license for up to three months.

(e) Failure to timely complete required CPE if failure is due to erroneous belief that completed CPE satisfied requirements and deficiency has been completed.

(f) Failure to notify the Board in writing within 30 days of the occurrence of any of the following:

1. Admission or addition of a co-partner, shareholder or member in the Florida office;

2. Retirement or death of a co-partner, shareholder, or member in a Florida office;

3. Termination of the partnership, professional service corporation or limited liability company of any Florida office.

(g) Failure to provide the Board with a list of all co-partners, shareholders or members in the U.S. pursuant to subsection 61H1-26.004(2), F.A.C.

(h) Employment by a CPA firm of any person with a delinquent or inactive license; or, working for a CPA firm with an inactive or delinquent license for one year or less.

(i) Issuance of a check to the Board or Department that is subsequently dishonored.

(3) The Department shall not issue a notice of non-compliance for any subsequent violations of the same provision of the law or rules to the same licensee, registrant or certificate holder, within a three-year period following the initial notice of non-compliance for violation of that provision.

Rulemaking Authority 455.225(3), 473.304 FS. Law Implemented 455.225, 473.3101 FS. History–New 10-15-97, Amended 7-16-98, 8-16-99, 7-23-06, 7-28-10.


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61H1-36.006 Mediation.

(1) “Mediation” means a process whereby a mediator appointed by the Department acts to encourage and facilitate resolution of a legally sufficient complaint. It is an informal and nonadversarial process with the objective of assisting the parties to reach a mutually acceptable agreement.

(2) The Board finds that mediation is an acceptable method of dispute resolution for the following violations as they are economic in nature or can be remedied by the certified public accountant:

(a) Failure of the certified public accountant to timely pay any assessed administrative fines or costs;

(b) Retention of client records contrary to Rule 61H1-23.002, F.A.C.;

(c) Issuance of a check to the Board or Department that is subsequently dishonored;

(d) Practicing in or as an unlicensed firm less than three months; and/or

(e) Practicing on a delinquent license less than three months.

(3) A “mediator” means a person who is certified in mediation by the Florida Bar, the Florida Supreme Court, or the Division of Administrative Hearings.

Rulemaking Authority 455.2235 FS. Law Implemented 455.2235 FS. History–New 11-21-94, Amended 7-23-06, 12-10-09.

61H1-39 Peer Review

61H1-39.001 Definitions.

(1) “Board” means the Florida Board of Accountancy. (2) “Compilation” means an engagement that applies limited procedures to assist management in

the presentation of financial statements and report on those statements without providing any assurance that there are no material modifications that should be made to the financial statements in order for them to be in accordance with the applicable financial reporting framework.

(3) “Firm” means a sole proprietor, partnership, corporation, limited liability company, or any other firm required to be licensed under Section 473.3101, F.S.

(4) “Peer Review Administering Entity” or “AE” means an organization approved by the board to facilitate and administer a peer review program in accordance with the peer review standards established by the board.

(5) “Peer Review Program” means the entire peer review process of a peer review administering organization.

(6) “Review” means an engagement that obtains limited assurance as a basis for reporting whether the certified public accountant firm (CPA firm) is aware of any material modifications that should be made to the financial statements in order for the statements to be in accordance with the applicable financial reporting framework. A review includes primarily analytical procedures to financial data and inquiries of management. A review engagement does not contemplate obtaining an understanding of the entity’s internal control, assessing fraud risk, testing accounting records by inspection, observation confirmation or examination of source documents or other procedures ordinarily performed in an audit engagement and accordingly does not include an expression of an opinion on the financial statements


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Rulemaking Authority 473.3125, 473.304 FS. Law Implemented 473.3125(4) FS. History‒New 5-4-14, Amended 3/1/2016.

61H1-39.002 Peer Review Program Standards.

The board hereby adopts and incorporates by reference, as its minimum standards for administering, performing and reporting on peer reviews, the American Institute of Certified Public Accountants, Incorporated’s “Standards for Performing and Reporting on Peer Review” and “Peer Review Standards Interpretations,” (AICPA Standards), effective March 7, 2013, and available at http://www.flrules.org/Gateway/reference.asp?No=Ref-04012 or www.aicpa.org/Research/Standards/PeerReview/Downloadable Documents/PeerReviewStandards.pdf and http://www.flrules.org/Gateway/reference.asp?No=Ref-04013 or http://www.aicpa.org/ Research/Standards/PeerReview/DownloadableDocuments/PeerReviewStandardsInterpretations.pdf, respectively.

Rulemaking Authority 473.3125, 473.304 FS. Law Implemented 473.3125(2) FS. History‒New 4-21-14.

61H1-39.003 Peer Review Administering Entities.

(1) Peer Review Administering Entities shall be approved by the Board. (2) To be approved by the Board as a Peer Review Administering Entity (AE), an organization

must submit an administration plan to the Board for review and approval. The plan of administration must:

(a) Establish Report Acceptance Bodies (RAB) and provide professional staff, as needed, for the operation of the review program;

(b) Establish and document a program to communicate to enrolled Firms the latest development in peer review standards and the most common findings in the reviews conducted by the AE;

(c) Establish and document procedures for resolving any disagreement which may arise out of the performance of a review;

(d) Establish procedures to resolve matters which may lead to the dismissal of a Firm from the peer review program, and conduct hearings pursuant to those procedures;

(e) Establish procedures to evaluate and document the performance of each reviewer, and conduct hearings which may lead to the disqualification of a reviewer who does not meet the standards adopted in Rule 61H1-39.002, F.A.C.;

(f) Require the maintenance of records of reviews conducted under the program in accordance with the records retention rules of standards adopted in Rule 61H1-39.002, F.A.C.; and

(g) Provide for the periodic performance assessments and related reports to the Board’s Peer Review Oversight Committee.

(3) The Board adopts the AICPA as an approved AE and its Peer Review Program and other Peer Review Programs administered by entities fully involved in the administration of the AICPA Peer Review Program. These AEs are not required to submit a plan of administration required in subsection (2) above. The Board may approve other AEs.

http://www.flrules.org/Gateway/reference.asp?No=Ref-04012

http://www.aicpa.org/Research/Standards/PeerReview/Downloadable

http://www.flrules.org/Gateway/reference.asp?No=Ref-04013%20


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(4) If requested by the Board or the Peer Review Oversight Committee, a peer review administering entity shall provide a list of the Firms enrolled in its programs and the date of their last peer review.

(5) The Board shall maintain a list of Board-approved peer review administering entities.

Rulemaking Authority 473.3125, 473.304 FS. Law Implemented 473.3125(2) FS. History‒New 5-4-14.

61H1-39.004 Peer Review Oversight Committee Composition and Responsibilities.

(1) The Board shall appoint a peer review oversight committee (PROC) to oversee and monitor implementation of the peer review requirement set forth in Section 473.3125, F.S. and the licensee renewal requirements of Section 473.311(2), F.S.

(2) The PROC shall consist of three members, appointed for a term of service of no less than three years and no more than five years. Board appointment shall be based upon the review of applications of those who possess the following qualifications:

(a) Current licensure in good standing as a Florida certified public accountant; and

(b) Extensive auditing experience as part of a firm or practice unit that has undergone a peer review and received a review rating of pass on the most recent review.

(3) PROC members may not:

(a) Be a current member of the Board;

(b) Be an employee of the department or AE;

(c) Be a voting member of the AE’s governing board; or

(d) Perform any enforcement related work for the board/department during their term on the PROC.

(4) Responsibilities of the PROC shall include:

(a) Recommending to the Board the approval or termination of peer review administering entities, peer review programs and peer review standards;

(b) Monitoring and assessing the effectiveness of the peer review programs and peer review standards; and

(c) Providing a written report to the Board no later than December 1, 2016, and annually thereafter, which includes:

(i) A message from the PROC Chair;

(ii) A summary of the background and PROC responsibilities;

(iii) A list of PROC members;

(iv) A list of Board-approved AEs;

(v) A summary of PROC activities and accomplishments during the prior year;

(vi) A chart of the number of Firms that were enrolled at the beginning of the year and at the end of the year with accompanying notes regarding newly enrolled or terminated Firms; and


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(vii) Findings and concluding recommendations regarding the adequacy of Florida’s Peer Review Program and any suggested changes to Florida Statutes and the Florida Administrative Code.

Rulemaking Authority 483.3125, 473.304 FS. Law Implemented 473.3125(3) FS. History‒New 5-4-14, Amended 3/1/2016.

61H1-39.005 Compliance with Peer Review Requirements.

(1) An individual practicing pursuant to Section 473.3141, F.S., shall determine whether or not the individual performs services as specified in Section 473.3125(4), F.S.

(2) Effective January 1, 2015, if the firm performs services as specified in Section 473.3125(4), F.S., the firm shall enroll with a board-approved AE prior to submitting an application for licensure or an application for license renewal.

(3) For firms that renew their license for periods beginning January 1, 2015, the firm shall determine whether it performed services as specified in Section 473.3125(4), F.S., for the prior license period.

(a) If the firm performed services as specified in Section 473.3125(4), F.S., during the prior license renewal period, the firm shall enroll in a board approved peer review program.

(b) If the firm did not perform services as specified in Section 473.3125(4), F.S., during the prior license renewal period, the firm is not required to be enrolled in a board approved peer review program on January 1, 2015.

(c) If a firm that has not enrolled in a board approved AE at the time of licensure renewal subsequently decides to perform the services specified in Section 473.3125(4), F.S., the firm shall enroll in a board approved AE prior to performing such services.

(4) A firm is considered enrolled when it has completed the AE’s application process and paid the enrollment fee. As part of any disciplinary action relating to services performed as specified in Section 473.3125(4), F.S., the board will require confirmation of the firm’s enrollment by a board approved AE.

(5) A firm that is terminated by a board approved AE shall notify the board in writing within 30 days of the effective date of the termination and provide the termination letter from the AE.

Rulemaking Authority 473.3125, 473.304 FS. Law Implemented 473.3125(4) FS. History–New 4-2-14.

Appendix II. Florida Statutes, Chapters 455 and 473

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Appendix II. Florida Statutes, Chapters 455 and 473 Chapter 455 - Business and Professional Regulation: General Provisions

455.224 Authority to issue citations

(1) Notwithstanding s. 455.225, the board or the department shall adopt rules to permit the issuance of citations. The citation shall be issued to the subject and shall contain the subject's name and address, the subject's license number if applicable, a brief factual statement, the sections of the law allegedly violated, and the penalty imposed. The citation must clearly state that the subject may choose, in lieu of accepting the citation, to follow the procedure under s. 455.225. If the subject disputes the matter in the citation, the procedures set forth in s. 455.225 must be followed. However, if the subject does not dispute the matter in the citation with the department within 30 days after the citation is served, the citation becomes a final order and constitutes discipline. The penalty shall be a fine or other conditions as established by rule.

(2) The board, or the department when there is no board, shall adopt rules designating violations for which a citation may be issued. Such rules shall designate as citation violations those violations for which there is no substantial threat to the public health, safety, and welfare.

(3) The department shall be entitled to recover the costs of investigation, in addition to any penalty provided according to board or department rule, as part of the penalty levied pursuant to the citation.

(4) A citation must be issued within 6 months after the filing of the complaint that is the basis for the citation.

(5) Service of a citation may be made by personal service or certified mail, restricted delivery, to the subject at the subject's last known address.

(6) Within its jurisdiction, the department has exclusive authority to, and shall adopt rules to, designate those violations for which the licensee is subject to the issuance of a citation and designate the penalties for those violations if any board fails to incorporate this section into rules by January 1, 1992.

A board created on or after January 1, 1992, has 6 months in which to enact rules designating violations and penalties appropriate for citation offenses. Failure to enact such rules gives the department exclusive authority to adopt rules as required for implementing this section. A board has continuous authority to amend its rules adopted pursuant to this section.

History.--s. 6, ch. 91-137; s. 53, ch. 92-33; s. 20, ch. 92-149; s. 23, ch. 93-129; s. 313, ch. 94-119; s. 78, ch. 94-218; s. 20, ch. 97-261; s. 161, ch. 99-251.

455.225 Disciplinary proceedings

Disciplinary proceedings for each board shall be within the jurisdiction of the department.

(1)(a) The department, for the boards under its jurisdiction, shall cause to be investigated any complaint that is filed before it if the complaint is in writing, signed by the complainant, and legally sufficient. A complaint is legally sufficient if it contains ultimate facts that show that a violation of this chapter, of any of the practice acts relating to the professions regulated by


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the department, or of any rule adopted by the department or a regulatory board in the department has occurred. In order to determine legal sufficiency, the department may require supporting information or documentation. The department may investigate, and the department or the appropriate board may take appropriate final action on, a complaint even though the original complainant withdraws it or otherwise indicates a desire not to cause the complaint to be investigated or prosecuted to completion. The department may investigate an anonymous complaint if the complaint is in writing and is legally sufficient, if the alleged violation of law or rules is substantial, and if the department has reason to believe, after preliminary inquiry, that the violations alleged in the complaint are true. The department may investigate a complaint made by a confidential informant if the complaint is legally sufficient, if the alleged violation of law or rule is substantial, and if the department has reason to believe, after preliminary inquiry, that the allegations of the complainant are true. The department may initiate an investigation if it has reasonable cause to believe that a licensee or a group of licensees has violated a Florida statute, a rule of the department, or a rule of a board.

(b) When an investigation of any subject is undertaken, the department shall promptly furnish to the subject or the subject's attorney a copy of the complaint or document that resulted in the initiation of the investigation. The subject may submit a written response to the information contained in such complaint or document within 20 days after service to the subject of the complaint or document. The subject's written response shall be considered by the probable cause panel. The right to respond does not prohibit the issuance of a summary emergency order if necessary to protect the public. However, if the secretary, or the secretary's designee, and the chair of the respective board or the chair of its probable cause panel agree in writing that such notification would be detrimental to the investigation, the department may withhold notification. The department may conduct an investigation without notification to any subject if the act under investigation is a criminal offense.

(2) The department shall allocate sufficient and adequately trained staff to expeditiously and thoroughly determine legal sufficiency and investigate all legally sufficient complaints. When its investigation is complete and legally sufficient, the department shall prepare and submit to the probable cause panel of the appropriate regulatory board the investigative report of the department. The report shall contain the investigative findings and the recommendations of the department concerning the existence of probable cause. At any time after legal sufficiency is found, the department may dismiss any case, or any part thereof, if the department determines that there is insufficient evidence to support the prosecution of allegations contained therein. The department shall provide a detailed report to the appropriate probable cause panel prior to dismissal of any case or part thereof, and to the subject of the complaint after dismissal of any case or part thereof, under this section. For cases dismissed prior to a finding of probable cause, such report is confidential and exempt from s. 119.07(1). The probable cause panel shall have access, upon request, to the investigative files pertaining to a case prior to dismissal of such case. If the department dismisses a case, the probable cause panel may retain independent legal counsel, employ investigators, and continue the investigation and prosecution of the case as it deems necessary.

(3)(a) As an alternative to the provisions of subsections (1) and (2), when a complaint is received, the department may provide a licensee with a notice of noncompliance for an initial offense of a minor violation. A violation is a minor violation if it does not demonstrate a


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serious inability to practice the profession, result in economic or physical harm to a person, or adversely affect the public health, safety, or welfare or create a significant threat of such harm. Each board, or the department if there is no board, shall establish by rule those violations which are minor violations under this provision. Failure of a licensee to take action in correcting the violation within 15 days after notice may result in the institution of regular disciplinary proceedings.

(b) The department may issue a notice of noncompliance for an initial offense of a minor violation, notwithstanding a board's failure to designate a particular minor violation by rule as provided in paragraph (a).

(4) The determination as to whether probable cause exists shall be made by majority vote of a probable cause panel of the board, or by the department, as appropriate. Each regulatory board shall provide by rule that the determination of probable cause shall be made by a panel of its members or by the department. Each board may provide by rule for multiple probable cause panels composed of at least two members. Each board may provide by rule that one or more members of the panel or panels may be a former board member. The length of term or repetition of service of any such former board member on a probable cause panel may vary according to the direction of the board when authorized by board rule. Any probable cause panel must include one of the board's former or present consumer members, if one is available, willing to serve, and is authorized to do so by the board chair. Any probable cause panel must include a present board member. Any probable cause panel must include a former or present professional board member. However, any former professional board member serving on the probable cause panel must hold an active valid license for that profession. All proceedings of the panel are exempt from s. 286.011 until 10 days after probable cause has been found to exist by the panel or until the subject of the investigation waives his or her privilege of confidentiality. The probable cause panel may make a reasonable request, and upon such request the department shall provide such additional investigative information as is necessary to the determination of probable cause. A request for additional investigative information shall be made within 15 days from the date of receipt by the probable cause panel of the investigative report of the department. The probable cause panel or the department, as may be appropriate, shall make its determination of probable cause within 30 days after receipt by it of the final investigative report of the department. The secretary may grant extensions of the 15-day and the 30-day time limits. In lieu of a finding of probable cause, the probable cause panel, or the department when there is no board, may issue a letter of guidance to the subject. If, within the 30-day time limit, as may be extended, the probable cause panel does not make a determination regarding the existence of probable cause or does not issue a letter of guidance in lieu of a finding of probable cause, the department, for disciplinary cases under its jurisdiction, must make a determination regarding the existence of probable cause within 10 days after the expiration of the time limit. If the probable cause panel finds that probable cause exists, it shall direct the department to file a formal complaint against the licensee. The department shall follow the directions of the probable cause panel regarding the filing of a formal complaint. If directed to do so, the department shall file a formal complaint against the subject of the investigation and prosecute that complaint pursuant to chapter 120. However, the department may decide not to prosecute the complaint if it finds that probable cause had been improvidently found by the panel. In such cases, the department shall refer the matter to the board. The board may then file a formal complaint and prosecute the complaint pursuant to chapter 120. The department shall also refer to the


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board any investigation or disciplinary proceeding not before the Division of Administrative Hearings pursuant to chapter 120 or otherwise completed by the department within 1 year after the filing of a complaint. The department, for disciplinary cases under its jurisdiction, must establish a uniform reporting system to quarterly refer to each board the status of any investigation or disciplinary proceeding that is not before the Division of Administrative Hearings or otherwise completed by the department within 1 year after the filing of the complaint. A probable cause panel or a board may retain independent legal counsel, employ investigators, and continue the investigation as it deems necessary; all costs thereof shall be paid from the Professional Regulation Trust Fund. All proceedings of the probable cause panel are exempt from s. 120.525.

(5) A formal hearing before an administrative law judge from the Division of Administrative Hearings shall be held pursuant to chapter 120 if there are any disputed issues of material fact. The administrative law judge shall issue a recommended order pursuant to chapter 120. If any party raises an issue of disputed fact during an informal hearing, the hearing shall be terminated and a formal hearing pursuant to chapter 120 shall be held.

(6) The appropriate board, with those members of the panel, if any, who reviewed the investigation pursuant to subsection (4) being excused, or the department when there is no board, shall determine and issue the final order in each disciplinary case. Such order shall constitute final agency action. Any consent order or agreed settlement shall be subject to the approval of the department.

(7) The department shall have standing to seek judicial review of any final order of the board, pursuant to s. 120.68.

(8) Any proceeding for the purpose of summary suspension of a license, or for the restriction of the license, of a licensee pursuant to s. 120.60(6) shall be conducted by the Secretary of Business and Professional Regulation or his or her designee, who shall issue the final summary order.

(9) The department shall periodically notify the person who filed the complaint of the status of the investigation, whether probable cause has been found, and the status of any civil action or administrative proceeding or appeal.

(10) The complaint and all information obtained pursuant to the investigation by the department are confidential and exempt from s. 119.07(1) until 10 days after probable cause has been found to exist by the probable cause panel or by the department, or until the regulated professional or subject of the investigation waives his or her privilege of confidentiality, whichever occurs first. However, this exemption does not apply to actions against unlicensed persons pursuant to s. 455.228 or the applicable practice act. Upon completion of the investigation and pursuant to a written request by the subject, the department shall provide the subject an opportunity to inspect the investigative file or, at the subject's expense, forward to the subject a copy of the investigative file. The subject may file a written response to the information contained in the investigative file. Such response must be filed within 20 days, unless an extension of time has been granted by the department. This subsection does not prohibit the department from providing such information to any law enforcement agency or to any other regulatory agency.

(11) A privilege against civil liability is hereby granted to any complainant or any witness with regard to information furnished with respect to any investigation or proceeding pursuant to this section, unless the complainant or witness acted in bad faith or with malice in providing such information.


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History.--s. 1, ch. 74-57; s. 5, ch. 79-36; s. 289, ch. 81-259; s. 33, ch. 81-302; s. 12, ch. 83-329; s. 8, ch. 84-203; s. 3, ch. 85-311; s. 5, ch. 86-90; s. 8, ch. 88-1; s. 5, ch. 88-277; s. 1, ch. 88-279; s. 3, ch. 89-162; s. 1, ch. 90-44; s. 5, ch. 90-228; s. 7, ch. 91-137; s. 2, ch. 91-140; s. 54, ch. 92-33; s. 21, ch. 92-149; s. 132, ch. 92-279; s. 55, ch. 92-326; s. 23, ch. 93-129; s. 314, ch. 94-119; s. 79, ch. 94-218; s. 305, ch. 96-406; s. 211, ch. 96-410; s. 1082, ch. 97-103; s. 2, ch. 97-209; s. 3, ch. 97-228; s. 142, ch. 97-237; s. 21, ch. 97-261; s. 4, ch. 97-264; s. 18, ch. 97-273; s. 4, ch. 98-166; s. 31, ch. 2000-160.

Note.--Former s. 455.013.

455.2255 Classification of disciplinary actions

(1) A licensee may petition the department to review a disciplinary incident to determine whether the specific violation meets the standard of a minor violation as set forth in s. 455.225(3). If the circumstances of the violation meet that standard and 2 years have passed since the issuance of a final order imposing discipline, the department shall reclassify that violation as inactive if the licensee has not been disciplined for any subsequent minor violation of the same nature. After the department has reclassified the violation as inactive, it is no longer considered to be part of the licensee's disciplinary record, and the licensee may lawfully deny or fail to acknowledge the incident as a disciplinary action.

(2) The department may establish a schedule classifying violations according to the severity of the violation. After the expiration of set periods of time, the department may provide for such disciplinary records to become inactive, according to their classification. After the disciplinary record has become inactive, the department may clear the violation from the disciplinary record and the subject person or business may lawfully deny or fail to acknowledge such disciplinary actions. The department may adopt rules to implement this subsection.

(3) Notwithstanding s. 455.017, this section applies to the disciplinary records of all persons or businesses licensed by the department.

History.--s. 143, ch. 99-251.

455.227 Grounds for discipline; penalties; enforcement

(Cross-reference: FL Rule on Disciplinary Guidelines, FL Statute on Prohibitions, Penalties.) (1) The following acts shall constitute grounds for which the disciplinary actions specified in

subsection (2) may be taken:

(a) Making misleading, deceptive, or fraudulent representations in or related to the practice of the licensee’s profession.

(b) Intentionally violating any rule adopted by the board or the department, as appropriate.

(c) Being convicted or found guilty of, or entering a plea of guilty or nolo contendere to, regardless of adjudication, a crime in any jurisdiction which relates to the practice of, or the ability to practice, a licensee’s profession.

(d) Using a Class III or a Class IV laser device or product, as defined by federal regulations, without having complied with the rules adopted pursuant to s. 501.122(2) governing the registration of such devices.

(e) Failing to comply with the educational course requirements for human immunodeficiency virus and acquired immune deficiency syndrome.

(f) Having a license or the authority to practice the regulated profession revoked, suspended, or otherwise acted against, including the denial of licensure, by the licensing authority of any jurisdiction, including its agencies or subdivisions, for a violation that would constitute

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a violation under Florida law. The licensing authority’s acceptance of a relinquishment of licensure, stipulation, consent order, or other settlement, offered in response to or in anticipation of the filing of charges against the license, shall be construed as action against the license.

(g) Having been found liable in a civil proceeding for knowingly filing a false report or complaint with the department against another licensee.

(h) Attempting to obtain, obtaining, or renewing a license to practice a profession by bribery, by fraudulent misrepresentation, or through an error of the department or the board.

(i) Failing to report to the department any person who the licensee knows is in violation of this chapter, the chapter regulating the alleged violator, or the rules of the department or the board.

(j) Aiding, assisting, procuring, employing, or advising any unlicensed person or entity to practice a profession contrary to this chapter, the chapter regulating the profession, or the rules of the department or the board.

(k) Failing to perform any statutory or legal obligation placed upon a licensee.

(l) Making or filing a report which the licensee knows to be false, intentionally or negligently failing to file a report or record required by state or federal law, or willfully impeding or obstructing another person to do so. Such reports or records shall include only those that are signed in the capacity of a licensee.

(m) Making deceptive, untrue, or fraudulent representations in or related to the practice of a profession or employing a trick or scheme in or related to the practice of a profession.

(n) Exercising influence on the patient or client for the purpose of financial gain of the licensee or a third party.

(o) Practicing or offering to practice beyond the scope permitted by law or accepting and performing professional responsibilities the licensee knows, or has reason to know, the licensee is not competent to perform.

(p) Delegating or contracting for the performance of professional responsibilities by a person when the licensee delegating or contracting for performance of such responsibilities knows, or has reason to know, such person is not qualified by training, experience, and authorization when required to perform them.

(q) Violating any provision of this chapter, the applicable professional practice act, a rule of the department or the board, or a lawful order of the department or the board, or failing to comply with a lawfully issued subpoena of the department.

(r) Improperly interfering with an investigation or inspection authorized by statute, or with any disciplinary proceeding.

(s) Failing to comply with the educational course requirements for domestic violence.

(t) Failing to report in writing to the board or, if there is no board, to the department within 30 days after the licensee is convicted or found guilty of, or entered a plea of nolo contendere or guilty to, regardless of adjudication, a crime in any jurisdiction. A licensee must report a conviction, finding of guilt, plea, or adjudication entered before the effective date of this paragraph within 30 days after the effective date of this paragraph.


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(u) Termination from a treatment program for impaired practitioners as described in s. 456.076 for failure to comply, without good cause, with the terms of the monitoring or treatment contract entered into by the licensee or failing to successfully complete a drug or alcohol treatment program.

(2) When the board, or the department when there is no board, finds any person guilty of the grounds set forth in subsection (1) or of any grounds set forth in the applicable practice act, including conduct constituting a substantial violation of subsection (1) or a violation of the applicable practice act which occurred prior to obtaining a license, it may enter an order imposing one or more of the following penalties:

(a) Refusal to certify, or to certify with restrictions, an application for a license.

(b) Suspension or permanent revocation of a license.

(c) Restriction of practice.

(d) Imposition of an administrative fine not to exceed $5,000 for each count or separate offense.

(e) Issuance of a reprimand.

(f) Placement of the licensee on probation for a period of time and subject to such conditions as the board, or the department when there is no board, may specify. Those conditions may include, but are not limited to, requiring the licensee to undergo treatment, attend continuing education courses, submit to be reexamined, work under the supervision of another licensee, or satisfy any terms which are reasonably tailored to the violations found.

(g) Corrective action.

(3) (a) In addition to any other discipline imposed pursuant to this section or discipline imposed for a violation of any practice act, the board, or the department when there is no board, may assess costs related to the investigation and prosecution of the case excluding costs associated with an attorney’s time.

(b) In any case where the board or the department imposes a fine or assessment and the fine or assessment is not paid within a reasonable time, such reasonable time to be prescribed in the rules of the board, or the department when there is no board, or in the order assessing such fines or costs, the department or the Department of Legal Affairs may contract for the collection of, or bring a civil action to recover, the fine or assessment.

(c) The department shall not issue or renew a license to any person against whom or business against which the board has assessed a fine, interest, or costs associated with investigation and prosecution until the person or business has paid in full such fine, interest, or costs associated with investigation and prosecution or until the person or business complies with or satisfies all terms and conditions of the final order.

(4) In addition to, or in lieu of, any other remedy or criminal prosecution, the department may file a proceeding in the name of the state seeking issuance of an injunction or a writ of mandamus against any person who violates any of the provisions of this chapter, or any provision of law with respect to professions regulated by the department, or any board therein, or the rules adopted pursuant thereto.



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(5) In the event the board, or the department when there is no board, determines that revocation of a license is the appropriate penalty, the revocation shall be permanent. However, the board may establish, by rule, requirements for reapplication by applicants whose licenses have been permanently revoked. Such requirements may include, but shall not be limited to, satisfying current requirements for an initial license.

History.— s. 5, ch. 79-36; s. 13, ch. 83-329; s. 5, ch. 88-380; s. 8, ch. 91-137; s. 55, ch. 92-33; s. 22, ch. 92-149; s. 23, ch. 93-129; s. 9, ch. 94-119; s. 80, ch. 94-218; s. 5, ch. 95-187; s. 22, ch. 97-261; s. 144, ch. 99-251; s. 32, ch. 2000-160; s. 2, ch. 2009-195; s. 12, ch. 2010-106.

455.2273 Disciplinary guidelines

(1) Each board, or the department when there is no board, shall adopt, by rule, and periodically review the disciplinary guidelines applicable to each ground for disciplinary action which may be imposed by the board, or the department when there is no board, pursuant to this chapter, the respective practice acts, and any rule of the board or department.

(2) The disciplinary guidelines shall specify a meaningful range of designated penalties based upon the severity and repetition of specific offenses, it being the legislative intent that minor violations be distinguished from those which endanger the public health, safety, or welfare; that such guidelines provide reasonable and meaningful notice to the public of likely penalties which may be imposed for proscribed conduct; and that such penalties be consistently applied by the board.

(3) A specific finding of mitigating or aggravating circumstances shall allow the board to impose a penalty other than that provided for in such guidelines. If applicable, the board, or the department when there is no board, shall adopt by rule disciplinary guidelines to designate possible mitigating and aggravating circumstances and the variation and range of penalties permitted for such circumstances.

(4) The department must review such disciplinary guidelines for compliance with the legislative intent as set forth herein to determine whether the guidelines establish a meaningful range of penalties and may also challenge such rules pursuant to s. 120.56.

(5) The administrative law judge, in recommending penalties in any recommended order, must follow the penalty guidelines established by the board or department and must state in writing the mitigating or aggravating circumstances upon which the recommended penalty is based.

(6) Notwithstanding s. 455.017, this section applies to disciplinary guidelines adopted by all boards or divisions within the department.

History.--s. 2, ch. 86-90; s. 56, ch. 92-33; s. 23, ch. 92-149; s. 23, ch. 93-129; s. 81, ch. 94-218; s. 212, ch. 96-410; s. 23, ch. 97-261; s. 33, ch. 2000-160; s. 24, ch. 2008-240.

455.2274 Criminal proceedings against licensees; appearances by department representatives.

A representative of the department may voluntarily appear in a criminal proceeding brought against a person licensed by the department to practice a profession regulated by the state. The department’s representative is authorized to furnish pertinent information, make recommendations regarding specific conditions of probation, and provide other assistance to the court necessary to promote justice or protect the public. The court may order a representative of the department to appear in a criminal proceeding if the crime charged is substantially related to the qualifications, functions, or duties of a licensee regulated by the department.

History.--s. 3, ch. 2009-195; s. 115, ch. 2014-17.


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455.2275 Penalty for giving false information.

In addition to, or in lieu of, any other discipline imposed pursuant to s. 455.227, the act of knowingly giving false information in the course of applying for or obtaining a license from the department, or any board thereunder, with intent to mislead a public servant in the performance of his or her official duties, or the act of attempting to obtain or obtaining a license from either the department, or any board thereunder, to practice a profession by knowingly misleading statements or knowing misrepresentations constitutes a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.


455.2277 Prosecution of criminal violations

The department or the appropriate board shall report any criminal violation of any statute relating to the practice of a profession regulated by the department or appropriate board to the proper prosecuting authority for prompt prosecution.

History.--s. 25, ch. 92-149.

455.228 Unlicensed practice of a profession

(1) When the department has probable cause to believe that any person not licensed by the department, or the appropriate regulatory board within the department, has violated any provision of this chapter or any statute that relates to the practice of a profession regulated by the department, or any rule adopted pursuant thereto, the department may issue and deliver to such person a notice to cease and desist from such violation. In addition, the department may issue and deliver a notice to cease and desist to any person who aids and abets the unlicensed practice of a profession by employing such unlicensed person. The issuance of a notice to cease and desist shall not constitute agency action for which a hearing under ss. 120.569 and 120.57 may be sought. For the purpose of enforcing a cease and desist notice, the department may file a proceeding in the name of the state seeking issuance of an injunction or a writ of mandamus against any person who violates any provisions of such notice. In addition to the foregoing remedies, the department may impose an administrative penalty not to exceed $5,000 per incident pursuant to the provisions of chapter 120 or may issue a citation pursuant to the provisions of subsection (3). If the department is required to seek enforcement of the notice for a penalty pursuant to s. 120.569, it shall be entitled to collect its attorney’s fees and costs, together with any cost of collection.

(2) In addition to or in lieu of any remedy provided in subsection (1), the department may seek the imposition of a civil penalty through the circuit court for any violation for which the department may issue a notice to cease and desist under subsection (1). The civil penalty shall be no less than $500 and no more than $5,000 for each offense. The court may also award to the prevailing party court costs and reasonable attorney fees and, in the event the department prevails, may also award reasonable costs of investigation.

(3) (a) Notwithstanding the provisions of s. 455.225, the department shall adopt rules to permit the issuance of citations for unlicensed practice of a profession. The citation shall be issued to the subject and shall contain the subject’s name and any other information the department determines to be necessary to identify the subject, a brief factual statement, the sections of the law allegedly violated, and the penalty imposed. The citation must clearly state that the






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subject may choose, in lieu of accepting the citation, to follow the procedure under s. 455.225. If the subject disputes the matter in the citation, the procedures set forth in s. 455.225 must be followed. However, if the subject does not dispute the matter in the citation with the department within 30 days after the citation is served, the citation shall become a final order of the department. The penalty shall be a fine of not less than $500 or more than $5,000 or other conditions as established by rule.

(b) Each day that the unlicensed practice continues after issuance of a citation constitutes a separate violation.

(c) The department shall be entitled to recover the costs of investigation, in addition to any penalty provided according to department rule as part of the penalty levied pursuant to the citation.

(d) Service of a citation may be made by personal service or certified mail, restricted delivery, to the subject at the subject’s last known address.

(4) All fines, fees, and costs collected through the procedures set forth in this section shall be allocated to the professions in the manner provided for in s. 455.2281 for the allocation of the fees assessed and collected to combat unlicensed practice of a profession.

(5) The provisions of this section apply only to the provisions of s. 455.217 and the professional practice acts administered by the department.

History.--s. 3, ch. 84-271; s. 6, ch. 90-228; s. 58, ch. 92-33; s. 26, ch. 92-149; s. 23, ch. 93-129; s. 11, ch. 94-119; ss. 83, 84, ch. 94-218; s. 213, ch. 96-410; s. 25, ch. 97-261; s. 34, ch. 2000-160, ch. 2010-106..

455.2281 Unlicensed activities; fees; disposition

In order to protect the public and to ensure a consumer-oriented department, it is the intent of the Legislature that vigorous enforcement of regulation for all professional activities is a state priority. All enforcement costs should be covered by professions regulated by the department. Therefore, the department shall impose, upon initial licensure and each renewal thereof, a special fee of $5 per licensee. Such fee shall be in addition to all other fees collected from each licensee and shall fund efforts to combat unlicensed activity. Any profession regulated by the department which offers services that are not subject to regulation when provided by an unlicensed person may use funds in its unlicensed activity account to inform the public of such situation. The board with concurrence of the department, or the department when there is no board, may earmark $5 of the current licensure fee for this purpose, if such board, or profession regulated by the department, is not in a deficit and has a reasonable cash balance. A board or profession regulated by the department may authorize the transfer of funds from the operating fund account to the unlicensed activity account of that profession if the operating fund account is not in a deficit and has a reasonable cash balance. The department shall make direct charges to this fund by profession and shall not allocate indirect overhead. The department shall seek board advice regarding enforcement methods and strategies prior to expenditure of funds; however, the department may, without board advice, allocate funds to cover the costs of continuing education compliance monitoring under s. 455.2177. The department shall directly credit, by profession, revenues received from the department's efforts to enforce licensure provisions. The department shall include all financial and statistical data resulting from unlicensed activity enforcement and from continuing education compliance monitoring as separate categories in the quarterly management report provided for in s. 455.219. The department shall not charge the account of any profession for the costs incurred on behalf of any other profession. For an unlicensed activity account, a balance which remains at the end of a renewal






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cycle may, with concurrence of the applicable board and the department, be transferred to the operating fund account of that profession.

History.--s. 27, ch. 92-149; s. 12, ch. 94-119; s. 160, ch. 99-251; s. 2, ch. 2001-269; s. 5, ch. 2004-292.

455.2285 Annual report: finances, administrative complaints, disciplinary actions, recommendations

The department is directed to prepare and submit a report to the President of the Senate and Speaker of the House of Representatives by November 1 of each year. In addition to finances and any other information the Legislature may require, the report shall include statistics and relevant information, profession by profession, detailing:

(1) The revenues, expenditures, and cash balances for the prior year, and a review of the adequacy of existing fees.

(2) The number of complaints received and investigated. (3) The number of findings of probable cause made. (4) The number of findings of no probable cause made. (5) The number of administrative complaints filed. (6) The disposition of all administrative complaints. (7) A description of disciplinary actions taken. (8) A description of any effort by the department, for any disciplinary cases under its jurisdiction,

to reduce or otherwise close any investigation or disciplinary proceeding not before the Division of Administrative Hearings under chapter 120 or otherwise not completed within 1 year after the initial filing of a complaint under this chapter.

(9) The status of the development and implementation of rules providing for disciplinary guidelines pursuant to s. 455.2273.

(10) Such recommendations for administrative and statutory changes necessary to facilitate efficient and cost-effective operation of the department and the various boards.

History.--s. 4, ch. 84-271; s. 3, ch. 86-90; s. 7, ch. 90-228; s. 59, ch. 92-33; s. 28, ch. 92-149; s. 23, ch. 93-129; ss. 85, 86, ch. 94-218; s. 143, ch. 97-237; s. 26, ch. 97-261; s. 5, ch. 97-264; s. 19, ch. 97-273; s. 5, ch. 98-166.

455.2286 Automated information system

By November 1, 2001, the department shall implement an automated information system for all certificate holders and registrants under part XII of chapter 468, chapter 471, chapter 481, or chapter 489. The system shall provide instant notification to local building departments and other interested parties regarding the status of the certification or registration. The provision of such information shall consist, at a minimum, of an indication of whether the certification or registration is active, of any current failure to meet the terms of any final action by a licensing authority, of any ongoing disciplinary cases that are subject to public disclosure, whether there are any outstanding fines, and of the reporting of any material violations pursuant to s. 553.781. The system shall also retain information developed by the department and local governments on individuals found to be practicing or contracting without holding the applicable license, certification, or registration required by law. The system may be Internet-based.

History.--s. 6, ch. 98-287; s. 31, ch. 2000-141.


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455.229 Public inspection of information required from applicants; exceptions; examination hearing

(1) All information required by the department of any applicant shall be a public record and shall be open to public inspection pursuant to s. 119.07, except financial information, medical information, school transcripts, examination questions, answers, papers, grades, and grading keys, which are confidential and exempt from s. 119.07(1) and shall not be discussed with or made accessible to anyone except members of the board, the department, and staff thereof, who have a bona fide need to know such information. Any information supplied to the department by any other agency which is exempt from the provisions of chapter 119 or is confidential shall remain exempt or confidential pursuant to applicable law while in the custody of the department.

(2) The department shall establish by rule the procedure by which an applicant, and the applicant's attorney, may review examination questions and answers. Examination questions and answers are not subject to discovery but may be introduced into evidence and considered only in camera in any administrative proceeding under chapter 120. If an administrative hearing is held, the department shall provide challenged examination questions and answers to the administrative law judge. The examination questions and answers provided at the hearing are confidential and exempt from s. 119.07(1), unless invalidated by the administrative law judge.

(3) Unless an applicant notifies the department at least 5 days prior to an examination hearing of the applicant's inability to attend, or unless an applicant can demonstrate an extreme emergency for failing to attend, the department may require an applicant who fails to attend to pay reasonable attorney's fees, costs, and court costs of the department for the examination hearing.

History.--s. 5, ch. 79-36; s. 1, ch. 88-392; s. 8, ch. 90-228; s. 10, ch. 91-137; s. 3, ch. 91-140; s. 60, ch. 92-33; s. 29, ch. 92-149; s. 23, ch. 93-129; s. 13, ch. 94-119; s. 87, ch. 94-218; ss. 306, 307, ch. 96-406; s. 214, ch. 96-410; s. 27, ch. 97-261.

455.232 Disclosure of confidential information

(1) No officer, employee, or person under contract with the department, or any board therein, or any subject of an investigation shall convey knowledge or information to any person who is not lawfully entitled to such knowledge or information about any public meeting or public record, which at the time such knowledge or information is conveyed is exempt from the provisions of s. 119.01, s. 119.07(1), or s. 286.011.

(2) Any person who willfully violates any provision of this section is guilty of a misdemeanor of the first degree, punishable as provided in s. 775.082 or s. 775.083, and may be subject to discipline pursuant to s. 455.227, and, if applicable, shall be removed from office, employment, or the contractual relationship.



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Chapter 473-Regulation of Professions and Occupations: Public Accountancy

Table of Contents (Statutes not included in course are noted)

473.301 Purpose.

473.302 Definitions.

473.303 Board of Accountancy.

473.3035 Division of Certified Public Accounting.

473.304 Rules of board; powers and duties; legal services.

473.305 Fees. (not included in course)

473.306 Examinations. (not included in course)

473.3065 Certified Public Accountant Education Minority Assistance Program; advisory council. (not included in course)

473.308 Licensure. (not included in course)

473.309 Practice requirements for partnerships, corporations, and limited liability companies; business entities practicing public accounting.

473.3101 Licensure of sole proprietors, partnerships, corporations, limited liability companies, and other legal entities. (not included in course)

473.311 Renewal of license.

473.312 Continuing education.

473.3125 Peer review.

473.313 Inactive status (not included in course).

473.314 Temporary license. (not included in course)

473.3141 Certified public accountants licensed in other states. (not included in course)

473.315 Independence, technical standard s.

473.316 Communications between the accountant and client privileged.

473.318 Ownership of working papers.

473.319 Contingent fees.

473.3205 Commissions or referral fees.

473.321 Fictitious names.

473.322 Prohibitions; penalties.

473.323 Disciplinary proceedings.

473.301 Purpose

The Legislature recognizes that there is a public need for independent and objective public accountants and that it is necessary to regulate the practice of public accounting to assure the minimum competence of practitioners and the accuracy of audit statements upon which the public relies and to protect the public from dishonest practitioners and, therefore, deems it necessary in the interest of public welfare to regulate the practice of public accountancy in this state.


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History.--ss. 1, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 4, ch. 91-429.

473.302 Definitions

As used in this chapter, the term:

(1) “Board” means the Board of Accountancy. (2) “Department” means the Department of Business and Professional Regulation. (3) “Division” means the Division of Certified Public Accounting. (4) “Certified public accountant” means an individual who holds a license to practice public

accounting in this state or an individual who is practicing public accounting in this state pursuant to the practice privilege granted in s.473.3141. The term “Florida certified public accountant” means an individual holding a license under the authority of this chapter.

(5) “Firm” means any legal entity that is engaged in the practice of public accounting. (6) “Home office” means the principal headquarters of an entity. An entity may have only one

principal headquarters. (7) “Licensed firm” or “public accounting firm” means a sole proprietorship, partnership,

corporation, limited liability company, firm, or any other legal entity licensed under s. 473.3101.

(8) “Practice of,” “practicing public accountancy,” or “public accounting” means: (a) Offering to perform or performing for the public one or more types of services

involving the expression of an opinion on financial statements, the attestation as an expert in accountancy to the reliability or fairness of presentation of financial information, the utilization of any form of opinion or financial statements that provide a level of assurance, the utilization of any form of disclaimer of opinion which conveys an assurance of reliability as to matters not specifically disclaimed, or the expression of an opinion on the reliability of an assertion by one party for the use by a third party;

(b) Offering to perform or performing for the public one or more types of services involving the use of accounting skills, or one or more types of tax, management advisory, or consulting services, by any person who is a certified public accountant who holds an active license, issued pursuant to this chapter, or who is authorized to practice public accounting pursuant to the practice privileges granted in s. 473.3141, including the performance of such services by a certified public accountant in the employ of a person or firm; or

(c) Offering to perform or performing for the public one or more types of service involving the preparation of financial statements not included within paragraph (a), by a certified public accountant who holds an active license, issued pursuant to this chapter, or who is authorized to practice public accounting pursuant to the practice privileges granted in s. 473.3141; by a firm of certified public accountants; or by a firm in which a certified public accountant has an ownership interest, including the performance of such services in the employ of another person. The board shall adopt rules establishing standards of practice for such reports and financial statements; provided, however, that nothing in this paragraph shall be construed to permit the board to adopt rules that have the result of prohibiting Florida certified public accountants employed by unlicensed firms from preparing financial statements as authorized by this paragraph.

(9) “Uniform Accountancy Act” means the Uniform Accountancy Act, Fourth Edition, dated December 2007 and published by the American Institute of Certified Public Accountants and the National Association of State Boards of Accountancy.

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However, these terms shall not include services provided by the American Institute of Certified Public Accountants or the Florida Institute of Certified Public Accountants, or any full service association of certified public accounting firms whose plans of administration have been approved by the board, to their members or services performed by these entities in reviewing the services provided to the public by members of these entities.

History.--ss. 2, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 1, ch. 89-87; s. 4, ch. 91-429; s. 3, ch. 92-292; s. 124, ch. 94-119; s. 155, ch. 94-218; s. 345, ch. 97-103; s. 1, ch. 98-340; s. 2, ch. 2000-154; s. 3, ch. 2009-54.2015-174

473.303 Board of Accountancy

1) There is created in the department the Board of Accountancy. The board shall consist of nine members, seven of whom must be certified public accountants licensed in this state and two of whom must be laypersons who are not and have never been certified public accountants or members of any closely related profession or occupation. The members who are certified public accountants must have practiced public accounting on a substantially full-time basis in this state for at least 5 years. At least one member of the board must be 60 years of age or older. Each member shall be appointed by the Governor, subject to confirmation by the Senate.

(2) The probable cause panel of the board may be composed of at least one current board member who shall serve as chair and additional current board members or past board members who are certified public accountants licensed in this state and in good standing. The past board members shall be appointed to the panel for a term of 2 years by the chair of the board with the approval of the secretary of the department, and may be reappointed for additional terms.

History.--ss. 3, 25, ch. 79-202; ss. 2, 3, ch. 81-318; s. 52, ch. 83-329; ss. 1, 10, 11, ch. 85-9; s. 21, ch. 87-172; s. 23, ch. 91-137; s. 4, ch. 91-429; s. 156, ch. 94-218; s. 346, ch. 97-103; s. 2, ch. 98-340; s. 4, ch. 2009-54.

473.3035 Division of Certified Public Accounting

(1) All services concerning this chapter, including, but not limited to, recordkeeping services, examination services, legal services, and investigative services, and those services in chapter 455 necessary to perform the duties of this chapter shall be provided by the Division of Certified Public Accounting. The board may, by majority vote, delegate a duty or duties to the appropriate division within the department. The board may, by majority vote, rescind any such delegation of duties at any time.

(2) The Division of Certified Public Accounting shall be funded by fees and assessments of the board, and funds collected by the board shall be used only to fund public accounting regulation. Funding for the Division of Certified Public Accounting shall be governed by ss. 215.37 and 455.219.

History.--s. 4, ch. 92-292; s. 114, ch. 98-166; s. 175, ch. 2000-160.

473.304 Rules of board; powers and duties; legal services

(1) The board shall adopt rules pursuant to ss. 120.536(1) and 120.54 to implement the provisions of this act. Every certified public accountant and firm shall be governed and controlled by this act and the rules adopted by the board.


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(2) Subject to the prior approval of the Attorney General, the board may retain independent legal counsel to provide legal advice to the board on a specific matter.

(3) An attorney employed or used by the board may not both prosecute a matter and provide legal services to the board with respect to the same matter.

History.--ss. 3, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 4, ch. 91-429; s. 5, ch. 92-292; s. 144, ch. 98-200; s. 5, ch. 2009-54.

473.309 Practice requirements: partnerships, corporations, limited liability companies; business entities practicing public accounting

(Cross-reference: FL Rule on Names, Terms, Branch Offices)

(1) A partnership may not engage in the practice of public accounting, as defined in s. 473.302(8)(a), or meet the requirements of s. 473.3101(1)(b), unless: (a) It is a form of partnership recognized by Florida law. (b) Partners owning at least 51 percent of the financial interest and voting rights of the

partnership are certified public accountants in some state. However, each partner who is a certified public accountant in another state and is domiciled in this state must be a certified public accountant of this state and hold an active license.

(c) At least one general partner is a certified public accountant of this state and holds an active license or, in the case of a firm that must have a license pursuant to s. 473.3101(1)(c), at least one general partner is a certified public accountant in some state and meets the requirements of s. 473.3141(1)(a) or (b).

(d) All partners who are not certified public accountants in any state are engaged in the business of the partnership as their principal occupation.

(e) It is in compliance with rules adopted by the board pertaining to minimum capitalization, letters of credit, and adequate public liability insurance.

(f) It is currently licensed as required by s. 473.3101. (2) A corporation may not engage in the practice of public accounting, as defined in

s. 473.302(8)(a), or meet the requirements of s. 473.3101(1)(b), unless: (a) It is a corporation duly organized in this or some other state. (b) Shareholders of the corporation owning at least 51 percent of the financial interest and

voting rights of the corporation are certified public accountants in some state and are principally engaged in the business of the corporation. However, each shareholder who is a certified public accountant in another state and is domiciled in this state must be a certified public accountant of this state and hold an active license.

(c) The principal officer of the corporation is a certified public accountant in some state. (d) At least one shareholder of the corporation is a certified public accountant and holds an

active license in this state or, in the case of a firm that must have a license pursuant to s. 473.3101(1)(c), at least one shareholder is a certified public accountant in some state and meets the requirements of s. 473.3141(1)(a) or (b).

(e) All shareholders who are not certified public accountants in any state are engaged in the business of the corporation as their principal occupation.

(f) It is in compliance with rules adopted by the board pertaining to minimum capitalization, letters of credit, and adequate public liability insurance.

(g) It is currently licensed as required by s. 473.3101.












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(3) A limited liability company may not engage in the practice of public accounting, as defined in s. 473.302(8)(a), or meet the requirements of s. 473.3101(1)(b), unless: (a) It is a limited liability company duly organized in this or some other state. (b) Members of the limited liability company owning at least 51 percent of the financial

interest and voting rights of the company are certified public accountants in some state. However, each member who is a certified public accountant in some state and is domiciled in this state must be a certified public accountant of this state and hold an active license.

(c) At least one member of the limited liability company is a certified public accountant and holds an active license in this state or, in the case of a firm that must have a license pursuant to s. 473.3101(1)(c), at least one member is a certified public accountant in some state and meets the requirements of s. 473.3141(1)(a) or (b).

(d) All members who are not certified public accountants in any state are engaged in the business of the company as their principal occupation.

(e) It is in compliance with rules adopted by the board pertaining to minimum capitalization, letters of credit, and adequate public liability insurance.

(f) It is currently licensed as required by s. 473.3101. (4) A partnership, corporation, limited liability company, or any other firm is engaged in the

practice of public accounting if its employees are engaged in the practice of public accounting. Notwithstanding any other provision of law, a licensed firm may own all or part of another licensed firm.

History.--ss. 8, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 22, ch. 89-374; s. 4, ch. 91-429; s. 16, ch. 93-110; s. 1, ch. 93-284; s. 1, ch. 97-35; s. 5, ch. 98-340; s. 2, ch. 2000-114; s. 8, ch. 2009-54, 2015-174.

473.311 Renewal of license

(1) The department shall renew a license issued under s. 473.308 upon receipt of the renewal application and fee and upon certification by the board that the Florida certified public accountant has satisfactorily completed the continuing education requirements of s. 473.312.

(2) The department shall adopt rules establishing a procedure for the biennial renewal of licenses issued pursuant to this section.

History.—ss. 11, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 5, 10, 11, ch. 85-9; s. 4, ch. 91-429; s. 220, ch. 94-119; s. 116, ch. 98-166; s. 177, ch. 2000-160; s. 2, ch. 2004-87; s. 10, ch. 2009-54; s. 3, ch. 2009-69; s. 14, ch. 2009-195; s. 2, ch. 2013-167.

473.312 Continuing education

(1)(a) As part of the license renewal procedure, the board shall by rule require Florida certified public accountants to submit proof satisfactory to the board that during the 2 years prior to application for renewal, they have successfully completed not less than 48 or more than 80 hours of continuing professional education programs in public accounting subjects approved by the board. The board may prescribe by rule additional continuing professional education hours, not to exceed 25 percent of the total hours required, for failure to complete the hours required for renewal by the end of the reestablishment period.

(b) Not less than 25 percent of the total hours required by the board shall be in accounting-related and auditing-related subjects, as distinguished from federal and local taxation matters and management services.







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(c) Not less than 5 percent of the total hours required by the board shall be in ethics applicable to the practice of public accounting. This requirement shall be administered by providers approved by the board and shall include a review of the provisions of chapter 455 and this chapter and the related administrative rules.

(2) Programs of continuing professional education approved by the board shall be formal programs of learning which contribute directly to the professional competency of an individual following licensure to practice public accounting and may be any of the following:

(a) Professional development programs of the American Institute of Certified Public Accountants, state societies of certified public accountants, or other organizations.

(b) Technical sessions at meetings of the American Institute of Certified Public Accountants, state societies, chapters, or other organizations.

(c) University and college courses.

(d) Formal organized in-firm education programs.

(3) The board shall adopt rules establishing the continuing education requirements for Florida certified public accountants who are engaged in the audit of a governmental entity. The board shall approve subjects directly related to the governmental environment and to governmental auditing for purposes of satisfying the requirement of this subsection.

(4) For the purposes of maintaining proper continuing education requirements for renewal of licensure under this chapter, the board may appoint a Continuing Professional Education Advisory Committee, which shall be composed of one member of the board, one academician on the faculty of a university in this state, and six certified public accountants.

History.--ss. 10, 25, ch. 79-202; s. 345, ch. 81-259; ss. 2, 3, ch. 81-318; ss. 6, 10, 11, ch. 85-9; s. 3, ch. 87-221; s. 2, ch. 89-87; s. 4, ch. 91-429; s. 7, ch. 98-340; s. 3, ch. 2004-87; s. 2, ch. 2007-139; s. 11, ch. 2009-54.

473.3125 Peer Review

(1) As used in this section, the term: (a) “Licensee” means a licensed firm or public accounting firm as defined in s. 473.302(7) and

engaged in the practice of public accounting as defined in s. 473.302(8)(a) that is required to be licensed under s. 473.3101.

(b) “Peer review” means the study, appraisal, or review by one or more independent certified public accountants of one or more aspects of the professional work of a licensee.

(2) The board shall adopt rules establishing minimum standards for peer review programs, including, but not limited to, standards for administering, performing, and reporting peer reviews. The board shall also adopt rules establishing minimum criteria for the board’s approval of one or more organizations that facilitate and administer peer review programs.

(3) For the purposes of maintaining oversight of the license renewal requirements of s. 473.311(2), the board may establish a peer review oversight committee, which shall be composed of at least three, but no more than five, members who are licensed under this chapter and whose firms are subject to s. 473.311(2) and have received a review rating of “pass” on the most recent peer review.

(4) Effective January 1, 2015, a licensed firm or public accounting firm as defined in s. 473.302(7) and licensed under s. 473.3101 and engaged in the practice of public









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accounting as defined in s. 473.302(8)(a), except for the performance of compilations and reviews as those terms are defined by the board, must be enrolled in a peer review program.

History.—s. 3, ch. 2013-167; s. 5, ch. 2015-174.

473.315 Independence, technical standards

(Cross-reference: FL Rule on Independence.)

1) A certified public accountant shall not express an opinion on the financial statements of an enterprise unless she or he and her or his firm are independent with respect to such enterprise.

(2) A certified public accountant shall not undertake any engagement in the practice of public accounting which she or he or her or his firm cannot reasonably expect to complete with professional competence.

(3) The board shall adopt rules establishing the standards of practice of public accounting, including, but not limited to, independence, competence, and technical standards.

(4) Attorneys who are admitted to practice law by the Supreme Court of Florida are exempt from the standards of practice of public accounting as defined in s. 473.302(8)(b) and (c) when such standards conflict with the rules of The Florida Bar or orders of the Florida Supreme Court.

History. — ss. 14, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 4, ch. 91-429; s. 349, ch. 97-103; s. 9, ch. 98-340; s. 107, ch. 2010-5.

473.316 Communications between the accountant and client privileged

(Cross-reference: FL Rule on Confidential Client Information.)

(1) For purposes of this section: (a) An “accountant” is a certified public accountant. (b) A “client” is any person, public officer, corporation, association, or other organization or

entity, either public or private, who consults an accountant with the purpose of obtaining accounting services.

(c) A communication between an accountant and her or his client is “confidential” if it is not intended to be disclosed to third persons other than: 1. Those to whom disclosure is in furtherance of the rendition of accounting services to

the client. 2. Those reasonably necessary for the transmission of the communication.

(d) A “quality review” is a study, appraisal, or review of one or more aspects of the professional work of an accountant in the practice of public accountancy which is conducted by a professional organization for the purpose of evaluating quality assurance required by professional standards, including a quality assurance review. The term includes a peer review as defined in s. 473.3125.

(e) A “review committee” is any person or persons who are not owners or employees of an accountant or firm that is the subject of a quality review and who carry out, administer, or oversee a quality review.

(2) A client has a privilege to refuse to disclose, and to prevent any other person from disclosing, the contents of confidential communications with an accountant when such other person learned of the communications because they were made in the rendition of accounting




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services to the client. This privilege includes other confidential information obtained by the accountant from the client for the purpose of rendering accounting advice.

(3) The privilege may be claimed by: (a) The client. (b) A guardian or conservator of the client. (c) The personal representative of a deceased client. (d) A successor, assignee, trustee in dissolution, or any similar representative of an

organization, corporation, or association or other entity, either public or private, whether or not in existence.

(e) The accountant, but only on behalf of the client. The accountant’s authority to claim the privilege is presumed in the absence of contrary evidence.

(4) There is no accountant-client privilege under this section when: (a) The services of the accountant were sought or obtained to enable or aid anyone to

commit or plan to commit what the client knew or should have known was a crime or fraud.

(b) A communication is relevant to an issue of breach of duty by the accountant to her or his client or by the client to her or his accountant.

(c) A communication is relevant to a matter of common interest between two or more clients, if the communication was made by any of them to an accountant retained or consulted in common when offered in a civil action between the clients.

(5) Communications are not privileged from disclosure in any disciplinary investigation or proceeding conducted pursuant to this act by the department or before the board or in any judicial review of such a proceeding. In any such proceeding, a certified public accountant or public accountant, without the consent of her or his client, may testify with respect to any communication between the accountant and the accountant’s client or be compelled, pursuant to a subpoena of the department or the board, to testify or produce records, books, or papers. Such a communication disclosed to the board and records of the board relating to the communication shall for all other purposes and proceedings be a privileged communication in all of the courts of this state.

(6) The proceedings, records, and work papers of a review committee are privileged and are not subject to discovery, subpoena, or other means of legal process or to introduction into evidence in a civil action or arbitration, administrative proceeding, or state accountancy board proceeding. A member of a review committee or person who was involved in a quality review may not testify in a civil action or arbitration, administrative proceeding, or state accountancy board proceeding as to any matter produced or disclosed during the quality review or as to any findings, recommendations, evaluations, opinions, or other actions of the review committee or any members thereof. Public records and materials prepared for a particular engagement are not privileged merely because they were presented during the quality review. This privilege does not apply to disputes between a review committee and a person subject to a quality review.

History.—ss. 15, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 1, ch. 91-63; s. 26, ch. 91-140; s. 4, ch. 91-429; s. 350, ch. 97-103; s. 15, ch. 2009-54; s. 4, ch. 2015-174.


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473.318 Ownership of working papers

(Cross-reference: FL Rule on Records Disposition Responsibility)

All statements, records, schedules, working papers, and memoranda made by a certified public accountant or firm or her or his employee incident to, or in the course of, professional services to a client, except the reports submitted by the certified public accountant or firm to the client and except for records which are part of the client's records, shall be and remain the property of the certified public accountant or firm in the absence of an express agreement between the certified public accountant or firm and the client to the contrary.

History.--ss. 17, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 4, ch. 91-429; s. 351, ch. 97-103; s. 16, ch. 2009-54.

473.319 Contingent fees

(Cross-reference: FL Rule on Contingent Fees.) Public accounting services as defined in s. 473.302(8)(a) and (c), and those that include tax filings with federal, state, or local government, shall not be offered or rendered for a fee contingent upon the findings or results of such service. This section does not apply to services involving federal, state, or other taxes in which the findings are those of the tax authorities and not those of the certified public accountant or firm. Fees to be fixed by courts or other public authorities, which are of an indeterminate amount at the time a public accounting service is undertaken, shall not be regarded as contingent fees for purposes of this section.

History.--ss. 18, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 4, ch. 91-429; s. 2, ch. 97-35; s. 10, ch. 98-340; ss. 17, 18, ch. 2009-54.

473.3205 Commissions or referral fees

(Cross-reference: FL Rule on Commissions, Referral Fees.) A certified public accountant or firm may not accept or pay a commission or referral fee in connection with the sale or referral of public accounting services as defined in s. 473.302(8)(a) and (c). Any certified public accountant or firm that is engaged in the practice of public accounting and that accepts a commission for the sale of a product or service to a client must disclose that fact to the client in writing in accordance with rules adopted by the board. However, this section shall not prohibit:

(1) Payments for the purchase of an accounting practice; (2) Retirement payments to individuals formerly engaged in the practice of public accounting or

payments to their heirs or estates; or (3) Payment of fees to a referring certified public accountant or firm for public accounting

services to the successor certified public accountant or firm or the client in connection with an engagement.

History.--ss. 3, 5, ch. 89-87; s. 4, ch. 91-429; s. 3, ch. 97-35; s. 352, ch. 97-103; s. 11, ch. 98-340; s. 19, ch. 2009-54.


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473.321 Fictitious names

(1) A certified public accountant, partnership, corporation, or limited liability company may not practice public accountancy in this state under any name that is misleading or deceptive as to the legal form; as to persons who are partners, officers, shareholders, or members of the firm; or as to any other matter. However, a firm name may include the names of retired or deceased persons who were active partners, shareholders, or members of the firm.

(2) This section does not prohibit any certified public accountant or firm from practicing public accounting under a fictitious name that is not misleading or deceptive as to the persons who are partners, officers, shareholders, or members.

(3) The board shall adopt rules for interpretation of this section.

History.--ss. 19, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 4, ch. 91-429; s. 18, ch. 93-110; s. 3, ch. 93-284; s. 20, ch. 2009-54.

473.322 Prohibitions; penalties

(Cross-reference: FL Rule on Disciplinary Guidelines, FL Statute on Grounds for Discipline.) (1) A person may not knowingly:

(a) Practice public accounting unless the person is a certified public accountant or a public accountant;

(b) Assume or use the titles or designations “certified public accountant” or “public accountant” or the abbreviation “C.P.A.” or any other title, designation, words, letters, abbreviations, sign, card, or device tending to indicate that the person holds a license to practice public accounting under this chapter or the laws of any other state, territory, or foreign jurisdiction, unless the person holds an active license under this chapter or has the practice privileges pursuant to s. 473.3141;

(c) Perform or offer to perform any services described in s. 473.302(8)(a) unless such person holds an active license under this chapter and is a licensed firm, provides such services through a licensed firm, or complies with ss.473.3101 and 473.3141. This paragraph does not prohibit the performance by persons other than certified public accountants of other services involving the use of accounting skills, including the preparation of tax returns and the preparation of financial statements without expression of opinion thereon;

(d) Present as her or his own the license of another; (e) Give false or forged evidence to the board or a member thereof; (f) Use or attempt to use a public accounting license that has been suspended, revoked,

or placed on inactive or delinquent status; (g) Employ unlicensed persons to practice public accounting; or (h) Conceal information relative to violations of this chapter.

(2) Any person who violates any provision of this section commits a misdemeanor of the first degree, punishable as provided in s. 775.082 or s. 775.083.

History.—ss. 20, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 10, 11, ch. 85-9; s. 104, ch. 91-224; s. 4, ch. 91-429; s. 222, ch. 94-119; s. 2, ch. 94-151; s. 2, ch. 96-261; s. 1116, ch. 97-103; s. 12, ch. 98-340; s. 3, ch. 2000-114; s. 21, ch. 2009-54; s. 6, ch. 2015-174.








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473.323 Disciplinary proceedings

(1) The following acts constitute grounds for which the disciplinary actions in subsection (3) may be taken:

(a) Violation of any provision of s. 455.227(1) or any other provision of this chapter.

(b) Attempting to procure a license to practice public accounting by bribery or fraudulent misrepresentations.

(c) Having a license to practice public accounting revoked, suspended, or otherwise acted against, including the denial of licensure, by the licensing authority of another state, territory, or country.

(d) Being convicted or found guilty of, or entering a plea of nolo contendere to, regardless of adjudication, a crime in any jurisdiction which directly relates to the practice of public accounting or the ability to practice public accounting.

(e) Making or filing a report or record that the certified public accountant or firm knows to be false, willfully failing to file a report or record required by state or federal law, willfully impeding or obstructing such filing, or inducing another person to impede or obstruct such filing. Such reports or records include only those that are signed in the capacity of a certified public accountant.

(f) Advertising goods or services in a manner that is fraudulent, false, deceptive, or misleading in form or content.

(g) Committing an act of fraud or deceit, or of negligence, incompetency, or misconduct, in the practice of public accounting.

(h) Violation of any rule adopted pursuant to this chapter or chapter 455.

(i) Practicing on a revoked, suspended, inactive, or delinquent license.

(j) Suspension or revocation of the right to practice before any state or federal agency.

(k) Performance of any fraudulent act in any jurisdiction while holding a license to practice public accounting in this state or using practice privileges in this state.

(l) Failing to maintain a good moral character as provided in s. 473.308 while applying for licensure, or while licensed in this state or using practice privileges pursuant to s. 473.3141.

(m) Failing to provide any written disclosure to a client or the public which is required by this chapter or rule of the board.

(n) Having the same or equivalent practice privileges of a Florida certified public accountant or firm revoked, suspended, or otherwise acted against by the licensing authority of another state, territory, or country as a result of activity in that jurisdiction which would have subjected the Florida certified public accountant or firm to discipline in this state.

(2) The board shall specify, by rule, what acts or omissions constitute a violation of subsection (1).

(3) When the board finds any certified public accountant or firm guilty of any of the grounds set forth in subsection (1), it may enter an order imposing one or more of the following penalties:


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(a) Denial of an application for licensure.

(b) Revocation or suspension of the certified public accountant or firm’s license or practice privileges in this state.

(c) Imposition of an administrative fine not to exceed $5,000 for each count or separate offense.

(d) Issuance of a reprimand.

(e) Placement of the certified public accountant on probation for a period of time and subject to such conditions as the board may specify, including requiring the certified public accountant to attend continuing education courses or to work under the supervision of another licensee.

(f) Restriction of the authorized scope of practice by the certified public accountant.

(4) The department shall reissue the license of a disciplined licensee upon certification by the board that the disciplined licensee has complied with all of the terms and conditions set forth in the final order.

History. — ss. 21, 25, ch. 79-202; ss. 2, 3, ch. 81-318; ss. 8, 10, 11, ch. 85-9; s. 25, ch. 91-137; s. 4, ch. 91-429; s. 224, ch. 94-119; s. 4, ch. 94-151; s. 5, ch. 95-140; s. 3, ch. 96-261; s. 4, ch. 97-35; s. 117, ch. 98-166; s. 3, ch. 2000-154; s. 178, ch. 2000-160; s. 3, ch. 2008-81; s. 22, ch. 2009-54; s. 55, ch. 2009-195; s. 46, ch. 2010-106.

Appendix III. AICPA Glossary

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Appendix III. AICPA Glossary Last updated on 3/20/15. (Cross-reference: Florida Glossary of Terminology.) Pursuant to its authority under the bylaws (paragraph .01 [3.6.2.2] of BL section 360, Committees [AICPA, Professional Standards]) to interpret the code, the Professional Ethics Executive Committee has issued the following definitions of terms appearing in the code.

.01 Acceptable level. In connection with independence, an acceptable level is a level at which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member’s independence is not impaired. When used in connection with any rule but the “Independence Rule” [1.200.001] an acceptable level is a level at which a reasonable and informed third party who is aware of the relevant information would be expected to conclude that a member’s compliance with the rules is not compromised. [Prior reference: ET section 100-1 and new content]

Effective Date

When this definition is used in connection with any rule but the “Independence Rule” [1.200.001] it is effective December 15, 2014.

.02 Affiliate. The following entities are affiliates of a financial statement attest client:

a. An entity (for example, subsidiary, partnership, or limited liability company [LLC]) that a financial statement attest client can control.

b. An entity in which a financial statement attest client or an entity controlled by the financial statement attest client has a direct financial interest that gives the financial statement attest client significant influence over such entity and that is material to the financial statement attest client.

c. An entity (for example, parent, partnership, or LLC) that controls a financial statement attest client when the financial statement attest client is material to such entity.

d. An entity with a direct financial interest in the financial statement attest client when that entity has significant influence over the financial statement attest client, and the interest in the financial statement attest client is material to such entity.

e. A sister entity of a financial statement attest client if the financial statement attest client and sister entity are each material to the entity that controls both.

f. A trustee that is deemed to control a trust financial statement attest client that is not an investment company.

g. The sponsor of a single employer employee benefit plan financial statement attest client.

h. Any union or participating employer that has significant influence over a multiple or

i. An employee benefit plan sponsored by either a financial statement attest client or an entity controlled by the financial statement attest client. A financial statement attest client that sponsors an employee benefit plan includes, but is not limited to, a union whose members participate in the plan and participating employers of a multiple or multiemployer plan.

j. An investment adviser, a general partner, or a trustee of an investment company financial statement attest client (fund) if the fund is material to the investment adviser, general partner, or trustee that is deemed to have either control or significant influence over the fund. When considering materiality, members should consider investments in, and fees received from, the fund.

[Prior reference: paragraph .20 of ET section 101]


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.03 Attest client. A client that engages a member to perform an attest engagement or with respect to which a member performs an attest engagement. [No prior reference: new content]

Effective Date

This definition is effective December 15, 2014.

.04 Attest engagement. An engagement that requires independence, as set forth in the AICPA Statements on Auditing Standards (SASs), Statements on Standards for Accounting and Review Services (SSARSs), and Statements on Standards for Attestation Engagements (SSAEs). [Prior reference: paragraph .01 of ET section 92]

.05 Attest engagement team. Those individuals participating in the attest engagement, including those who perform concurring and engagement quality reviews. The attest engagement team includes all employees and contractors retained by the firm who participate in the attest engagement, regardless of their functional classification (for example, audit, tax, or management consulting services). The attest engagement team excludes specialists, as discussed in AU-C section 620, Using the Work of an Auditor’s Specialist (AICPA, Professional Standards), and individuals who perform only routine clerical functions, such as word processing and photocopying. [Prior reference: paragraph .02 of ET section 92]

.06 Beneficially owned. Describes a financial interest of which an individual or entity is not the record owner but has a right to some or all of the underlying benefits of ownership. These benefits include the authority to direct the voting or disposition of the interest or to receive the economic benefits of the ownership of the interest. [Prior reference: paragraph .17 of ET section 101]

.07 Client. Any person or entity, other than the member’s employer, that engages a member or member’s firm to perform professional services and, if different, the person or entity with respect to which professional services are performed. For purposes of this definition, the term employer does not include the following:

a. Person or entity engaged in public practice.

b. Federal, state, and local government or component unit thereof, provided that the member performing professional services with respect to the entity is

i. directly elected by voters of the government or component unit thereof with respect to which professional services are performed;

ii. an individual who is (1) appointed by a legislative body and (2) subject to removal by a legislative body; or

iii. appointed by someone other than the legislative body, so long as the appointment is confirmed by the legislative body and removal is subject to oversight or approval by the legislative body.


.08 Close relative. A parent, sibling, or nondependent child. [Prior reference: paragraph .04 of ET section 92]

.09 Confidential client information. Any information obtained from the client that is not available to the public. Information that is available to the public includes, but is not limited to, information

a. in a book, periodical, newspaper, or similar publication;

b. in a client document that has been released by the client to the public or that has

c. on publicly accessible websites, databases, online discussion forums, or other electronic media by which members of the public can access the information;

d. released or disclosed by the client or other third parties in media interviews, speeches, testimony in a public forum, presentations made at seminars or trade association meetings, panel discussions, earnings press release calls, investor calls, analyst sessions, investor conference presentations, or a similar public forum;


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e. maintained by, or filed with, regulatory or governmental bodies that is available to the public; or

f. obtained from other public sources.

Unless the particular client information is available to the public, such information should be considered confidential client information. Members are advised that federal, state, or local statutes, rules, or regulations concerning confidentiality of client information may be more restrictive than the requirements in the code. [Prior reference: paragraph .05 of ET section 92]

.10 Control (s) (led). As used in FASB Accounting Standards Codification (ASC) 810, Consolidation. When used in the “Client Affiliates” interpretation [1.224.010] of the “Independence Rule” [1.200.001], control depends upon the entity in question. For example, when used for not-for-profit entities, control is as used in FASB ASC 958-805-20; for commercial entities, control is as used in FASB ASC 810. [Prior reference: numerous ET sections; also see “Breakdown of the Term Control in the Code” at AICPA.org www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/ breakdown-of-the-term-control.pdf]

.11 Council. The AICPA Council. [Prior reference: paragraph .06 of ET section 92]

.12 Covered member. All of the following:

a. an individual on the attest engagement team.

b. an individual in a position to influence the attest engagement.

c. a partner, partner equivalent, or manager who provides more than 10 hours of nonattest services to the attest client within any fiscal year. Designation as covered member ends on the later of (i) the date that the firm signs the report on the financial statements for the fiscal year during which those services were provided or (ii) the date he or she no longer expects to provide 10 or more hours of nonattest services to the attest client on a recurring basis.

d. a partner or partner equivalent in the office in which the lead attest engagement partner or partner equivalent primarily practices in connection with the attest engagement.

e. the firm, including the firm’s employee benefit plans.

f. an entity whose operating, financial, or accounting policies can be controlled by any of the individuals or entities described in items a–e or two or more such individuals or entities if they act together. [Prior reference: paragraph .07 of ET section 92]

Effective Date

The addition of partner equivalents to this definition is effective for engagements covering periods beginning on or after December 15, 2014.

.13 Direct financial interest. A financial interest that is

a. owned directly by an individual or entity, including those managed on a discretionary basis by others.

b. under the control of an individual or entity, including those managed on a discretionary basis by others.

c. beneficially owned through an investment vehicle, estate, trust, or other intermediary when the beneficiary

i. controls the intermediary or

ii. has the authority to supervise or participate in the intermediary’s investment decisions.

When used in this definition, the term control includes situations in which the covered member has the ability to exercise such control, either individually or acting together with his or her firm

http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/breakdown-of-the-term-control.pdf

http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/DownloadableDocuments/breakdown-of-the-term-control.pdf


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or other partners or professional employees of his or her firm. [Prior reference: paragraph .17 of ET section 101]

.14 Employing organization. Any entity that employs the member or engages the member on a contractual or volunteer basis in an executive, a staff, a governance, an advisory, or an administrative capacity to provide professional services. [No prior reference: new content]

Effective Date

This definition is effective December 15, 2014.

.15 Financial interest. An ownership interest in an equity or a debt security issued by an entity, including rights and obligations to acquire such an interest and derivatives directly related to such interest. [Prior reference: paragraph .17 of ET section 101]

.16 Financial statement attest client. An entity whose financial statements are audited, reviewed, or compiled when the member’s compilation report does not disclose a lack of independence. This term is used in the “Client Affiliates” interpretation [1.224.010] of the “Independence Rule” [1.200.001] and in the definition of an affiliate [0.400.02]. [Prior reference: paragraph .20 of ET section 101]

.17 Financial statements. A presentation of financial data, including accompanying disclosures, if any, intended to communicate an entity’s economic resources or obligations, or both, at a point in time or the changes therein for a period of time, in accordance with the applicable financial reporting framework. Incidental financial data to support recommendations to a client or in (a) documents for which the reporting is governed by SSAEs and (b) tax returns and supporting schedules do not, for this purpose, constitute financial statements. The statement, affidavit, or signature of preparers required on tax returns neither constitutes an opinion on financial statements nor requires a disclaimer of such opinion. [Prior reference: paragraph .10 of ET section 92]

.18 Firm. A form of organization permitted by law or regulation whose characteristics conform to resolutions of the Council and that is engaged in public practice. A firm includes the individual partners thereof, except for purposes of applying the “Independence Rule” [1.200.001] and related interpretations. For purposes of applying the “Independence Rule,” a firm includes a network firm when the engagement is either a financial statement audit or review engagement and the audit or review report is not restricted, as set forth in the AICPA SASs and SSARSs (AICPA, Professional Standards). [Prior reference: paragraph .11 of ET section 92]

.19 Immediate family. A spouse, spousal equivalent, or dependent (regardless of whether the dependent is related). [Prior reference: paragraph .13 of ET section 92]

.20 Impair(ed)(ing). In connection with independence, to effectively extinguish independence. When a member’s independence is impaired, the member is not independent. [Prior reference: paragraph .09 of ET section 100-1]

.21 Independence. Consists of two elements, defined as follows:

a. Independence of mind is the state of mind that permits a member to perform an attest service without being affected by influences that compromise professional judgment, thereby allowing an individual to act with integrity and exercise objectivity and professional skepticism.

b. Independence in appearance is the avoidance of circumstances that would cause a reasonable and informed third party who has knowledge of all relevant information, including the safeguards applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or member of the attest engagement team is compromised.

This definition should not be interpreted as an absolute. For example, the phrase “without being affected by influences that compromise professional judgment” is not intended to convey that the member must be free of any and all influences that might compromise objective judgment. Instead, the member should determine whether such influences, if present, create a threat that


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is not at an acceptable level that a member would not act with integrity and exercise objectivity and professional skepticism in the conduct of a particular engagement or would be perceived as not being able to do so by a reasonable and informed third party with knowledge of all relevant information. [Prior reference: paragraphs .06–.08 of ET section 100-1]

.22 Indirect financial interest. A financial interest beneficially owned through an investment vehicle, an estate, a trust, or another intermediary when the beneficiary neither controls the intermediary nor has the authority to supervise or participate in the intermediary’s investment decisions. When used in this definition, control includes situations in which the covered member has the ability to exercise such control, either individually or acting together with his or her firm or other partners or professional employees of his or her firm. [Prior reference: paragraph .17 of ET section 101]

.23 Individual in a position to influence the attest engagement.

One who

a. evaluates the performance or recommends the compensation of the attest engagement partner;

b. directly supervises or manages the attest engagement partner , including all successively senior levels above that individual through the firm’s chief executive;

c. consults with the attest engagement team regarding technical or industry-related issues specific to the attest engagement; or

d. participates in or oversees, at all successively senior levels, quality control activities, including internal monitoring, with respect to the specific attest engagement.


.24 Institute. The AICPA. [Prior reference: paragraph .15 of ET section 92]

.25 Interpretation. Pronouncements issued by the division of professional ethics to provide guidelines concerning the scope and application of the rules of conduct. [Prior reference: paragraph .16 of ET section 92]

.26 Joint closely held investment. An investment in an entity or a property by the member and client (or the client’s officers or directors or any owner who has the ability to exercise significant influence over the client) that enables them to control the entity or property. [Prior reference: paragraph .17 of ET section 92]

.27 Key position. A position in which an individual has

a. primary responsibility for significant accounting functions that support material components of the financial statements;

b. primary responsibility for the preparation of the financial statements; or

c. the ability to exercise influence over the contents of the financial statements, including when the individual is a member of the board of directors or similar governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position.

For purposes of attest engagements not involving a client’s financial statements, a key position is one in which an individual is primarily responsible for, or able to influence, the subject matter of the attest engagement, as previously described. [Prior reference: paragraph .18 of ET section 92]

.28 Lending institution. An entity that, as part of its normal business operations, makes loans. This definition is not meant to include an organization that might schedule payment for services for a client over a period of time. Examples of such entities are banks, credit unions, certain retailers, and insurance and finance companies. For example, for automobile leases addressed by the “Loans and Leases With Lending Institutions” interpretation [1.260.020] of the


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“Independence Rule” [1.200.001], an entity is considered a lending institution if it leases automobiles as part of its normal business operations. [Prior reference: paragraph .09 of ET section 92]

Effective Date

This revised definition is effective December 15, 2014.

.29 Loan. A contractual obligation to pay or right to receive money on demand or on a fixed or determinable date and includes a stated or implied rate of return to the lender. For purposes of this definition, loans include, among other things, a guarantee of a loan, a letter of credit, a line of credit, or a loan commitment. However, for purposes of this definition, a loan would not include debt securities (which are considered a financial interest) or lease arrangements. [Prior reference: paragraph .19 of ET section 92]

Effective Date

This revised definition is effective December 15, 2014.

.30 Manager. A professional employee of the firm who has continuing responsibility for the planning and supervision of engagements for specified clients. [Prior reference: paragraph .20 of ET section 92]

.31 Member. A member, associate member, affiliate member, or international associate of the AICPA. When the term member is used in part 1 of the code, it means a member in public practice; when used in part 2 of the code, it means a member in business; and when used in part 3 of the code, it means all other members. [Prior reference: paragraph .21 of ET section 92]

.32 Member(s) in business. A member who is employed or engaged on a contractual or volunteer basis in a(n) executive, staff, governance, advisory, or administrative capacity in such areas as industry, the public sector, education, the not-for-profit sector, and regulatory or professional bodies. This does not include a member engaged in public practice. [Prior reference: paragraph .22 of ET section 92]

.33 Network. For purposes of the “Network and Network Firms” interpretation [1.220.010] of the “Independence Rule” [1.200.001], a network is an association of entities that includes one or more firms that (A) cooperate for the purpose of enhancing the firms’ capabilities to provide professional services and (B) share one or more of the following characteristics:

a. The use of a common brand name, including common initials, as part of the firm name

b. Common control among the firms through ownership, management, or other means

c. Profits or costs, excluding costs of operating the association; costs of developing audit methodologies, manuals, and training courses; and other costs that are immaterial to the firm

d. A common business strategy that involves ongoing collaboration amongst the firms whereby the firms are responsible for implementing the association’s strategy and are held accountable for performance pursuant to that strategy

e. A significant part of professional resources

f. Common quality control policies and procedures that firms are required to implement and that are monitored by the association

A network may comprise a subset of entities within an association only if that subset of entities cooperates and shares one or more of the characteristics set forth in the preceding list. [Prior reference: paragraph .23 of ET section 92]

.34 Network firm. A firm or other entity that belongs to a network. This includes any entity (including another firm) that the network firm, by itself or through one or more of its owners, controls, is controlled by, or is under common control with. [Prior reference: paragraph .24 of ET section 92]


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.35 Normal lending procedures, terms, and requirements. In connection with a covered member’s loan from a lending institution, lending procedures, terms, and requirements that are reasonably comparable with those relating to loans of a similar character committed to other borrowers during the period in which the loan to the covered member is committed. Accordingly, in making such comparison and evaluating whether a loan was made under normal lending procedures, terms, and requirements, the covered member should consider all the circumstances under which the loan was granted, including the following:

a. The amount of the loan in relation to the value of the collateral pledged as security and the credit standing of the covered member

b. Repayment terms

c. Interest rate, including points

d. Closing costs

e. General availability of such loans to the public

Related prohibitions that may be more restrictive are prescribed by certain state and federal agencies having regulatory authority over such lending institutions. Broker-dealers, for example, are subject to regulation by the SEC. [Prior reference: paragraph .25 of ET section 92]

.36 Office. A reasonably distinct subgroup within a firm, whether constituted by formal organization or informal practice, in which personnel who make up the subgroup generally serve the same group of clients or work on the same categories of matters. Substance should govern the office classification. For example, the expected regular personnel interactions and assigned reporting channels of an individual may well be more important than an individual’s physical location. [Prior reference: paragraph .26 of ET section 92]

.37 Partner. A proprietor, a shareholder, an equity or a nonequity partner, or any individual who assumes the risks and benefits of firm ownership or is otherwise held out by the firm to be the equivalent of any of the aforementioned. [Prior reference: paragraph .27 of ET section 92]

.38 Partner equivalent. A professional employee who is not a partner of the firm but who either

a. has the ultimate responsibility for the conduct of an attest engagement, including the authority to sign or affix the firm’s name to an attest report or issue, or authorize others to issue, an attest report on behalf of the firm without partner approval; or

b. has the authority to bind the firm to conduct an attest engagement without partner approval. For example, the professional employee has the authority to sign or affix the firm’s name to an attest engagement letter or contract to conduct an attest engagement without partner approval.

Firms may use different titles to refer to professional employees with this authority, although a title is not determinative of a partner equivalent. For purposes of this definition, partner approval does not include any partner approvals that are part of the firm’s normal approval and quality control review procedures applicable to a partner.

This definition is solely for the purpose of applying the “Independence Rule” [1.200.001] and its interpretations and should not be used or relied upon in any other context, including the determination of whether the partner equivalent is an owner of the firm. [Prior reference: paragraph .28 of ET section 92.]

Effective Date

This definition is effective for engagements covering periods beginning on or after December 15, 2014.

.39 Period of the professional engagement. The period begins when a member either signs an initial engagement letter or other agreement to perform attest services or begins to perform an attest engagement for a client, whichever is earlier. The period lasts for the entire duration


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of the professional relationship, which could cover many periods, and ends with the formal or informal notification, either by the member or client, of the termination of the professional relationship or by the issuance of a report, whichever is later. Accordingly, the period does not end with the issuance of a report and recommence with the beginning of the following year’s attest engagement. [Prior reference: paragraph .29 of ET section 92]

.40 Professional services. Include all services requiring accountancy or related skills that are performed by a member for a client, an employer, or on a volunteer basis. These services include, but are not limited to accounting, audit and other attest services, tax, bookkeeping, management consulting, financial management, corporate governance, personal financial planning, business valuation, litigation support, educational, and those services for which standards are promulgated by bodies designated by Council. [Prior reference: paragraph .31 of ET section 92]

.41 Public interest entities. All of the following:

a. All listed entities, including entities that are outside the United States whose shares, stock, or debt are quoted or listed on a recognized stock exchange or marketed under the regulations of a recognized stock exchange or other equivalent body.

b. Any entity for which an audit is required by regulation or legislation to be conducted in compliance with the same independence requirements that apply to an audit of listed entities (for example, requirements of the SEC, the PCAOB, or other similar regulators or standard setters).

Members may wish to consider whether additional entities should also be treated as public interest entities because they have a large number and wide range of stakeholders. Factors to be considered may include

• the nature of the business, such as the holding of assets in a fiduciary capacity for a large number of stakeholders;

• size; and

• number of employees.

Members should refer to the independence regulations of applicable authoritative regulatory bodies when a member performs attest services and is required to be independent of the client under such regulations. [Prior reference: paragraph .20 of ET section 100-1]

.42 Public practice. Consists of the performance of professional services for a client by a member or member’s firm. [Prior reference: paragraph .30 of ET section 92]

.43 Safeguards. Actions or other measures that may eliminate a threat or reduce a threat to an acceptable level. [Prior reference: paragraph .20 of ET section 100-1]

.44 Share-based compensation arrangements. As defined in the FASB ASC glossary under the term share- based payment arrangements. [Prior reference: paragraph .02 ET section 101]

.45 Significant influence. As defined in FASB ASC 323-10-15. [Prior reference: paragraph .32 of ET section 92]

.46 Source documents. The documents upon which evidence of an accounting transaction are initially recorded. Source documents are often followed by the creation of many additional records and reports that do not, however, qualify as initial recordings. Examples of source documents are purchase orders, payroll time cards, and customer orders. [Prior reference: footnote 17 in paragraph .05 of ET section 101]

.47 Third-party service provider. All of the following:

a. An entity that the member does not control, individually or collectively with his or her firm or with members of his or her firm.

b. An individual not employed by the member who assists the member in providing professional services to clients (for example, bookkeeping, tax return preparation,


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consulting, or attest services, including related clerical and data entry functions). [Prior reference: paragraphs .224–.225 of ET section 191, .023–.024 of ET section 291, and .001–.002 of ET section 391]

.48 Those charged with governance. The person(s) or organization(s) (for example, a corporate trustee) with responsibility for overseeing the strategic direction of the entity and the obligations related to the accountability of the entity. This includes overseeing the financial reporting process. Those charged with governance may include management personnel (for example, executive members of a governance board or an owner-manager).

When an interpretation requires communicating with those charged with governance, the member should determine the appropriate person(s) within the entity's governance structure with whom to communicate, based on the nature and importance of the particular circumstances and matter to be communicated. If the member communicates with a subgroup of those charged with governance (for example, an audit committee or an individual), the member should determine whether communication with all of those charged with governance is also necessary, so that they are adequately informed. [Prior reference: paragraph .33 of ET section 92]

Effective Date

This definition is effective April 30, 2014.

.49 Threat(s). In connection with independence, threats are relationships or circumstances that could impair independence. In connection with any rule but the “Independence Rule” [1.200.001], threats are relationships or circumstances that could compromise a member’s compliance with the rules. [Prior reference: paragraph .10 of ET section 100-1]

Effective Date

When this definition is used in connection with any rule but the “Independence Rule” it is effective December 15, 2014.

Appendix IV. Answers and Explanations to Review Questions

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Section I. Current Ethical Issues in the Accounting Profession 1. How is being ethical different from acting ethically?

C. Correct. (Being ethical requires moral character and ethical principles.) In order to be ethical, a person needs moral character and ethical principles, which serve as a guide in how to live life. Ethical situations that arise often require more than the mere obeying of laws or rules; ethical reasoning and judgment may be needed to distinguish between right and wrong, based on one’s moral character and ethical principles.

A. Incorrect. (Being ethical is how we act when we are being observed.) How we act when we are being observed by others is more likely to be an example of acting ethically, not being ethical, because a truly ethical person is concerned more about the difference between right and wrong as he or she sees it than how it might be defined by others.

B. Incorrect. (Being ethical is being driven by what others may think.) What is important in terms of being an ethical person is to make ethical judgments that are true to one’s moral character and ethical principles, not in reaction to what others may think.

D. Incorrect. (Being ethical means relying on rules and laws.) Although an ethical person will rely on rules and laws to make ethical decisions, sometimes the answer to an ethical dilemma isn’t addressed by rules or laws and the individual is left to make an ethical decision that is guided by his or her own moral character and ethical principles.

2. An accountant would generally be deemed to be a fiduciary to his or her client if which of the following elements are present in the client relationship in which the accountant is providing professional services?

I. The accountant holds himself or herself out as an expert in an aspect of business.

II The client places a high degree of trust and confidence in the accountant.

III The client is heavily dependent upon the accountant’s advice.

IV The accountant provides investment advisory services as a registered investment adviser to his or her advisory clients.

D. Correct. I, II, III, and IV are all correct. While an accountant normally is not considered to be a fiduciary to his or her clients, the AICPA Professional Code of Conduct embodies standards of conduct which are closely analogous to a fiduciary relationship—objectivity, integrity, free of conflicts of interest, and truthfulness. The elements listed in the question all represent circumstances where the accountant has a fiduciary relationship with the client. However, accountants who provide audit services cannot be held to a fiduciary standard given their duty to the public.

A. Incorrect. I, II, and III are correct, but IV is also correct. An accountant who provides investment advisory services as a registered investment adviser is a fiduciary to his or her advisory clients. He or she is also holding himself or herself out as an expert in that aspect (investment advisory) of the business and thus, must act as a fiduciary per the AICPA Code.


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B. Incorrect. II and III are correct, but I and IV are also correct. The accountant must act as fiduciary when he or she holds himself or herself out as an expert in that aspect of the business in which he or she is providing services for a client. The fiduciary requirement also holds true for a registered investment adviser, per A, above.

C. Incorrect. I, III, and IV are correct, but II is also correct. If the client places a high degree of trust and confidence in the accountant, then the AICPA Code requires that the accountant honor that trust and confidence by acting in the best interest of the client as a fiduciary.

3. An accountant fulfilling a request to verify a client’s financial information for a third party

D. is correct (Is not addressed by either the SSTS or Circular 230). The use of third party certifications (“comfort letters”) is not addressed specifically by the SSTS or Circular 230. Although the AICPA generally discourages the practice, industry experts have recommended that CPAs, when receiving a third party’s request to certify a client’s financial data, first advise the client and third party to seek alternative ways to validate the information. In the event the CPA decides to provide the certification of the information he or she should consider potential liability risks and take certain precautions such as using engagement letters and disclosure consents.

A. is incorrect (is prohibited by the AICPA Statement on Standards for Tax Services.). The AICPA Statement on Standards for Tax Services does not address the issue of providing such certifications. However, AICPA spokespeople have gone on record against the practice.

B. in incorrect (is prohibited by the IRS under Circular 230.). The IRS Circular 230 does not address the issue of providing such certifications.

C. is incorrect (is addressed by the AICPA (Statement on Standards for Tax Services) and the (IRS Circular 230), with specific rules to adhere to.). Neither the AICPA nor the IRS specifically address the issue of providing certifications of client information for third parties in their respective regulations.

4. Benefits of an objectives-oriented accounting system include all of the following except

B. Correct (Transition to the system would be relatively less expensive as would the cost of accounting services overall.).There are actually arguments that these costs would be higher, given the extent of rules-based systems currently in existence. However, the SEC study asserted that there would be reduced costs to investors and analysts in understanding the objectives-oriented standards, given their more simplified nature. . .

A. Incorrect (Users and regulators would receive more detailed information and thus clearer results on management and attest reports.). This is a benefit of objectives-oriented system and therefore an incorrect answer to this question. Because objectives can be more easily defined and classified, the resulting detailed framework for management and auditors will afford clearer results.

C. Incorrect (The system enables greater accountability from management and auditors with respect to reporting the substance of transactions within the financial statements.). This is a benefit of objectives-oriented system and therefore an incorrect answer to this question. An objectives-oriented system with well-defined objectives would provide management and


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auditors with a more detailed framework within which to work and, therefore, it would be easier to determine if responsibilities are met.

D. Incorrect (The system would aid convergence between U.S. GAAP and international standards). This is a benefit of an objectives-oriented system and therefore an incorrect answer to this question. Convergence would be aided as the more the system is objectives or principles-based, the more quickly standards can be agreed upon versus with rules-based standards.

5. Which of the following is correct with respect to the fees an accountant may charge and its impact on the accountant’s independence?

A. Correct (Providing services at no fee does not impair independence).Ethics rules state that services rendered at no fee do not impair independence by themselves, making the answer correct. Accountants must comply with all relevant standards that are applicable to the services performed, however.

B. Incorrect (Providing services at below cost impairs independence). An accountant is permitted to provide services at no fee or for a fee that is below cost without impairing independence as long as other independence rules are not violated. Thus, the statement is incorrect.

C. Incorrect (Providing services at cost impairs independence). Ethics rules do not state that providing services at cost impairs independence, making the answer incorrect.

D. Incorrect (There are no rules addressing fees with respect to independence). There are ethics rules to address situations in which an accountant provides services at no fee or fees that are below cost, making the answer incorrect.

Section II. AICPA Code of Professional Conduct 6. Which of the following statements best explains the importance that the accounting profession

places on ethical standards and the need to establish the means for ensuring their observance?

A. Correct. (A distinguishing mark of a profession is its acceptance of responsibility to the public.) By accepting its responsibility to the public and adhering to a professional code of conduct, the accounting profession can build and maintain public confidence in the profession based on a foundation of trust. To ensure observance of this responsibility, the AICPA Principle of Public Interest states that: "CPAs should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism."

B. Incorrect. (A requirement for a profession is to establish ethical standards that primarily stress a responsibility to clients and colleagues.) The responsibility of the accounting profession is to a public that represents more than just clients and colleagues. The “public” consists of all those who rely on the profession and its integrity and objectivity, including governments, employers, and the business and financial community.

C. Incorrect. (Ethical standards that emphasize excellence in performance over material rewards serve to establish a reputation for competence and character.) Excellence in performance is a professional responsibility of the accounting profession under the Principle of Due Care. It is just one of the standards that demonstrate the profession’s acceptance of its responsibility to the public. It does not, however, best explain the importance that the accounting profession places on ethical standards and the need to establish the means of ensuring their observance. Performing professional services to the best of one’s ability is


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one of the ways in which the profession accomplishes its goal of being responsible to the public.

D. Incorrect. (Vigorous enforcement of an ethical code of ethics is the best way to prevent unscrupulous acts.) Merely enforcing an established code of ethics does not explain the importance of having ethical standards, nor does it explain what the goals of those standards are. It does, however, relate to how the profession establishes an environment that fosters voluntary adherence to ethical principles. The question is asking about the goal of the standards, not about the process for enforcing adherence to them.

7. In the AICPA Code of Professional Conduct, observing both the form and the spirit of technical and ethical standards relates to the principle of

B. Correct. (Integrity) Integrity is an element of character. It entails honesty and refraining from the subordination of the public trust to personal gain. 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 CPA must ultimately test all decisions. And thus, it is through integrity that members of the profession observe the form and spirit of technical standards.

A. Incorrect. (Objectivity) Objectivity involves impartiality and being free of conflicts of interest. Objectivity is a state of mind, a quality that lends value to a CPA’s services. Integrity, on the other hand, entails honesty and refraining from the subordination of the public trust to personal gain. It is through this element of character that CPAs are able to observe the form and spirit of technical standards that is fundamental to building and sustaining the public’s trust in the profession.

C. Incorrect. (Independence) Independence involves the precluding of relationships that may appear to impair a CPA’s objectivity. CPAs of the accounting profession protect the integrity of their work, maintain objectivity, and, through independence, avoid any subordination of their judgment. However, it is through integrity, which entails honesty and refraining from the subordination of the public trust to personal gain, that members of the profession observe the form and spirit of technical standards.

D. Incorrect. (Wisdom) Wisdom has to do with the understanding of what is true, right, and lasting. Wisdom entails having reasoning ability and knowledge of how the world works. It involves emotional intelligence and a reflective understanding of one’s experience. Integrity is enabled, in part, by one’s wisdom, but integrity entails the additional step of “staying the course” with what one knows to be the right course of action. It is integrity that enables members of the profession to observe the form and spirit of technical standards.

8. The AICPA Code of Professional Conduct states that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA's ability

A. Correct. (To maintain impartiality on all matters that come under the CPA’s review) According to the AICPA Principles, "Objectivity is a state of mind, a quality that lends itself to a member's services. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest."64 Recall the example used in the text where a CPA borrows a significant amount of money from a friend who happens to be the CEO of a client entity under audit. This CPA lacks objectivity because of the possible influence of that relationship over the CPA’s ability to be independent (maintain impartiality) in decision making.


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B. Incorrect. (To independently distinguish between those accounting practices that are acceptable and those that are not) The CPA uses good judgment and adherence to generally accepted accounting principles to evaluate whether a client's accounting practices are acceptable. A CPA’s ability to be objective relates more to the CPA’s impartiality than to his or her technical ability to properly evaluate accounting practices. A CPA can be objective while at the same time deficient in his or her ability to understand which accounting practices are acceptable, and which are not.

C. Incorrect. (To be unyielding in all matters dealing with auditing procedures) The CPA is expected to use professional judgment, which may include flexibility, in adhering to accounting principles. For example, in unusual circumstances, a CPA might need to take a position regarding a financial statement that is not entirely consistent with generally accepted accounting principles because of the possibility that the accounting treatment in question will lead to a misrepresentation of the financial statements (see interpretation of the Accounting Principles Rule).This illustrates the use of professional judgment, not objectivity.

D. Incorrect. (To effectively adhere to different rules and standards, depending on the services provided.) Knowing which standards or principles are applicable to a given task is a function of due care, which requires one to observe and adhere to the profession’s technical and ethical standards and to maintain competence with respect to offering services. A CPA can be objective while at the same time deficient in his or her ability to understand which accounting practices are appropriate for a given task, and which are not.

Section III. Florida State Board of Accountancy Rules 9. (Section 61H1-21) A licensee lacks independence if, during the period of a professional engagement,

D. Correct. (The licensee owns 12% of a client’s outstanding equity securities) A licensee may not have or have committed to acquire any direct or material indirect financial interest in the client. as stated in Section 101-1 (1)(a), of the Standards for Determining Independence. There are several qualifiers to this rule: · A licensee who was a trustee of a trust or executor or administrator of an estate that

had (or was committed to acquire) any direct or material indirect financial interest in the client under any of the following circumstances:

o If the licensee had authority to make investment decisions for the trust or estate;

o If the trust or estate owned or was committed to acquire more that 10% of the client’s outstanding equity securities;

o If the value of the trust’s or estate’s holdings in the client exceeded 10% of the total assets of the trust or estate.

· The rule also prohibits a joint closely held investment in the client or with the client that was material to the licensee.

· A loan to or from the client, any officer or director of the client, or any individual owning ten or more percent of the client’s outstanding equity securities is also prohibited under this rule.

A. Incorrect. (The licensee was a trustee of a trust that had a 5% ownership interest in the client.) The trust of which a licensee is trustee may own up to 10% interest in the client. Since the trust in this case owns only 5%, independence is not impaired and therefore this is not the correct answer. The licensee cannot, however, have authority to make investment decisions for the trust or estate, and the value of the trust’s or estate’s holdings


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in the client cannot exceed 10% of the total assets of the trust or estate. (61H1-101-1 (1)(b),

B. Incorrect. (The licensee had a collateralized loan from the client.) In this case, independence is not impaired (and therefore this is not the correct answer) because the loan is collateralized (61H1-21-1-105). As a result, the independence of the licensee would not be impaired as his or her potential exposure if the loan is not repaid is limited due to the existence of collateral. However, the loan must be subject to the (client) lending institution’s normal lending procedures, terms and requirements, and the loan must be kept current.

C. Incorrect. (The licensee has a credit card account with a client that has an outstanding balance of $9,000.) Independence is not impaired (and therefore this is not the correct answer) for a licensee’s credit cards or cash advances where the aggregate outstanding balance on the current statement is reduced to $10,000 or less by the payment due date.(61H6-21-1-105)

10. (61H-21.002) A certified public accountant who has knowingly misrepresented facts when engaged in the practice of public accounting is in violation of which Florida Rule? D. Correct. (Integrity and objectivity) Rule 61H1-21.002, Integrity and objectivity prohibits a

CPA from knowingly misrepresenting facts and, when engaged in the practice of public accounting, from subordinating his or her judgment to others including (but not limited to) clients, employers or other third parties. An example of a violation of this rule is when a CPA knowingly includes false information on a client’s tax return, which is singed by the CPA. However, if the accuracy of the tax information meerly in doubt and the CPA has reasonable support for the position, there is no violation of this rule.

A. Incorrect. (Confidential client information) Confidential client information falls under Rule 61H1-23.001. This rule prohibits the disclosure of any confidential information obtained in the course of a professional engagement without the consent of the client. However, this is not a correct answer to this question because the wrongfull disclosure of confidential client information is not a misreprentation of facts, it is a wrongful disclosure of facts.

B. Incorrect. (Independence) A licensee can knowingly misrepresent facts when engaged in the practice of public accounting without his or her Independence necessarily being impaired. Therefore, this is not a correct answer to the question. Independence has to do with conflict of interest, not the misrepresentation of facts or subordination of judgment, which are related to integrity and objectivity.

C. Incorrect. (Conflict of Interest) Conflict of interest is more closely associated with a lack of judgment, such as allowing independence to be impaired, than to the committing of an act that involves outright dishonesty.

11. (61H1-21.003) A licensee may receive a commission or referral fee D. Correct. (for a consulting service that is delineated in an engagement letter.) In order for

the receiving of a commission or referral fee to be allowed under the rules, a licensee must include a disclosure in an engagement letter signed by the client prior to beginning any engagement for which the licensee will receive a commission. The letter must include details of the financial arrangement and delineate the services to be rendered. It also must disclose any lack of independence that exists for any reason other than because of the commission or contingent fee arrangement.


133

A. Incorrect. (for compilation services.) A licensee may not pay or accept a commission or referral fee for services such as an audit, review, or compilation (even if disclosed in an engagement letter). Exceptions to this rule include:

(1) Payments for the purchase of an accounting practice; (2) Retirement payments to individuals formerly engaged in the practice of public

accounting or payments to their heirs or estates; or (3) Payment of fees to a referring certified public accountant or firm for public accounting

services to the successor certified public accountant or firm or the client in connection with an engagement (see Section 47.3205).

B. Incorrect. (for the sale of products to a client without a written disclosure.) This answer is incorrect because a licensee may not pay or accept a commission or referral fee in connection with the sale of a product to a client without first disclosing the arrangement in an engagement letter signed by the client. If the CPA is providing audit services, services for any prospective financial data such as forecasts or projections, or services resulting in the expression of an opinion as described in Section 473.302(7) and 473.322, the receiving of a commission or referral fee for the sale of products to the client is prohibited with or without disclosure.

C. Incorrect. (for providing projections regarding prospective financial data.) A licensee may not pay or accept a commission or referral fee for any prospective financial data including forecasts or projections (even if disclosed in an engagement letter).

12. Objectively evaluating audit evidence for its competency and sufficiency is most closely associated with which of the following general standards for competence?

D. Correct. (Obtain sufficient relevant data) In order to perform services with the necessary competence and in accordance with professional standards, one must apply the knowledge and skill necessary with reasonable care and diligence. The services must be performed with both the technical qualifications of the CPA and the ability to supervise and evaluate the quality of the work performed. To this end, objectively evaluating audit evidence for its competency and sufficiency of evidence is accomplished through the obtaining of sufficient relevant data.

A. Incorrect. (Only undertake services that can be completed with professional competence.) The description provided in the question more accurately applies to the process of obtaining sufficient relevant data, answer D. Undertaking services with professional competence speaks more to the broader requirement of possessing an appropriate level of skill for any given task and exercising it with reasonable care and diligence.

B. Incorrect. (Exercise due professional care.) Due professional care describes the attitude that includes a questioning mind and a critical assessment of the audit evidence, once the relevant data is acquired. The question is addressing the process of gathering the relevant data in the first place, which depends on objectively evaluating audit evidence for its competency and sufficiency.

C. Incorrect. (Use adequate planning and supervision.) Planning and supervision relates to the process of assigning tasks only to those with the appropriate level of knowledge, skill, and ability. The question is referring to the process of gathering and evaluating the evidence for an audit (once the tasks are assigned.) It relates to how the data is gathered and evaluated, not who is assigned to do the evaluation.

Index

134

Indexactuarial services, 34 advertising, 62, 83 AICPA, ii, iv, 16, 17, 18, 20, 21, 22, 23, 56, 62, 63,

65, 67, 129, 134 American Association of Public

Accountants, 16, 17, 18, 20, 21, 62, 63, 65

attest engagement, 23, 26, 27, 28, 29, 39, 40, 73, 74, 75

audit, 17, 18, 19, 20, 22, 28, 31, 34, 35, 36, 38, 39, 42, 46, 47, 48, 52, 53, 65, 68, 73, 74, 81, 87, 105, 109, 110, 129, 130, 132

Boatright, 18, 19 business relationships, 28 Cheffers and Pakaluk, 16, 17, 18 client confidentiality, 46 client records, 20, 53, 87, 88, 89 Code of Professional Conduct, ii, 16, 17, 21, 22, 25,

63, 64, 128, 129, 134 competence, 17, 19, 20, 22, 30, 48, 50, 84, 105,

111, 128 confidentiality, 46, 51, 85, 95, 96 conflict of interest, 17, 18, 19, 20, 45, 46 consulting services, 19, 73 Consulting Services, 72 contingent fee, 47, 48, 84, 113 due care, 18, 19, 50 due professional care, 20, 48 emotional intelligence, 129 Enron, 18, 19 family, 26, 27, 37, 42, 45, 74 financial institution, 32, 37, 38, 58, 74 financial statement, 19, 25, 26, 30, 32, 34, 36, 39,

40, 41, 42, 45, 46, 50, 63, 64, 65, 67, 68, 69, 70, 71, 73, 74, 81, 83, 85, 111, 130

Global Crossing, 18 Governmental Accounting Standards Board, 41

independence, 17, 18, 19, 20, 21, 23, 24, 25, 26, 27, 28, 29, 30, 31, 34, 35, 36, 37, 38, 39, 40, 41, 42, 47, 61, 70, 84, 111, 129, 130

integrity, 17, 18, 20, 22, 23, 29, 46, 128, 129, 131 Integrity, 17, 18, 20, 22, 44, 46, 50, 61, 131 joint closely held investment, 26, 74 key position, 27, 28, 29, 42, 74 letterhead, 36, 57, 68 manager, 27, 62, 73, 74 member, 17, 18, 19, 45, 46, 50, 51, 62, 66 Mintz and Morris, 1, 18 misrepresentation, 45, 46, 83, 98 nonattest services, 30, 31, 36, 73 objectivity, 17, 18, 20, 21, 22, 23, 29, 38, 40, 45, 46,

128, 129, 131 office, 27, 28, 57, 65, 73, 74, 88, 104 ownership interest, 26, 37, 61 partner, 26, 27, 28, 29, 37, 40, 56, 57, 58, 73, 74,

75, 88 partnership, 37, 38, 40, 56, 57, 58, 88, 114 period of the professional engagement, 26, 30, 75 personal financial planning, 45 principles, 1, 15, 16, 17, 18, 19, 20, 21, 41, 46, 50,

68, 69, 73, 74, 81, 126, 129, 130 professional services, 19, 21, 50, 73, 113 public accounting, 44, 47, 48, 56, 57, 58, 61, 68, 72,

73, 76, 82, 85, 105, 107, 108, 109, 110, 111, 113, 114, 115, 131, 132

public interest, 17, 18, 20, 128 rules, 1, 15, 16, 17, 18, 20, 21, 23, 30, 50, 56, 57,

72, 73, 80, 83, 84, 86, 88, 93, 94, 97, 98, 99, 100, 101, 103, 107, 110, 111, 113, 114, 126

significant influence, 27, 28, 40, 41, 74, 75 solicitation, 62, 63 tax preparation, 46, 50, 51 tax return, 32, 47, 48, 51, 52, 68, 74, 81 third-party provider, 51 Tyco, 18 WorldCom, 18

Endnotes

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Endnotes

1 Mintz, Steven M. and Roselyn E. Morris. Ethical Obligations and Decision Making in Accounting (New York: McGraw Hill, 2008), p. 1. 2 Mintz, Ibid., p. 25. 3 Mintz, Ibid., p. 25. 4 Cheffers, Mark, and Michael Pakaluk, Understanding Accounting Ethics (Sutton, MA: Allen David Press, 2007), p. 58. 5 https://en.wikipedia.org/wiki/Accounting_ethics . Jackling, Beverly; Barry J. Cooper; Philomena Leung; Steven Dellaportas (2007). "Professional Accounting Bodies' Perceptions of Ethical Issues, Causes of Ethical Failure and Ethics Education" (Registration required). Managerial Auditing Journal 22 (9): 928–944. doi:10.1108/02686900710829426. Archived from the original on 11 May 2009. Retrieved April 8, 2009. 6 David Christenson, Jeff Barnes, David Rees, Southern Utah U. 7 WiseGeek. What is Fiduciary Accounting? http://www.wisegeek.com/what-is-fiduciary-accounting.htm. 8 AICPA. Fiduciary Standard of Care. http://www.aicpa.org/interestareas/personalfinancialplanning/resources/practicecenter/professionalresponsibilities/pages/fiduciarystandardofcare.aspx. 9 NYSSCPA. A Neglected Topic Conflicts Of Interest In Tax And Related Areas Of Practice, CPA Journal, By John Gardner, Leonare Lawrence, and Susan Willey. April, 1998. http://www.nysscpa.org/cpajournal/1998/0498/Features/F220498.htm 10 AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, January, 2015), p. 38. 11AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.140.010.03 (New York: AICPA, January, 2015).p.39. 12 NYSSCPA. A Neglected Topic Conflicts Of Interest In Tax And Related Areas Of Practice, CPA Journal, By John Gardner, Leonare Lawrence, and Susan Willey. April, 1998. 13 AICPA. The Dangers of Providing Client Comfort Letters by Sue Coffey CPA, CGMA, AICPA. 3/15/13. 14 AICPA. Third Party Verification Letters: Q & A. Jina Etienne, CPA, Director of Taxation, American Institute of CPAs. January, 2014. 15 Accounting Horizons (March): 91–104. Niemeier, C. D. 2008. Keynote Address on Recent International Initiatives. Proceedings of the 2008, as cited in Financial Reporting Outcomes under Rules-Based and Principles-Based Accounting Standards, Denton L. Collins, William R. Pasewark, and Mark E. Riley. Accounting Horizons Vol. 26, No. 4, 20012, pp. 681-705. 16 Securities and Exchange Commission. Study Pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial Reporting System of a Principles-Based Accounting System. http://www.sec.gov/news/studies/principlesbasedstand.htm#6. 7/25/2003. 17 SEC, Ibid. 18 AICPA. Press Release: AICPA Financial Reporting Framework for Small and Medium-Sized Entities. June 10, 2013) 19 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.400.2 (New York: AICPA, January, 2015), p. 12. 20 AICPA. Frequently Asked Questions. AICPA Ethics Division. March 1,, 2015, and AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.110.010 (New York: AICPA, January, 2015), p. 32. 21 AICPA. Frequently Asked Questions. AICPA Ethics Division. March 1,, 2015. 22 Cheffers, Mark, and Michael Pakaluk, Understanding Accounting Ethics (Sutton, MA: Allen David Press, 2007), p.195. 23 AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, August, 2012) 24 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.300 (New York: AICPA, January, 2015), p. 5-7. 25 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.300.030 (New York: AICPA, January, 2015), p. 5. 26 Cheffers, Mark, and Michael Pakaluk, Understanding Accounting Ethics (Sutton, MA: Allen David Press, 2007), p. 203-. 27 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.300.020.01 (New York: AICPA, January, 2015), p. 5. 28 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.300.040.04 (New York: AICPA, January, 2015), p. 6 29 Mintz, Steven M. and Roselyn E. Morris. Ethical Obligations and Decision Making in Accounting (New York: McGraw Hill, 2008), p. 32. 30 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.300.050.02 (New York: AICPA, January, 2015), p.6 31 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.300.050.02 (New York: AICPA, January, 2015), p.6 32 Boatright,Ibid. 33 Boatright,Ibid. 34 AICPA, AICPA Professional Standards: Code of Professional Conduct 0.300.060.01-.02 (New York: AICPA, January, 2015), p. 6. 35 AICPA, AICPA Professional Standards: Code of Professional Conduct 0.300.060.0.02 (New York: AICPA, January, 2015), p. 6. 36 Raspante, John F., “Common Ethical Problems for CPAs,” The Trusted Professional, NYSSCPA (April 2003). 37 AICPA, AICPA Professional Standards: Code of Professional Conduct 0.300.060.0.02 (New York: AICPA, January, 2015), p. 6. 38 AICPA, AICPA Professional Standards: Code of Professional Conduct 0.300.070.0.03 (New York: AICPA, January, 2015), p. 7. 39 Raspante, John F., “Common Ethical Problems for CPAs,” The Trusted Professional, NYSSCPA (April 2003). 40 AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, August, 2012) 41 AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, August, 2012) 42 AICPA, AICPA Plain English Guide to Independence. (November 1, 2012). 43 AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, January, 2015), p. 40. 44 AICPA, AICPA Plain English Guide to Independence (January, 2015). 45 AICPA, AICPA Plain English Guide to Independence ((January, 2015). 46 AICPA, AICPA Professional Standards: Code of Professional Conduct, 0.300.050.03 (New York: AICPA, January, 2015), p.6. 47 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.130.010 (New York: AICPA, January, 2015), p. 37. 48 AICPA, AICPA Professional Standards: Code of Professional Conduct, .02 102-1, (.04 10203) (New York: AICPA, August, 2012). 49 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.110.010.04 (New York: AICPA, January, 2015), p. 32. 50 AICPA, AICPA Professional Standards: Code of Professional Conduct, (New York: AICPA, January, 2015), p. 37.

http://proquest.umi.com.libproxy.sdsu.edu/pqdweb?did=1347117971&sid=1&Fmt=3&clientId=17862&RQT=309&VName=PQD

http://proquest.umi.com.libproxy.sdsu.edu/pqdweb?did=1347117971&sid=1&Fmt=3&clientId=17862&RQT=309&VName=PQD

https://en.wikipedia.org/wiki/Digital_object_identifier

http://dx.doi.org/10.1108%2F02686900710829426

http://web.archive.org/web/20090511003008/http:/proquest.umi.com.libproxy.sdsu.edu/pqdweb?did=1347117971&sid=1&Fmt=3&clientId=17862&RQT=309&VName=PQD

http://www.sec.gov/news/studies/principlesbasedstand.htm#6

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51 Steven Mintz, “The Ethical Dilemmas of Outsourcing,” The CPA Journal, March, 2004.p. 6. 52 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.510.010.04 (New York: AICPA, January, 2015), p. 116. 53 AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, August, 2012) 54 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.300.010 (New York: AICPA, January, 2015), p. 104. 55 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.300.010 (New York: AICPA, January, 2015), p. 104 56 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.320.030.02-.03. (New York: AICPA, January, 2015, p. 107.) 57AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, January, 2015), p. 122-125. 58 Steven Mintz, “The Ethical Dilemmas of Outsourcing” The CPA Journal, March, 2004.p. 6. 59 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.400.200.01 (New York: AICPA), January, 2015) p 112. 60 AICPA, AICPA Professional Standards: Code of Professional Conduct,1.400.200.01-.05.07-.10 (New York: AICPA), January, 2015) p 112-114. 61 Oregon State Board of Accountancy, 2008. 62 AICPA, AICPA Professional Standards: Code of Professional Conduct, 1.820.010.01-1.820.020.01, 1.600.100.01 (New York: AICPA, January, 2015) p. 126-128, p 121. 64 AICPA, AICPA Professional Standards: Code of Professional Conduct (New York: AICPA, January, 2015).