Ethics for the
Tennessee CPA
A Presentation for the National Association of
State Auditors, Comptrollers & Treasurers

Don Mills, CPA, CFE, CFF
TNSBA Investigator
1
20 Questions

Where did these 20 questions come
from?
◦ Attendees at our previous seminars
◦ Calls from our licensees
◦ Problem areas in compliance
2
What is “the Board”?






Eleven Members – Appointed by Governor
Serve Terms of 3 Years
Nine are CPAs
One is Attorney
One is Public Member
Meets Quarterly- usually in January, May, July
and October
3
Current Members of the Board
• William Blaufuss, CPA, Chairman.– Nashville
• Don Royston, CPA,Vice-Chair – Kingsport
• Henry Hoss, CPA, Secretary – Chattanooga
• Vic Alexander, CPA – Nashville
• Gay Moon, CPA – Nashville
• Jennifer Brundige, JD – Nashville, Public Member
• Stephen Eldridge, CPA – Jackson
• John Roberts, Attorney-at-Law – Nashville, Attorney Member
• Charlene Spiceland, CPA – Memphis
• Casey Stuart, CPA– Chattanooga
• Trey Watkins, CPA– Memphis
4
How many CPAs are there in
Tennessee?
5
CPAs in Tennessee
Status
April 2015
Active
10,407
Inactive
4,127
Closed
2,962
Probation/Suspended
4
Revoked
56
Retired
1,063
Delinquent
194
Expired
2,314
Deceased
2,695
Other
414
Total Licenses
24,236
6
What Are the Requirements
to Maintain a License in
Good Standing?
Status
Pay License
Renewal Fee
Complete CPE
Professional Privilege Tax
Active
Inactive
Retired
(55 yrs+)
Retired
Over 65
Closed
No – But Must
Return Wall
Certificate
7
License Status – Bad
(Not In Good Standing)





Expired-Grace
Expired
Probation
Suspended
Revoked
8
How do I know when to renew?
• The expiration date is listed on the
license itself.
• Odd-numbered licenses renew in odd
years.
• Even-numbered licenses renew in even
years.
• The Board sends a courtesy reminder
postcard each October.
9
Can you explain the CPE
requirements one more time?
•
All Licensees Holding Active License
• 80 Approved Hours every two years – add 8 penalty hours if
you don’t
• 40 Technical Hours (A&A, Taxes, Ethics & Management
Advisory)
◦ 2 Hours State Specific Ethics
• Minimum of 20 Hours Each Year – add 8 penalty hours if you
don’t
• Special Areas:
• Attest Services – 20 Hours A&A
• Expert Witness Services – 20 Hours in Area
• If you are short on Technical or Ethics hours but have
your 80 hours, make them up without penalty.
10
Is Carry Over CPE worth
the headache?
Limited to 24 Hours
 Carries over as “Other” hours
 Cannot be used to meet 20-hour minimum
 Must have actually completed more than 80
hours in the preceding reporting period

Carryover hours will never increase your total to
more than 80 hours.
11
Example of Carryover CPE
Reporting Period 1
Reporting Period 2
Reporting Period 3
Year 1: earned 30 hours
Year 2: earned 60 hours
Year 1: earned 20 hours
Year 2: earned 52 hours
Total of 90 hours in the
reporting period
Total of 72 hours in
reporting period
No carryover
available because
no extra hours
earned in Period 2
10 extra hours earned
Carry forward 8 hours
from Period 1 to make up
deficiency
12
It’s December 31st and I don’t have
enough CPE. What can I do?
•
•
•
First – Renew your license. Answer “no” to the CPE
question. Do not make things worse by practicing on a
expired-grace license and accruing late fees.
Then get busy and finish your hours along with the
“penalty hours”.
Or:
• Change License to Inactive or Retired
• Close License and return wall certificate
• Request an Extension of time (max 6 months) and
have a really good reason. Extension must be
requested before license expires.
13
What about CPE for
reinstatement and reactivation?
Reactivate:
1.
2.
3.
You must have a viable license (Inactive,
Retired or Closed)
Complete 80 hours of technical CPE within
24 months of reactivation. This CPE counts
toward your renewal hours.
Pay a $110 fee.
14
What about CPE for
reinstatement and reactivation?
Reinstate:
1.
2.
3.
4.
You do not have a viable license (Expired)
Request a Reactivation application from
Board staff.
Complete 80 hours of technical CPE within 6
months of your request for reinstatement.
These are penalty hours and do not count
towards renewal
Pay a $250 penalty.
15
Any other rule changes I need
to know about?
1.
2.
3.
4.
License Renewal Fee—Lowered from $120.00 to
$110.00
The Board has no jurisdiction over fee disputes between
a licensee and a client.
Activities of Inactive Licensees
Department of Revenue and unpaid Privilege Tax.
16
I have a client who is leaving…
...and wants me to provide an electronic copy of
his Quickbooks file to his new accountant. Can I
send a paper copy instead?
17
If the client has made satisfactory arrangements for
payment for services rendered, you must provide a
copy of the licensee’s working papers “to the
extent that such working papers include records
which would ordinarily constitute part of the
client’s books and records and are not otherwise
available to the client”. Rule 0020-03-.11(1)(c).
The rule does not address the form in which these
working papers must be provided.
18
I work in private industry but
volunteer my time …
...at a nonprofit agency where I perform
basic bookkeeping services. I do not
prepare financial statements. Do I need
a firm permit?
19
No – as long as the licensee does not make
management decisions for the agency.
20
What name can I use for a new
firm?
If you apply for a firm permit using a fictitious name, the
Board may decide the name is misleading if:
a.
b.
c.
d.
e.
f.
g.
It implies the existence of a legal entity when it is not.
It is similar to or the same as existing fictitious names.
The name tends to mislead regarding the nature of the business.
It includes the name of an individual whose license has been
suspended or revoked.
The name contains more than 1 fictitious name.
It includes the name of a person who is neither a present or past
member of the firm.
It includes the name of a person who is not a CPA if the term CPAs is
used.
21
When is Peer Review Required?
• Tennessee requires peer review for any firm
that performs the attest function.
• Tennessee defines the attest function to
include compilations.
• Only engagements conducted under SSARS
#21 may be excluded from the requirement.
(Be careful, this is a high risk area)
• Notice to the Board of change in a firm’s
requirement for peer review is required
22
Can you define “Attest” as it relates
to peer review?
• Any audit or other engagement performed in
accordance with the Statements on Auditing
Standards (SAS)
• Any review performed in accordance with the
Statements on Standards for Accounting and Review
Services (SSARS)
• Any examination performed in accordance with the
Statements on Standards for Attestation
Engagements (SSAE)
• The issuance of any report, including compilation
reports, prescribed by the SASs, the SSARSs, or the
SSAEs on any services
23
How many complaints does
the Board receive in a year?
24
Complaint History
25
Who files a complaint?
◦ Licensees
◦ Your (former) clients
◦ The Board
◦ State and Federal Agencies
26
What is each step in the complaint
process?
27
The Complaint Process – Initiation

After receipt of a complaint, the Executive Director
must determine:
◦ Does the TNSBA have jurisdiction?
◦ Is there a violation of the Law and Rules?

If a violation appears to have taken place, the director
must reference the appropriate Statute and/or Rule in
the notice of the complaint that is sent to the
Respondent.

The notice of the complaint, which includes a copy of
the complaint, is sent via certified mail and regular mail
28
The Complaint Process - Response
The individual receives a copy of Complaint along
with a letter referencing the section of the Law and
Rules allegedly violated
 The individual must respond to TNSBA regarding
the complaint

◦ The response must be received within 14 days of receipt
of the complaint
◦ The response must be in writing.
◦ The response may include any supporting documents
deemed pertinent

The response is a matter of public record and it is
Board practice to send the response to the
Complainant, if known
29
The Complaint Process – Legal

The Complaint File is sent to the Board Attorney
who may:
◦
◦
◦
◦

Request an Investigation
Recommend disciplinary action to the Board
Dismiss the complaint
Issue a Cease and Desist Order
If an Investigation is requested:
◦ The Investigator may obtain a written affidavit from the
Complainant and the Respondent
◦ The Investigator prepares a report, along with all
working papers, that is transmitted to the Board
Attorney
30
The Complaint Process – Investigation

If an Investigation is requested:
◦ The Investigator may perform the following:
 Obtain a written affidavit from the Complainant and the Respondent, as
well as other parties as needed
 Perform a working paper review of all relevant data
 Research sources for precedent and standards; eg.,Yellow Book, SAS,
SSARS, GAGAS
 A roster and file search for information regarding the Respondent’s
license status, prior disciplinary actions, licenses held in other states
 Web search for advertising by Respondent, possible newspaper articles
◦ The Investigator may expand the scope of the investigation
based on subsequent discovery
◦ The Investigator prepares a report, along with all working
papers, that is transmitted to the Board Attorney
31
The Complaint Process – Presentation
 The
Board Attorney presents all completed
cases, along with a recommendation for
disposition of each case, to the
Enforcement Committee
 Each case presented to the Board has no
licensee identifying information (just a
number, not a name)
 Board will rule on disposition of complaint
and notify both complainant and
respondent
32
What is the #1 question
asked by CPAs during a
complaint investigation?
33
Are you going
to make me
take the
exam again?
34
What are the most
common complaints
received by the Board?
35
2008-2014 Violations
AICPA Code of Professional Conduct
Breach of Fiduciary Responsibilities
Client Records
Communication
Competence
Conduct Unbecoming a Professional
Confidential Client Information
CPE
Discreditable Acts
Dishonesty
Due Professional Care
Failure to Complete Engagement
Failure to File Taxes
Felony Conviction
Fraud
Gross Misconduct
Gross Negligence
Independence
Integrity
License Issues
Other State Revocation
Peer Review
Professional Privilege Tax
Revocation
Unlicensed Activity
Violation of Consent Order
5
8
14
6
1
8
4
57
30
1
16
1
11
2
12
2
2
1
3
3
77
14
68
23
232
4
0.86%
1.37%
2.40%
1.03%
0.17%
1.37%
0.69%
9.78%
5.15%
0.17%
2.74%
0.17%
1.89%
0.34%
2.06%
0.34%
0.34%
0.17%
0.51%
0.51%
13.21%
2.40%
11.66%
0.17%
39.79%
0.69%
36
What actions can the Board
take concerning a complaint?
37
Possible Board Actions
Dismissal
Letters
Consent Orders
• Civil Penalties
• Additional CPE or Peer Review
• Probation
• Suspension
• Revocation
• Informal Conference
• Formal Conference (Hearing)
•
•
•
38
Board Action 2008-2014
39
What about Mobility from
Tennessee to another state?
The newest tool in mobility can be
found at:
• CPAmobility.org
Lets see how easy it is.
40
41
Can we have more case studies?
42
Yes – and today you get to be
the Board.
43
THE COMPLAINT
The complaint stated that the Respondent, a nonlicensee, was using the name “Memphis CPA
Group”. The name was registered with the Secretary
of State and used on a LinkedIn accountant.
44
THE STORY
When the non licensed owner was confronted
regarding the use of the CPA credential, he stated
that:
1. There used to be owners who were CPAs, and;
2. He was trying to pass the CPA exam.
45
Unlicensed Activity
Disposition:
You are the Board – What action should be
taken?
1. Dismiss.
2. Letter of warning.
3. Consent Order requiring removal of the
CPA designation.
4. Civil penalty of $5000.
5. Other?
46
THE COMPLAINT
The Licensee was offering consulting
services on a social network without an
active license.
47
THE STORY
The Licensee had elected to take the status of
“Retired”, having reached the age of 70 (old
law). This status allowed him to pay no renewal
fees and waive the CPE requirement.
One of the conditions of the “retired” status is that
one cannot perform any accounting services.
Consulting services is considered to be an
accounting service.
48
Prohibited Activity
Disposition:
You are the Board – What action should be
taken?
1. Dismiss.
2. Letter of warning.
3. Reactivate the Respondent’s license and
then revoke it.
4. Civil penalty of $500.
5. Other?
49
THE COMPLAINT
The Respondent was the CFO of an investment
company that ran a Ponzi scheme until it collapsed,
resulting in $18 Million dollars in losses to
“investors”.
The Respondent pleaded guilty to securities fraud,
money laundering, and conspiracy to commit
securities fraud, wire fraud and mail fraud.
50
THE STORY
When the Investigator visited the Respondent’s
last known address, he was informed that the
Respondent had already reported to prison.
51
Conviction of a Felony
Disposition:
You are the Board – What action should be
taken?
1. Take no action until the Respondent is
paroled.
2. Convene a Formal Hearing for revocation of
the CPA’s license in absentia.
3. Consent Order requiring the voluntary
revocation of the CPA’s license.
4. Civil penalty of $18 Million.
5. Other?
52
Hope you enjoyed our 20
questions – we need 20 more

Contact Information
◦ Phone: 888-453-6150 or 615-741-2550
◦ Fax:
615-532-8800
◦ Web: tn.gov/regboards/tnsba
◦ E-Mail: TNSBA web page has direct contact
information for all Board Members and Staff
Members
53