P ROFESSIONAL
S TANDARDS AND
R ESPONSIBILITIES
I DENTIFYING AND D EALING WITH
M ORAL D ILEMMAS
Paul Fiorelli, J.D., MBA
800.686.2727 www.ohiocpa.com
Copyright 2015 by The Ohio Society of Certified Public Accountants (the “Society”). All rights reserved. This publication contains the results of proprietary research. No part of this book may be reproduced or transmitted in any form or by any means whatsoever, including, but not limited to, photocopying, recording, or by any information storage and retrieval system, without prior permission in writing from the Society.
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Pro fessio nal D evelop m en t
Professional Standards and Responsibilities
Identifying and Dealing with Moral Dilemmas
Paul Fiorelli, J.D., M.B.A., Co-Director, Cintas
Institute for Business Ethics, Xavier University
[email protected]
Supreme Court Fellows Program
TAX ATTORNEY - ERNST &
WHINNEY
XAVIER TEACHING IN ACCOUNTANCY & LAW SINCE 1983
WRITTEN ARTICLES ON SARBANES OXLEY, ETHICS
& COMPLIANCE PROGRAMS, AND
CORPORATE CULTURE J.D , M.B.A.,
C.C.E.P. NOT A
C.P.A.
Presentation Outline
Role of the Accountancy Board
– ORC 4701 - CPE, Registration, permit holders, discipline, board investigations AICPA Code of Conduct
Key Accounting Concepts - Professional skepticism, acting “in the public interest”, aspirational aspects of ethical behavior
Applied Ethics - Fraud, Motivations, Conflict of interest
Moral Meltdown: Where Were the Accountants?
The Value of Values
Introduction
Accountancy Board of Ohio (ABO)
• CPE
• Professional Standards
• ABO’s Role
• Its role is to protect the public interest
– WHY ARE WE HERE?
Ohio Administrative Code 4701-15-11 (D) Required Continuing Education Program
• “All Ohio permit holders must increase and update their knowledge of Ohio Accountancy law, defined in Chapter 4701 of the Revised Code, and the board rules, defined in agency-level designation 4701 of the Administrative Code, through the completion of three continuing education credits each reporting period covering the applications of professional standards and responsibilities...
• A significant number of people called into
Accountancy Board of Ohio hearings were
unaware of ORC 4701
Applications of Professional Standards and Responsibilities Ohio Accountancy Laws and Rules
• Individual and firm registration
• Must have both CPA and permit to practice
• General standards
• Ethical rules
• Consequences of not following registration
requirements or practice standards
REGISTRATION
SCENARIO
John is an Ohio CPA and he works for a company in their internal audit department. His company does not mind that he “moonlights”, providing tax returns for friends, family and a few people he’s met
professionally.
He already has a business card with his name,“CPA”, and his home phone and address on it, that he gives to his prospective tax clients. He occasionally gives free lectures about taxes at the local civic center.
Does John need to register with the Accountancy
Board of Ohio?
Registration Rules Recap
Work in industry, sign “CPA”
– Must have a current permit, no registration
Do a few tax returns for friends, sign
“CPA”, no advertising
– Must have current permit, no registration
Moonlight, advertise, sign “CPA”
– Must have current permit, must register
11
DISCIPLINE
ORC 4701.16 - Discipline of
Registrant or Certificate Holder
(A) Accountancy Board may discipline a holder of an Ohio permit, Ohio registration, firm registration, CPA certificate, or PA registration:
(1) fraud or deceit in obtaining firm CPA certificate or firm or PA registration
(2) dishonesty, fraud or gross negligence in practice of public accounting
(5) convicted of felony, or (6) any crime with element of fraud or dishonesty
• (10) conduct discreditable to the accounting profession
•
•
•
ORC 4701.16 - (continued)
(B) the Accountancy Board may do any of the following:
(1) Revoke, suspend or refuse to renew any CPA certificate or PA registration, or Ohio permit, Ohio registration or firm
registration
(2) disqualify a person who is not a holder of an Ohio permit (or foreign certificate) from owning an equity interest in a public accounting firm or qualified firm
• (3) publicly censure
• (4) levy a fine, not to exceed $5,000 per offense
• (7) revoke privilege to offer or render attest services
•
•
Discipline of Registrant or Certificate Holder (2000-2003)
5%3%
5%
6%
7%
8% 57%
8%
N=98
Failure to Register
Broke unspecified rule of Code Committed fraud
Failure to respond
Committed a crime
Failure to maintain CPE
Violated an SEC/IRS rule
Practising without Ohio license
CPA cer(ficate and firm registra(on revoked.
Reinstatement is subject to $5000 fine and PSR completed by 6/30/13.
CPA cer(ficate revoked.
CPA cer(ficate and firm registra(on revoked on 4--‐26--‐13; reinstatement is subject to
$2000 fine, PSR, completed by 6/30/13.
ge057
CPA cer(ficate & Firm registra(on revoked, with a stay; $7,500, PSR and comple(on of peer review by 7/31/14.
Revoca(on stayed, pending payment of $2,000 fine, comple(on of 120 CPE credits, Board approved PSR, and firm registra(on compliance by 11/30/14.
4701.16(A)(9) &(11)--‐Failure to obtain a firm registra=on, and failure to comply with firm registra=on requirements.
2013--‐04--‐26
4701.16(A)(9) & (11)--‐Failure to obtain a Firm registra=on; and failure to comply with the firm registra=on requirements.
2014--‐02--‐25
4701.16(A)(9)&(11)--‐Failure to obtain a firm registra=on and failure to comply with firm registra=on requirements.
2013--‐04--‐26
4701.16(A)(9)&(11)--‐Failure to obtain an Ohio permit & a Firm registra=on. Failure to comply with firm registra=on requirements.
2014--‐04--‐25
4701.16(A)(9),(11)--‐Failure to obtain a firm registra=on, failure to comply with 4701.04 of the Ohio Revised Code.
2014--‐09--‐05
INVESTIGATIONS
ORC 4701.29 - Board Investigations
(A) Accountancy Board may investigate whether a person violated any provisions of chapter 4701 before
commencing disciplinary action.
A board member who participates in the investigation may also actively participate in the hearing.
(B) Board may administer oaths, order depositions, issue subpoenas, compel attendance and production of evidence
(C) If a person fails to comply with a subpoena or order by the Board, the Board may apply to the Franklin County Court of Common Pleas for an order compelling compliance
•
AICPA
CODE OF
CONDUCT
AICPA Code of Professional Conduct
Section 52 - Principles Section 53 - Public Interest
Section 54 - Integrity Section 55 - Objectivity & Independence
Section 56 - Due Care
Section 57 - Scope/Nature Services
Principles Rules
Interpretations
Ethics Rulings
Introduction
Key Accounting Concepts
– Understanding today’s need for Professional Skepticism
– Our Accountability Test --- “In the Public Interest…”
– The Aspirational Aspects of our Profession’s
Rules & Regulations
In the Public Interest
“Maintaining public trust will require every participant in the chain of corporate reporting to put into
practice the values of transparency, accountability and integrity. The public’s expectations are high, and rightfully so. In this case, it will take actions, not words, to repair the damage that has been done. On each and every assignment, accountability
professionals need to be thinking about how to maximize value and manage risk for their most import client - the public. After all, that is what the
“P” in CPA stands for.”
• David M. Walker, CPA, Comptroller General of the
United States.
Applied Ethics
• Fraud
• Motivations
• Conflicts of Interest
Scenario
You suspect your manager Jim, who is also your friend and one of the company’s best performers, of accounting irregularities. You ask him about the inconsistencies but he denies any wrongdoing. He also tells you as a friend, that “you’d better drop the issue and spend your time on something more productive. You’re not going to find any fraud here! Management knows exactly what I’m doing, and they think I’m a rock star. Who are you to challenge my techniques and by the way, isn’t your performance review coming up soon?”
You’re not satisfied with Jim’s response, but you need this job, and a
good review. What do you do?
PERCEPTION
CAN TWO PEOPLE
LOOK AT THE SAME THING,
COME TO DIFFERENT CONCLUSIONS,
AND BOTH BE RIGHT?
Ethics Decision Tree
Try to resolve discrepancy
Could supervisor also be right?
If unsatisfied - document and push back Any additional guidance - policy, code Maintain professional skepticism
Do you want to work there?
Do you need an attorney?
Opportunity
Fraud The Triangle
Incentive/Pressure Rationalization/Attitude
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
STRICT CONSTRUCTIONIST
• JUST SKIMMING THE SURFACE OF LEGAL COMPLIANCE DOESN’T LEAVE ROOM FOR ERROR
• IF LAWS ARE WHAT WE MUST DO,THEN
ETHICS ARE WHAT WE OUGHT TO DO
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
ALTRUISTS
• HOW DO WE TREAT EMPLOYEES THAT ACT
IMPROPERLY, BUT IT APPEARS TO BENEFIT THE COMPANY?
• GOOD SOLDIER
• STEALS FOR THE ORGANIZATION - NOT FROM IT
• LOYALTY
• MISGUIDED
ALTRUISTS
• DO NOT WINK AT VIOLATIONS
• EXPLAIN THE IMPORTANCE OF ETHICS AND
COMPLIANCE
• EVEN WHEN THE COMPANY APPEARS TO BENEFIT FROM A BREACH
• THERE ARE CONSEQUENCES
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
PRISONERS OF CIRCUMSTANCES
YOUR PROBLEM IS MY BUSINESS
• HUMAN NATURE
• NO ONE WILL NOTICE
• MAYBE I CAN HIDE IT
• PROBLEM WILL GO AWAY
• I'LL GO AWAY
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
PRESSURE
• DOES NOT LIVE UP TO BOSSES EXPECTATIONS
• ARE THE EXPECTATIONS REALISTIC?
• CAN SET AGGRESSIVE GOALS
• MUST BE ABLE TO ACCOMPLISH WITH
REASONABLE - ETHICAL EFFORTS,
CONSISTENT WITH THE MISSION OF THE
COMPANY
PRESSURE
• SET REALISTIC GOALS
• CHALLENGE HOW AGGRESSIVE GOALS ARE OBTAINED
• CAN THESE ETHICAL TECHNIQUES BE
SHARED WITH OTHERS
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
GROUPTHINK
• BE WILLING TO STAND OUT IN A CROWD
• DON’T JUST GO WITH THE GROUP ANSWER
• YOUR TEAM MAY BE
STRONGER BY
HAVING DIVERSE
PERSPECTIVES
AUTHORITY
• RESPECTFULLY QUESTION AUTHORITY
• ASK FOR AN EXPLANATION
• “THAT’S HOW WE DO IT HERE”, OR
“THAT’S HOW
WE’VE ALWAYS
DONE IT” ISN’T
GOOD ENOUGH
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
RATIONALIZERS
• THEY’LL NEVER MISS IT
• THEY'LL NEVER FIND OUT
• EVERYONE IS DOING IT!
RATIONALIZERS
• CONVINCE THEM YOU:
• SHARE VALUES
• SHARE CONCERNS
• APPRECIATE THEIR WORTH
• AS MUCH AS POSSIBLE
• NOT “EVERYONE” IS DOING IT
BREAKING THE RULES
• STRICT CONSTRUCTIONIST
• ALTRUISTS
• PRISONERS
• SLIPPERY SLOPE
• PRESSURE
• GROUPTHINK/AUTHORITY
• RATIONALIZERS
• GREED
GREED
“Just as there is no typical profile for swindlers, neither is there one for their victims. Virtually anyone can fall prey to fraudulent crimes. ...
Certainly victims of high-yield investment frauds may possess a level of greed which exceeds their caution as well as a willingness to believe what they want to believe.
However, not all fraud victims are greedy, risk-
taking, self-deceptive individuals looking to
make a quick dollar. Nor are all fraud victims
naïve, uneducated, or elderly.”[1]
GREED
“Every company is just one bad decision or one bad employee away from scandal ... one scandal away from a salacious headline ... and one headline away from a flood of lawsuits.”
Bill Lytton - former EVP and General Counsel,Tyco International
GREED
• DON’T THINK PHILANTHROPY WILL KEEP YOU OUT OF TROUBLE
• BETTER BOARD OVERSIGHT & GOVERNANCE REGARDING SENIOR EXECUTIVES
• HIRE AND PROMOTE FOR MISSION
• BETTER BACKGROUND CHECKS
• BETTER INTERNAL CONTROLS
• ADDITIONAL REPORTING MECHANISMS
• PEERS VS. AUDITORS
MORAL MELTDOWN:
Where Were the Accountants?
TRUST:
NEW FIDUCIARY DUTIES IN
LIGHT OF BEING PUBLICLY
TRADED
(DUE) DILIGENCE
PRUDENCE INADEQUATE
INTERNAL CONTROLS
PROMISE KEEPING
CONTRITION:
ACCEPTING RESPONSIBILITY
FOR YOUR ACTIONS
Common Sense:
Introduction to Ethics
Choosing the “Hard Right” over to the “Easy Wrong”.
“The measure of [your real] character is what you would do if you knew you would never be found out.” Thomas Babington (1800-1859)
Once you’ve agreed to an improper act, its very
difficult to say “No”, and it becomes increasingly
easy to say “Yes”!
THE “VALUE” OF
“VALUES”
ILLEGAL LEGAL
BLACK WHITE
WRONG RIGHT
EVIL GOOD
REPUTATION
“The Accounting profession must restore its priceless asset: Its Reputation” - 9/24/03 Barry Melanchon, President AICPA
“Honor is better than Honors”
Abraham Lincoln, 2d inaugural address
March 4, 1865
• GE2000Annual Report
Leadership
And it' s about the four "types" that represent the way we evaluate and deal with our existing leaders.Type I: shares our values; makes the numbers-sky's the limit!Type II:doesn't share the values;doesn't make the numbers-gone.Type Ill: shares the values; misses the numbers - typi ca lly , another chance,or two.
None of these three are tough calls,but Type IV is the toughest call of all:the manager who
doesn't share the values,but delivers the numbers; the "go-to" manager, the hammer, who
delivers the bacon but does it on the backs of people, often "kissing up and kicking down" during
the process.This type is the toughest to part with because organizations always want to deliver
- it's in the blood-and to let someone go who gets the job done is yet another unnatural act. But
we have to remove these Type IVs because they have the power, by themselves,to destroy the
open,informal,trust-based culture we need to win today and tomorrow.
Shares Values
Does Not Share Values
Does not make the Numbers Makes the Numbers Type III
Values No Numbers
Type I Values Numbers
Type II No Values No Numbers
Type IV No Values
Makes Numbers
ProfessionalEthics: Ten Ways to Mess UpYour License · (Courtesy of the Oregon Board of Accountancy)
1. Don't submit an address change to the Accountancy Board.
2. Fudge on your CPE report.
3. Don't respond to Board communications.
4. Renew your CPA "dues" with the Ohio Society of CPAs instead of your license.
5. Advertise and open a firm before it is registered.
6. Don't use an engagement letter.
7. Withhold client records after the client requests them.
8. Don't pay y,our child support.
9. Don't repay student loans.
10.Don't pay your taxes.
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