Presenter: Representative Isaac W. Choy, CPA Hawaii Association of Public Accountants It’s All About Professional Judgmen t
2 Using your Smart phone device, connect to www.meetingsift.com ENTER PARTICIPANT’S CODE: TB TBA
3 1. 1. Favorit orite e game game of of c choice hoice? ? a. Craps b . Video Poker c. Slots d. None. Waste of money 2. Did you attend last year’s State Convention? a. Yes b. No
4 3. 3. Wha hat t sma smartphon tphone e de device vice ar are y e you ou us using ing today today? ? a. iPhone b. Android device c. Other 4. 4. Did Did you ou register gister on time on time for t or this his cou course se and and rece eceiv ive e the the ear early y bir bird d disc discoun ount? t? a. Yes b. No All Pau, Enough Practice
5 Why You Are Here Today… ► Ethics Information ► 55 Speed Limit ► Learn About AICPA Code of Professional Conduct - Codification “Exposure Draft” - 2014/2015 Alert on Independence and Ethics Development ► Win Money!
6 ► This Course qualifies for the four-hour ethics requirement of the Hawaii State Board of Public Accountancy. (Licensing Requirement) ► This Course qualifies for the two-hour CPE requirement of Cir Circu cular lar 23 230. 0.
7 Title 16 Chapter 71 HAR 16-71-2 dated 1/30/2010 ► Mandates four (4) hours of continuing education in ethics for - professional conduct for biennial renewal of a license. (Everyone) Professional & Vocational Licensing Act HRS 436B-19 (9) ► - Grounds For Refusal to Renewal, Reinstate or Restore and for Revocation, Suspension, Denial or Condition of License. ▪ Conduct or practice contrary to recognized standards of ethics for the licensed profession or vocation.
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9 Hawaii State Constitution Article XIV “The people of Hawaii believe that public officers and employees must exhibit the highest standards of ethical conduct and that these standards come from the personal integrity of each individual in government.” (emphasis added by Hawaii State Ethics Commission)
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12 Does “SHOULD” equal MUST!
13 Codifica Codification tion Comments Due By: August 15, 2013 Proposed EFFECTIVE DATE December 14, 2014 One Year Delayed Except for “Conceptual Framework” concept Effective Date
14 Ethical Decision – Making Model 1. Recognize the Ethical Issue. 2. Gather the Critical Facts. 3. Identify the Stakeholders. 4. Consider your Alternatives. 5. Consider the Effects on Stakeholders. 6. Consider your Comfort Level. 7. Consider Rules, Regulations and Laws. 8. Make a Decision. 9. Document your Efforts. 10. Evaluate Outcome.
15 Partner Equivalent
16 New Non-Attest Standard
17 Subordination of Judgment
18 Those Charged with Governance
19 Conflict of Interest
20 Rules of Affiliates
21 Trends
22 Conceptual Framework Threats and Safeguards The Answer to “Deconstruction” When specific guidance is absent , under the “conceptual framework” interpretations, the member should evaluate whether that circumstance or relationship would lead a reasonable and informed third party that is aware of relevant information to conclude that there is an unacceptable threat to the members compliance with the rules.
23 Conceptual Framework Threats and Safeguards ► Members will encounter various relationships or circumstances that create threats to the members compliance with the rules. ► Members should evaluate threats – using a reasonable and informed third party standard (acceptable level). ► Apply safeguards. NOTE: A member may not use conceptual framework to overcome a prohibition or requirement.
24 Threats – Seven Broad Categories ► Adverse Interest ► Self-Review ► Advocacy ► Undue Influence ► Familiarity ► Management Participation
25 Safeguards Eliminate or Reduce Threats to an Acceptable Level Three Broad Categories: ► Created by the profession, legislation or regulation. ► Implemented by Client. ► Implemented by Firm.
Effectiveness of Safeguards Depends on: ► Facts and Circumstances ► Proper Identification of Threats ► Design of Safeguards ► Parties Who Will Be Subject to Safeguards ► How Safeguards are Applied ► Consistency ► Who Applies Safeguards 26
Examples of Safeguards: Created by Profession, Legislation, or Regulation : ► CPE on Independence ► Professional Standards on Independence ► Peer Review ► Licensing 27
Examples of Safeguards: ► Competence of Personnel ► Tone From Top ► Accounting Policy and Procedures ► Audit Committee 28
Examples of Safeguards: ► Inspections and Monitoring ► Peer Reviews ► Conflict of Interests Evaluations ► Concurrent Partner Review ► Training ► Etc. 29
► Based on Fact and Circumstances ► Made After Consideration of Alternative ► Sensitive to Alternatives ► Compliance with Professional Standards 30
► Identify and Define Issue ► Gather the Facts, Information, Standard ► Perform the Analysis and Identify Alternative ► Make the Decision ► Review, Document Rationale for Conclusion 31
Per erso sona nal l Fac acto tors: s: ► Confirmation ► Overconfidence ► Anchoring ► Availability 32
Cog Cognitiv nitive e Fac acto tors: s: ► Distorted or ► Hindsight Motivated Reasoning ► Rush to Solve ► Self-Serving Explanation 33
Envir En viron onme ment ntal al Fac acto tors: s: ► A Closed Communication ► Group Decision-Making Environment ► Misaligned Performance ► Time Pressure / Deadlines Expectation and Incentive ► Limited Resources or Budget Constraints 34
► Talk to Right People ► Encourage Opposing Points of View ► Consider Opposing and ► Consider Fraud and Disconfirming Evidence Material Misrepresentation 35
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SST SSTS No S No. 1: T . 1: Tax ax Retur eturn P n Positions ositions What standard must a member meet to recommend a tax return position and sign a tax return? 37
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10.36 10.51 10.34 10.30 39
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41 Suppose that a statute exists in your state that allows you to place a lien on client records in the event of unpaid fees. 5. Are you obligated to return the client’s records? a. No, not until he pays the $5,000 fee. b. Yes, these records should be provided upon request. www.meetingsift.com
42 As part of your work, you prepared several schedules relating to the client’s investment trading activity. He now says he needs these schedules so that he can complete his tax return himself. 6. Are you required to provide him with the schedules you prepared? a. No, these are not considered client-provided records. b . Yes, schedules that you prepared are considered client-provided records. www.meetingsift.com
43 As part of another engagement, you prepared a tax return for a limited partnership for which the client representative was the general partner. Are you obligated to furnish all of the limited partners’ copies 7. of the returns, if requested? a. No, just to the client representative. b. Yes, to all partners upon request . www.meetingsift.com
44 You outsource tax return preparation to an unaffiliated income tax preparer. 8. Wha 8. hat t ar are e th the r e req equir uirem emen ents ts for or ou outs tsou ourcin cing? g? Ensure that the outsource firm is current in it’s tax obligations. a. b. Ensure that the outsource firm has appropriate controls to protect confidentiality. c. Disclose third party service provider . d. Have contractual agreement with service provider. www.meetingsift.com
45 When performing non-attest services for clients... 9. Which of the following is the member’s responsibility? a. Evaluate the adequacy of the services performed. b . Establish an understanding with the client as to the services to be performed. Design and implement the company’s internal controls. c. www.meetingsift.com
46 When performing bookkeeping services for a client… 10. Which of the following activities will impair your independence? Supervise the client’s employees as they perform their a. normal recurring activities. Post client- approved client entries to the client’s trial balance . b. c. Advise client on current accounting issues . www.meetingsift.com
47 When performing bookkeeping services for a client… 11. Which of the following activities would be least likely to create unacceptable threats to a member’s independence? a. Consummate a transaction on behalf of the client with potential investors. b . Prepare financial statements based on the client’s trial balance. c. Prepare source documents for the clients. www.meetingsift.com
48 When performing bookkeeping services for a client… 12. If you provide multiple non-attest services to the same client, you should evaluate each non-attest service for threats to independence. a. Yes b . No www.meetingsift.com
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