ethics for accountants midterm

Given that the AICPA is a voluntary organization, what is the significance of the AICPA Code?

All CPA's must adhere to the AICPA code regardless of their membership involvement with the organization

AICPA

American Institute of Certified Public Accountants; the national professional VOLUNTARY organization of CPAs. - violations also apply to TSBPA - preeminent governing body

When is an accountant liable to a third party for fraud? (Know and be able to apply the rule. Understand where the issue is relevant in a fraud analysis.)

An accountant is liable to a third party for fraud if the defendant intended to deceive the third party plaintiff. - Reason to expect: if there is specific evidence to support a reasonable expectation of reliance, the third party plaintiff relied on the information in a transaction similar to what the accountant expected (EY vs. Pacific Mutual Case) - privity, near privity, forseeability, restatement

What Interpretations in the AICPA Code are relevant to the prohibition on conflicts of interest?

1.110- Conflicts of Interest (pg 31) , 2.110

what do Interpretations 1.130 and 2.130 prohibit? (Be familiar with each Interpretation and how they differ.)

1.130: Knowing misrepresentations - member makes or permits a member to make a materially false representation (does not have to be in writing) Subordination of judgement - Fails to comply with professional standards, creates a material misrepresentation, or may violate applicable laws or regulations/ allowing others' with whom the accountant works to influence decision making - Continue to refer to superiors up the chain thereafter to reduce or eliminate threats to an acceptable level 2.130: Knowing misrepresentations for business (private) - use professional judgement where applicable - much more extended than 1.130 Subordination of judgment- when performing work for a client or employer, threats must be reduced to an acceptable level

Are there standards of ethics not prescribed by either the AICPA or the TSBPA to which an accountant must adhere? If so, give examples of other entities that prescribe such standards.

1.310- Compliance with Standards - Bodies designated by the council include the FASB, GASB, PCAOB, IASB, SEC, etc. If you don't comply with their rules as well, you are in violation with the AICPA code of ethics as well

More specifically what does SEC Rule 10b-5(b) prohibit?

10b-5: unlawful for anyone to explicitly make any untrue statements of material fact, defraud, or engage in any fraudulent activity in relation to the purchase of any sale or security

What is the goal of Section 10b of the '34 Act and SEC Rule 10b-5 and how do they accomplish that goal?

10b: generally prohibits any manipulation of the public financial statements or deception - Both prevent insider trading by requiring the disclosure of material facts - fact may be regarded as material if it is significant enough to affect an investor's decisions - Accomplish goal by requiring the disclosure of certain facts, investigate any securities fraud, registration of securities brokers and dealers, and general administration of activity

Does whistleblower protection from retaliation under Dodd Frank require that the whistleblower report to the SEC or is internal reporting also protected?

5th Circuit Court - the whistleblower must report externally 2nd Circuit Court - the whistleblower only needs to report internally

What Interpretations in the AICPA Code are relevant to the prohibition on knowing misrepresentations? (The goal here is to know where they are in the AICPA Code so that you can implement them; it is not to memorize the citation.)

Subordination of judgement (1.130.020) and client advocacy (1.140)

Does the concept of misrepresentation include a failure to disclose information or is it limited to affirmative statements?

Failure to disclose information as well

What legal risk is associated with an accountant's failure to exercise due care?

Professional negligence (malpractice)

Blue Sky Laws

State laws that regulate the offering and sale of securities for the protection of the public.

Key aspects of malpractice insurance

- Coverage triggered by a claim made against the accountant - Timely notice of a claim to protect coverage - Most cover the cost of defense, judgements, and settlements - Hammer provision: accountant's refusal to consent to a settlement recommended by the insurer reduces the limit on the claim - Any potential or existing claim which the accountant is aware of at the time he purchases the policy is generally excluded - Risk to professional reputation as a result of negligence is not insurable

When is an accountant liable to a third party for negligent misrepresentation? (Know and be able to apply the alternative theories. These are the same theories used to determine whether an accountant could be liable to a third party for negligence. Know which theory is most common. Understand where the issue is relevant in a negligent misrepresentation analysis.)

- Duty to use reasonable care to the particular third party plaintiff 1) privity or near privity 2) restatement (most common) 3) foreseeability approach - Defendant must have failed to use reasonable care when they were obligated to do so and a material misstatement of fact (no intention to deceive, different from fraud)

List and explain the points on the fraud triangle.

- Incentive (pressure): there is pressure from management or other life pressures OR significant incentives to commit fraud - Opportunity: there is an opportunity to commit fraud without getting caught, which lends itself to happening again - Rationalization: convinces himself/herself that its okay, they didn't get caught, everyone does it, someone else is worse than me, etc.

What common situations give rise to a potential conflict of interest? Review the examples in Interpretation 1.110.010.10 and 2.110.010.09 and consider why each creates a conflict of interest.

-adverse interest and self interest are the two main threats that lend themselves to COIs -member of member's firm provide a professional service relating to a certain matter that involves two ore more of their clients and these clients have conflicting interests in respect to that matter --> COI -interest of member or member's firm with respect to a particular matter and interests of client are in conflict about this matter EXAMPLES OF COI FROM INTERPRETATION - providing services to both a vendor and a purchaser who are clients of the firm in relation to the same transaction --> adverse interest - advising a client to invest in a business in which, for example, the immediate family member of the member has a financial interest in the business --> self interest

Describe the enforcement procedures of the TSBPA.

1. Complaint is filed 2. CPA files a response 3. Complaint is reviewed by a committee 4. If there is a possible violation, an informal conference is held. if a violation is found, it will propose a resolution. 5. Public hearing: If the CPA does not accept the resolution, a public hearing before an ALJ will be held, where the judge can recommend a disposition that the State Board can accept, reject, or modify. 6. Trial Court: If either the State Board or the CPA rejects the disposition of the ALJ, there is a trial in Travis County.

Identify four general situations in which accountants must make decisions and/or implement rules based on an assessment of what is right or ethical. (See, text, p. 7 - 10)

1. Financial accounting (recording possible losses) 2. Tax reporting 3. Internal controls 4. Management accounting 5. Government, nonprofit accounting, and other accounting roles

6 Principles of Professional Conduct (0.300)

1. Responsibilities 2. The Public Interest 3. Integrity 4. Objectivity and Independence 5. Due Care 6. Scope and Nature of Services (RIPODS)- guiding framework for the profession to achieve ethical excellence

What must a plaintiff prove to establish fraud?

1. The defendant misrepresented a material fact 2. The defendant intended to deceive the plaintiff 3. The plaintiff justifiably relied on the defendant's misrepresentation, and 4. The plaintiff's reliance resulted in a detriment to the plaintiff

What are the two most common reasons that businesses seek to be ethical?

1. compliance issues 2. protect reputation

List and discuss the three steps accountants in public practice and those in business must go through in assessing possible conflicts of interest. Be sure you understand and can apply this analysis.

1. identification of conflict of interest - must check these conflicts initially when accepting engagement (look at nature of relevant interest and relationships between parties and nature of services provided and its implication for relevant parties) -need conflict identification process which includes database of clients (with info about relationships), prior engagements--need to include systematic review process (nature of relationships and services change throughout the engagement)if you identify yes, there is a COI, then you move on to evaluation: 2) evaluation of COI - is objectivity impaired? - you need context to know this, but also you need to consider qualitative and quantitative factors-the more direct the connection between professional service and matter on which parties interest are in conflict, the more significant the threat-when accountant has COI, then firm does too - how to avoid? get rid of interest that creates conflict or reason there is interest (get rid of either sides) & enforce safeguards (ex. using different engagement teams, establish policies to create limited access to client files, etc. - if it does impair objectivity -- avoid engagement (decline or discontinue) if not -- disclose 3) disclose to relevant parties (assuming you take the client) and ask for consent from client-making them aware of risk two types of disclosures 1) general - could be in the engagement letter and is giving implied consent (ex. this is a restaurant and we also provide services to other restaurants so that's okay) 2) specific - give client enough information for them to make an informed response to decide if they give their consent (most used) if consent refused then: 1) decline to perform services or discontinue 2) terminate relevant relationships/dispose of relevant interest to eliminate threat or reduce it document all of this

four common pitfalls in ethical decision making

1. looking only at legalities 2. considering only the short-term 3. failure to recognize all stakeholders 4. failure to recognize COI

Conceptual framework List and describe the seven threats that create risks of non-compliance with the rules of the AICPA Code.

1.000.010: Conceptual framework (page 25 code) 1. adverse interest (member will not act with objectivity or have interests opposed to the client's best interest) 2. advocacy (member providing forensic accounting services for a client in litigation) 3. familiarity (close or lasting relationship with the client that will cause a conflict of interest) 4. management participation (member may take on a client management role) 5. self-interest (member could benefit from a relationship with a client and/or persons represented with the client) 6. self-review (member will not evaluate the results of a judgement made) 7. undue influence (threat a member will subordinate his or her judgement to an individual associated with the client or any relevant third party; ex/ firm is threatened with dismissal from client engagement)

What are the general mandate and the three specific prohibitions in the rule regarding integrity and objectivity?

1.100.001 General: member shall maintain objectivity and integrity, free of conflicts of interest, and shall not knowingly misrepresent or subordinate his or her judgement to others Interpretations: Apply the conceptual framework in the absence of an interpretation - If the member can't demonstrate that safeguards were applied or reduced to an acceptable level, then the member is in violation of the integrity and objectivity rule - Member should consider the ethical conflicts that arise, especially internal or external pressures

acceptable level

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

1.300 General Standards Rule

A member (whether in the AICPA or not) should comply with the four following standards: a. Professional competence: - Knowledge of profession's standards in applying judgement - Complete services with reasonable care and due diligence - Perform additional research as necessary (most common) or suggest another professional with adequate competency - Supervise the quality (including technical quality) of your own work and of others' b. Due professional care: competence requires reasonable care based on professional standards c. Planning and supervision: make sure the engagement has the best outcome d. Sufficient, relevant data: support a reasonable basis for your conclusion/be able to back it up with adequate proper information

1.320 Accounting Principles

A member shall not (1) express an opinion or state that the financial statements of any entity presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with GAAP, if the statements or other data contain any departure from such principles that has a material effect

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. - be impartial, intellectually honest, and free of conflicts of interest - Maintain objectivity in the rendering of services if maintaining independence is not possible - Neutrality involves being neutral in relation to your client; different from other professions

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. - commitment to learning and improving throughout career 2 Aspects: Competence and Diligence - Competence requires enough knowledge to perform the job - Diligence: render services promptly and carefully, be thorough, observe technical and ethical standards

Public Interest

Act in a way that will serve the public interest, honor public trust, and demonstrate a commitment to professionalism - Public includes clients, credit grantors, governments, employers, investors, business and finance community, and all who rely on the accuracy and validity of financial statements - Act with integrity when conflicting pressures arise from these groups

CSR Accounting

AICPA accounting for society communicating the social and environmental effects of organizations economic actions to particular interest groups within society and to society at large

Near Privity Approach

Accountant may be liable to a specific third party if he had actual knowledge the information would be used for a specific purpose Example: say a client retains a CPA firm to audit the financial statements required by a bank as a prerequisite to extending a loan to the client. The auditor knows the bank is the client's principal lender and is aware of the bank's reliance on the financial statements, particularly the valuation of inventory or accounts receivable. Additionally, the bank and auditor have direct oral and written communication during the lending period and even meet to discuss the client's financial statements. After the audit report is issued, the bank discovers that the client's inventory or accounts receivable were overstated. The client subsequently goes bankrupt and defaults on the loan. The bank alleges that the auditor failed to communicate about the inadequacy of the client's internal recordkeeping and inventory control. Under the privity-of-contract approach, the bank would have standing to sue the auditor even though there wasn't a formal contract between the auditor and the bank.

A CPA must comply with the General Standards when he or she is performing what services?

Any time professional services are rendered as an accountant, regardless of who those services are for (employer, self, others, and/or volunteer basis)

Responsibilities

Art of accounting- not just about knowing technical/ethical rules- understand how to implement them in - exercise sensitive professional and moral judgements in all their activities - maintain public confidence- perception of the profession by others - self-governance: doing the right thing on your own in addition to following the rules in place by other agencies

subordination of judgement

Subordination of judgment is a fundamental threat to auditor objectivity. Subordination of judgment occurs when auditors agree with their superiors either in spite of or without forming their own independent judgments. Can also occur when the auditor goes against his or her own judgement, for example acting in one's best interest

Generally, to whom (or what) might an accountant subordinate his judgment?

Between a member and his or her supervisor or any other person within the member's organization that have a difference in opinion of accounting principles and standards

IRAC

Issue(s), Rule, Application, Conclusion

Give examples of who might file a complaint against an accountant with the TSBPA.

Colleagues, clients, investors, specifically in Texas (or anyone who violates the provisions of the Public Accountancy Act)

Ethical motivations for businesses

Compliance issues, protect reputation, ethical leadership holds others accountable - Each business also creates their own code of ethics- required by SOX for publicly traded companies

Two Ethical Core Philosophies

Consequentialism- most good for the greatest number of people (utilitarianism). Net positive effect - Identify all stakeholders and make decision based on the category of shareholders in relation to the ethical dilemma - Criticism: assessing the degree of positivity or negativity- ex. manufacturing a drug that not everyone can afford for widespread use. Sacrificing the minority for the majority Deontology: fulfilling personal ethical duty; more individualistic approach 1. Universality principle: certain duties and rights apply to all people in all situations - the duty not to harm others, duty to respect others' privacy, rights of free association, honor property and rights of others, treat others equally, tell the truth 2. Reversibility principle: treat others how you would want them to treat you - Criticisms of deontology: legalities, individual behavior valued more than others' rights sometimes, failure to recognize conflicts of interest

What steps can a business take to embed ethics into its culture?

Create a code of ethics, require ethics training for employees, have a place for reporting unethical behavior in the business, and have leaders that act ethically and hold others accountable for their actions

The general standards require an accountant to have sufficient relevant data. Explain this requirement; what must the data be sufficient for?

Data must be enough to support a reasonable basis for your conclusion reached while performing services - Be able to support where the data came from and the how it adequately supports the conclusion reached

What is required for protection from retaliation for whistleblowing under the following statutes? Federal Whistleblower Protection Act Texas Whistleblower Protection Act, Sarbanes Oxley Act, and Dodd Frank Wall Street Reform and Consumer Protection Act

Federal Whistleblower Protection Act: applies to federal members, works the same as the TWPA Texas Whistleblower Protection Act: - Applies to employees of a state or local government - Must report the illegal activity of the whistleblower's employer or another public employee to the appropriate law enforcement official; in other words you are not protected unless you work for the Texas government Sarbanes Oxley Act: - must be an employee of a publicly-traded entity or mutual fund, or someone who contracts with a publicly-traded company or mutual fund - alleged misconduct must be a violation of SOX or SEC rules, or any provision of federal law relating to fraud against shareholders and investors - must report to an external law enforcement agent, internally to your own supervisor, or anyone who has the authority to investigate the misconduct Dodd Frank Wall Street Reform and Consumer Protection Act: - expands upon the shortcomings of the SOX act by extending protection to any financial services employee - protection from refusal to participate in alleged misconduct - federal securities law violations, including bribery, fraud, insider trading - must be original, nonpublic information - over $1 million is the threshold for recovery - determine if you are protected by the statute and prove retaliation happened to you in the workforce

If an accountant makes a misrepresentation, what legal wrongs might he have committed? (There are two of them.)

Fraud and Negligent Misrepresentation

Conceptually, what is the difference between fraud and negligent misrepresentation?

Fraud: intent to deceive the plaintiff Negligent misrepresentation: Failure to use reasonable and due care - lower standard of culpability than for fraud

What is GAAP? What is the purpose of GAAP?

GAAP's purpose is to provide standardization for non-misleading financial statements EXCEPTION - If following GAAP becomes misleading in certain circumstances, it is okay to depart from it (uncommon) - GAAP is not required for reporting for non-publicly companies

AICPA Code of Professional Conduct

Guidelines for the behavior of members of the American Institute of Certified Public Accountants (AICPA) in the conduct of their professional affairs. part 1: public accounting part 2: employers in-house (business) part 3: CPA's neither in public accounting nor business, ex. retired CPA's. Still held to a code even if they are not actively practicing

Who are the third parties likely to sue an accountant?

Investors and creditors

Privity Approach

Least liability for professionals - Accountant only liable for negligence with whom he has a contract

When is an accountant liable to a third party for negligence? (Know and be able to apply the alternative theories. Know which theory is most common. Understand where the issue is relevant in a negligence analysis.)

Liable to a third party when the accountant has a reason to expect the third party to rely on the relevant statement 1. specific evidence to support a reasonable expectation of reliance of a third party on the accountant 2. Third party plaintiff relied on the information in a transaction similar to that which the accountant expected - Did the accountant owe any duty to use reasonable care to the particular plaintiff? (first element of negligence) Privity or near privity, Foreseeability, restatement approach (most common)

Restatement Approach

Majority of the states use 1. Potential liability: if the professional supplies false information for the guidance of others in their business transactions, they are subject to liability for pecuniary loss caused to them for their reliance on the information - Accountant fails to exercise reasonable care or competence in obtaining or communicating the information 2. Limited to loss suffered by the person of a limited group - Third party does not have to be specifically identified; can be a particular class of people - Third party must rely on the accountant's work for the purpose that the accountant expected

How can an accountant mitigate the risk of liability for fraud or negligent misrepresentation to third parties?

Malpractice insurance and doing the right thing generally

In contrast to the previous question, what legal remedy is available to a plaintiff who sues an accountant for a violation of law? (The goal of this question is for you to understand the different purposes of the pursuit of an ethics violation vs. law suit.)

Monetary damages award- compensate the plaintiff for their losses caused by negligence or malpractice by the accountant

Conceptually, what is the difference between negligence and negligent misrepresentation?

Negligence: causation between resulting harm to plaintiff and failure to use reasonable care - does not involve a specific misrepresentation of fact Negligent misrepresentation: misrepresentation of a material fact that leads to detriment to the plaintiff

TSBPA

Texas state board of public accounting- administrative governmental agency for Texas accountants - created by the Public Accountancy Act - legislature gives agency authority - enforces rules and regulations - assumed to have the same governing authority as the AICPA; if an accountant is found to have violated the AICPA, will also very likely be in violation of the TSBPA

When an accountant who is being asked by a supervisor or another person in his organization to take an action that he believes is unethical or illegal, what steps should he take?

Subordination of Judgement 1.310.020 1. determine if the threats are at an acceptable level (are they material? do they fail to comply with standards? violate applicable laws?) 2. if the threats are not at an acceptable level, alert supervisor 3. continue up the managerial chain if the issue is not resolved with the superior 4. consider safeguards in place

Negligence (professional misconduct)

Professional misconduct- relates to professional competence and due care 1. Duty of the defendant to use reasonable care (CPA) 2. Defendant breaches duty to use reasonable care 3. Harm caused to plaintiff or third party 4. Causation for economic injury - Causation links the breach of duty to the resulting harm caused

If an independent auditor concludes that a client has engaged in illegal activity that will have a material effect on the financial statements, what is his obligation?

Report the concern to the client's audit committee so that the client can fix it• Auditors have no obligation to report outside b/c they of their obligation of confidentiality

Integrity

Requires the member to be honest and candid within the constraints of client confidentiality - Measured in terms of what is right and just- am I doing the right thing? - Observe principles of objectivity, independence, and due care

List and explain thoroughly the six principles that are the foundation of the Rules and Interpretations in the AICPA Code.

Responsibilities, the public interest, integrity, objectivity and independence, due care, scope and nature of services

What threats are created most commonly by a conflict of interest for an accountant in public practice and for an accountant in business?

Self interest threat and adverse interest threat

Scope and Nature of Services

Services should be consistent with acceptable professional behavior for members - objectivity and due care should be exercised a. members should practice in firms where internal quality control procedures are in place b. scope and nature of services provided should not create a conflict of interest with the client c. assess whether activity is consistent with their role as a professional

Is technical compliance with GAAP always sufficient to meet the purpose of GAAP? Why or why not?

Spirit of accounting- GAAP is more of a guideline; sometimes technical compliance with GAAP may not be adequate- avoid material misrepresentations

Who are likely third parties in cases of negligence?

User of the accountant's work product, such as creditors and/or investors - Someone other than the client

When is the conceptual framework used to assess whether conduct violates an AICPA rule? You should be able to conduct an analysis using the conceptual framework.

When there are no relative interpretations to the AICPA rule violation

What does a plaintiff have to prove to establish retaliation?

Whistleblower must prove that the defendant engaged in retaliatory conduct that was motivated by retaliatory intent - causal link between the whistleblower's activity and the defendant's allegedly retaliatory conduct - defendant's conduct must be motivated by an intent to retaliate - whistleblower's rebuttal: defendant inciting a non-retaliatory reason is a pretext for a retaliatory motive

Generally, what does the Securities Act of 1933 govern?

initial sales of securities held by a business - provide investors more information to help them in making decisions and prevent unfair and/or deceptive security trading practices

Might an accountant be exposed to disciplinary action for the ethical violations of his subordinate?

Yes, especially if proper planning and supervision is not maintained

Is it a violation of the AICPA Code to negligently misrepresent financial statements? (Be familiar with the relevant Interpretations.)

Yes, knowing misrepresentation and subordination of judgement under 1.130 and 2.130 1.400: negligence in the preparation of financial statements Acts discreditable rule: makes or permits a materially false or misleading statement, fails to correct, and/or signs or permits another to sign a document containing false or materially misleading information

Does the Sarbanes Oxley Act protect employees of private entities that contract with publicly traded companies from retaliation for whistleblowing? What types of private entities might contract with publicly traded companies?

Yes, privately owned entities that contract under publicly held entities are protected from retaliation by their own employers for whistleblowing on the public company with who they contract - accountants and lawyers

Per the AICPA Code, may an accountant depart from GAAP? Explain.

Yes- see accounting principles rule - when the data contain a departure from GAAP that would have otherwise been misleading, the member can comply with the rule by describing the departure and the reasons why compliance with GAAP would result in a misleading statement

CSR (Corporate Social Responsibility)

a business's obligation to pursue policies, decisions, and actions that align with the objectives and values of society - Maximize business benefits to shareholders and stakeholders

ESG (Environmental, Social, and Governance)

a framework for corporations to report on their governance structure and how it is used to manage and monitor their social and environmental impacts - CRI (community related investing) - Sustainability also involves employee turnover, material usage, and environmental impact

Discuss the difference between a general and specific disclosure of a conflict of interest for public accountants.

a general disclosure is one that is many times in an engagement letter and you are implying that you give consent-usually relates to overall, the firm or member doesn't provide services for exclusively one client in the commercial business a specific disclosure is one that provides enough information (including circumstances and safeguards) to the client to allow them to make informed decision about their consent

Forseeability Approach

accountant must consider anyone who uses the financial statements, even potential investors- most liability for an accountant. only New Jersey uses this approach

The receipt of gifts and/or entertainment from a client, vendor, etc. (anyone other than an employer) may create a conflict of interest. Why? What threats does it create? What should an accountant in public practice and one in business consider in determining whether it is appropriate to give or receive gifts and/or entertainment?

be brief on this one

Does the concept of misrepresentation include an oral statement or is it limited to written statements?

can be oral or written

1.310 Compliance with Standards

comply with the AICPA and all other governing bodies designated by the council: FASB, TSBPA, SEC, PCAOB, IASB, GASB, etc. any time you use professional services

What is the Securities Exchange Commission ("SEC")?

enforce the law against market manipulation and oversee fairness in financial reporting in the business world

If an accountant determines that a conflict of interest will impair his ability to remain objective, what should he do?

he should 1) decline to perform or discontinue professional services that would result in COI 2) terminate relevant relationship or interests as to eliminate the threat or reduce to acceptable level

If an accountant determines that a conflict of interest will not impair his ability to remain objective, what should he do?

he should disclose the interest and gain consent from client that they are okay with the COI-should give general or specific disclosure

Negligent Misrepresentation

misrepresentation made as a result of failure to use reasonable care 1. Defendant misrepresented a material fact 2. The defendant was negligent in making the misrepresentation 3. Plaintiff justifiably relied on the defendant's misrepresentation 4. Plaintiff's reliance resulted in a detriment to the plaintiff - must prove that the defendant was negligent in making the misrepresentation- material fact

What specific situation do Interpretations 1.130.010 and 2.130.010 address?

misrepresentations in the preparation of financial statements or records, especially material misrepresentations

What remedies are available to victims of retaliation for whistleblowing under Sarbanes Oxley?

reinstatement if the whistleblower has been terminated or demoted, monetary damages for back and front pay, compensatory damages for torts (e.g. intentional infliction of emotional distress), and special damage fees such as legal fees

What remedies are available to victims of retaliation for whistleblowing under Dodd Frank?

reinstatement, double back pay, litigation costs, and/or attorney fees, bounty program where 10 to 30% of monetary sanctions in excess of $1 mil collected by the agency may be recovered

threat

relationships that would compromise a member's compliance with the rules - could potentially impair independence

What is a risk associated with reporting an alleged unethical or illegal activity?

retaliation (potentially negative part of whistleblowing)

What disciplinary actions can the TSBPA take against one who has violated their rules?

revoke or suspend a certificate or license, refuse to renew a license, probation, reprimand, limit the scope of a license holder's practice, restitution, continuing education, monetary penalty, and/or participation in a peer review program

Generally, what does the Securities Exchange Act of 1934 govern?

securities exchanges, brokers, dealers, and national securities associations - companies with assets in excess of $10 million and in excess of 500 or more shareholders

Conflict of interest (COI)

situation in which a person's financial, professional, or personal situation may affect judgement in professional responsibilities

What is the Deceptive Trade Practices Act ("DTPA")? Discuss an accountant's potential liability under the DTPA.

state statutes that protect consumers from fraud Exemption: claim for damages based on the rendering of a professional service - exemption does not apply to: express misrepresentation of material fact that is not opinion, judgement, or fact, failure to disclose information, breaches of duty, etc. - Damages are tripled for defendants (accountants usually) under the DTPA (if the value of harm is $100k, the damages paid are $300k)

Texas Public Accountancy Act

statute governing the practice of public accounting in Texas - Board must administer provisions of the Public Accountancy Act, e.g. licensing requirements, certification requirements, education requirements, examination requirements, and promulgating relevant rules

Conceptual framework What standard is used to evaluate a threat to non-compliance with the rules of the AICPA Code?

the conceptual framework 1) identify threats (7 threats that will hinder compliance)-but once you identify a threat, you can't say there is a violation, you then need to look at significance 2) evaluate the significance of threats - determine whether a threat is at an acceptable level to a reasonable and informed 3rd party (need to consider qualitative and quantitative factors) 3) identify and apply safeguards - do this if its not at an acceptable level and do this to bring down to one -sometimes to unable to find one that will lower threats and must decline, discontinue professional services

TSCPA

voluntary professional organization with local chapters for professional networking events

Conceptual framework What does the AICPA code mean when it refers to "safeguards?"

ways to bring down threat to acceptable level/eliminate threat3 types of safeguards - 1) those created by profession, legislation, or regulation, 2) implemented by client (this cannot be sole safeguard), 3) implemented by firm (policies and procedures to implement professional and regulatory services

Materiality

whether an item is large enough to likely influence the decision of an investor or creditor - material significance on the financial statements relate to knowing misrepresentations, subordination of judgement, misrepresentation, fraud, negligence, etc.