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BECKER GEARTY CONTINUING PROFESSIONAL EDUCATION


New Jersey Law & Ethics 2015 - 2017


Instructor Biography

Timothy F. Gearty, CPA, MBA, JD, CGMA

Tim is a partner in Gearty & McIntyre, LLP, CPA, which he started in 1981. The firm has developed a reputation as a specialist in business advisory services, litigation support and forensic accounting. Tim is a nationally recognized expert and speaker on a variety of accounting, tax, audit and business topics. Many fortune 500 companies as well as many national associations regularly feature Tim as their keynote speaker. Among the more noteworthy positions that Tim holds, he is the Editor-in-Chief for the worlds largest CPA training program, the Becker CPA Review Course Professional Program. In addition to his editorial leadership, Tim is also their National Lead Instructor, whose taped lectures are

being seen in over 325 locations throughout the world. Tim has frequently been called upon over the past thirty-five years to present accounting, tax, auditing and business topics to large groups, organizations, and corporations, accounting firms and in legal proceedings. Tim is a member of the American Institute of Certified Public Accountants. He is also a member of the New Jersey Society of Public Accountants and has been a trustee of the organization. Tim is also a member of the New Jersey and American Bar Associations. Tim holds a BS in Accounting from Fairleigh Dickinson University, and both a MBA in Finance and Law Degree (JD) from Seton Hall University. Tim has been recognized by the national publication, Accounting Today, as one of the “Top 100 Most Influential People in the Accounting Profession.”


New Jersey Law & Ethics 2015-2017 Course Outline

I. Objectives and

Overview of Course II. Ethical Foundations III. New Jersey Ethics –

Pre-Test IV. Review Pre-Test

Answers V. Topical areas VI. Course Evaluation VII. Post-Test VIII.Post-Test Answers IX. Linkage to AICPA

Code of Conduct X. Linkage to Circular 230 XI. Request for CPE

forms XII. Sample of Course

Registration XIII.NJ Statutes & Regs Total Time

Lecture Time 5 min.

20 min. 10 min.

10 min.

127 min. 3 min. 10 min. 10 min. 1 min.

1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

1. NJ State Board of Accountancy – General 2. NJ State Board of Accountancy –

Objective & Authority of Board 3. NJ State Board of Accountancy - Uniform

Regulations of the Division of Consumer Affairs - Subchapter 1- General Rules

4. Uniform Subchapter 1A-Exam & Licensure

5. Firm Registration 6. Mobility 7. Uniform Enforcement Act 8. Uniform Regulations of the Division of

Consumer Affairs 9. The Accountancy Act of 1997 10. AICPA Code of Conduct - Conceptual

Framework 11. NJ Law & AICPA Code of Conduct 12. Independence 13. Conflicts of Interest 14. Advertising & Solicitation 15. Subchapter 6-CPE 16. Subchapter 5-Peer Review 17. Competence 18. Integrity & Objectivity 19. Confidential information 20. Records 21. Commissions 22. Contingent fees 23. Performance/referral fees 24. Firm names 25. Discreditable acts 26. Differences: NJ Law & AICPA Code of

Conduct

Lecture Time 5 min. 5 min.

5 min.

5 min.

2 min. 5 min. 5 min. 5 min.

5 min. 2 min.

2 min.

10 min. 5 min. 5 min. 5 min. 5 min. 5 min.

10 min. 5 min. 5 min. 2 min. 5 min. 2 min. 2 min. 5 min.

10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

2


New Jersey Law & Ethics 2015-2017 Objectives & Overview

Learning Objective: This course is designed to comply with the Professional Ethics education requirement for New Jersey CPAs while emphasizing the need for prudent ethical judgment when interpreting the rules and acting in ways that earn public trust.

Program Prerequisite: None

Program Level: Basic

Program Content: This program utilizes the Laws and Regulations as promulgated by the New Jersey State Board of Accountancy as the framework for presenting this material. Additionally, the ethical guidance developed by the AICPA restructured via the Codification of Ethical Standards has been inserted into the framework where appropriate. A detailed outline follows.

Advance Preparation: None

Field of Study: (New Jersey Board of Accountancy) Regulatory Ethics

Credits: 4 Regulatory Ethics

3


New Jersey Law & Ethics 2015-2017 Introduction

Fraud • Financial statement fraud • Asset misappropriation • Corruption

The Perfect Environment for Fraud • Pressure • Opportunity • Rationalization (lack of ethics and integrity)

4



Why Ethics?

– It’s the right thing to do – It’s a condition of employment (Code of Conduct) – It’s required by law – Failure to comply can result in serious consequences-

embarrassment; termination; fines; jail time

KEY POINT It’s also good business – a competitive differentiator

5



Integrity If you’ve got it,

nothing else matters.

6



Integrity And if you don’t have it,

nothing else matters.

7



Ivan Boesky

Boesky pleaded guilty to insider trading in 1986, and said that he amassed much of his $200 million fortune using illegal insider information. When charged with insider trading, Boesky cooperated with the SEC, and received a negotiated sentence of only 3.5 years (and only 2 of which were served.) He was also fined $100 million.

KEY POINT Boesky is the prototype of Gordon Gecko from the movie Wall Street.

8

Presenter

Presentation Notes

Ask how many have had SOX Training? How many are involved with SOX within their SBU. NOTE: Beneficial if a local SBU/SBE Controller is also helping with this section if none of fundamentals teachers are actually involved in the SOX process. Local Controller can come in and discuss with class latest information and day-to-day type experience and help facilitate a good Q&A section.



Charles Keating Keating was charged with fraud, racketeering, and conspiracy in 1993 over the 1989 failure of Lincoln Savings and Loan. He spent more than four years in jail before the charges were overturned in 1996. The failure of Lincoln cost the government an estimated $3 billion.

9



Michael Milken Junk bonds pioneer Michael Milken was convicted on securities charges in 1990. He was released from prison after less than two years.

10



Nick Leeson The British investment bank Barings collapsed after massive currency market losses were incurred but hidden by trader Leeson in 1995. The fraud cost the company about $1.4 billion in losses. ING bought the company for one British pound, and assumed all of its debt. Leeson is now out of prison.

11



Ethics…Why it’s important! Violations can result in tremendous damage to business…and to you!

Kenneth Lay-Enron

Enron's downfall, and the imprisonment of several of its leadership group, was one of the most shocking and widely reported ethics violations of all time. It not only bankrupted the company but also destroyed

Arthur Andersen, one of the largest audit firms in the world.

12

Presenter

Presentation Notes



New Jersey Law & Ethics 2012 – 2014 Introduction

Bernard Ebbers - Worldcom Ebbers, the former CEO of WorldCom, was imprisoned on charges of fraud and conspiracy for falsifying the telecommunications company’s finances. CEO Bernard Ebbers owned hundreds of millions of dollars in Worldcom stock, which he margined to invest in other business ventures. As the stock price dropped, banks began demanding that Ebbers cover more than $400 million in margin calls. He began an aggressive campaign to prop up the stock price by creating outright fraudulent accounting entries. The fraud was ultimately discovered by Worldcom's internal audit department, and the audit committee was informed.

KEY POINT It’s estimated that the fraud cost investors about $11 billion.

The resulting SEC investigation resulted in the company's bankruptcy filing in 2002 and the conviction of Ebbers on fraud, conspiracy and filing false documents charges.

Ebbers began a 25-year sentence in federal prison in 2006.

13



Dennis Kozlowski – Tyco Kozlowski, the CEO of Tyco, a massive security and electronics company, was also caught with his hand in the corporate coffers. In 2002, the board of directors discovered that Kozlowski and Mark Schwartz, the company's CFO, had taken unauthorized bonuses and loans in the amount of $600 million. The men were brought up on charges of grand larceny and securities fraud, among others. Kozlowski had paid for lavish parties, a Manhattan address and expensive jewelry with corporate funds. His first trial in 2004 resulted in a mistrial, but in 2005 he was sentenced to between eight and 25 years.

14

Presenter

Presentation Notes




John Rigas Once the world’s largest cable company, Adelphia filed for bankruptcy in 2002 amid allegations of corruption among the company’s founders and leaders, including CEO John Rigas. Rigas was convicted in 2005 and is currently serving a prison sentence.

15



MF Global - Misappropriation of Customer Funds 1. A large global derivatives broker with a history dating back to the 1780’s. 2. Sunday, October 30, 2011:

a) Brokerage firm reported to Chicago Mercantile Exchange and Commodity Futures Trading Commission “a material shortfall of hundreds of millions of dollars in segregated customer funds.”

3. Monday, October 31, 2011 a) Company officials admitted that $875 million flowed out of customer funds to cover

company shortfalls b) MF Global used a number of complex and controversial repurchase agreements c) Characterized as wrong way bets on European sovereign debt d) Filed for bankruptcy protection that day e) Missing funds later discovered to be approximately $1.6 billion

4. CEO John Corzine: a) Former Governor of NJ & former CEO of Goldman Sachs b) Subpoenaed to appear before Congress

1) “I simply do not know where the money is” c) Resigns from MF Global in Nov. 2011 d) Too big to jail?

5. Other MF Global Finance Executives required to testify before Congress a) Some take 5th Amendment rights

6. Under investigation by Department of Justice 16



Craig B. Haber

New York -- March 12, 2014 A former partner at a Tier 2 CPA firm was sentenced to four and a half years in prison for stealing nearly $4 million from the accounting firm by diverting payments from clients directly to himself. The money went toward Haber’s personal expenses, including child support and mortgage payments, according to prosecutors. Haber hid the bills he sent to clients and manipulated his firm’s billing system to conceal the fraud, the government said. In addition to his prison term, Haber was ordered to forfeit $3.97 million in cash, his Manhattan apartment and his brokerage account.

17



18



Reproduced from the 10/4/2004 issue of BusinessWeek by special permission, copyright © 2004 by The McGraw-Hill Companies, Inc.

19



20



Date: 20x2-01-03 10:08PM PST

21










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

22


New Jersey Law & Ethics 2015-2017 II. Ethical Foundations

Ethical Foundations

Introduction to Ethical Concepts The Psychology of Moral Development

Judgment and Values The Sociology of Professions

Virtue and the Role of “Rules of Ethics” Public Expectations of CPA’s Responsibilities

Ethical Dilemmas

23


New Jersey Law & Ethics 2015-2017 Ethical Foundations

Ethical Foundations

Introduction to Ethical Concepts

The Psychology of Moral Development

Judgment and Values

The Sociology of Professions

Virtue and the Role of “Rules of Ethics”

Public Expectations of CPA’s Responsibilities

Ethical Dilemmas

24



• Which of these scares you the most?

25




26



The Psychology of Moral Development If we look closely at why one society or one generation believes something is bad although another society or generation thought it was good, we come to the conclusion that there are certain underlying currents that run through the pages of history. These currents are described as social forces.

Ethical Foundations



Judgment and Values




Ethical Dilemmas

27



Judgment and Values Depending on the importance attached to the different forces at different times, the content of the community’s code of ethics changes. The underlying reason for changed ethics is the change in the value placed on the different social forces. Understanding why society’s evaluation of social forces changes requires a thorough study of practically every field of knowledge. It is sufficient for our purpose to recognize that there are social forces, that these forces give rise to the ethical patterns of the day, that the evaluation of the social forces changes, and that with such changes, there are corresponding changes in the field of ethics.

Ethical Foundations



Judgment and Values




Ethical Dilemmas

28



The following is the current list of virtues or principles underlying good professional conduct from the AICPA:

Responsibilities

The Public Interest

Integrity

Objectivity and Independence

Due Care

Scope and Nature of Services

29



Judgment and Values

30



The Sociology of Professions Definition

Certified Public Accountant, (CPA): A public accountant who has received a license that (s)he has met the state’s legal requirements regarding:

1. Education 2. Examination 3. Experience 4. Ethics

Objective a. Permit only qualified individuals to become

members of the profession b. Provide the public with protection from fraud and

misconduct from professionals c. Establish standards to be part of the expectation of

services and conduct of the professional

Ethical Foundations



Judgment and Values




Ethical Dilemmas

31



Virtue and the Role of “Rules of Ethics” Implications for Business: As the size, resources, and business patterns of society change, what seems right today may seem wrong in the future.

While society’s changing notions of what is right and just do not create binding obligations on businesses and businesspeople, they do constitute a force that will help to model future law.

Businesses that act irresponsibly and with disregard for society’s view of what is right will speed the transition from ethical concept to enforceable law.

Business can only avoid society’ tendency toward more stringent regulation by active responsibly and in harmony with societal ethics.

KEY POINT Today, many companies have established codes of ethics as guides for their employees, requiring that company business be conducted not only in compliance with the law, but

also in accordance with the standards of business integrity and honest dealings.

Ethical Foundations



Judgment and Values




Ethical Dilemmas

32



SOX – 404 & COSO

33



Control Environment a. The control environment:

1) Sets the tone of an organization, influencing the control consciousness of its people.

2) Provides discipline and structure as the foundation for all other components of internal control.

3) Originates with, and is generated by, management and the board of directors.

b. The control environment includes such factors as: 1) Integrity and ethical values of the people who create, administer,

and monitor internal controls; particularly as to the attitude, awareness, and actions of management and the board of directors. The control environment is affected by both the substance of controls and the collective effect of control environment factors, such as written policy statements and codes of conduct, management's actions to reduce occurrence of unethical acts, and management's reaction to violations.

34



Control Environment 1) Management's commitment to competence as reflected in the

knowledge and skills required for particular jobs. 2) Participation of the board of directors or audit committee, including

an assessment of the committee's knowledge, experience, stature, and independence from management, and the extent of its involvement.

3) Management's philosophy and operating style, particularly with respect to its approach to risk taking, its attitudes and actions toward financial reporting and information processing, and its emphasis on meeting financial and operating goals.

4) Organizational structure, which is the framework within which the entity plans, executes, controls, and monitors its activities, including establishment of key areas of authority and responsibility and lines of reporting.

5) Assignment of authority, responsibility, and accountability. 6) Human resource policies and practices related to hiring, orientation,

training, evaluating, promoting, compensating, and remedial activities. 35



Public Expectations of CPA’s Responsibility Overview of Services: The public believes/perceives that the Certified Public Accountant is licensed to competently perform the following services:

a. Audit financial statements b. Provide accounting services c. Prepare tax returns d. Provide business advice e. Others…

Overview of responsibilities: a. Be independent of the client b. Act with integrity and objectivity c. Comply with all professional standards d. Keep client information confidential e. Not take commissions or contingent fees f. Not perform acts discreditable to the profession

Ethical Foundations



Judgment and Values




Ethical Dilemmas

36



Gallup Poll Shows Accounting Image on the Rise

According to a recent Gallup Poll annual update on the images of various business and industry sectors in the country, accounting is on the rise, compared to earlier periods. These results reflect an increase of eight points from the previous year.

These findings support independent image research commissioned by the AICPA. That research revealed that the CPA profession continues to garner high marks from business decision makers, executives and investors.

CPA Favorable Ratings

1) Decision makers

2) Executives

3) Investors

97%

95%

89%

37



Ethical Dilemmas Business Stress: In accounting, as in other areas of business, ethical dilemmas are encountered frequently.

Some of these dilemmas are simple and easy to resolve.

Many, however, are complex, and solutions are not obvious. Businesses’ concentration on:

a. Maximizing the bottom line,

b. Facing the challenges of competition,

c. Stressing short-term results place accountants in an environment of conflict and pressure.

Ethical Foundations



Judgment and Values




Ethical Dilemmas

38



Ethical Reminders

• If what you are doing gets reported on the front page of the Wall Street Journal, are you okay with it?

• If not, why are you doing it?!

• You can always get another job,

• You can’t get another reputation!

39



• 93% of employees who agree that the head of their organization “sets a good example of ethical business behavior” say they are satisfied with their organizations.

• The percentage of satisfied employees drops sharply among those who disagree (31%).

0102030405060708090

100

The Head of MyOrganization

My Supervisor

Agree Disagree

Employee Satisfaction and Ethical Behavior

Sets a good example of ethical behavior

40



• 80% of employees who felt that the management would uphold company ethical standards also believed that current customers would recommend the company to others.

• The figure is cut in half for employees who do NOT believe management would uphold company ethical standards.

01020304050607080

Believe managementwould uphold

company ethicalstandards

Believe managementwould NOT uphold


Believe current customers would recommend company to others.

Employee Perception of Manager’s Ethics in Relation to Perception of Customer Satisfaction

41


• 81% of employees who felt that the management would uphold company ethical standards would recommend their company to potential recruits.

• The figure falls to 21% for employees who do NOT believe management would uphold company ethical standards.

0102030405060708090

Believe managementwould uphold


Believe managementwould NOT uphold


Would recommend their company to potential recruits.

Recruitment and Ethical Behavior


42



• The Perfect Environment for Fraud: – Pressure – Opportunity – Rationalization

• Five types of pressure: – Time pressures – Job pressures – Client pressures – Personal pressures – Peer pressures

43


New Jersey Law & Ethics 2015-2017 Course Outline New Jersey Law & Ethics 2015-2017 Course Outline








Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and

Overview of Course II. Ethical Foundations III. New Jersey Ethics

– Pre-Test IV. Review Pre-Test





Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

44


III. New Jersey Law & Ethics 2015-2017

New Jersey Law & Ethics Pre-test

45


III. New Jersey Law & Ethics 2015-2017 – Pre-test Question #1

Gearty & Co., CPAs, have provided annual audit and tax compliance services to Becker Corp. for several years. Becker has been unable to pay Gearty in full for services Gearty rendered 19 months ago. Gearty is ready to begin fieldwork for the current year's audit. Under the ethical standards of the profession, which of the following arrangements will permit Gearty to begin the fieldwork on Becker's audit?

A. Becker sets up a two-year payment plan with Gearty to settle the unpaid fee balance.

B. Becker commits to pay the past due fee in full before the audit report is issued.

C. Becker gives Gearty an 18-month note payable for the full amount of the past due fees before Gearty begins the audit.

D. Becker engages another firm to perform the fieldwork, and Gearty is limited to reviewing the workpapers and issuing the audit report.

46



On June 1, 20X0, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, 20X0. On April 3, 20X1, the client asked the CPA to audit the client's financial statements for the year ended December 31, 20X1. Is the CPA considered independent with respect to the audit of the client's December 31, 20X1, financial statements?

A. Yes, because the loan was fully secured. B. Yes, because the CPA was not required to be independent at the time the

loan was granted. C. No, because the CPA had a loan with the client during the period of a

professional engagement. D. No, because the CPA had a loan with the client during the period covered

by the financial statements.

47



Fox, CPA, was engaged to audit Becker Co.'s financial statements. During the audit, Fox discovered that Becker's inventory contained stolen goods. Becker Co. was indicted and Fox was subpoenaed to testify at the criminal trial. Becker Co. claimed accountant-client privilege to prevent Fox from testifying. Which of the following statements is correct regarding Becker's claim? A. Becker Co. can claim an accountant-client privilege only in states that

have enacted a statute creating such a privilege. B. Becker Co. can claim an accountant-client privilege only in federal

courts. C. The accountant-client privilege can be claimed only in civil suits. D. The accountant-client privilege can be claimed only to limit testimony to

audit subject matter.

48



According to the ethical standards of the profession, which of the following acts generally is prohibited? A. Accepting a contingent fee for representing a client in connection

with obtaining a private letter ruling from the Internal Revenue Service.

B. Retaining client records after the client has demanded their return.

C. Revealing client tax returns to a prospective purchaser of the CPA's practice.

D. Issuing a modified report explaining the CPA's failure to follow a governmental regulatory agency's standards when conducting an attest service for a client.

49



According to the ethical standards of the profession, which of the following acts is generally prohibited?

A. Purchasing a product from a third party and reselling it to a

client. B. Writing a financial management newsletter promoted and sold by

a publishing company. C. Accepting a commission for recommending a product to an audit

client. D. Accepting engagements obtained through the efforts of third

parties.

50



McIntyre, CPA, is a staff auditor participating in the audit engagement of Fox, Inc. Which of the following circumstances impairs McIntyre's independence?

A. During the period of the professional engagement, Fox, Inc.

gives McIntyre tickets to a football game worth $75. B. McIntyre owns stock in a corporation that Fox, Inc.'s 401(k) plan

also invests in. C. McIntyre's friend, an employee of another local accounting firm,

prepares Fox, Inc.'s tax returns. D. McIntyre's sibling is an internal auditor employed part-time by

Fox, Inc.

51



Gearty & McIntyre, CPAs, withdraw from an engagement to prepare tax returns for their client, Tony Soprano, upon discovering irregularities in his return. A prospective successor firm has telephoned Gearty asking him why the relationship was terminated. What should Gearty & McIntyre tell the successor firm? A. Nothing, for fear of being whacked. B. Nothing, because the information is confidential. C. Everything, as a professional courtesy, so the successor knows

what she’s getting into. D. Everything, provided the successor indicates he will call (later)

and get Tony Soprano’s permission for Gearty & McIntyre to discuss matters with the successor.

52



According to the profession's ethical standards, an auditor would be considered independent in which of the following instances? A. The auditor is the officially appointed stock transfer agent of a

client. B. The auditor's checking account that is fully insured by a federal

agency, is held at a client financial institution. C. The client owes the auditor fees for more than two years prior to

the issuance of the audit report. D. The client is the only tenant in a commercial building owned by

the auditor.

53



According to the profession's ethical standards, a CPA would be considered independent in which of the following instances? A. A client leases part of an office building from the CPA, resulting

in a material indirect financial interest to the CPA. B. The CPA has a material direct financial interest in a client, but

transfers the interest into a blind trust. C. The CPA owns an office building and the mortgage on the

building is guaranteed by a client. D. The CPA belongs to a country club, as does their client, in which

membership requires the acquisition of a pro rata share of equity.

54



To which of the following parties may a CPA partnership provide its working papers without either the client's consent or a lawful subpoena?

The IRS The FASB

A. Yes Yes B. Yes No C. No Yes D. No No

55










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-469

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-469 470-471 472-483 484-494 495-498

499-501 502-505

506-507

Appendix

56


IV. New Jersey Law & Ethics 2015-2017 Pre-test Answers

New Jersey Law & Ethics Pre-test Answers

57


IV. New Jersey Law & Ethics 2015-2017 – Pre-test Answer to Pre-test Question #1

• Correct Answer: B. Under Rule 101 of the Code of Professional Conduct regarding independence, a member's independence is impaired with respect to a client who is more than one year overdue in the payment of professional fees. An attestation engagement, such as an audit requires independence in fact and appearance. Fees from prior work must be paid in full before the issuance of a report on the following year's work.

• Choices “A” and “C” are incorrect. Neither of these answers would provide for the fees to be paid before the issuance of the report on the current year financial statements.

• Choice “D” is incorrect. Gearty would not accept an engagement of this type and in any instance; the fees related to the prior year work would not be paid by the issuance of the current year report.

58



• Correct Answer: B. A member's independence is impaired if a member has a loan with a client and that loan is preferential in relationship to "other borrowers." Since this loan was fully secured and there was no indication of a "preference," it appears to be in the ordinary course of business. Furthermore, the CPA was no longer a debtor of the financial institution at the time of the audit engagement. A CPA must be independent in fact and appearance when providing auditing and attestation services, not compilation services.

• Choice “A" is incorrect. The mere fact that the loan was secured would not itself make the CPA independent if the loan were outstanding during the engagement.

• Choice “C" is incorrect because the loan was paid off before the audit engagement began; the CPA need not be independent while rendering compilation services.

• Choice “D" is incorrect. The fact that the CPA had a loan with the client during the period covered in the client's financial statements itself does not impair independence.

59



• Correct Answer: A. The accountant-client privilege can be claimed only in those few states that recognize the privilege.

• Choice “B" is incorrect. Generally, there is no federal accountant-client privilege. (There is a limited federal privilege for tax practitioners in noncriminal proceedings, but here the engagement was for audit services and the proceeding is criminal.)

• Choice “C" is incorrect. Except in federal tax cases, where the privilege exists, it is not limited to civil cases.

• Choice “D" is incorrect. Where the privilege exists, it would prevent testimony about the audit, not limit testimony to the audit.

60



• Correct Answer: B. Under Rule 501 of the Code of Conduct members may not commit any act that discredits the profession. Failure to return records to a client after the client makes demand is a specifically listed as an act that would discredit the profession.

• Choice “A” is incorrect because a contingent fee is permitted when representing a client in a request for a ruling by IRS. The determination of the result would be determined by the IRS, not the accountant.

• Choice “C” is incorrect. Although an accountant may not reveal confidential client information to others without the client's permission, the rule does not prohibit a review of the accountant's practice in connection with a sale of the accountant's practice. The accountant is required to take appropriate precautions in such cases. A written confidentiality agreement would be an example of such a precaution.

• Choice “D” is incorrect. Unusual circumstances may justify a departure from generally accepted accounting principals if compliance would cause the report to be misleading (e.g., new legislation or new forms of business transactions). The departure must be described and explained.

61



• Correct Answer: C. A CPA may not accept a commission for recommending a product to a client if the CPA audits or reviews that client's financial statements.

• Choice “A” is incorrect. A CPA may resell a product to a client. • Choice “B” is incorrect. This is not considered incompatible with a CPA's

practice. • Choice “D” is incorrect. A CPA may accept engagements obtained through

the efforts of third parties.

62



• Correct Answer: D. Independence of a member is impaired if the CPA's spouse, parent, child, sibling, etc. are employed by the client in a position that is audit sensitive (i.e., internal auditor, cashier, accounting supervisor, etc.).

• Choice “A” is incorrect because the tickets will probably be considered a token gift, and receipt of a token gift does not impair independence.

• Choice “B” is incorrect because such an indirect ownership interest will not be deemed to affect independence.

• Choice “C” is incorrect because a friend's relationship to the audit client does not affect independence.

63



• Correct Answer: B. The CPA must not disclose client information without the clients permission.

• Choice “C" is incorrect since the CPA's obligation to maintain the confidentiality of the client information is superior to any concept of Professional courtesy.

• Choice “D" is incorrect. The permission must be received in advance of any disclosure rather than after the disclosure.

• Choice “A" is the second best answer ! ! !

64



• Correct Answer: B. Because the deposit account is fully insured, independence is not considered to be impaired.

• Choice “A" is incorrect. It has been held that an auditor who is appointed the stock transfer agent of a corporation is not considered to be independent because the functions of a stock transfer agent are similar to that of a manager of the client.

• Choice “C" is incorrect. If fees are owed for more than one year, the auditor is considered to be a creditor of the client, and independence is impaired.

• Choice “D" is incorrect. If the client is the auditor's only tenant, the auditor definitely has a financial interest in the clients well being and that impairs independence.

65



• Correct Answer: D. Membership in a social club in which membership requirements involve acquisition of a pro rata share of equity does not impair independence because such equity is not considered to be a direct financial interest. The member however should not serve in any management capacity.

• Choice “A” is incorrect. Leasing property to a client results in an indirect financial interest that impairs a CPA's independence.

• Choice “B” is incorrect. Any direct or material indirect financial interest impairs a CPA's independence with respect to a client, whether or not the financial interest is placed in a blind trust.

• Choice “C” is incorrect. A CPA's independence is considered impaired if the CPA has any loan to or from the client. A loan includes a guarantee of a loan.

66



• Correct Answer: D. An accountant is prohibited from showing the workpapers to anyone without the client's permission, except: 1. Lawful subpoena. 2. Surviving member of the firm. 3. Quality control panel. 4. AICPA/State Trial Board. 5. Court proceedings.

67



1. NJ State Board of Accountancy –

General 2. NJ State Board of Accountancy –







Conduct

Lecture Time 5 min.

5 min.

5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72

73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

68


V. NJ LAW & ETHICS TOPICS NJ State Board of Accountancy - General

The New Jersey State Board of Accountancy Contact and location information:

N.J. Department of Law & Public Safety Division of Consumer Affairs

New Jersey State Board of Accountancy

Located: Mailing:

124 Halsey Street, 6th Floor P.O. Box 45000 Newark, New Jersey 07102 Newark, New Jersey 07101 (973) 504-6380

KEY POINT

In order to gain access to the building, you are required to provide a picture ID.

69



New Jersey State Board of Accountancy website http://www.njconsumeraffairs.gov/accountancy/acct_rules.htm

Click on “Accountancy Regulations”

70

http://www.njconsumeraffairs.gov/accountancy/acct_rules.htm



New Jersey State Board of Accountancy website http://www.njconsumeraffairs.gov/chapters/Chapter%2029%20New%20Jersey%20State%20Board%20of%20Accountancy.pdf

KEY POINT Accountancy Regulations are contained within the

Uniform Regulations of the NJ Division of Consumer Affairs; and

Codified in Title 13 of the NJ Administrative Code Law & Public Safety - Chapter 29

71

http://www.njconsumeraffairs.gov/chapters/Chapter%2029%20New%20Jersey%20State%20Board%20of%20Accountancy.pdf

http://www.njconsumeraffairs.gov/chapters/Chapter%2029%20New%20Jersey%20State%20Board%20of%20Accountancy.pdf



KEY POINT If you see a reference to legal requirements for CPAs in New Jersey, if the number starts with:

13:29- look in the NJ Administrative Code to find the regulation.

45:1- look in the NJ Uniform Enforcement Act to find the law

45:2- look in the NJ State Board of Accountancy Laws (aka “The Accountancy Act of 1997”)

72










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

73


V. NJ LAW & ETHICS TOPICS NJ State Board of Accountancy – Objectives & Authority of Board

The New Jersey State Board of Accountancy 1) Legal authority provided via N.J.S.A. 45:2B-45 2) Purpose:

Established by the State Legislature within the Division of Consumer Affairs, Department of Law & Public Safety

Primary objective: to ensure the accuracy of information used for guidance in financial transactions.

The NJ State Board of Accountancy is : – responsible for establishing appropriate standards for examination and

licensure of qualified accountant applicants – Empowered to investigate and address all allegations of professional

misconduct, and – Take action as deemed necessary with regard to the licensee’s

professional status.

Differentiating the State Board from the AICPA and State Societies

State Board Other organizations

•Issues and has power to revoke licenses •Membership is voluntary

•Rules apply to all licensees •Rules apply only to members

74



The New Jersey State Board of Accountancy 3) Board shall consist of 12 members appointed by the Governor as

follows: N.J.S.A. 45:2B-46

• 9 engaged in the practice of public accountancy with not more than 2 of them being public accountants and at least 1 of whom is both an RMA and a Public School Accountant in the State of New Jersey for at least five years;

(Old rules indicated 7 CPAs and 2 Public Accountants) • 2 public members; and • 1 State Executive Department member. KEY POINTS

• No public member appointed pursuant to this section shall have any association or relationship with the profession or a member thereof regulated by the board of which he is a member, where such association or relationship would prevent such public member from representing the interest of the public.

• Such a relationship includes a relationship with members of one's immediate family; and such association includes membership in the profession regulated by the board.

Revised

75



The New Jersey State Board of Accountancy 4) Powers of the Board: N.J.S.A. 45:2B-48

a. Administer and enforce the provisions of this act;

b. Adopt and promulgate rules, pursuant to the "Administrative Procedure Act,"P.L.1968, c.410 (C.52:14B-1 et seq.), to effectuate the purposes of this act;

c. Establish rules of professional conduct for persons licensed under this act, including, but not limited to, prohibiting the payment to, or receipt or offering of a commission or contingency fee by a licensee and establishing requirements for written disclosures in transactions involving a client of the licensee's accounting practice;

d. Conduct hearings pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.). In any hearing or investigation, the board shall have the right to administer oaths to witnesses, and shall have the power to issue subpoenas for the compulsory attendance of witnesses and the production of pertinent books, papers, or records;

76



The New Jersey State Board of Accountancy 4) Powers of the Board (continued):

e. Take such action as is necessary before any board, agency or court of competent jurisdiction for the enforcement of the provisions of this act;

f. Evaluate and pass upon the qualification of candidates for licensure;

g. Adopt and administer the examinations to be taken by applicants for licensure;

h. Prescribe or change the fees for examinations, licensing, registrations, certifications, renewals, or other services performed pursuant to the provisions of P.L.1974, c.46 (C.45:1-3.1 et seq.);

i. Subject to the requirements of this act, establish standards for and approve continuing education programs and sponsors of continuing education programs; and

j. Have the investigative and enforcement powers provided pursuant to P.L.1978, c.73 (C.45:1-14 et seq.).

77




Objective & Authority of Board 3. NJ State Board of Accountancy -

Uniform Regulations of the Division of Consumer Affairs - Subchapter 1- General Rules





Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

78


SUBCHAPTER 1 -- GENERAL RULES 13:29-1.1 ESTABLISHING NAME OF BOARD The Board shall be known as the New Jersey State Board of Accountancy, and shall maintain an office in the State of New Jersey for the regular transaction of its business. 13:29-1.2 MEETINGS a) The Board shall hold an annual meeting, in each year, in the month of April for the purpose of electing

officers, from among its members, each for the term of one year, or until a qualified successor has been duly elected.

b) Regular monthly meetings will be held in accordance with a published schedule of meetings. Special meetings may be held at the request of any Board member.

13:29-1.5 FEES Fees for Certified Public Accountants, Public Accountants, and accounting firms, including sole proprietorships, partnerships, professional corporations, limited liability companies, or limited liability partnerships are established by the Board. KEY POINT

This section of the regulations is where the current fee structure can be found.

KEY POINT

These meetings are open to the public.

V. NJ LAW & ETHICS TOPICS - NJ State Board of Accountancy Uniform Regulations of the Division of Consumer Affairs, Subchapter 1 – General Rules – Title 13, Chapter 29

79


SUBCHAPTER 1 -- GENERAL RULES (continued) 13:29-1.3 NOTIFICATION OF CHANGE OF ADDRESS; SERVICE OF PROCESS a) A licensee of the Board of Accountancy shall notify the Board in writing of any change of his

or her address of record. For purposes of this section, "address of record" means an address designated by a licensee which is part of the public record and which may be disclosed upon request. "Address of record" may be a licensee's home, business or mailing address, but shall not be a post office box unless the licensee also provides another address which includes a street, city, state and zip code. Notice shall be sent to the Board by mail or by electronic means, no later than 30 days following the change of address of record.

b) Failure to notify the Board of any change in a licensee's address of record pursuant to (a) above may result in disciplinary action in accordance with NJ.S.A.45:1-21(h) and the imposition of the penalties set forth in N.J.S.A.45:1-25.

c) Service of any administrative complaint or other Board-initiated process at a licensee's address of record shall be deemed adequate notice for the purposes of N.J.A.C.1:1-7.1 and commencement of any disciplinary proceedings.

13:29-1.6 NOTIFICATION OF CONVICTIONS a) Any licensee of the Board of Accountancy, upon conviction of any crime, shall notify

the Board of Accountancy of such conviction in writing within 30 days. KEY POINT

The most important of the General Rules relate to the licensee’s responsibility to keep the board informed.

V. NJ LAW & ETHICS TOPICS - NJ State Board of Accountancy Uniform Regulations of the Division of Consumer Affairs, Subchapter 1 – General Rules – Title 13, Chapter 29

80










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

81


V. NJ LAW & ETHICS TOPICS - NJ State Board of Accountancy Uniform Regulations of the Division of Consumer Affairs, Subchapter 1A – Exam & Licensure

SUBCHAPTER 1A – Examination and Licensure

13:29-1A.1 APPLICATIONS FOR EXAMINATION; APPLICANT QUALIFICATIONS 13:29-1A.2 EXAMINATION 13:29-1A.3 APPLICATIONS FOR EXAMINATION; EDUCATION AND EXPERIENCE REQUIREMENTS (eliminating some barriers to the profession

inherent in the former requirements) 13:29-1A.4 GRANTING OF EXAMINATION CREDIT; REEXAMINATION; CONDITIONAL CREDIT 13:29-1A.7 SECURITY AND IRREGULARITIES; CHEATING 13:29-1A.8 LICENSURE BY WAIVER OF EXAMINATION FOR APPLICANTS

LICENSED IN ANOTHER JURISDICTION; APPLICATION PROCEDURES

Good News!! Because you’re already CPAs, you already know what you need from these regulations!!

82

Amended Sept 2015



SUBCHAPTER 1A --EXAMINATION AND LICENSURE 13:29-1A.10 LICENSEE REQUIREMENTS; RENEWAL; SUSPENDED LICENSE; REINSTATEMENT; INACTIVE STATUS a) Applicants who satisfy the requirements of this subchapter shall pay the initial

license fee as set forth in N.J.A.C.13:29-1.5.

b) Every successful applicant shall comply with the Rules of Professional Conduct in N.J.A.C.13:29-3.

c) A Certified Public Accountant shall renew his or her license for a period of three years from the last expiration date. The licensee shall remit a renewal application to the Board, along with the renewal fee set forth in N.J.A.C.13:29-1.5, prior to the date of license expiration. A licensee who submits a renewal application within 30 days following the date of license expiration shall submit the renewal fee, as well as the late fee set forth in N.J.A.C.13:29-1.5. A licensee who fails to submit a renewal application within 30 days of the date of license expiration shall have his or her license suspended without a hearing.

83



SUBCHAPTER 1A -- EXAMINATION AND LICENSURE (continued) Following guidance as provided in the Accountancy Act of 1997 Triennial renewal of individual license; fees (45:2B-58) Every certified public accountant and public accountant licensed to practice public accountancy within this State shall renew his license triennially with the board and pay a triennial license fee established by the board by regulation. Notice of the failure to renew a license and pay the triennial license fee shall be given to any person who fails to do so within 60 days following the license expiration date, which notice shall state that, upon the continued failure to pay that fee, the license issued to that individual will be forfeited at the time and place stated in the notice, unless the fee is paid by the specified time. The board may make rules regarding the reissuance of a license to any person whose license has been forfeited under this section. An individual paying the triennial license fee, in addition to furnishing any other information which the board may require, shall state in the application whether any license as a certified public accountant or public accountant or any charter as a chartered accountant or any other license, permit or registration to practice public accountancy ever issued to or made for that individual by any state or political subdivision of the united States, or by any foreign country or political subdivision thereof, or by any professional accounting organization, has been revoked or suspended, and, if so, state those facts relating to that revocation or suspension as the board may require. 84



SUBCHAPTER 1A -- EXAMINATION AND LICENSURE (continued) What happens when you fail to renew on time but within 30 Days of expiration date?

1. Comply with all requests from the Board 2. Pay the renewal fee 3. Pay late fee

After 30 days, you’re suspended without any hearing. Reissuance of Suspended License: (45:2B-60)

1. In any case where the board has suspended or revoked a license or registration or refused to renew a license or registration, the board may, upon application in writing by the person or firm affected and for good cause shown, modify the suspension, or reissue the license or registration.

2. The board shall prescribe the manner in which such an application shall be made, the time within which it shall be made, and the circumstances in which hearings or applications will be held.

3. Before reissuing, or terminating the suspension of a license or registration under this section, and as a condition of reissuance or termination of suspension, the board may require the applicant to show successful completion of the continuing professional education requirements of this act; and the board may make the reinstatement of a license or registration conditional and subject to satisfactory completion of a quality review conducted in a manner required by the board.

85



SUBCHAPTER 1A --EXAMINATION AND LICENSURE 13:29-1A.10 LICENSEE REQUIREMENTS; RENEWAL; SUSPENDED LICENSE; REINSTATEMENT; INACTIVE STATUS d) A licensee who continues to engage in the practice of accountancy with a suspended license

shall be deemed to be engaging in the unauthorized practice of accountancy and shall be subject to the penalties set forth in N.J.S.A.45:1-25 et seq.

e) A licensee who has had his or her license suspended pursuant to (c) above may apply to the Board for reinstatement within five years following the date of license expiration. A licensee applying for reinstatement shall submit:

1) A renewal application, including an affidavit of employment listing each job held during the period of license suspension, including the names, addresses, and telephone numbers of each employer;

2) All past due renewal fees set forth in N.J.A.C.13:29-1.5;

3) The reinstatement fee set forth in N.J.A.C.13:29-1.5;

4) Any outstanding penalties imposed by the Board; and

5) Evidence of having completed 120 continuing professional education credit hours in the three-year period prior to reinstatement.

86



SUBCHAPTER 1A --EXAMINATION AND LICENSURE 13:29-1A.10 LICENSEE REQUIREMENTS; RENEWAL; SUSPENDED LICENSE; REINSTATEMENT; INACTIVE STATUS New Jersey Uniform Enforcement Act 45:1-7.1 Applicability of act; renewals; reinstatements

Key Points On August 1, P.L. 2013, c. 182, legislation eliminated the “five-year death penalty” provision for CPAs. The new law eliminated the requirement that licensees who let their licenses lapse for more than five years must retake the CPA exam to get their license back.

Under the law, a licensing board will review the circumstances of each lapsed licensee and tailor remediation to address the specific situation of the licensee before reactivating or reinstating a lapsed license.

EFFECTIVE DATE: August 1, 2014

NEW LAW

87










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

88


Registration and Ownership

I. 45:2B-55. Registration of Firm as Public Accountants A. A firm engaged in this State in the practice of attest services shall be required to register

with the board as a firm of public accountants. A firm engaged in the practice accountancy, but not performing attest services, shall be eligible to register with the board as a firm of public accountants. In either case, the firm shall meet the following requirements: 1) At least one owner of a firm shall be a public accountant or certified public

accountant in good standing, and licensed to practice public accountancy in this State;

2) Each owner of the firm, other than a nonlicensee, shall be a public accountant of any state or possession of the United States or the District of Columbia in good standing, and licensed to practice public accountancy where licensed;

3) There shall be a public accountant or certified public accountant in the firm who has ultimate responsibility for each attest engagement. On all firm applications and renewal forms, a licensee shall be designated as responsible and in charge of all professional matters relating to the practice of accountancy by the registered firm. Each resident manager in charge of a practice unit of a firm in this State and each owner thereof, other than a nonlicensee, personally engaged within this State in the practice of public accounting shall be a public accountant or a certified public accountant of this State in good standing and licensed to practice public accountancy in this State.

89



I. 45:2B-55. Registration of Firm as Public Accountants (continued) B. Application for registration of a firm shall be made upon the affidavit of an

owner of the firm who is a public accountant of this State in good standing and licensed to practice public accountancy in this State. The board shall in each case determine whether the applicant is eligible for registration. A firm which is so registered may use the words “public accountant” or the abbreviation “PAs” in connection with its firm name. Notification shall be given to the board within 90 days after admission or withdrawal of an owner licensed and practicing in this State from any firm so registered.

KEY POINT • As defined, the practice of accountancy includes tax return preparation which

requires firm registration.

• A New Jersey CPA with a “side practice” preparing income tax returns is required to have firm registration.

90



II. 45:2B-54-1. Private accounting firms; ownership by non-licensed individuals; requirements A. A firm lawfully engaged in this State in the practice of public accountancy

may have owners who are not licensed as certified public accountants or public accountants if it meets the following requirements: 1) Nonlicensee owners shall be natural persons or entities, including, but not limited

to, partnerships and professional corporations, provided that each ultimate beneficial owner of an equity interest in that entity shall be a natural person materially participating in the business conducted by the firm or entity affiliated with the firm;

2) The ownership interest of nonlicensee owners shall revert to the firm upon the cessation of any material participation by the nonlicensee owner in the business conducted by the firm or entity;

3) Persons who are licensed to practice public accountancy in any state or possession of the united States or the District of Columbia shall in the aggregate, directly or beneficially, comprise not less than half of the owners, hold more than half of the equity capital, and possess majority voting rights of the firm; and

4) Nonlicensee owners shall not hold themselves out as certified public accountants or pubic accountants.

• A financial services corporation the voting stock of which is traded on a recognized exchange or over the counter, may use the truthful fact in advertising that the firm employs certified public accountants.

91



II. 45:2B-54-1. Private accounting firms; ownership by non-licensed individuals; requirements (continued)

B. Except as otherwise permitted by the board, a person shall not become a nonlicensee owner or remain a nonlicensee owner if the person has:

1) Been convicted of any crime, an element of which is dishonesty or fraud, under the laws of this State or any other state, of the United States, or of any other jurisdiction. A conviction includes the initial plea, verdict, or finding of guilty, pleas of no contest, or pronouncement of sentence by a trial court, notwithstanding that conviction may not be final or sentence actually imposed until appeals are exhausted;

2) Had a professional license or the right to practice revoked or suspended for reasons other than nonpayment of fees, or has voluntarily surrendered a license or right to practice with disciplinary charges or a disciplinary investigation pending, which license or right to practice has not been reinstated by a licensing agency of this State or any other state, of the United States, or of any other jurisdiction;

3) Been in violation of P.L. 1997, c.259 (C.45:2B-42 et seq.) or any regulation promulgated by the board under that act.

C. A nonlicensee owner of a licensed firm shall report to the board in writing of the occurrence of any of the events set forth in subsection b. of this section within 30 days of the date the nonlicensee owner has knowledge of the event. The report shall identify the event by the name of the agency or court, the title of the matter, the docket number,and the date of occurrence of the event.

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Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

93


IV. NJ LAW & ETHICS TOPICS Regulations– Title 13, Chapter 29

SUBCHAPTER 4 – PRACTICE PRIVILEGE 13:29-4.1 INDIVIDUALS LICENSED IN OTHER STATES; PRACTICE WITHOUT A NEW JERSEY LICENSE (continued) 45:2B-50.1 Standards for individual with principal place of business out-of-State.

(1) Holds a valid license as a certified public accountant from any state which the National Association of State Boards of Accountancy's (NASBA) National Qualification Appraisal Service has verified to be in substantial equivalence with the certified public accountant licensure requirements of the American Institute of Certified Public Accountants AICPA/NASBA Uniform Accountancy Act; or (2) Holds a valid license as a certified public accountant from any state which the NASBA's National Qualification Appraisal Service has not verified to be in substantial equivalence with the certified public accountant licensure requirements of the AICPA/NASBA Uniform Accountancy Act, but that individual obtains from the NASBA's National Qualification Appraisal Service verification that the individual's personal certified public accountant qualifications are substantially equivalent to the certified public accountant licensure requirements of the AICPA/NASBA Uniform Accountancy Act.

94



SUBCHAPTER 4 – PRACTICE PRIVILEGE 13:29-4.1 INDIVIDUALS LICENSED IN OTHER STATES; PRACTICE WITHOUT A NEW JERSEY LICENSE (continued) 45:2B-50.1 Standards for individual with principal place of business out-of-State. b. In accordance with the provisions of this section and notwithstanding any

other provision of law, an individual who offers or renders professional services, whether in person or by mail, telephone, or electronic means, shall be granted practice privileges in this State and no notice or other submission shall be required of that individual. Such individual shall be subject to the requirements of subsection c. of this section.

KEY POINT Practice privilege is extended without the need for the Board to be notified.

95



SUBCHAPTER 4 – PRACTICE PRIVILEGE 13:29-4.1 INDIVIDUALS LICENSED IN OTHER STATES; PRACTICE WITHOUT A NEW JERSEY LICENSE (continued) 45:2B-50.1 Standards for individual with principal place of business out-of-State. c. An individual licensee of another state exercising the privilege afforded by this section and the firm that employs that licensee hereby simultaneously consent, as a condition of exercising that privilege:

(1) To the personal and subject matter jurisdiction and disciplinary authority of the board;

(2) To comply with P.L.1997, c.259 (C.45:2B-42 et seq.) and the regulations promulgated pursuant to that act;

(3) That in the event the license from the state of the individual's principal place of business is no longer valid, the individual will cease offering or rendering professional services in this State individually and on behalf of a firm; and

(4) To the appointment of the state board or other authority that issued the individual's license as the individual's agent upon which process may be served in any action or proceeding by this State's board against the licensee.

96



SUBCHAPTER 4 – PRACTICE PRIVILEGE 13:29-4.1 INDIVIDUALS LICENSED IN OTHER STATES; PRACTICE WITHOUT A NEW JERSEY LICENSE (continued) 45:2B-50.1 Standards for individual with principal place of business out-of-State. d. An individual who has been granted the practice privilege under this section who, for any entity with its home office in this State, performs any of the following services:

(1) A financial statement audit or other engagement to be performed in accordance with the Statements on Auditing Standards (SAS);

(2) An examination of prospective financial information to be performed in accordance with the Statements on Standards for Attestation Engagements (SSAE); or

(3) An engagement to be performed in accordance with the Public Company Accounting Oversight Board (PCAOB) Auditing Standards;

may only do so through a firm which has registered with the board under section 13 of P.L.1997, c.259 (C.45:2B-54).

97



SUBCHAPTER 4 – PRACTICE PRIVILEGE 13:29-4.1 INDIVIDUALS LICENSED IN OTHER STATES; PRACTICE WITHOUT A NEW JERSEY LICENSE (continued) 45:2B-50.1 Standards for individual with principal place of business out-of-State. e. A licensee of this State offering or rendering services or using a title provided in section 21 of P.L.1997, c.259 (C.45:2B-62) in another state shall be subject to disciplinary action in this State for an action committed in another state for which the licensee would be subject to discipline for an act committed in that state. The board shall investigate any complaint made by the board of accountancy or other licensing authority of another state. f. Any individual who passed the Uniform Certified Public Accountant Examination and holds a valid license issued by any other state prior to January 1, 2012 shall be exempt from the 150 hour education requirement in subsection c. of section 8 of P.L.1997, c.259 (C.45:2B- 49).

98



SUBCHAPTER 4 – PRACTICE PRIVILEGE 13:29-4.2 REGISTRATION OF FIRMS LOCATED IN OTHER STATES

a) A firm that does not have an office in New Jersey shall register with the Board and pay the fee set forth in N.J.A.C.13:29-1.5, if the firm performs the following attest services for a client having its home office in this State:

1) A financial statement audit or other engagement to be performed in accordance with the Statements on; Auditing Standards (SAS);

2) An examination of prospective financial information to be performed in accordance with the Statements on Standards for Attestation Engagements (SSAE); or

3) An engagement to be performed in accordance with the Public Company Accounting Oversight Board (PCAOB) Auditing Standards.

99




b) A firm that does not have an office in New Jersey may perform compilation services or review financial statements in accordance with the Statements on Standards for Accounting and Review Services (SSARS), and may practice public accountancy, consistent with the requirements of this section, for a client having its home office in New Jersey and may use the title "Certified Public Accountant," "CPA," Certified Public Account firm" or "CPA firm," without registering with the Board if:

1) The firm meets the peer review requirements of N.J.S.A.45:2B-67 and N.J.A.C. 13:29-5 and requirements applicable to firm ownership by non-licensed individuals in N.J.S.A.45:2B-54.1a; and

2) The firm performs those services through an individual with practice privileges granted pursuant to N.J.A.C.13:29-4.1.

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SUBCHAPTER 4 – PRACTICE PRIVILEGE 13:29-4.2 REGISTRATION OF FIRMS LOCATED IN OTHER STATES c) A firm that does not have an office in New Jersey and that is not

subject to the requirements of (a) or (b) above may perform other professional services included in the practice of public accountancy while using the title "Certified Public Accountant," "CPA," "Certified Public Account firm" or "CPA firm" in this State without registering with the Board if:

1) The firm performs those services through an individual with practice privileges pursuant to N.J.A.C.13:29-4.1; and

2) The firm can lawfully do so in the state where those individuals with practice privileges have their principal place of business.

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d) A firm that does not have an office in New Jersey and that is required to register with the Board pursuant to (a) above shall meet the following requirements:

1) Services for which registration is required are performed through an individual who qualifies for the practice privilege under N.J.A.C.13:29-4.1;

2) Each owner of the firm, other than a non-licensee, shall be a certified public accountant of any state or possession of the United States or the District of Columbia in good standing, and licensed to practice public accountancy where licensed;

3) There shall be a certified public accountant in the firm who has ultimate responsibility for each attest engagement. On all firm applications and renewal forms, an individual who qualifies for the practice privilege under N.J.A.C.13:29-4.1 shall be designated as responsible and in charge of all professional matters relating to the practice of accountancy by the registered firm.

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Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

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V. NJ LAW & ETHICS TOPICS Uniform Enforcement Act: Complaint Procedures

I. Initiating a Complaint with the Board

A. Complainant writes to the Board summarizing the nature of the complaint. Authorization is given to the Board to forward a copy of the complaint to the licensee so that he or she can respond.

B. When the response has been received the Board will review the matter in the Executive Session of its monthly meeting.

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II. Initial Review by the Board A. The Board will review the matter and take one of several

possible actions.

1. If the complaint does not have sufficient merit, then it can be dismissed for no cause for action.

2. If the complaint is regarding a fee dispute the Board can recommend that it be referred to Alternative Dispute Resolution (ADR) for a nonbinding mediation of the fees.

3. If the Board believe that there is sufficient grounds to hear the matter further, then the licensee and the complainant would be asked to attend an Investigative Inquiry.

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III. Investigative Inquiries A. The Investigative Inquiry is made up of a committee of three

board members and the Deputy Attorney General. The Executive Director also attends the Investigation.

B. The parties may be represented by counsel.

C. A court reporter is present, and sworn testimony is taken from each party.

D. A separate inquiry takes place for the complainant and the licensee.

E. Based upon the investigation the committee will make a recommendation as to what, if any, action will be taken in the matter.

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IV. Board Action A. The Board will discuss the recommendation of the committee in

Executive Session. B. The Board may determine to take no action, assess a penalty and

court costs, order completion of further continuing professional education, order the licensee to make restitution to the complainant, or to seek the suspension or revocation of a license to practice.

C. Prior to taking formal action, which may include the filing of a formal complaint, the Board will present to the licensee a Consent Order (offer of settlement). Should the settlement offer be declined, the licensee, upon the filing of a complaint, will have a formal hearing in the matter with the benefit of counsel.

D. If this is a dispute over the failure of the licensee to return records, the records could be subpoenaed by the Board’s Deputy Attorney General. Cases over failure to return records are encouraged to be resolved before going to an investigation.

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V. Investigations that do not Include the Complainant

A. There are certain complaints where only the licensee is asked to appear. These include:

1) Practicing without a license

2) Sanctions from other jurisdictions or authoritative bodies (SEC, IRS)

3) Actions from professional societies (AICPA, NJSCPA)

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45:1-14. Legislative findings and declarations; liberal construction of act

45:1-15. Boards and professions or occupations regulated by or through such boards; application of act

45:1-15.1 Rules and regulations

45:1-16. Definitions

45:1-17. Powers of Attorney General to implement act and administer law enforcement activities of boards

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45:1-18. Investigative powers of boards, director or attorney general Whenever it shall appear to any board, the director or the Attorney General that a

person has engaged in, or is engaging in any act or practice declared unlawful by a statute or regulation administered by such board, or when the board, the director or the Attorney General shall deem it to be in the public interest to inquire whether any such violation may exist, the board or the director through the Attorney General, or the Attorney General acting independently, may exercise any of the following investigative powers: a. Require any person to file on such form as may be prescribed, a statement or

report in writing under oath, or otherwise, as to the facts and circumstances concerning the rendition of any service or conduct of any sales incidental to the discharge of any act or practice subject to an act or regulation administered by the board;

b. Examine under oath any person in connection with any act or practice subject to an act or regulation administered by the board;

c. Inspect any premises from which a licensed profession or occupation is conducted;

d. Examine any goods, ware or item used in the rendition of any professional or occupation service;

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45:1-18. Investigative powers of boards, director or attorney general (continued)

e. Examine any record, book, document, account or paper maintained by or for any professional or occupational licensee in the regular course of practicing such profession or engaging in such occupation;

f. For the purpose of preserving evident of an unlawful act or practice, pursuant to an order of the superior Court, impound any record, book, document, account, paper, goods, ware, or item used or maintained by or for any board licensee in the regular course of practicing such profession or engaging in such occupation. In such cases as may be necessary, the Superior Court may, on application of the Attorney General, issue an order sealing items or material subject to this subsection.

In order to accomplish the objectives of this act or any act or regulation administered by a board, the Attorney General may hold such investigative hearings as may be necessary and may issue subpoenas to compel the attendance of any person or the production of books, records or papers at any such hearing or inquiry.

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45:1-19. Failure or refusal to file statement or report, refusal of access to premises or failure to obey subpoena; penalty If any person shall fail or refuse to file any statement or report or refuse

access to premises from which a licensed profession or occupation is conducted in any lawfully conducted investigative matter or fail to obey a subpoena issued pursuant to this act, the Attorney General may apply to the Superior Court and obtain an order: a. Adjudging such person in contempt of court; or

b. Granting such other relief as may be required; or

c. Suspending the license of any such person unless and until compliance with the subpoena or investigative demand is effected.

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45:1-20. Compelling testimony or production of book, paper or document; immunity from prosecution

If any person shall refuse to testify or produce any book, paper, or other document in any proceeding under this act for the reason that the testimony or evidence, documentary or otherwise, required of him may tend to incriminate him, convict him of a crime, or subject him to a penalty or forfeiture, and shall, notwithstanding, be directed to testify or to produce such book, paper, or document by the Attorney General, he shall comply with such direction.

A person who is entitled by law to, and does assert such privilege, and who complies with such direction of the Attorney General shall not thereafter be prosecuted or subjected to any penalty or forfeiture in any criminal proceeding which arises out of and relates to the subject matter of the proceeding. No person so testifying shall be exempt from prosecution or punishment for perjury or false swearing committed by him in giving such testimony or from any civil or administrative action arising form such testimony.

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45:1-21. Grounds for refusal to admit to examination or denial, suspension or revocation of any certificate, registration or license; definitions

A board may refuse to admit a person to an examination or may refuse to issue or may suspend or revoke any certificate, registration or license issued by the board upon proof that the applicant or holder of such certificate, registration or license: a. Has obtained a certificate, registration, license or authorization to sit for an

examination, as the case may be, through fraud, deception, or misrepresentation;

b. Has engaged in the use or employment of dishonesty, fraud, deception, misrepresentation, false promise or false pretense;

c. Has engaged in gross negligence, gross malpractice or gross incompetence which damaged or endangered the life, health, welfare, safety or property of any person;

d. Has engaged in repeated acts of negligence, malpractice or incompetence; e. Has engaged in professional or occupational misconduct as may be determined

by the board;

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Uniform Enforcement Act: Complaint Procedures

45:1-21. (continued) f. Has been convicted of, or engaged in acts constituting, any crime or offense

involving moral turpitude or relating adversely to the activity regulated by the board. For the purpose of this subsection a judgment of conviction or a plea of guilty, non vult, nolo contendere or any other such disposition of alleged criminal activity shall be deemed a conviction;

g. Has had his authority to engage in the activity regulated by the board revoked or suspended by any other state, agency or authority for reasons consistent with this section;

h. Has violated or failed to comply with the provisions of any act or regulation administered by the board;

i. Is incapable, for medical or any other good cause, of discharging the functions of a licensee in a manner consistent with the public’s health, safety and welfare;

j. Has repeatedly failed to submit completed applications, or parts of, for documentation submitted in conjunction with, such applications, required to be filed with the Department of Environmental Protection;

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45:1-21. (continued)

k. Has violated any provision of P.L. 1983, c, 320 (C.17.33A-1 et seq.) or any insurance fraud prevention law or act of another jurisdiction or has been adjudicated, in civil or administrative proceedings, of a violation of P.L. 1983, c. 320 (C.17:33A-1 et seq.) or has been subject to a final order, entered in civil or administrative proceedings, that imposed civil penalties under that act against the applicant or holder;

l. Is presently engaged in drug or alcohol use that is likely to impair the ability to practice the profession or occupation with reasonable skill and safety. For purposes of this subsection, the term “presently” means at this time or any time within the previous 365 days;

m. Has prescribed or dispensed controlled dangerous substances indiscriminately or without good cause, or where the applicant or holder knew or should have known that the substances were to be used for unauthorized consumption or distribution;

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45:1-21. (continued)

n. Has permitted an unlicensed person or entity to perform an act for which a license or certificate of registration or certification is required by the board, or aided and abetted an unlicensed person or entity in performing such an act;

o. Advertised fraudulently in any manner. For purposes of this act: “Completed application “ means the submission of all of the information

designated on the checklist, adopted pursuant to section 1 of P.L. 1991, c.421 (C.13:1D-101), for the class or category of permit for which application is made.

“Permit” has the same meaning as defined in section 1 of P.L. 1991, c. 421 (C.13:1D-101).

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45:1-21.1 Annual summary of compliance information and attendance at continuing education seminars; costs; information deemed public records a. A board obtaining information from the Department of Environmental Protection

pursuant to section 1 of P.L. 1991, c. 418 (C.13:1D-110) on the compliance of a member of a regulated profession with the requirements for completed applications of the department, shall annually develop a detailed written summary of the information gathered by the department pursuant to P.L. 1991, c. 418 (C.13:1D-110) regarding compliance with the department’s requirements for completed applications and attendance records for continuing education seminars required to be filed with the department pursuant to section 2 of P.L. 1991, c. 419 (C.13:1D-117).

b. Any reasonable costs incurred in preparation of the report required pursuant to this section may be included in the charges authorized pursuant to P.L. 1974, c. 46 (C.45:1-3.2).

c. Information required to be compiled by a board pursuant to this section, shall be deemed to be public records subject to the requirements of P.L. 1963, c. 73 (C.47:1A-1 et seq.).

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45:1-21.2 Suspension of certain licenses; hearing The director or a board shall suspend, as appropriate, after a hearing, the

license, registration or certification of any person who has been certified by a lender or guarantor and reported to the director or the board, as the case may be, for nonpayment or default of a State or federal direct or guaranteed educational loan.

The license, registration or certification shall not be reissued until the person provides the director or board with a written release issued by the lender or guarantor stating that the person has cured the default or is making payment on the loan in accordance with a repayment agreement approved by the lender or guarantor.

If the person has continued to meet all other requirements for licensure, registration or certification during the suspension, reinstatement shall be automatic upon receipt of the notice and payment of any reinstatement fee the director or the board may impose.

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45:1-22 Additional or alternative penalties to revocation, suspension or refusal to renew; temporary order suspending or limiting license; subpoena

In addition or as an alternative, as the case may be, to revoking, suspending or refusing to renew any license, registration or certificate issued by it, a board may, after affording an opportunity to be heard:

a. Issue a letter of warning, reprimand, or censure with regard to any act, conduct or practice which in the judgment of the board upon consideration of all relevant facts and circumstances does not warrant the initiation of formal action;

b. Assess civil penalties in accordance with this act;

c. Order that any person violating any provision of an act or regulation administered by such board to cease and desist from future violations thereof or to take such affirmative corrective action as may be necessary with regard to any act or practice found unlawful by the board;

d. Order any person found to have violated any provision of an act or regulation administered by such board to restore to any person aggrieved by an unlawful act or practice, any moneys or property, real or personal, acquired by means of such act or practice; provided, however, not board shall order restoration in a dollar amount greater than those moneys received by a licensee or his agent or any other person violating the act or regulation administered by the board;

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45:1-22 (continued) e. Order any person, as a condition for continued, reinstated or renewed licensure,

to secure medical or such other professional treatment as may be necessary to properly discharge licensee functions. A board may, upon a duly verified application of the Attorney General that either provides proof of a conviction of a court of competent jurisdiction for a crime or offense involving moral turpitude or relating adversely to the regulated profession or occupation, or alleges an act or practice violating any provision of an act or regulation administered by such board, enter a temporary order suspending or limiting any license issued by the board pending plenary hearing on an administrative complaint; provided, however, now such temporary order shall be entered unless the application made to the board palpably demonstrates a clear and imminent danger to the public health, safety and welfare and notice of such application is given to the licensee affected by such order. In any administrative proceeding commenced on a complaint alleging a violation of an act or regulation administered by a board, such board may issue subpoenas to compel the attendance of witnesses or the production of books, records or documents at the hearing on the complaint.

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45:1-23. Summary proceeding in Superior Court; injunction; orders necessary to prevent unlawful practice or remedy past unlawful activity

Whenever it shall appear to a board, the director or the Attorney General that a violation of any act, including the unlicensed practice of the regulated profession or occupation, or regulation administered by such board has occurred, is occurring, or will occur, the Attorney General, in addition to any other proceeding authorized by law, may seek and obtain in a summary proceeding in the Superior Court an injunction prohibiting such act or practice.

In any such proceeding the court may assess a civil penalty in accordance

with the provisions of this act, order restoration to any persons in interest of any moneys or property, real or person, acquired by means of an unlawful act or practice and may enter such orders as may be necessary to prevent the performance of an unlawful practice in the future and to fully remedy any past unlawful activity. In any action brought pursuant to this section, the court shall not suspend or revoke any license issued by a board. 122



45:1-24 Failure to comply with the order of board directing payment of penalties or restoration of moneys or property; enforcement

Upon the failure of any person to comply within 10 days after service of any order of a board directing payment of penalties or restoration of moneys or property, the Attorney General or the secretary of such board may issue a certificate to the Clerk of the Superior Court that such person is indebted to the State for the payment of such penalty and the moneys or property ordered restored. A copy of such certificate shall be served upon the person against whom the order was entered. Thereupon the clerk shall immediately enter upon his record of docketed judgments the name of the person so indebted and of the State, a designation of the statute under which the penalty is imposed, the amount of the penalty imposed, and amount of moneys ordered restored, a listing of property ordered restored, and the date of the certification. Such entry shall have the same force and effect as the entry of a docketed judgment in the Superior Court, and the Attorney General shall have all rights and remedies of a judgment creditor in addition to exercising any other available remedies. Such entry, however, shall be without prejudice to the right of appeal to the Appellate Division of the Superior Court from the board’s order.

123



45:1-24. (continued) An action to enforce the provision of any order entered by a board or to collect any penalty levied thereby may be brought in any municipal court or the Superior Court in summary manner pursuant to the Penalty Enforcement Act, (N.J.S.A. 2A:58-1 et seq.) and the rules of court governing the collection of civil penalties. Process in such action shall be by summons or warrant, and in the event that the defendant fails to answer such action, the court shall issue a warrant for the defendant’s arrest for the purpose of bringing such person before the court to satisfy any order entered.

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45:1-25. Violations; civil penalty; action to collect or enforce Any person who engages in any conduct in violation of any provision of an

act or regulation administered by a board shall, in addition to any other sanctions provided herein, be liable to a civil penalty of not more than $10,000 for the first violation and not more than $20,000 for the second and each subsequent violation. For the purpose of construing this section, each act in violation of any provision of an act or regulation administered by a board shall constitute a separate violation and shall be deemed a second or subsequent violation under the following circumstances: 1) An administrative or court order has been entered in a prior, separate

and independent proceeding; 2) The person is found within a single proceeding to have committed

more than one violation of any provision of an act or regulation administered by a board; or

3) The person is found within a single proceeding to have committed separate violations of any provision of more than one act or regulation administered by a board.

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45:1-25. (continued) b. In lieu of an administrative proceeding or an action in the Superior Court, the

Attorney General may bring an action in the name of any board for the collection or enforcement of civil penalties for the violation of any provision of an act or regulation administered by such board. Such action may be brought in summary manner pursuant to “the penalty enforcement law” (N.J.S.A. 2A:58-1 et seq.) and the rules of court governing actions for the collection of civil penalties in the municipal court where the offense occurred. Process in such action may be by summons or warrant and in the event that the defendant in such action fails to answer such action, the court shall, upon finding an unlawful act or practice to have been committed by the defendant, issue a warrant for the defendant’s arrest in order to bring such person before the court to satisfy the civil penalties imposed. In any action commenced pursuant to this section, the court may order restored to any person in interest any moneys or property acquired by means of an unlawful act or practice.

c. Any action alleging the unlicensed practice of a profession or occupation shall be brought pursuant to this section or, where injunctive relief is sought, by an action commenced in the Superior Court. In any action brought pursuant to this act, a board or the court may order the payment of costs for the use of the State, including, but not limited to, costs of investigation, expert witness fees and costs, attorney fees and costs, and transcript costs.

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13:45C Uniform Regulations of the NJ Division of Consumer Affairs 13:45C-1.2 Licensee's duty to cooperate in investigative inquiries (a) A licensee shall cooperate in any inquiry, inspection or investigation conducted

by, or on behalf of, a board, the Director or the licensee's licensing agency into a licensee's conduct, fitness or capacity to engage in a licensed profession or occupation where said inquiry is intended to evaluate such conduct, fitness or capacity for compliance with applicable statutory or regulatory provisions.

(b) A licensee's failure to cooperate, absent good cause or bona fide claim of a

privilege not identified in N.J.A.C. 13:45C-1.5 as unavailable, may be deemed by the board, the Director, or the licensing agency to constitute professional or occupational misconduct within the meaning of N.J.S.A. 45:1-21(e) or the agency's enabling act and thus subject a licensee to disciplinary action pursuant to N.J.S.A. 45:1-21(h) or the agency's enabling act.

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13:45C-1.3 Specific conduct deemed failure to cooperate (a) The following conduct by a licensee may be deemed a failure to cooperate and,

therefore, professional or occupational misconduct and grounds for disciplinary action including, but not limited to, suspension or revocation of licensure:

1. The failure to timely respond to an inquiry to provide information in response to a complaint received concerning licensee conduct;

2. The failure to timely provide records related to licensee conduct;

3. The failure to attend any scheduled proceeding at which the licensee's appearance is directed. In the event that a licensee elects to retain counsel for the purpose of representation in any such proceeding, it shall be the licensee's responsibility to do so in a timely fashion. The failure of a licensee to retain counsel, absent a showing of good cause therefore, shall not cause an adjournment of the proceeding;

128



4. The failure to timely respond or to provide information requested pursuant to a demand under N.J.S.A. 45:1-18 or other applicable law or to provide access to any premises from which a licensed profession or occupation is conducted.

Included within this paragraph shall be the failure to respond to any demand for statement or report under oath, the failure to permit the examination of any goods, ware or item used in the rendition of the professional or occupational service and the failure to grant access to records, books or other documents utilized in the practice of the occupation or profession;

5. The failure to answer any question pertinent to inquiry made pursuant to N.J.S.A. 45:1-18 or other applicable law unless the response to said question is subject to a bona fide claim of privilege;

6. The failure to make proper and timely response by way of appearance or production of documents to any subpoena issued pursuant to N.J.S.A. 45:1-18 or as may otherwise be provided by law; or

7. The failure to provide to the Board, the Director or the licensing agency timely notice of any change of address from that which appears on the licensee's most recent license renewal or application.

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13:45C-1.4 Failure to comply with Board orders as professional or occupational misconduct

The failure of a licensee to comply with an order duly entered and served upon the licensee or of which the licensee has knowledge shall be deemed professional or occupational misconduct.

13:45C-1.5 Unavailability of privileges in investigative or disciplinary

proceedings (a) In any investigative inquiry conducted pursuant to N.J.S.A. 45:1-18 or in any disciplinary

proceeding conducted pursuant to N.J.S.A. 45:1-21, or as may otherwise be authorized by law, the physician-patient privilege, psychologist patient privilege, marriage and family therapist-client privilege, professional counselor-client privilege, associate counselor- client privilege, social worker-client privilege and the alcohol and drug counselor-client privilege shall be unavailable.

(b) Any statements or records otherwise subject to a claim of the stated privileges which may be obtained by the Board, its agent or the Attorney General pursuant to N.J.S.A. 45:1-18 shall remain confidential and shall not be disclosed unless so ordered by a court of competent jurisdiction, the appropriate licensing board or the Office of Administrative Law in a contested case.

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13:45C-1.6 Maintenance of and access to statements, records or other information that is subject to a privilege declared unavailable

(a) Any statements, records or other information which may be subject to any

privilege declared unavailable in this subchapter shall be maintained in a secure place and manner by: 1. The evidence custodian within the Division of Consumer Affairs,

Enforcement Bureau; 2. The professional or occupational licensing board and the committee or

other subunit of a board or committee located within the Division which has a direct connection with, or a need for access to, the matter to which the statements, records or other information pertain; or

3. A Deputy Attorney General.

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(b) Except as may be otherwise ordered as provided in the subchapter, access to statements, records or other information shall be afforded only to employees and agents of, and experts or other consultants retained by, the Attorney General, the Enforcement Bureau, or the Board or other subunit of the Division having a direct connection with, or a need for access to, the matter to which the statement, records or other information pertain.

(c) The statements, records or other information may be retained for the period

of time during which an investigation remains open or until the completion of all administrative or judicial proceedings relating thereto, at which time they may be returned to the licensee or other person from whom they were obtained. In the absence of such licensee or other person, the statements, records or other information may be returned to the patient, where appropriate.

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Uniform Enforcement Act: Complaint Procedures Ethics Questions?

Useful resources:

• State Board of Accountancy 973-504-6380

• AICPA Ethics Hotline 888-777-7077

• NJ Society of CPAs 973-226-4494

• NJ Society of CPAs Code of http://www.njscpa.org/about/codeofconduct Professional Conduct (Code of Professional Conduct)

• GAO Independence Standard http://www.gao.gov/products/GAGAS-ED-4

• SEC Independence Standard www.sec.gov/rules/final/33-7919.htm

• New Jersey Statutes & Regulations http://www.state.nj.us/lps/ca/accountancy

Then, select: Laws & Regulations

133

http://www.njscpa.org/about/codeofconduct

http://www.gao.gov/products/GAGAS-ED-4

http://www.sec.gov/rules/final/33-7919.htm

http://www.state.nj.us/lps/ca/accountancy


New Jersey Law & Ethics 2015-2017 Topical areas

Because you are a New Jersey CPA: 1. Uniform Enforcement Act

2. The Accountancy Act of 1997

3. NJ State Board of Accountancy

4. Uniform Regulations of the Division of Consumer Affairs

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V. NJ LAW & ETHICS TOPICS Basis for regulation of CPAs in New Jersey

New Jersey State Board of Accountancy website http://www.state.nj.us/lps/ca/laws/uniformact.pdf The New Jersey Uniform Enforcement Act (NJSA 45:1.1 et seq.)

Provides a foundation for Accountancy Act of 1997. It applies to all professions or occupations governed or regulated

by the state. Many areas are specific to health care and related professions We’ll address only the major provisions applicable to the

accounting profession

135

http://www.state.nj.us/lps/ca/laws/uniformact.pdf


V. NJ LAW & ETHICS TOPICS NJ State Board of Accountancy

New Jersey State Board of Accountancy website http://www.njconsumeraffairs.gov/accountancy/

NJS Board of Accountancy resides within the NJ Division of Consumer Affairs

Click on “Laws & Regulations”

136

http://www.njconsumeraffairs.gov/accountancy/




Click on “Uniform Enforcement Act”

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The New Jersey Uniform Enforcement Act (NJSA 45:1.1 et seq.) http://www.state.nj.us/lps/ca/laws/uniformact.pdf

45:1‐2.1 Applicability of act.

The provisions of this act shall apply to the following boards and commissions: the New Jersey State Board of Accountancy, the New Jersey State Board of Architects, the New Jersey State Board of Cosmetology and Hairstyling, the Board of Examiners of Electrical Contractors, the New Jersey State Board of Dentistry, the State Board of Mortuary Science of New Jersey, the State Board of Professional Engineers and Land Surveyors, the State Board of Marriage and Family Therapy Examiners, the State Board of Medical Examiners, the New Jersey Board of Nursing, the New Jersey State Board of Optometrists, the State Board of Examiners of Ophthalmic Dispensers and Ophthalmic Technicians, the Board of Pharmacy, the State Board of Professional Planners, the State Board of Psychological Examiners, the State Board of Examiners of Master Plumbers, the New Jersey Real Estate Commission, the State Board of Court Reporting, the State Board of Veterinary Medical Examiners, the Radiologic Technology Board of Examiners, the Acupuncture Examining Board, the State Board of Chiropractic Examiners, the State Board of Respiratory Care, the State Real Estate Appraiser Board, the State Board of Social Work Examiners, the State Board of Examiners of Heating, Ventilating, Air Conditioning and Refrigeration Contractors, the State Board of Physical Therapy Examiners, the Orthotics and Prosthetics Board of Examiners, the New Jersey Cemetery Board, the State Board of Polysomnography, the New Jersey Board of Massage and Bodywork Therapy, the Genetic Counseling Advisory Committee and any other entity hereafter created under Title 45 to license or otherwise regulate a profession or occupation.

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45:1‐2.2 Membership of certain boards and commissions; appointment, removal, quorum.

2. a. All members of the several professional boards and commissions shall be appointed by the Governor in the manner prescribed by law; except in appointing members other than those appointed pursuant to subsection b. or subsection c., the Governor shall give due consideration to, but shall not be bound by, recommendations submitted by the appropriate professional organizations of this State. b. In addition to the membership otherwise prescribed by law, the Governor shall appoint in the same manner as presently prescribed by law for the appointment of members, two additional members to represent the interests of the public, to be known as public members, to each of the following boards and commissions: the New Jersey State Board of Accountancy, the New Jersey State Board of Architects, the New Jersey State Board of Cosmetology and Hairstyling, the New Jersey State Board of Dentistry, the State Board of Mortuary Science of New Jersey, the State Board of Professional Engineers and Land Surveyors, the State Board of Medical Examiners, the New Jersey Board of Nursing, the New Jersey State Board of Optometrists, the State Board of Examiners of Ophthalmic Dispensers and Ophthalmic Technicians, the Board of Pharmacy, the State Board of Professional Planners, the State Board of Psychological Examiners, the New Jersey Real Estate Commission, the State Board of Court Reporting, the State Board of Social Work Examiners, and the State Board of Veterinary Medical Examiners, and one additional public member to each of the following boards: the Board of Examiners of Electrical Contractors, the State Board of Marriage and Family Therapy Examiners, the State Board of Examiners of Master Plumbers, and the State Real Estate Appraiser Board.

139





45:1‐21 Refusal to license or renew, grounds. A Board may refuse to admit a person to an examination or may refuse to issue or may suspend or revoke any certificate, registration or license issued by the board upon proof that the applicant or holder of such certificate, registration or license: a. Has obtained a certificate, registration, license or authorization to sit for an

examination, as the case may be, through fraud, deception or misrepresentation;

b. Has engaged in the use or employment of dishonesty, fraud, deception, misrepresentation, false promise or false pretense;

KEY POINT This provision provides the basis for the criteria found in the Accountancy Act of

1997 at 45:2B-59 and will be discussed in greater detail later in the course.

140





Other guidance included in NJSA 45:1.1 et seq includes provisions addressing: • Qualifications, rights and duties of Board members • Granting the Board the authority to

• Establish the fees charged for examinations, licensures and other services

• Issue licenses or certificates of registration • Have oversight over requirements for license renewals and

reinstatements • The Act also provides the powers to implement the act and administer law

enforcement activities of the Board with the State Attorney General.

KEY POINT As on the previous slide, these provisions provide the basis for the criteria

found in corresponding sections of the Accountancy Act of 1997 and will be discussed in greater detail later in the course.

141











Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

142


V. NJ LAW & ETHICS TOPICS 1. Rules of the NJ State Board of Accountancy

New Jersey Division of Consumer Affairs

1. Mission is to protect the public from fraud, deceit and misrepresentation in the sale of goods and provision of services.

2. One key responsibility of the Division of Consumer Affairs is the supervision of 41 boards and committees regulating more than 80 professions and occupations.

KEY POINTS •The New Jersey State Board of Accountancy is one of the

41 boards mentioned above. •There are roughly 600,000 professionals licensed by these boards.

143



Find Title 13 here “Law & Public Safety”

Help and a tutorial are available if needed.

Search engine functionality is available. If not proficient using search tools, select “Natural Language”

144



Title 13, Chapter 29 -- New Jersey State Board of Accountancy

145



Title 13, Chapter 29 Subchapter 1-General Rules Subchapter 1A-Examination &

Licensure Subchapter 2-Registered Municipal

Accountants Subchapter 3-Rules of Professional

Conduct Subchapter 4-Practice Privilege Subchapter 5-Peer Review Program Subchapter 6-Continuing

Professional Education

146










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

147




Click on “Accountancy Statutes”

148



V. NJ LAW & ETHICS TOPICS NJ State Board of Accountancy

New Jersey State Board of Accountancy website http://www.state.nj.us/lps/ca/laws/accountancylaws.pdf

KEY POINT

Statutes = Accountancy Laws = Accountancy Act of 1997

149

http://www.state.nj.us/lps/ca/laws/accountancylaws.pdf



The New Jersey State Board of Accountancy 1) Legal authority provided via N.J.S.A. 45:2B-45 2) Purpose:

Established by the State Legislature within the Division of Consumer Affairs, Department of Law & Public Safety

Primary objective: to ensure the accuracy of information used for guidance in financial transactions.

The NJ State Board of Accountancy is : – responsible for establishing appropriate standards for examination and

licensure of qualified accountant applicants – Empowered to investigate and address all allegations of professional

misconduct, and – Take action as deemed necessary with regard to the licensee’s

professional status.

Differentiating the State Board from the AICPA and State Societies

State Board Other organizations

•Issues and has power to revoke licenses •Membership is voluntary

•Rules apply to all licensees •Rules apply only to members

150










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

151


V. NJ LAW & ETHICS TOPICS AICPA Code of Professional Conduct

AICPA Code of Professional Conduct

From the AICPA Home Page, select: 1) Interest areas, then 2) Professional ethics http://www.aicpa.org/interestareas/professionalethics/Pages/ProfessionalEthics.aspx

152

http://www.aicpa.org/interestareas/professionalethics/Pages/ProfessionalEthics.aspx



AICPA Ethics Codification Project Objective The AICPA’s Professional Ethics Executive Committee (PEEC) restructured the Institute’s ethics standards to improve the AICPA Code of Professional Conduct (Code) so that members and others can apply the rules and reach correct conclusions more easily and intuitively. Content is reorganized To achieve this, the AICPA Professional Ethics Executive Committee (PEEC):

• restructured the Code into several parts each organized by topic; • edited the Code using consistent drafting and style conventions; • incorporated a conceptual framework for members in public practice

and in business; • revised certain Code provisions to reflect the "conceptual framework"

approach (also known as the "threats and safeguard" approach); and • where applicable, referenced existing non-authoritative guidance to

the relevant topic. 153



AICPA Ethics Codification Project Improved usability The updated code lives on a new and dynamic online platform that not only allows the user to conduct and save basic and advanced searches but also includes the ability to email links, create and name bookmarks and add and save notes while reviewing the code. In addition, the online platform features pop-ups for defined terms as well as hyperlinks connecting to other relevant content within the code as well as external non-authoritative material issued by staff of the Ethics Division. KEY POINT The new Code is effective December 15, 2014 with early adoption encouraged.

154



A New User-Friendly AICPA Code of Ethics During the reformatting process the intent was to maintain the substance of the existing ethics standards: • Improvements were made to clarify the guidance, resulting in greater ease

of use.

• Most substantive changes were made either to elevate non-authoritative guidance into authoritative standards or to broaden existing guidance.

• The most significant substantive change is the incorporation of two conceptual frameworks, one for members in public practice and one for members in business.

KEY POINT The conceptual framework approach is a way of identifying, evaluating,

and addressing threats to compliance with the rules resulting from a specific relationship or circumstance that is not otherwise addressed in the code.

155



A New User-Friendly AICPA Code of Ethics Then Prior to this revision, the code was not intuitively organized. It was organized by rule, and then, where interpretive guidance had been issued, a listing of interpretations and ethics rulings appeared in chronological order. Now The reformatted code is intuitively organized. It begins by separating the guidance by line of business (e.g., separate parts

for members in public practice, business, other), and Then by topic, and, Where necessary, topics are further broken down into subtopics and sections.

KEY POINT The revised AICPA Code of Professional Conduct is divided into three sections:

• Preface -- applicable to all members of the AICPA • Part I -- For members in public practice • Part II -- For members in business. • Part III – For members in other

156



A New User-Friendly AICPA Code of Ethics Depending on the guidance you are looking for, you will now be able to navigate quickly to the relevant content. Illustration: • Part II of the revised Code contains all guidance for members in business (below). • It is comprised of six (6) topics. • If a member in business had a question regarding accepting a gift from a customer or

vendor, selecting 2.100 Integrity & Objectivity would reveal four (4) subtopics. Result: The ability to find and access the relevant guidance has been greatly improved.

157



More on the AICPA Conceptual Framework Approach

The most significant change to the content in the revised AICPA Code is the incorporation of three conceptual frameworks:

• one for members in public practice, and • one for members in business. • one for members in other.

The conceptual framework approach included in these two frameworks is a way of identifying, evaluating and addressing threats to compliance with the rules resulting from a specific relationship or circumstance that is not otherwise addressed in the code. KEY POINTS

• To assist with implementation, the AICPA Professional Ethics Division maintains a “toolkit” on it’s website focusing on how to apply the conceptual frameworks.

• It also includes discussions of the specific types of threats that may exist and safeguards that may be applied to reduce or eliminate those threats to an acceptable level.

http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/Pages/ethics-codification-implementation-tools.aspx

158










Conceptual Framework Approach 1. Identify threats—When a member encounters a situation not

specifically addressed by a rule or interpretation, the member should determine whether the relationship or circumstance creates one or more threats. a. Adverse interest threat—the threat that a member will not

act with objectivity because the member's interests are opposed to the client's interests.

b. Advocacy threat—the threat that a member will promote a client's interests or position to the point that his or her objectivity or independence is compromised.

c. Familiarity threat—the threat that, due to a long or close relationship with a client, a member will become too sympathetic to the client's interests or too accepting of the client's work.

158a



d. Management participation threat—the threat that a member will take on the role of client management or otherwise assume management responsibilities, such may occur during an engagement to provide non-attest services.

e. Self-interest threat—the threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, a client or persons associated with the client.

f. Self-review threat—the threat that a member will not appropriately evaluate the results of a previous judgment made or service performed or supervised by the member or an individual in the member's firm and that the member will rely on that service in forming a judgment as part of another service.

g. Undue Influence threat—the threat that a member will subordinate his or her judgment to an individual associated with a client or any relevant third party due to that individual's reputation or expertise, aggressive or dominant personality, or attempts to coerce or exercise excessive influence over the member.

158b


Step 1 Identify Threats

Step 2 Evaluate Threats

Step 3 Identify

Safeguards

No Threats Proceed

Threats not Significant Proceed

Existing New

Step 4 Evaluate

Safeguards

Threats Not Acceptable

Level…Stop

Threats at Acceptable

Proceed


Illustrating the Conceptual Framework

159



Applying the steps of the Conceptual Framework Approach Step 1: Identify threats to compliance with the rules. If no threats, then proceed with service. If threats are identified, then must proceed to Step 2. Step 2: Evaluate the significance of the threats to determine whether the threats

are at an acceptable level. If threats are at an acceptable level, then proceed with service. If threats are not at an acceptable level, then must proceed to Step 3. Step 3: Identify safeguards that can be applied.

KEY POINT Safeguards can be existing safeguards or new safeguards.

160



Applying the steps of the Conceptual Framework Approach (continued)

Step 4:

Evaluate the safeguards to determine if they eliminate or reduce threats to an acceptable level.

If it’s concluded that threats are at an acceptable level after applying safeguards, proceed with service.

KEY POINTS In some cases, an identified threat may be so significant that no safeguards

will eliminate it or reduce it to an acceptable level, or you may be unable to implement effective safeguards.

Under such circumstances, providing the specific professional services would compromise your compliance with the rules, and you would need to determine whether to decline or discontinue the professional services or resign from the engagement.

161



CODIFICATION OF THE AICPA CODE OF PROFESSIONAL CONDUCT-- SUMMARY OF KEY POINTS 1. Prior to the revision, the AICPA’s Code of Professional Conduct was not

structured for quick and easy navigation. The changes are mostly organizational, but some are substantive.

2. The reformatted ethics code is organized into three parts.

• Part 1 applies to AICPA members in public practice;

• Part 2 to members in business; and

• Part 3 to all other members, including those who are retired or between jobs.

3. The most significant substantive change is the incorporation of conceptual frameworks for members in public practice and business.

4. The revised code is effective December 15, 2014 with early adoption permitted.

162



Preface: Applicable to All Members 0.100 Overview of the Code of Professional Conduct .01 The AICPA Code of Professional Conduct (the code) begins with this

preface, which applies to all members. The term member, when used in part 1 of the code, applies to and

means a member in public practice; when used in part 2 of the code, applies to and means a member in

business; and when used in part 3 of the code, applies to and means all other

members, such as those members who are retired or unemployed.

163



Preface: Applicable to All Members 0.100 Overview of the Code of Professional Conduct

.02 A member may have multiple roles, such as a member in business and a member in public practice. In such circumstances, the member should consult all applicable parts of the code and apply the most restrictive provisions.

KEY POINTS • Members have a responsibility to cooperate with each other to improve

the art of accounting, maintain the public's confidence, and carry out the profession's special responsibilities for self-governance.

• The collective efforts of all members are required to maintain and enhance the traditions of the profession.

164



Topic Part 1: CPAs in Public Practice

Part 2: CPAs in Business

Part 3: CPAs not in Public Practice or

Business

Integrity & Objectivity 1.100 2.100 n/a

Independence 1.200 n/a n/a

Competence 1.300 2.300 n/a

Advertising/Holding out 1.600 2.400.100 3.400.100

Confidentiality 1.700 2.400.070 3.400.070

Forms of Organization 1.800 n/a n/a

Acts Discreditable 1.400 2.400 3.400 Discrimination/Harassment in workplace

1.400.010 2.400.010 3.400.010

Solicit/Disclose CPA exam 1.400.020 2.400.020 3.400.020 Failure to pay income taxes 1.400.030 2.400.030 3.400.030 Use of CPA credential 1.400.100 2.400.100 3.400.100

165



0.100.010 Principles and Rules of Conduct

.01 The AICPA membership adopted the Code of Professional Conduct (the code) to provide guidance and rules to all members in the performance of their professional responsibilities. The code consists of principles and rules as well as interpretations and other guidance which are discussed in 0.100.020.

KEY POINT The principles provide the framework for the rules that

govern the performance of their professional responsibilities.

166



0.100.010 Principles and Rules of Conduct .02 The AICPA bylaws require that members adhere to the rules of the code. Compliance with the rules depends:

• primarily on members’ understanding and voluntary actions;

• secondarily on reinforcement by peers and public opinion; and

• ultimately on disciplinary proceedings, when necessary, against members who fail to comply with the rules.

KEY POINT Members must be prepared to justify departures from these rules.

167



KEY POINTS • A member who departs from the interpretations shall have the burden of

justifying such departure in any disciplinary hearing.

• Interpretations that existed before the adoption of the code on January 12, 1988, will remain in effect until further action is deemed necessary by the appropriate senior committee.

Preface: Applicable to All Members 0.100.020 Interpretations and Other Guidance .01 Interpretations of the rules of conduct are adopted after exposure to the membership, state societies, state boards, and other interested parties. The interpretations of the rules of conduct, “Definitions” [0.400], “Application of the AICPA Code” [0.200.020], and “Citations” [0.200.030], provide guidelines about the scope and application of the rules but are not intended to limit such scope or application.

168



KEY POINTS If applicable, members are required to ensure they’re compliant with any ethical requirements promulgated by:

• The member’s state CPA society and authoritative regulatory bodies such as state board(s) of accountancy

• The Securities and Exchange Commission (SEC)

• The Public Company Accounting Oversight Board (PCAOB)

• The Government Accountability Office (GAO)

• The Department of Labor (DOL), and/or

• Federal, state and local taxing authorities

Preface: Applicable to All Members 0.100.020.02 Interpretations and Other Guidance

169



KEY POINTS These sections, “Conceptual Framework for Members in Public Practice” [1.000.010] and “Conceptual Framework for Members in Business” [2.000.010], will be effective December 15, 2015. Members are permitted to implement the revised code prior to December 15, 2014, but a member may not implement the relevant Conceptual Framework prior to implementing the entire revised code.

Preface: Applicable to All Members 0.200.020 Application of the AICPA Code .01 On June 1, 2014, the AICPA issued a codification of the code’s principles, rules, interpretations and rulings (revised code). The revised code will be effective December 15, 2014, excluding the Conceptual Framework sections. .02 When used in the preface of the code, the term member includes members, associate members, and affiliate members, as well as international associates of the AICPA.

170



KEY POINTS When a member is associated with financial statements under circumstances that would lead the reader to assume that practices of the United States were followed, • the member must comply with the “Compliance With Standards Rule” [1.310.001 for

members in public practice and 2.310.001 for members in business], and • the “Accounting Principles Rule” [1.320.001 for members in public practice and 2.320.001

for members in business].

Preface: Applicable to All Members 0.200.020 Application of the AICPA Code

.03 The rules of conduct apply to all professional services performed, except a. when the wording of the rule indicates otherwise. b. that a member who is practicing outside the United States will not be considered in violation of a particular rule for departing from any of the rules stated herein, as long as the member’s conduct is in accordance with the rules of the organized accounting profession in the country in which he or she is practicing.

171



KEY POINTS International Ethics Standards Board for Accountants’ (IESBA’s) has its own

Code of Ethics for Professional Accountants that apply to foreign auditors/accountants.

Preface: Applicable to All Members 0.200.020 Application of the AICPA Code .03 (continued) c. that a member who is a member of a group engagement team (see the clarified Statement on Auditing Standards Special Considerations—Audits of Group Financial Statements [Including the Work of Component Auditors] [AICPA, Professional Standards, AU-C sec. 600]) will not be considered in violation of a particular rule if a foreign component auditor (accountant) departed from any of the rules stated herein with respect to the audit or review of group financial statements or other attest engagement, as long as the foreign component auditor’s (accountant’s) conduct, at a minimum, is in accordance with the ethics and independence requirements set forth in the International Ethics Standards Board for Accountants’ (IESBA’s) Code of Ethics for Professional Accountants, and the members of the group engagement team are in compliance with the rules stated therein.

172



Preface: Applicable to All Members

0.200.020 Application of the AICPA Code d. that the independence of the member’s firm will not be considered impaired if another firm or entity located outside the United States that is within the member firm’s network departed from any of the rules stated herein, as long as the other firm or entity’s conduct, at a minimum, is in accordance with the independence requirements set forth in the IESBA’s Code of Ethics for Professional Accountants. .04 A member shall not knowingly permit a person whom the member has the authority or capacity to control to carry out on his or her behalf, either with or without compensation, acts that, if carried out by the member, would place the member in violation of the rules. Further, a member may be held responsible for the acts of all persons associated with the member in public practice whom the member has the authority or capacity to control.

173



KEY POINTS In Codifying the Ethics Standards, creating conceptual frameworks for members in public

practice and for members in business has resulted in clearly defining how particular guidance should be applied by members, based on which segment of the profession they are employed.

Preface: Applicable to All Members 0.200.020 Application of the AICPA Code .05 The independence of a member in public practice or a covered member may be impaired with respect to a client as the result of the actions or relationships, as described in the “Independence Rule” [1.200.001] and its interpretations, of certain persons or entities whom the member or covered member does not have the authority or capacity to control. Even if the member is unable to control the actions or relationships of such persons or entities, the member’s independence may still be impaired. [Prior reference: ET section 91]

174



KEY POINTS The Principles call for an unswerving commitment to honorable behavior,

even at the sacrifice of personal advantage.

Preface: Applicable to All Members 0.300 Principles of Professional Conduct 0.300.010 Preamble .01 Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a member assumes an obligation of self-discipline above and beyond the requirements of laws and regulations. .02 These Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. [Prior reference: ET section 51]

175



KEY POINTS The collective efforts of all members are required to

maintain and enhance the traditions of the profession.

Preface: Applicable to All Members 0.300.020 Responsibilities .01 Responsibilities principle. In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities. .02 As professionals, members perform an essential role in society. Consistent with that role, members of the American Institute of Certified Public Accountants have responsibilities to all those who use their professional services. Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public’s confidence, and carry out the profession’s special responsibilities for self-governance. [Prior reference: ET section 52]

176



KEY POINTS This reliance imposes a public interest responsibility on members.

The public interest is defined as the collective well-being of the community of people and institutions that the profession serves.

Preface: Applicable to All Members 0.300.030 The Public Interest

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

.02 A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession’s public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of members to maintain the orderly functioning of commerce.

.03 In discharging their professional responsibilities, members may encounter conflicting pressures from each of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients’ and employers’ interests are best served.

177










Conduct


5 min.

5 min.


5 min. 2 min.

2 min. 10 min. 5 min. 5 min. 5 min. 5 min. 5 min.


10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

178


V. NJ LAW & ETHICS TOPICS Regulations– Title 13, Chapter 29

Subchapter 3 – Rules of Professional Conduct

13:29-3.1 Independence

13:29-3.2 Integrity and objectivity

13:29-3.3 Competence

13:29-3.4 Forecasts

13:29-3.5 Auditing standards

13:29-3.6 Accounting principles

13:29-3.7 Confidential client information

13:29-3.8 Contingent Fees

13:29-3.10 Advertising

13:29-3.11 Solicitation

13:29-3.12 Commissions, performance fees and

13:29-3.15 Firm names

13:29-3.16 Records 179



Topic Part 1: CPAs in Public Practice

Part 2: CPAs in Business

Part 3: CPAs not in Public Practice or

Business








1.400.010 2.400.010 3.400.010


180


V. NJ LAW & ETHICS TOPICS Linkage between NJ Regs and AICPA Code of Conduct

Aligning the NJ Regulations with the AICPA Code of

Conduct

New Jersey Regs


Members in Public

Practice

Members in Business Other Members

Independence 13:29-3.1 1.200 n/a n/a

Integrity 13:29-3.2 1.100 2.100 n/a

Objectivity 13:29-3.2 1.100 2.100 n/a

Competence 13:29-3.3 1.300 2.300 n/a

Forecasts 13:29-3.4 1.295 2.295 n/a

Auditing Standards 13:29-3.5 1.310 2.310 n/a

Accounting standards 13:29-3.6 1.320 2.320 n/a

181



Aligning the NJ Regulations

with the AICPA Code of Conduct

New Jersey Regs


Members in Public

Practice


Confidentiality 13:29-3.7 1.700 2.400.070 3.400.070

Contingent fees 13:29-3.8 1.500 n/a n/a

Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100

Commissions & ref fees 13:29-3.12 1.520 n/a n/a

Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

182










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

183




Conduct

New Jersey Regs


Members in Public

Practice



Integrity 13:29-3.2 1.100 2.100 n/a

Objectivity 13:29-3.2 1.100 2.100 n/a

Competence 13:29-3.3 1.300 2.300 n/a

Forecasts 13:29-3.4 1.295 2.295 n/a



184



KEY POINTS The principle of objectivity imposes the obligation to be impartial,

intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a

member’s objectivity in rendering attestation services.


0.300.050 Objectivity and Independence

.01 Objectivity and independence principle. 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.

.02 Objectivity is a state of mind, a quality that lends value to a member’s services. It is a distinguishing feature of the profession.

185



KEY POINTS Regardless of service or capacity, members should protect the integrity of their

work, maintain objectivity, and avoid any subordination of their judgment.


0.300.050 Objectivity and Independence (continued)

.03 Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances.

Members in public practice render attest, tax, and management advisory services.

Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government.

They also educate and train those who aspire to admission into the profession.

186



KEY POINTS

Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice. [Prior reference: ET section 55]



.04 For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conflicts of interest.

.05 Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services.

187



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT

13:29-3.1 INDEPENDENCE

a) A licensee or a firm of which he or she is a partner, member or a

shareholder shall not express an opinion on financial statements of an

entity or organization in such a manner as to imply that he or she is

acting as an independent public accountant with respect thereto unless

he or she or his or her firm is independent with respect to such entity

or organization.

188



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.1 INDEPENDENCE

b) A person engaged in the practice of public accountancy, including a

person who is not a member of the American Institute of Certified

Public Accountants (AICPA), shall conform, in mind and appearance, to

the independence standards established by the AICPA and the Board,

and, where applicable, the U.S. Securities and Exchange Commission

(SEC), the Government Accountability Office (GAO), the Public

Company Accounting Oversight Board (PCAOB) and other national or

international regulatory or professional standard setting bodies.

189

KEY POINT Text previously read, “in fact and appearance” Recent change was to conform language with AICPA Code of Professional Conduct.



KEY POINTS This definition clearly provides guidance relevant to a member in public practice.

Preface: Applicable to All Members 0.400 Definitions .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.

190


Preface: Applicable to All Members 0.400 Definitions .21 Independence. 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 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


KEY POINT This definition should not be interpreted as an absolute.

191


1.200 Independence 1.200.001 Independence Rule .01 A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by Council. [Prior reference: paragraph .01 of ET section 101]


KEY POINTS Note the code reference for Independence.

It is Part 1.200 of the code.

The Preface, Part 0.xxx applies to all members. Part 1.xxxx applies to Members in Public Practice

Part 2.xxx applies to Members in Business

In this case, there is no equivalent Independence rule in Part 2 for Members in Business.

192



1.200 Independence 1.200.001 Independence Rule

The reasonable person standard recognizes three categories and

provides guidance on each. The categories include:

1. Covered members

2. Immediate family members of covered members, and

3. Close relatives of covered members.

193


Interpretations Under the Independence Rule 1.200.005 Application of the Conceptual Framework for Independence and Ethical Conflicts .01 In the absence of an interpretation of the “Independence Rule” [1.200.001] that addresses a particular relationship or circumstance, a member should apply the “Conceptual Framework for Independence” interpretation [1.210.010].

.02 A member would be considered in violation of the “Independence Rule” [1.200.001] if the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level. [Prior reference: “Other Considerations” section of paragraph .02 of ET section 101]

.03 A member should consider the guidance in “Ethical Conflicts” [1.000.020] when addressing ethical conflicts that may arise when the member encounters obstacles to following an appropriate course of action.

Such obstacles may be due to internal or external pressures or to conflicts in applying relevant professional or legal standards, or both. [No prior reference: new content]


KEY POINT Paragraph .03 is effective December 15, 2014.

194



1.210 Conceptual Framework Approach 1.210.010 Conceptual Framework for Independence Introduction .01 It is impossible to enumerate all relationships or circumstances in which the appearance of independence might be questioned.

In the absence of an independence interpretation that addresses a particular relationship or circumstance, a member should evaluate whether that relationship or circumstance would lead a reasonable and informed third party who is aware of the relevant information to conclude that there is a threat to either the member’s or firm’s independence, or both, that is not at an acceptable level.

A member may also wish to consider the conceptual framework approach described in this interpretation to gain a better understanding of the conclusions reached in other interpretations in ET section 1.200, “Independence.” [Prior reference: Other Considerations” section of paragraph .02 of ET section 101]

KEY POINT When making that evaluation, a member should apply the conceptual framework approach

as outlined in this interpretation to analyze independence matters.

195


1.210.010 Conceptual Framework for Independence Introduction (continued)

.02 The code specifies that in some circumstances no safeguards can reduce an independence threat to an acceptable level.

For example, the code specifies that a covered member may not own even an immaterial direct financial interest in an attest client because there is no safeguard to reduce the self-interest threat to an acceptable level.


KEY POINT A member may not use the conceptual framework to overcome this prohibition

or any other prohibition or requirement in an independence interpretation.

196



Definitions Used in Applying the Conceptual Framework for Independence

.03 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 independence is not impaired.

.04 Impair(ed). In connection with independence, to effectively extinguish independence. When a member’s independence is impaired, the member is not independent.

.05 Safeguards. Actions or other measures that may eliminate a threat or reduce a threat to an acceptable level.

.06 Threats. Relationships or circumstances that could impair independence.

197



1.210.010 Conceptual Framework for Independence Conceptual Framework Approach

.07 The conceptual framework approach entails identifying threats and evaluating the threat that the member would not be independent or would be perceived by a reasonable and informed third party who is aware of the relevant information as not being independent.

The member must eliminate or reduce that threat to an acceptable level to conclude that the member is independent.

Threats are at an acceptable level either because of the types of threats and their potential effect or because safeguards have eliminated or reduced the threat, so that a reasonable and informed third party who is aware of the relevant information would perceive that the member’s professional judgment is not compromised.

198



Documentation

.09 When the member applies safeguards to eliminate or reduce significant threats to an acceptable level, as described in paragraph .07c of the “Conceptual Framework for Members in Public Practice” [1.000.010.07], the member should document the identified threats and safeguards applied.

Failure to prepare the required documentation would be considered a violation of the “Compliance With Standards Rule” [1.310.001] rather than the “Independence Rule” [1.200.001] if the member can demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level. [Prior reference: “Other Considerations” section of paragraph .02 of ET section 101]

199



KEY POINT Examples of threats associated with a specific relationship or circumstance

are identified in the interpretations of the code.

1.210.010 Conceptual Framework for Independence Threats .10 Many different relationships or circumstances (or combinations of relationships or circumstances) can create threats to compliance with the “Independence Rule” [1.200.001]. It is impossible to identify every relationship or circumstance that creates a threat. Many threats fall into one or more of the following seven broad categories: adverse interest, advocacy, familiarity, management participation, self-interest, self-review, and undue influence.

200



1.210.010 Conceptual Framework for Independence Threats (continued) .12 Adverse interest threat. The threat that a member will not act with objectivity because the member’s interests are in opposition to the interests of an attest client.

.13 Advocacy threat. The threat that a member will promote an attest client’s interests or position to the point that his or her independence is compromised.

An example is either the attest client or the member commencing litigation against the other or expressing the intent to commence litigation. [1.290.010]

Examples of advocacy threats include the following: a. A member promotes the attest client’s securities as part of an initial public

offering. [1.295.130] b. A member provides expert witness services to an attest client. [1.295.140] c. A member represents an attest client in U.S. tax court or other public

forum. [1.295.160]

201



Examples of familiarity threats include the following: a. A member of the attest engagement team has an immediate family

member or close relative in a key position at the attest client, such as the attest client’s CEO. [1.270.020 and 1.270.100]

b. A partner or partner equivalent of the firm has been a member of the attest engagement team for a prolonged period.

c. A member of the firm has recently been a director or an officer of the attest client. [1.277.010]

d. A member of the attest engagement team has a close friend who is in a key position at the attest client.

1.210.010 Conceptual Framework for Independence Threats (continued) .14 Familiarity threat. The threat that, because of a long or close relationship with an attest client, a member will become too sympathetic to the attest client’s interests or too accepting of the attest client’s work or product.

202



Examples of management participation threats include the following: a. A member serves as an officer or a director of the attest client.

[1.275.005] b. A member accepts responsibility for designing, implementing, or

maintaining internal controls for the attest client. [1.295.030] c. A member hires, supervises, or terminates the attest client’s

employees. [1.295.135]

1.210.010 Conceptual Framework for Independence Threats (continued) .15 Management participation threat. The threat that a member will take on the role of attest client management or otherwise assume management responsibilities for an attest client.

203



Examples of self-interest threats include the following: a. A member has a direct financial interest or material indirect financial

interest in the attest client. [1.240.010] b. A 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. [1.260.010]

c. A member or his or her firm relies excessively on revenue from a single attest client.

d. A member or member’s firm has a material joint venture or other material joint business arrangement with the attest client. [1.265]

1.210.010 Conceptual Framework for Independence Threats (continued) .16 Self-interest threat. The threat that a member could benefit, financially or otherwise, from an interest in, or relationship with, an attest client or persons associated with the attest client.

204



205


1.210.010 Conceptual Framework for Independence Threats (continued) .17 Self-review threat. The threat that a member will not appropriately evaluate the results of a previous judgment made, or service performed or supervised by the member or an individual in the member’s firm and that the member will rely on that service in forming a judgment as part of an attest engagement.


KEY POINT Certain self-review threats, such as preparing source documents

used to generate the attest client’s financial statements [1.295.120], pose such a significant self-review threat that no safeguards can eliminate or reduce the threats to an acceptable level.

206



Examples of undue influence threats include the following: a. Management threatens to replace the member or member’s firm over a

disagreement on the application of an accounting principle. b. Management pressures the member to reduce necessary audit procedures

in order to reduce audit fees. c. The member receives a gift from the attest client, its management, or its

significant shareholders. [1.285.010]

1.210.010 Conceptual Framework for Independence Threats (continued) .18 Undue influence threat. The threat that a member will subordinate his or her judgment to that of an individual associated with an attest client or any relevant third party due to that individual’s reputation or expertise, aggressive or dominant personality, or attempts to coerce or exercise excessive influence over the member.

207



KEY POINT To be effective, safeguards should eliminate the threat or reduce it to an acceptable level.

1.210.010 Conceptual Framework for Independence Safeguards .19 Safeguards may partially or completely eliminate a threat or diminish the potential influence of a threat. The nature and extent of the safeguards applied will depend on many factors, including the size of the firm and whether the attest client is a public interest entity.

.20 The following are three broad categories of safeguards: a. Safeguards created by the profession, legislation, or regulation. b. Safeguards implemented by the attest client. It is not possible to rely solely

on safeguards implemented by the attest client to eliminate or reduce significant threats to an acceptable level.

c. Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements.

208


1.210.010 Conceptual Framework for Independence

Safeguards (continued)

.20 The following are three broad categories of safeguards:

a. Safeguards created by the profession, legislation, or regulation.

b. Safeguards implemented by the attest client. It is not possible to rely solely on safeguards implemented by the attest client to eliminate or reduce significant threats to an acceptable level.

c. Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements.


209


1.210.010 Conceptual Framework for Independence Safeguards (continued) .21 The effectiveness of a safeguard depends on many factors, including those listed here:

a. The facts and circumstances specific to a particular situation

b. The proper identification of threats

c. Whether the safeguard is suitably designed to meet its objectives

d. The party(ies) that will be subject to the safeguard

e. How the safeguard is applied

f. The consistency with which the safeguard is applied

g. Who applies the safeguard

h. How the safeguard interacts with a safeguard from another category

i. Whether the attest client is a public interest entity


210



0.400 Definitions 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.

KEY POINT Before discussing the applicability of Independence standards to members

in public practice, we need to be clear on a number of definitions provided within the codification.

211



Definitions .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]

KEY POINT Before discussing the applicability of Independence standards to members in public

practice, we need to be clear on a number of definitions provided within the codification. 212


Definitions .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 a number of the following characteristics: 1) The use of a common brand name, including

common initials, as part of the firm name

2) Common control among the firms through ownership, management, or other means


213


Definitions Defining characteristics of a Network (continued)

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


KEY POINT 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]

214


1.220 Accounting Firms 1.220.010 Network & Network Firms

If two or more firms share one or more of these characteristics, they would be considered to belong to a “Network”, and would be deemed “Network firms”.

.02 Firms and other entities in the association cooperate with the firms and other entities that are members of the association to enhance their capabilities to provide professional services. For example, a firm may become a member of an association in order to refer work to, or receive referrals from, other association members.

.03 However, an association would be considered a network if, in addition to cooperation among member firms and other entities to enhance their capabilities to provide professional services, member firms and other entities share one or more additional characteristics as previously described.


KEY POINT This characteristic alone would not be sufficient for the association

to constitute a network or for the firm to be considered a network firm.

215


1.220 Accounting Firms 1.220.010 Network & Network Firms

.04 A network firm is required to comply with the “Independence Rule” [1.200.001] with respect to the financial statement audit and review clients of the other network firms if the use of the audit or review report for the client is not restricted, as defined by professional standards.

• For all other attest clients, the covered member should consider any threats that the covered member knows or has reason to believe may be created by another network firm’s interests and relationships.

• If those threats are not at an acceptable level, the covered member should apply safeguards to eliminate the threats or reduce them to an acceptable level.

• If safeguards cannot be applied to eliminate or reduce the threats to an acceptable level, independence will be impaired.


KEY POINT Entities within the network that meet the definition

of a network firm are subject to the “Independence Rule.”

216










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

217




Conduct

New Jersey Regs


Members in Public

Practice



Integrity 13:29-3.2 1.100 2.100 n/a

Objectivity 13:29-3.2 1.100 2.100 n/a

Competence 13:29-3.3 1.300 2.300 n/a

Forecasts 13:29-3.4 1.295 2.295 n/a



218


Integrity and objectivity 1.110 Conflicts of Interest 1.110.010 Conflicts of Interest for Members in Public Practice

.01 A member or his or her firm may be faced with a conflict of interest when performing a professional service.


KEY POINT In determining whether a professional service, relationship or matter would result

in a conflict of interest, a member should use professional judgment, taking into account whether a reasonable and informed third party who is aware of the

relevant information would conclude that a conflict of interest exists.

219


Integrity and objectivity

1.110.010 Conflicts of Interest for Members in Public Practice

.02 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.


220



1.110.010 Conflicts of Interest for Members in Public Practice

.03 Certain professional engagements, such as audits, reviews and other attest services require independence.


KEY POINT Independence impairments under the "Independence Rule" [1.200.001], its interpretations, and rulings cannot be eliminated by the safeguards provided in this interpretation or by disclosure and consent.

221


Integrity and objectivity 1.110.010 Conflicts of Interest for Members in Public Practice .04 The following are examples of situations in which conflicts of interest may arise:

a. 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

b. Advising two clients at the same time who are competing to acquire the same company when the advice might be relevant to the parties’ competitive positions

c. Providing services to both a vendor and a purchaser who are clients of the firm in relation to the same transaction

d. Preparing valuations of assets for two clients who are in an adversarial position with respect to the same assets


222



e. Representing two clients at the same time regarding the same matter who are in a legal dispute with each other, such as during divorce proceedings or the dissolution of a partnership

f. Providing a report for a licensor on royalties due under a license agreement while at the same time advising the licensee of the correctness of the amounts payable under the same license agreement

g. 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

h. Providing strategic advice to a client on its competitive position while having a joint venture or similar interest with a competitor of the client


223



i. Advising a client on the acquisition of a business which the firm is also interested in acquiring

j. Advising a client on the purchase of a product or service while having a royalty or commission agreement with one of the potential vendors of that product or service

k. Providing forensic investigation services to a client for the purpose of evaluating or supporting contemplated litigation against another client of the firm

l. Providing tax or personal financial planning services for several members of a family whom the member knows to have opposing interests

m. Referring a personal financial planning or tax client to an insurance broker or other service provider, which refers clients to the member under an exclusive arrangement


224


Integrity and objectivity 1.110.010 Conflicts of Interest for Members in Public Practice .05 Before accepting a new client relationship, engagement, or business relationship, a member should take reasonable steps to identify circumstances that might create a conflict of interest including identification of

a. the nature of the relevant interests and relationships between the parties involved , and

b. the nature of the service and its implication for relevant parties.


KEY POINT The earlier an actual or potential conflict of interest is identified, the greater the

likelihood of a member being able to apply safeguards to eliminate or reduce significant threats to an acceptable level.

225


Integrity and objectivity 1.110.010 Conflicts of Interest for Members in Public Practice .07 For the purpose of identifying interests and relationships that might create a conflict of interest, having an effective conflict identification process assists a member in identifying actual or potential conflicts of interest that may create significant threats to compliance with the "Integrity and Objectivity Rule" [1.100.001] prior to determining whether to accept an engagement and throughout an engagement.


KEY POINT This includes matters identified by external parties,

for example clients or potential clients.

226


Integrity and objectivity 1.110.010 Conflicts of Interest for Members in Public Practice

The process to identify actual or potential conflicts of interest will depend on such factors as:

a. the nature of the professional services provided,

b. the size of the firm,

c. the size and nature of the client base, and

d. the structure of the firm, for example the number and geographic location of offices.


227


Integrity and objectivity Evaluation of a Conflict of Interest .09 When an actual conflict of interest has been identified, the member should evaluate the significance of the threat created by the conflict of interest to determine if the threat is at an acceptable level.


KEY POINT Members should consider both qualitative and quantitative factors when

evaluating the significance of the threat, including the extent to which existing safeguards already reduce the threat to an acceptable level.

228


Integrity and objectivity Evaluation of a Conflict of Interest .09 (continued)

In evaluating the significance of an identified threat, members should consider both of the following:

a. The significance of relevant interests or relationships.

b. The significance of the threats created by performing the professional service or services.


KEY POINT In general, the more direct the connection between the professional

service and the matter on which the parties’ interests are in conflict, the more significant the threat to compliance with the rule will be.

229


Integrity and objectivity .10 If the member concludes that the threat is not at an acceptable level, the member should apply safeguards to eliminate the threat or reduce it to an acceptable level. Examples of safeguards include the following: a. Implementing mechanisms to prevent unauthorized disclosure of

confidential information when performing professional services related to a particular matter for two or more clients whose interests with respect to that matter are in conflict.

b. Regularly reviewing the application of safeguards by a senior individual not involved with the client engagement or engagements.

c. Having a member of the firm who is not involved in providing the service or otherwise affected by the conflict, review the work performed to assess whether the key judgments and conclusions are appropriate.

d. Consulting with third parties, such as a professional body, legal counsel, or another professional accountant.


230


Integrity and objectivity .10 a. Mechanisms to prevent unauthorized disclosure of confidential information could include:

i. using separate engagement teams who are provided with clear policies and procedures on maintaining confidentiality;

ii. creating separate areas of practice for specialty functions within the firm, which may act as a barrier to the passing of confidential client information from one practice area to another within a firm;

iii. establishing policies and procedures to limit access to client files, the use of confidentiality agreements signed by employees and partners of the firm and the physical and electronic separation of confidential information.


231


Integrity and objectivity 1.110.010 Conflicts of Interest for Members in Public Practice .11 In cases where an identified threat may be so significant that no safeguards will eliminate the threat or reduce it to an acceptable level, or the member is unable to implement effective safeguards, the member should:

(a) decline to perform or discontinue the professional services that would result in the conflict of interest; or

(b) terminate the relevant relationships or dispose of the relevant interests to eliminate the threat or reduce it to an acceptable level.


232


Integrity and objectivity Disclosure of a Conflict of Interest, Consent & Documentation .12 When a conflict of interest exists, the member should disclose the nature of the conflict of interest to clients and other appropriate parties affected by the conflict and obtain their consent to perform the professional services. .16 The member is encouraged to document the nature of the circumstances giving rise to the conflict of interest, the safeguards applied to eliminate or reduce the threats to an acceptable level, and the consent obtained.


KEY POINT The member should disclose the conflict of interest and obtain consent even if the member concludes that threats are at an acceptable level.

233


Integrity and objectivity 1.110.010 Conflicts of Interest for Members in Public Practice 1.110.020 Director Positions .01 When a member serves as a director of an entity, such as a bank, the member’s fiduciary responsibilities to the entity may create threats to the member’s compliance with the “Integrity and Objectivity Rule” [1.100.001] and the “Confidential Client Information Rule” [1.700.001]. For example, an adverse interest threat to the member’s objectivity may exist if the member’s clients are customers of the entity or likely to engage in significant transactions with the entity.


KEY POINT If the member choses to serve as a board member, the member should

evaluate the significance of any threats, and apply safeguards when necessary, to eliminate or reduce the threats to an acceptable level.

234


Integrity and objectivity 1.110.010 Conflicts of Interest for Members in Public Practice 1.110.020 Director Positions


KEY POINTS

A member’s general knowledge and experience may be very helpful to an entity in formulating policies and making business decisions.

Nevertheless, if the member’s clients are likely to engage in significant transactions with the entity, it would be more appropriate for the member to serve as a consultant to the board.

Under such an arrangement, the member could limit activities to those that do not threaten the member’s compliance with these rules.

235


Integrity and objectivity 1.120 Gifts and Entertainment 1.120.010 Offering or Accepting Gifts or Entertainment

.01 For purposes of this interpretation, a client includes the client, an individual in a key position with the client, or an individual owning 10 percent or more of the client’s outstanding equity securities or other ownership interests.

.02 When a member offers to a client or accepts gifts or entertainment from a client, self-interest, familiarity, or undue influence threats to the member’s compliance with the “Integrity and Objectivity Rule” [1.100.001] may exist.


236


Integrity and objectivity 1.120.010 Offering or Accepting Gifts or Entertainment

.03 Threats to compliance with the “Integrity and Objectivity Rule” [1.100.001] would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards and the member would be presumed to lack integrity in violation of the “Integrity and Objectivity Rule” in the following circumstances:

a. The member offers to a client or accepts gifts or entertainment from a client that violate the member’s or client’s policies or applicable laws, rules, and regulations; and

b. The member knows of the violation or demonstrates recklessness in not knowing.


237


Integrity and objectivity 1.120.010 Offering or Accepting Gifts or Entertainment .04 A member should evaluate the significance of any threats to determine if they are at an acceptable level. • Threats are at an acceptable level when gifts or entertainment are reasonable in

the circumstances. • The member should exercise judgment in determining whether gifts or

entertainment would be considered reasonable in the circumstances. .05 Threats to compliance with the “Integrity and Objectivity Rule” [1.100.001] would not be at an acceptable level and could not be reduced to an acceptable level through the application of safeguards if a member offers to a client or accepts gifts or entertainment from a client that is not reasonable in the circumstances.


KEY POINT The member would be presumed to lack objectivity in violation of the

“Integrity and Objectivity Rule” under these circumstances. 238


Integrity and objectivity 1.120.010 Offering or Accepting Gifts or Entertainment The following are examples of relevant facts and circumstances:

a. The nature of the gift or entertainment b. The occasion giving rise to the gift or entertainment c. The cost or value of the gift or entertainment d. The nature, frequency, and value of other gifts and entertainment offered or

accepted e. Whether the entertainment was associated with the active conduct of

business directly before, during, or after the entertainment f. Whether other clients also participated in the entertainment g. The individuals from the client and member’s firm who participated in the

entertainment


239




Additional Resources A non-authoritative basis-for-conclusions document summarizing considerations that were deemed significant in the development of these interpretation is available at: www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/DownloadableDocuments/Gifts_Basis_Document.pdf A non-authoritative question and answer regarding campaign contributions (In particular member contributions made to the campaign of an individual who holds a key position with or has a financial interest in an attest client.) is available at the following address: www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/DownloadableDocuments/Ethics-General-FAQs.pdf

240

http://www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/DownloadableDocuments/Gifts_Basis_Document.pdf


http://www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/DownloadableDocuments/Ethics-General-FAQs.pdf







Integrity and objectivity 1.130 Preparing and Reporting Information 1.130.010 Knowing Misrepresentations in the Preparation of Financial Statements or Records

.01 Threats to compliance with the “Integrity and Objectivity Rule” [1.100.001] would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards and the member would be considered to have knowingly misrepresented facts in violation of the “Integrity and Objectivity Rule,” if the member

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

b. fails to correct an entity’s financial statements or records that are materially false and misleading when the member has the authority to record the entries; or

c. signs, or permits or directs another to sign, a document containing materially false and misleading information. [Prior reference: paragraph .02 of ET section 102]


241


Integrity and objectivity 1.130.020 Subordination of Judgment

.01 The “Integrity and Objectivity Rule” [1.100.001] prohibits a member from knowingly misrepresenting facts or subordinating his or her judgment when performing professional services for a client , for an employer, or on a volunteer basis.


KEY POINT This interpretation addresses differences of opinion between a member and his or her supervisor or any other person within the member’s organization.

242


Integrity and objectivity 1.130.020 Subordination of Judgment .02 Self-interest, familiarity, and undue influence threats to the member’s compliance with the “Integrity and Objectivity Rule” [1.100.001] may exist when a member and his or her supervisor or any other person within the member’s organization have a difference of opinion relating to the application of accounting principles; auditing standards; or other relevant professional standards, including standards applicable to tax and consulting services or applicable laws or regulations.


243


Integrity and objectivity 1.130.020 Subordination of Judgment .03 A member should evaluate the significance of any threats to determine if they are at an acceptable level.

Threats are at an acceptable level if the member concludes that the position taken does not result in a material misrepresentation of fact or a violation of applicable laws or regulations.

If threats are not at an acceptable level, the member should apply the safeguards in paragraphs .05–.07 to eliminate or reduce the threat(s) to an acceptable level so that the member does not subordinate his or her judgment.


244


Integrity and objectivity 1.130.020 Subordination of Judgment

.04 In evaluating the significance of any identified threats , the member should determine, after appropriate research or consultation, whether the result of the position taken by the supervisor or other person

a. fails to comply with professional standards, when applicable;

b. creates a material misrepresentation of fact; or

c. may violate applicable laws or regulations.


245


Integrity and objectivity 1.130.020 Subordination of Judgment .05 If the member concludes that threats are at an acceptable level the member should discuss his or her conclusions with the person taking the position. No further action would be needed under this interpretation.

.06 If the member concludes that the position results in a material misrepresentation of fact or a violation of applicable laws or regulations, then threats would not be at an acceptable level. In such circumstances, the member should discuss his or her concerns with the supervisor.

.07 If the difference of opinion is not resolved after discussing the concerns with the supervisor, the member should discuss his or her concerns with the appropriate higher level(s) of management within the member’s organization (for example, the supervisor’s immediate superior, senior management, and those charged with governance).


246


Integrity and objectivity 1.130.020 Subordination of Judgment .08 If after discussing the concerns with the supervisor and appropriate higher level(s) of management within the member’s organization, the member concludes that appropriate action was not taken, then the member should consider, in no specific order, the following safeguards to ensure that threats to the member’s compliance with the “Integrity and Objectivity Rule” [1.100.001] are eliminated or reduced to an acceptable level:

a. Determine whether the organization’s internal policies and procedures have any additional requirements for reporting differences of opinion.


247


Integrity and objectivity 1.130.020 Subordination of Judgment b. Determine whether he or she is responsible for communicating to third

parties, such as regulatory authorities or the organization’s (former organization’s) external accountant.

c. Consult with his or her legal counsel regarding his or her responsibilities. d. Document his or her understanding of the facts, the accounting

principles, auditing standards, or other relevant professional standards involved or applicable laws or regulations and the conversations and parties with whom these matters were discussed.


KEY POINT In considering such communications, the member should be cognizant of his or her

obligations under the “Confidential Information Obtained From Employment or Volunteer Activities” interpretation [1.400.070] of the “Acts Discreditable Rule”

[1.400.001].

248


Integrity and objectivity 1.130.020 Subordination of Judgment .11 A member should use professional judgment and apply similar safeguards, as appropriate, to other situations involving a difference of opinion as described in this interpretation so that the member does not subordinate his or her judgment. [Prior reference: paragraph .05 of ET section 102]


249



Topic CPAs in Public Practice

CPAs in Business CPAs not in Public Practice or Business








1.400.010 2.400.010 3.400.010


250


2.000 Introduction .01 Part 2 of the Code of Professional Conduct (the code) applies to members in business. Accordingly, when the term member is used in Part 2 of the code, the requirements apply only to members in business.

V. NJ LAW & ETHICS TOPICS AICPA Code of Professional Conduct Part 2- Members in Business

KEY POINT When a member in business is also a member in public practice

(for example, a member has a part-time tax practice), the member should also consult Part 1 of the code,

which applies to members in public practice.

251



KEY POINT For example, a member suspects a fraud may have occurred, but reporting the

suspected fraud would violate the member’s responsibility to maintain the confidentiality of his or her employer’s confidential information.

2.000.020 Ethical Conflicts

.01 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 and legal standards.

252



2.100 Integrity and Objectivity

2.100.001 Integrity and Objectivity Rule

.01 In the performance of any professional service, a member 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.

[Prior reference: paragraph .01 of ET section 102]

253



2.110 Conflicts of Interest

2.110.010 Conflicts of Interest for Members in Business

.01 A member may be faced with a conflict of interest when undertaking a professional service. In determining whether a professional service, relationship, or matter would result in a conflict of interest, a member should use professional judgment, taking into account whether a reasonable and informed third party who is aware of the relevant information would conclude that a conflict of interest exists.

254



.02 A conflict of interest creates adverse interest and self-interest threats to the member’s compliance with the "Integrity and Objectivity Rule" [2.100.001]. For example, threats may be created when

a. a member undertakes a professional service related to a particular matter involving two or more parties whose interests with respect to that matter are in conflict, or

b. the interests of a member with respect to a particular matter and the interests of a party for whom the member undertakes a professional service related to that matter are in conflict.

.03 A party may include an employing organization, a vendor, a customer, a lender, a shareholder, or other party.

255


.04 The following are examples of situations in which conflicts of interest may arise:

a. Serving in a management or governance position for two employing organizations and acquiring confidential information from one employing organization that could be used by the member to the advantage or disadvantage of the other employing organization

b. Undertaking a professional service for each of two parties in a partnership employing the member to assist in dissolving their partnership

c. Preparing financial information for certain members of management of the employing organization who are seeking to undertake a management buy-out


256


.04 The following are examples of situations in which conflicts of interest may arise:

d. Being responsible for selecting a vendor for the member’s employing organization when the member or his or her immediate family member could benefit financially from the transaction

e. Serving in a governance capacity or influencing an employing organization that is approving certain investments for the company in which one of those specific investments will increase the value of the personal investment portfolio of the member or his or her immediate family member


257



KEY POINT A non-authoritative basis-for-conclusions document summarizing considerations that were deemed significant in the development of this interpretation is available at: www.aicpa.org/InterestAreas/ProfessionalEthics/Resources/Tools/DownloadableDocuments/Gifts_Basis_Document.pdf

2.120 Gifts and Entertainment

2.120.010 Offering or Accepting Gifts or Entertainment

.01 For purposes of this interpretation, a customer or vendor of the member’s employer includes a representative of the customer or vendor.

.02 When a member offers to, or accepts gifts or entertainment from, a customer or vendor of the member’s employer, self-interest, familiarity, or undue influence threats to the member’s compliance with the “Integrity and Objectivity Rule” [2.100.001] may exist.

258





KEY POINT The member would be considered to lack objectivity in violation of the

“Integrity and Objectivity Rule,” under these circumstances.

.05 Threats to compliance with the “Integrity and Objectivity Rule” [2.100.001] would not be at an acceptable level and could not be reduced to an acceptable level through the application of safeguards if a member offers to, or accepts gifts or entertainment from, a customer or vendor of the member’s employer that is not reasonable in the circumstances. [Prior reference: paragraphs .226–.227 of ET section 191]

259


2.130.010 Knowing Misrepresentations in the Preparation of Financial Statements or Records .01 Threats to compliance with the “Integrity and Objectivity Rule” [2.100.001] would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards, and the member would be considered to have knowingly misrepresented facts in violation of the “Integrity and Objectivity Rule,” if the member:

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

b. fails to correct an entity’s financial statements or records that are materially false and misleading when the member has the authority to record the entries; or

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



260


2.130.020 Subordination of Judgment

.01 The “Integrity and Objectivity Rule” [2.100.001] prohibits a member from knowingly misrepresenting facts or subordinating his or her judgment when performing professional services for an employer or on a volunteer basis. This interpretation addresses differences of opinion between a member and his or her supervisor or any other person within the member’s organization.

.02 Self-interest, familiarity, and undue influence threats to the member’s compliance with the “Integrity and Objectivity Rule” [2.100.001] may exist when a member and his or her supervisor or any other person within the member’s organization have a difference of opinion relating to the application of accounting principles; auditing standards; or other relevant professional standards, including standards applicable to tax and consulting services or applicable laws or regulations.


261


2.130.020 Subordination of Judgment

.03 A member should evaluate the significance of any threats to determine if they are at an acceptable level.

Threats are at an acceptable level if the member concludes that the position taken does not result in a material misrepresentation of fact or a violation of applicable laws or regulations.


KEY POINT If threats are not at an acceptable level, the member should apply the

safeguards in paragraphs .05–.07 to eliminate or reduce the threat(s) to an acceptable level so that the member does not subordinate

his or her judgment.

262


2.130.030 Obligation of a Member to His or Her Employer’s External Accountant .01 The “Integrity and Objectivity Rule” [2.100.001] requires a member to maintain objectivity and integrity in the performance of a professional service.

When dealing with an employer’s external accountant, a member must be candid and not knowingly misrepresent facts or knowingly fail to disclose material facts.



KEY POINT This would include, for example, responding to specific inquiries for which

the employer’s external accountant requests written representation.

263



Dodd-Frank • Bounty for

Whistleblowers

Bradley C. Bower/Bloomberg News Bradley Birkenfeld at a federal prison in Pennsylvania. As a whistle-blower, he exposed Swiss tax evasion schemes.

Choice, not chance,

determines destiny

264



BofA Whistleblower to Get Nearly $58 Million--Filing U.S. Attorney’s Office Used O’Donnell’s Allegations as Basis of Its Lawsuit By CHRISTINA REXRODE Wall Street Journal, Dec. 17, 2014 6:14 p.m. ET

Edward O’Donnell, the former Countrywide Financial Corp. executive who filed a whistleblower lawsuit against his former firm, will collect nearly $58 million for a separate lawsuit against Bank of America Corp. BAC +0.51% Mr. O’Donnell is known for his role as a witness in a 2013 trial in which the U.S. successfully accused the bank of churning out mortgages in a Countrywide program known as Hustle. Mr. O’Donnell had also accused the bank in his own 2012 lawsuit of misleading Fannie Mae FNMA -2.80% and Freddie Mac, FMCC -1.77% which bought some of the mortgages, about their quality. The U.S. Attorney’s Office in Manhattan used Mr. O’Donnell’s allegations as the basis of its lawsuit against the bank later that year. Mr. O’Donnell’s reward, disclosed in a court filing this week, is related to a separate lawsuit that he filed under seal this June against Countrywide and Bank of America, in district court in Manhattan. At the time, the bank’s negotiations with the Justice Department over a broad mortgage-securities settlement were already well under way. When that settlement, for $16.65 billion, was announced in August, it folded in Mr. O’Donnell’s sealed complaint. Of the $16.65 billion, $350 million went toward settling Mr. O’Donnell’s complaint. According to those documents, unsealed this week, Mr. O’Donnell will receive 16% of that settlement, or $56 million. He will also receive an extra $1.6 million. The court documents didn’t say how that number had been reached or why it was being given. The June allegations echo much of Mr. O’Donnell’s original Hustle complaint. “This matter has been fully resolved,” a bank spokesman said, and in reference to Mr. O’Donnell’s recently unsealed allegations said that the bank “won’t comment on unfounded assertions like these.” Mr. O’Donnell worked for Countrywide, and later Bank of America, from 2003 to 2009. Bank of America bought Countrywide in 2008. Mr. O’Donnell later worked at Fannie Mae—one of the entities that he said was defrauded by the bank. His lawyer, David Wasinger, said he had left Fannie Mae within the past two or three weeks. Mr. Wasinger declined to say why. Mr. O’Donnell’s original Hustle accusations led to the high-profile case against the bank. A jury last year found the bank liable for fraud in that case, and a judge in July ordered the bank to pay a $1.27 billion penalty. The bank has said it plans to appeal the Hustle ruling. Mr. Wasinger said there may also be a financial reward for Mr. O’Donnell’s role in the Hustle case.

265

http://quotes.wsj.com/BAC

http://quotes.wsj.com/BAC

http://quotes.wsj.com/FNMA

http://quotes.wsj.com/FNMA

http://quotes.wsj.com/FMCC

http://quotes.wsj.com/FMCC










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-469

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-469 470-471 472-483 484-494 495-498

499-501 502-505

506-507

Appendix

266


IV. NJ LAW & ETHICS TOPICS Linkage between NJ Regs and AICPA Code of Conduct



New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

267



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.10 ADVERTISING

268



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.10 ADVERTISING a) A licensee shall not use or participate in the use of any form of public

communication having reference to the licensee's professional services which contains a false, fraudulent, misleading, deceptive or unfair statement or claim.

A false, fraudulent, misleading, deceptive or unfair statement or claim includes a statement or claim which:

1) Contains a misrepresentation of fact; or 2) Is likely to mislead or deceive because it fails to make full disclosure of

relevant facts; or 3) Contains any testimonial or laudatory statement, or other statement or

implication that the licensee's professional services are of exceptional quality; or

4) Is intended or likely to create false or unjustified expectations of favorable results; or

269



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.10 ADVERTISING a) A licensee shall not use or participate in the use of any form of public

communication having reference to the licensee's professional services which contains a false, fraudulent, misleading, deceptive or unfair statement or claim. A false, fraudulent, misleading, deceptive or unfair statement or claim includes a statement or claim which:

1) Contains a misrepresentation of fact; or

2) Is likely to mislead or deceive because it fails to make full disclosure of relevant facts; or

3) Contains any testimonial or laudatory statement, or other statement or implication that the licensee's professional services are of exceptional quality; or

4) Is intended or likely to create false or unjustified expectations of favorable results; or

270



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.10 ADVERTISING (continued)

5) Implies educational or professional attainments or licensing recognition not supported in fact; or

6) States or implies that the licensee has received formal recognition as a specialist in any aspect of the practice of public accountancy, if this is not the case; or

7) 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

8) Contains other representations or implications that in reasonable probability will cause an ordinarily prudent person to misunderstand or be deceived.

271


Advertising 1.400.090 False, Misleading, or Deceptive Acts in Promoting or Marketing Professional Services .01 A member would be in violation of the “Acts Discreditable Rule” [1.400.001] if the member promotes or markets the member’s abilities to provide professional services or makes claims about the member’s experience or qualifications in a manner that is false, misleading, or deceptive. .02 Promotional efforts would be false, misleading, or deceptive if they contain any claim or representation that would likely cause a reasonable person to be misled or deceived. This includes any representation about CPA licensure or any other professional certification or accreditation that is not in compliance with the requirements of the relevant licensing authority or designating body


272


Advertising 1.400.090 False, Misleading, or Deceptive Acts in Promoting or Marketing Professional Services .03 Refer to the “False, Misleading, or Deceptive Acts in Advertising or Solicitations” interpretation [1.600.010] of the “Advertising and Other Forms of Solicitation Rule” [1.600.001] for additional guidance. [No prior reference: new content]


273







13:29-3.4 Forecasts







13:29-3.12 Commissions, performance & referral fees


13:29-3.16 Records 274



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.11 SOLICITATION A licensee may directly or indirectly solicit clients by circulars, advertisements or personal communications provided such circulars, advertisements or personal communications do not violate N.J.A.C.13:29-3.10.

275



1.600 Advertising and Other Forms of Solicitation 1.600.001 Advertising and Other Forms of Solicitation Rule .01 A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive. Solicitation by the use of coercion, over-reaching, or harassing conduct is prohibited. [Prior reference: paragraph .01 of ET section 502]

276


Interpretations Under the Advertising and Other Forms of Solicitation Rule 1.600.005 Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts .01 In the absence of an interpretation of the “Advertising and Other Forms of Solicitation Rule” [1.600.001] that addresses a particular relationship or circumstance, a member should apply the “Conceptual Framework for Members in Public Practice” [1.000.010]. .02 A member would be considered in violation of the “Advertising and Other Forms of Solicitation Rule” [1.600.001] if the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level.


KEY POINT .03 A member should consider the guidance in “Ethical Conflicts” [1.000.020]

when addressing ethical conflicts that may arise.

277



KEY POINT Such action is required because the member will receive the benefits

of such efforts by third parties, and members must not do through others what they are prohibited from doing themselves.


1.600.010 False, Misleading, or Deceptive Acts in Advertising or Solicitations .01 A member would be in violation of the “Advertising and Other Forms of Solicitation Rule” [1.600.001] if the member’s promotional efforts are false, misleading, or deceptive. If a member is asked to perform professional services for a client or customer of a third party, the member should determine that the third party’s promotional efforts comply with the “Advertising and Other Forms of Solicitation Rule.”

278


1.600.010 False, Misleading, or Deceptive Acts in Advertising or Solicitations .02 Promotional efforts would be considered false, misleading, or deceptive if they:

a. create false or unjustified expectations of favorable results. b. imply the ability to influence any court, tribunal, regulatory agency,

or similar body or official. c. contain a representation that the member will perform specific

professional services in current or future periods for a stated fee, estimated fee, or fee range when it was likely at the time of the representation that such fees would be substantially increased and the member failed to advise the prospective client of that likelihood.

d. contain any other representations that would be likely to cause a reasonable person to misunderstand or be deceived.



279



1.600.030 Use of AICPA-Awarded Designation .01 A member who holds an AICPA-awarded designation, such as the Personal Financial Specialist (PFS) designation, may use the designation after the member’s name. .02 A member’s firm may use an AICPA-awarded designation, such as the PFS designation, on firm letterhead and in marketing materials if all the firm’s partners hold the AICPA-awarded designation. [Prior reference: paragraphs .365–.366 of ET section 591]

280



KEY POINT

A member who fails to follow the accountancy laws, rules, and regulations

on use of the CPA credential in any of the jurisdictions in which the CPA

practices would be considered to have used the CPA credential in a

manner that is false, misleading, or deceptive and in violation of the

“Advertising and Other Forms of Solicitation Rule” [1.600.001].

1.600.100 Use of the CPA Credential .01 A member should refer to applicable state accountancy laws and board of accountancy rules and regulations for guidance regarding the use of the CPA credential. [Prior reference .07 section 502.]

281










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

282


V. NJ LAW & ETHICS TOPICS Continuing Professional Education

The Law--Accountancy Act of 1997: 45:2B-68 Continuing professional education required for license renewal; orientation, certain. The Regulations SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.1 Scope All licensees subject to the provisions of N.J.S.A.45:2B-42 et seq. shall comply with the provisions of this subchapter relating to continuing professional education (CPE). These rules apply to all licensees registered by the Board of Accountancy in order to enhance the professional competence of such licensees.

KEY POINT The CPE requirement is established first in the NJ Uniform

Enforcement Act, and then in the Accountancy Act of 1997; however

The detailed guidance CPAs need to follow is contained in the NJ Administrative Code NJAC 13:29-6

283



45:2B-68 Continuing professional education required for license renewal; orientation, certain. 27. a. The board shall, as a condition for triennial license renewal, require any person licensed as a "certified public accountant," or "public accountant," to complete 120 credits of continuing professional education during the immediately preceding triennial period of licensure. Persons who are engaged in the practice of public accountancy, or are involved with the attest function in issuing an audit, review or compilation reports, shall have at least 24 of the required credits in the areas of accounting or auditing. Each credit of continuing professional education required pursuant to this section shall represent, or be equivalent to, 50 minutes of verified course attendance at a course or seminar approved by the board.

284


Public Accounting Every Three Years Minimum of 20 credits (hours)/year

Other Qualified Subjects 44 Credits/Hours

120 Credit Hours

Other Technical Topics (MAS – Law – Finance – Tax)

48 Credits/Hours

Accounting & auditing 24 Credits/Hours

New Jersey Law & Ethics 4 Credits/Hours


285



Non-Public Accounting Every Three Years Minimum of 20 credits (hours)/year

120 Credit Hours

Other Qualified Subjects 44 Credits/Hours

Technical Topics 72 Credits/Hours

New Jersey State Law & Ethics 4 Credits/Hours

286



45:2B-68 Continuing professional education required for license renewal; orientation, certain (continued).

c. The board shall not require completion of continuing education credits as a condition for triennial licensure for the initial renewal of licensure, however, any person licensed as a "certified public accountant" shall, within six months prior to initial licensure, or within the first six months following initial licensure, complete an orientation course in topics identified by the board, and conducted by any organization recognized by the board as provided in subsection d. of this section. NJAC 13:29-6.2(d)

A list of approved NJ Law and Ethics course providers can be found at: http://www.state.nj.us/oag/ca/accountancy/ethicspro.htm

KEY POINT The board may, in its discretion, waive requirements for continuing professional education on an individual basis for hardship reasons such as health, military service, or other due cause and may establish a policy for the continuing education requirements for inactive or retired accountants who remain certified or registered.

287

http://www.state.nj.us/oag/ca/accountancy/ethicspro.htm



Currently, this orientation requires:

1. Successful completion of an approved 4 hour NJ Law & Ethics course

2. Within 30 days of completion, the new licensee shall send a copy of the course completion certificate to the Board

288



45:2B-68 Continuing professional education required for license renewal; orientation, certain (continued). d. The board shall:

1) establish standards for continuing professional education, including the subject matter, contents of courses of study, and the number of credits required;

2) accredit educational programs and sponsors of educational programs offering credit towards the continuing professional education requirements; and

3) accredit other equivalent educational programs, such as teaching, conferences, professional seminars, technical reviews, courses with non-hourly attendance, including home study courses, and shall establish procedures for the issuance of credit upon satisfactory proof of the completion of these programs.

The NJ State Board of Accountancy is empowered with substantial authority and takes its responsibility to ensure the competence of CPAs via quality CPE programs very seriously

289



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION

290



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.2 Credit-Hour Requirements a)

i. Each applicant for a triennial license renewal is required to complete, during the preceding triennial period, 120 hours of continuing professional education, except as provided in (c) through (f) below.

ii. All applicants shall complete a minimum of 20 hours of continuing

professional education in each year of the triennial period.

iii. The types of continuing professional education programs and other sources of continuing professional education for which credit hours may be obtained are set forth in N.J.A.C.13:29-6.5.

iv. The 120 hours of continuing professional education shall include at least 24 credit hours in the areas of auditing, review and compilation accounting or auditing, which may include review and compilation for licensees who are engaged in the practice of public accountancy.

v. All applicants shall complete at least 72 credit hours of the required 120 credit hours in the technical subjects set forth in N.J.A.C.13:29-6.3.

291



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.2 Credit-Hour Requirements

vi. All applicants shall complete 4 (four) credit hours of the required 120 credit hours in the New Jersey law and ethics course set forth in N.J.A.C.13:29-6.3A.

vii. The remaining 44 credit hours of the required 120 credit hours may include subjects specified in N.J.A.C.13:29-6.4.

viii. No licensee shall receive credit for any course offered by a Board-approved continuing professional education sponsor in subjects other than those enumerated in N.J.A.C.13:29-6.3, 6.3A or 6.4.

ix. For the triennial period commencing January 1, 2009 and thereafter, a licensee shall obtain a minimum of 60 credit hours of continuing professional education through didactic instruction.

KEY POINTS The limitation on self-study CPE credits was eliminated with this change. The definition of “didactic instruction" was removed from the rules.

292



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.2 Credit-Hour Requirements b) Failure to meet triennial continuing professional education requirements may subject a licensee to disciplinary action by the Board. c) A licensee shall obtain the required amount of continuing professional education set forth in (a) above by the last day of the triennial renewal period. A licensee who fails to obtain the required amount of continuing professional education by the last day of the triennial renewal period shall be deemed to have failed to comply with the requirements of this subchapter.

KEY POINT The Board may, however, in its discretion, waive requirements for continuing professional education on an individual basis for reasons of hardship, such as health, military service, or other due cause, upon written request by the licensee at least 60 days prior to the last day of the triennial renewal period then in effect.

293



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.2 Credit-Hour Requirements d) A licensee shall not be required to satisfy the requirements of (a) above for the initial renewal of his or her license but shall be required to satisfy the requirements of (a) above as a condition for triennial license renewal for all subsequent triennial renewal periods. e) Inactive licensees shall be exempt from continuing professional education requirements.

KEY POINT Inactive licensees are those who do not practice accounting (public or private), or hold themselves out to the public as practicing accountants in any professional capacity, or use the title or designation of certified public accountant, public accountant, accountant or auditor without the word "inactive," pursuant to N.J.A.C.13:29-1A.10 and 2.3. .

294



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.1 Scope f) A licensee who is inactive pursuant to N.J.A.C.13:29-1A.10(i) or 2.3(h),

or a licensee who has had his or her license suspended pursuant to N.J.A.C.13:29-1A.10(c) or 2.3(c), who seeks to return to the practice of accounting shall notify the Board prior thereto and shall meet the continuing professional education requirements by completing 120 credit hours of continuing professional education requirements prescribed by this subchapter within the three-year period prior to reinstatement.

KEY POINT Licensees failing to comply with these CPE requirements are unable to renew their licenses as active license holders because compliance is a prerequisite for renewal.

295



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.3 QUALIFYING TECHNICAL SUBJECTS a) The following subjects are acceptable for satisfaction of the required 72 credit hours of continuing professional education in technical subjects over the triennial period:

1) Accounting; 2) Auditing, including, but not limited to, review, compilation and attest standards; 3) Business law; 4) Computer Science; 5) Economics; 6) Finance; 7) Management advisory services; 8) Mathematics, statistics, etc.; 9) SEC practice; 10) Taxation; and 11) Professional ethics.

296



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.3 Qualifying Technical Subjects b) Any of the subjects in (a) above may be in specialized areas, such as governmental, not-for-profit organizations, film industry, real estate, and farming. c) Auditing, review and compilation includes the body of knowledge that deals with the basic service of the public accounting profession, that is, examination and reporting on financial statements. Also included in this area is the examination or review of internal and administrative controls, operations and government programs.

297



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.3 Qualifying Technical Subjects c) Relevant program offerings in the areas of auditing, review and compilation might include courses that address:

audit theory and philosophy;

generally accepted auditing standards;

study and evaluation of internal control;

substantive audit procedures;

audit sampling;

reporting on financial statements;

review services; and

computer and government auditing. 298



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.3 Qualifying Technical Subjects c) Qualifying auditing, review and compilation subject matter will include courses covering pronouncements or, regulations issued by recognized authorities, such as the PCAOB, FASB, AICPA, SEC or other government agencies (state and Federal) dealing with auditing, financial reporting, or application of generally accepted accounting principles.

KEY POINT Subjects other than those listed in (a) above may be acceptable for continuing professional education credit if the licensee can demonstrate to the satisfaction of the Board that such subject or specific program contributes to the maintenance of the licensee's professional competence.

299



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.3A NEW JERSEY LAW AND ETHICS COURSE Each applicant for triennial license renewal shall complete, during the preceding triennial period, a four credit course on New Jersey law and ethics approved by the Board pursuant to N.J.A.C.13:29-6.6(c). 13:29-6.4 OTHER QUALIFYING SUBJECTS Courses related to personal or professional development of the licensee, or courses directly associated with the administration of the licensee's practice, shall be accepted towards satisfaction of continuing professional education requirements.

Included in this category are courses that concentrate on practice management areas, such as organizational structure, human resource management and other administrative matters; as well as courses that relate to a licensee's personal skills such as speaking, leadership and managing people or organizations.

KEY POINT Courses which relate to marketing or practice development shall not be accepted towards satisfaction of continuing professional education requirements.

300



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT a) The following qualify as continuing professional education programs

provided they contain the subjects enumerated in N.J.A.C.13:29-6.3 and 6.4 and meet the continuing professional education program criteria requirements as set forth in N.J.A.C.13:29-6.6 or 6.6A.

1) Continuing professional education programs of national or state

professional organizations: Continuing professional education credit shall be granted at the rate of one credit hour for every 50 minutes of in-class participation.

301



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT 2) Accredited university or college courses in qualifying technical subjects set forth in

N.J.A.C.13:29-6.3 only: Continuing professional education credit shall be granted for university or college courses in accordance with the following:

i) Applicants shall receive: 15 credit hours of continuing professional education credit for each semester or trimester credit hour earned; 10 credit hours of continuing professional education credit for each credit hour earned in a quarter; and

ii) Applicants attending noncredit courses shall be granted continuing professional education credit at the rate of one credit hour for every 50 minutes of in-class participation.

3) In-firm educational programs of public accounting firms: Continuing professional education credit shall be granted at the rate of one credit hour for every 50 minutes of in-firm participation.

302



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT 4) Correspondence programs and other individual study programs:

CPE credit shall be granted for correspondence programs and other individual study programs offered by sponsors who have been registered with NASBA

Credit shall be granted in accordance with Standard No. 14 of the AICPA/NASBA Statement on Standards for CPE Programs, effective 1/1/2012, as amended and supplemented.

(incorporated herein by reference). Credit for correspondence and other individual study programs shall

only be given in the renewal period in which the course is completed with a successful final examination.

KEY POINT This section is revised to provide guidance specifically for self-study CPE

303



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT 5) Group Internet based programs:

• Must employ learning methodologies that clearly define learning objectives,

• Guide participants through the learning process, and

• Provide evidence of a participant’s satisfactory completion of the program.

• Must have a live instructor while the program is being presented.

• Participants must be able to interact with the live instructor-- (ask questions and receive answers during the presentation)

304



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT

Group Internet Based Programs

May be archived for future presentations

Any future presentations not accompanied by a live subject matter expert will be considered a correspondence or individual study program which must meet all the individual study program requirements provided in NJAC 13:29-6.5 (a)4.

305

KEY POINT Credit shall be granted at the rate of one credit for every 50 minutes of correspondence and individual self study program participation



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT b) In addition to the continuing professional education programs

enumerated in (a) above, continuing professional education credit also shall be awarded for the following if they fall within the subjects enumerated in N.J.A.C.13:29-6.3 and 6.4 and meet the continuing professional education program criteria as set forth in N.J.A.C.13:29-6.6 or 6.6A.

1) Technical meetings: Licensees who participate in meetings of

professional accounting organizations shall be awarded continuing professional education credit for that portion of the meeting which is structured as a continuing professional education program. Continuing professional education credit shall be granted at the rate of one credit hour for every 50 minutes of the licensee's participation.

306



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT 2) Professional accounting meetings, conferences, seminars: Licensees who participate in meetings of professional accounting

organizations shall be awarded continuing professional education credit if the meeting is structured as an approved continuing professional education program.

KEY POINT Continuing professional education credit shall be granted at the rate of one

credit hour for every 50 minutes of the licensee's participation in the meeting.

307



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT 3) Firm meetings:

Licensees who participate in firm meetings for staff or for management groups of professional accounting organizations shall be awarded continuing professional education credit if the meeting is structured as an approved continuing professional education program.

KEY POINT Continuing professional education credit shall be granted at the rate of one credit hour for every 50 minutes of the licensee's participation in the meeting.

308




c) In addition to the continuing professional education programs enumerated in (a) and (b) above, continuing professional education credit also shall be granted for the following if they involve subjects enumerated in N.J.A.C.13:29-6.3 and 6.4.

1) Service as a lecturer, instructor, discussion leader, or speaker: Continuing professional education credit shall be awarded for service as a lecturer, instructor, discussion leader, or speaker.

i) One credit hour shall be given for each 50-minute period of service provided the discussion is one which meets the continuing professional education subject requirements of N.J.A.C.13:29-6.3 or 6.4.

KEY POINT The maximum credit given for service as an instructor, lecturer, discussion leader, or speaker shall not exceed 60 credit hours for the triennial period.

309




i) (continued) For the lecturer's, instructor's, discussion leader's, or speaker's preparation time, there shall be awarded two additional hours of continuing professional education credit for each credit hour of instruction.

ii) The instructor or discussion leader shall not be given credit for subsequent sessions in the same year involving substantially identical subject matter.

KEY POINT Exception: After one year has elapsed the Board may give one additional credit hour for each 50-minute period of service as an instructor, lecturer, discussion leader, or speaker for the initial presentation, provided the original material has been updated.

310



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT 2) Publications: Continuing professional education credit for publications shall be awarded in accordance with the following:

i) Credit may be claimed for published articles and books by the authors of those works. These publications must contribute to the professional competence of accountants;

ii) Credit shall be given for each 50 minute period of preparation time on a self declaration basis, not to exceed 30 credit hours for the triennial period. A copy of the publication article shall be submitted to the Board with a request for continuing professional education credit;

311



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.5 CONTINUING PROFESSIONAL EDUCATION PROGRAMS AND OTHER SOURCES OF CPE CREDIT iii) In exceptional circumstances, a licensee may request additional credit

by submitting the article or book to the Board with an explanation of the circumstances which he or she believes justify an award of greater credit.

iv) The maximum credit for publication in exceptional circumstances shall not exceed 60 credit hours for the triennial period;

v) Credit shall be given for each 50 minute period of technical review or

peer review program committee participation, not to exceed 60 credit hours for the triennial period.

KEY POINTS • When licensees request more than 30 credit hours during the triennial period, credit

hours awarded shall be determined by the Board on a case-by-case basis. • Factors such as complexity of subject matter, length of publication, and the amount of

preparation time shall be considered.

312



SUMMARY

CPE Programs – in class = 1 credit per 50 minutes

College courses = 15 credits per each semester credit hour

10 credits per credit hour each quarter

Self-study (NASBA approved) = 1 credit per 50 minutes (change effective 1/1/09) (Maximum 60 credits per tri-annual period)

Tech & Prof meetings = Possible to earn 1 credit per 50 minutes

CPE Presenters =

1 credit per 50 minutes (of lecture)

2 credits per 50 minutes (of prep time)

(maximum 60 credits per triennial period/subject to restriction if full time)

313



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.6 CRITERIA FOR CPE SPONSORS a) In order to qualify as a continuing professional education sponsor in the

subject matters set forth in N.J.A.C.13:29-6.3 and 6.4, the sponsor shall submit an application form prescribed by the Board and obtain a sponsor number, except as provided in N.J.A.C. 3:29-6.6A. Qualified sponsors shall offer courses which meet the following requirements:

1) Be a formal course of learning which contributes directly to the maintenance of professional competence of a licensee;

2) Be at least one credit hour, 50-minute period, in length;

3) Be conducted by a qualified instructor or discussion leader; and

4) Offer subjects enumerated in N.J.A.C.13:29-6.3 or 6.4.

KEY POINT The Board not only has criteria for licensees, but also for CPE providers.

314



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.6 CRITERIA FOR CPE SPONSORS b) A continuing professional education sponsor may receive prior approval

for a course of acceptable subject matter set forth in N.J.A.C.13:29-6.3 and 6.4 and be assigned a designated number of continuing professional education credits by the Board if the program sponsor provides, in writing and on a form provided by the Board, information required by the Board to document the elements of (a) above, and, in addition thereto, certifies that the sponsor shall:

1) Maintain and retain accurate records of attendance for a five-year period;

2) Retain a written outline of course materials for a five-year period; and

3) Comply with the requirements of N.J.A.C. 13:29-6.11 relative to the responsibilities of program sponsors.

KEY POINT The CPE program sponsor is required to provide attendees with certificates to evidence successful participation in the program, and is also responsible to maintain such records

for a period of 5 years.

315



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.6A SPONSOR NUMBER EXEMPTIONS a) Accredited universities and colleges, national and state professional

organizations, and Federal and state government agencies that sponsor continuing professional education courses or programs, and continuing professional education sponsors registered with the National Association of State Boards of Accountancy (NASBA) shall be exempt from obtaining a NJ CPE sponsor number.

b) In order for a licensee to obtain continuing professional education credit for a course or program offered by a sponsor exempt pursuant to (a) above, the program or course shall satisfy the requirements of N.J.A.C.13:29-6.6(a).

KEY POINT The burden of ensuring that the provider meets these criteria rests with the licensee.

Checking the NASBA Registry is easy and a good precautionary measure if you’re unsure.

316



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION To confirm the current or past status of a National Registry CPE Sponsor: http://nasba.org/education/registrystatus/

KEY POINT Ensuring the provider is a bon-a-fide registrant with NASBA requires:

Registry Sponsor ID, delivery method and program date. 317

http://nasba.org/education/registrystatus/



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.7 CREDIT-HOUR CALCULATIONS

a) The minimum measurement for continuing professional education credit shall be a whole credit hour.

• Except for those sources of continuing professional education for which another system of credit hour calculation is set forth in this subchapter, a continuing professional education credit hour shall be equivalent to 50 minutes.

• One-half credit hour of continuing professional education may be earned for 25 minutes of instruction or participation after the first credit hour has been earned.

EXAMPLE A course or program lasting 75 minutes shall be equal to one and one-half continuing professional education credits.

318



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.8 RETENTION OF CONTINUING PROFESSIONAL EDUCATION RECORDS a) A licensee shall be primarily responsible for documenting satisfaction of

continuing professional education requirements.

KEY POINT Evidence to support fulfillment of continuing professional education requirements shall be maintained for a period of five years after the completion of educational courses. Such evidence shall be subject to periodic audit by the Board.

319



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.8 RETENTION OF CONTINUING PROFESSIONAL EDUCATION RECORDS Satisfactory documentation of the necessary information, including the retention of attendance records and written outlines, shall be accomplished as follows: 1) For courses taken for scholastic credit in accredited universities or

colleges, a certified transcript or notarized statement of appropriate school authority shall constitute evidence of satisfactory completion of the course.

KEY POINT For non-credit courses taken, a statement of the hours of attendance signed by the instructor, shall be obtained by the licensee.

320



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION

2) For courses offered by national or state professional organizations, Federal and state government agencies, and sponsors registered with the National Association of State Boards of Accountancy (NASBA), and for correspondence and individual self study courses, written evidence of completion shall be submitted by the licensee.

Acceptable evidence of the completion of such courses shall be a certificate of completion or other comparable documentation acquired by the licensee from the program sponsor.

KEY POINT The certificate or other documentation shall include the following information:

i. Dates attended; ii. Credit hours earned; iii. Course title and description of content, including method of

course delivery and subject area: iv. Course sponsor name; v. Instructor name; and vi. Course location.

321



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.9 CONTINUING PROFESSIONAL EDUCATION REQUIREMENTS; RECIPROCITY An individual who holds a valid and unrevoked license issued by any state or other political subdivision of the United States and who receives a license to practice in New Jersey under the appropriate provisions of N.J.S.A.45:2B-42 et seq. and pursuant to N.J.A.C.13:29-1A.8 shall be required to comply with the continuing professional education requirements applicable to all other licensees.

KEY POINT Licensees need to ensure they meet the CPE criteria set forth by the NJ

State Board of Accountancy in addition to the criteria established by any other regulatory agencies of jurisdictions where they hold active licenses.

322



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.10 RESPONSIBILITIES OF PROGRAM DEVELOPERS a) Program developers shall specify the level of knowledge to be imparted under the continuing professional education program in order to provide sufficient information to potential participants and sponsors.

Levels of Knowledge Defined 1. A basic level program teaches fundamental principles or skills to

participants having no prior exposure to the subject area; 2. An intermediate level program builds on a basic level program in order

to relate fundamental principles or skills to practical situations and extend them to a broader range of applications;

3. An advanced level program teaches participants to deal with complex situations; and

4. An overview program enables participants to develop perspective as to how a subject area relates to the broader aspects of accounting or brings participants up-to-date on new developments in the subject area.

323



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.10 RESPONSIBILITIES OF PROGRAM DEVELOPERS c) Programs shall be developed by individuals qualified in the subject matter

and in instructional design. An individual program developer need not be both technically competent and competent in instructional design, provided that both types of competency are represented in the program's development.

d) The program developer shall review the course materials periodically to ensure that they are accurate and consistent with currently accepted standards relating to the program's subject matter.

KEY POINT

Materials must be kept current and can be done via errata inserts. Any obsolete material must be deleted.

324



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.11 RESPONSIBILITIES OF PROGRAM SPONSORS a) In addition to the requirements of N.J.A.C.13:29-6.6, continuing

professional education program sponsors are held to standards relating to: 1) How the program is described in promotional materials. The program

sponsor is required to disclose the following in advance: 1. Couse learning objectives, 2. Prerequisites, 3. Experience level, 4. Course content (outline), 5. Required advanced preparation, 6. Teaching method, and 7. Number of CPE credits.

KEY POINT Program development involves the creation of the CPE material. Program sponsorship involves the presentation of the CPE material.

325



13:29-6.11 RESPONSIBILITIES OF PROGRAM SPONSORS (continued) 2) Selection and review of instructors: The program sponsor shall select and assign qualified instructors . Sponsors shall evaluate the performance of the program instructors

at the conclusion of each program to determine the instructors' suitability to continue to serve as instructors in the future.

3) Number of participants and adequacy of physical facilities: The program sponsor shall be responsible for assuring that the

number of participants and the physical facilities are consistent with the teaching methods to be utilized.

KEY POINT Sponsors shall also advise participants, in advance, of courses

that qualify as "auditing" pursuant to N.J.A.C. 13:29-6.3(a).

326



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.11 RESPONSIBILITIES OF PROGRAM SPONSORS (continued) 4) Program evaluation:

The sponsor shall provide some means of program evaluation.

Evaluations shall be solicited from both the participants and instructors.

Programs shall be evaluated to determine whether:

(1) Objectives have been met;

(2) Prerequisites were necessary or desirable;

(3) Facilities were satisfactory;

(4) The instructor was effective;

(5) Advanced preparation materials were satisfactory; and

(6) The program content was timely and effective.

327



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.11 RESPONSIBILITIES OF PROGRAM SPONSORS (continued) 5) Issuance of certificates:

The program sponsor shall be responsible for issuing certificates of satisfactory completion or other comparable documentation to program participants.

Such certificates or documentation shall be printed with the following information:

i. Dates attended; ii. Credit hours earned; iii. Course title and description of content, including method of

course delivery and subject area; iv. Course sponsor name; v. Instructor name; and vi. Course location.

328



SUBCHAPTER 6 – CONTINUING PROFESSIONAL EDUCATION 13:29-6.12 SPONSOR'S FAILURE TO COMPLY WITH CONTINUING EDUCATION RESPONSIBILITIES Failure of a sponsor to comply with the requirements for continuing professional education programs, as set forth in N.J.A.C.13:29-6.6, and responsibilities of program sponsors, as set forth in N.J.A.C.13:29-6.11, may result in the suspension of the preapproved status for programs offered by the sponsor.

329



Compliance with the CPE requirements is taken very seriously at the NJ State Board.

Select members of the New Jersey Board of Accountancy are selected to serve on a committee responsible for ensuring that New Jersey CPAs are adhering to the CPE requirements established by the Board: The Monitoring Profession Committee.

1. The Committee makes a selection of members to be audited.

2. Members are contacted and asked to provide documentation that supports the CPE programs they’ve taken during the triennial CPE reporting period.

3. The documentation is reviewed and the member is contacted if:

a. Additional information is required, or

b. It appears that the CPE being claimed doesn’t meet the published criteria.

KEY POINT Make sure you maintain your records contemporaneously;

it’s much easier than trying to reconstruct them long after the fact.

330



TELL THE TRUTH Complete your renewal application honestly because

“The cover-up is worse than the crime”

Martha Stewart

331



Compliance with the CPE requirements is taken very seriously at the NJ State Board. Results of CPE compliance audit for the 2003-2005 triennial reporting period: Board selected a sample size of approximately 10%

– Sample selection was random – Also included anyone who was found to be short credit hours in the prior

triennial period Results were a 30% failure rate

– Approximately half the failures resulted from misunderstanding the 2 for 1 rule on self study courses

– Approximately half didn’t have the required credit hours Fines levied:

– Ranged from $2,300 to $7,000 – Total fines amounted to greater than $900,000

332



Compliance with the CPE requirements is taken very seriously at the NJ State Board.

Results of CPE compliance audit for the 2006-2008 triennial reporting period:

Total Uniform Penalty Letters (UPL’s) issued: 831

Total Assessed Fines: $4,552,500

Total amount rescinded (58): $372,500

Voluntary Surrender (277): $1,772,500

Total UPL’s Finalized: 496

Total Finalized Amount Fined: $2,407,500

333



2009-2011 NJ Board Findings

The committee may require more than one year to complete it’s work relative to the audit of one triennial reporting period.

KEY POINT As of this writing, a report summarizing the results of the 2009-2011 CPE audit was not yet available.

334










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

335



SUBCHAPTER 5 – PEER REVIEW PROGRAM 13:29-5.3 Standards for Peer Reviews The Board adopted the 2009 "Standards for Performing and Reporting on Peer Reviews" promulgated by the American Institute of Certified Public Accountants (AICPA), as its minimum standards for review of firms’ non-SEC issuer practices. The Standards are incorporated in this subchapter by reference, as amended and supplemented. See: http://www.aicpa.org/download/practmon/2009_stds.pdf For public company audit firms, the Board adopts the firm inspection standards of the Public Company Accounting Oversight Board's (PCAOB) inspection process for reviewing SEC issuer practices, which are not included in the scope of peer review programs. The inspection standards are incorporated in this subchapter by reference, as amended and supplemented, and may be found at the PCAOB website, www. pcaob.org specifically, http://pcaobus.org/Standards/QC/Pages/default.aspx KEY POINT A firm subject to the PCAOB's inspection process is also subject to a peer review of its non-SEC issuer practice, should the firm have such a practice.

336

http://www.aicpa.org/download/practmon/2009_stds.pdf

http://pcaobus.org/Standards/QC/Pages/default.aspx



SUBCHAPTER 5 – PEER REVIEW PROGRAM 13:29-5.3

(b) A complete list of qualified sponsoring organizations that are approved by the Board pursuant to NJAC 13:29-5.8 will be available on the Board’s website.

337

KEY POINTS The Rules previously included a specified list of qualified sponsoring organizations. The URL for this list is: http://www.njconsumeraffairs.gov/accountancy/acct_licensee.htm



SUBCHAPTER 5 – PEER REVIEW PROGRAM 13:29-5.4 Enrollment and participation: exemptions (a) Participation in the Peer Review Program is required of each firm licensed

with the Board that performs any attest service or any accounting and/or auditing engagements, including audits, reviews, compilations, forecasts, projections or special reports performed under professional standards.

(b) A firm that does not perform services as set out in (a) above shall annually no later than June 30 of each year submit a request for an exemption from the Program in writing to the Board with an explanation of the services offered by the firm. A firm with an exemption that begins providing services set out in (a) above shall notify the Board of the change in status within 30 days and provide the Board with enrollment information within 12 months of the date the services were first provided. The firm shall have a review within 18 months of the date the services were first provided.

KEY POINTS A firm that issues only compilations where no report is required under the Statements on

Standards for Accounting and Review Services is not required to participate in the program.

338



SUBCHAPTER 5 – PEER REVIEW PROGRAM 13:29-5.4 Enrollment and participation: exemptions (continued) (c) Each firm required to participate under (a) above shall enroll in the

Peer Review Program of an approved sponsoring organization within one year from its initial licensing date or the performance of services that require a review, whichever is earlier. The firm shall adopt the review due date assigned by the sponsoring organization, and shall notify the Board of the date within 30 days of its assignment. The firm shall schedule and begin an additional review within three years of the previous review's due date, or earlier as may be required by the sponsoring organization

KEY POINT It is the responsibility of the firm to anticipate its needs for review services

in sufficient time to enable the reviewer to complete the review by the assigned review due date.

339










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.

10 min. 5 min. 5 min. 5 min. 5 min. 5 min. 10 min. 5 min. 5 min. 2 min. 5 min. 2 min. 2 min. 5 min.

10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

340




Conduct

New Jersey Regs


Members in Public

Practice



Integrity 13:29-3.2 1.100 2.100 n/a

Objectivity 13:29-3.2 1.100 2.100 n/a

Competence 13:29-3.3 1.300 2.300 n/a

Forecasts 13:29-3.4 1.295 2.295 n/a



341




13:29-3.3 COMPETENCE

A licensee or the licensee's firm shall not undertake any engagement

for the performance of professional services which the licensee cannot

reasonably expect to complete with due professional competence,

including compliance, where applicable, with N.J.A.C.13:29-3.5 and

3.6.

342


Competence 1.300 General Standards 1.300.001 General Standards Rule .01 A member shall comply with the following standards and with any interpretations thereof by bodies designated by Council:

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.


343




0.300.060 Due Care

.01 Due care principle. 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.

.02 The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and diligence. KEY POINTS

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.

344




0.300.060 Due Care

.03 Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member’s professional life.

KEY POINTS

It is a member’s individual responsibility. In all engagements and in all responsibilities, 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.

345




0.300.060 Due Care

.04 Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a member to render services with facility and acumen. It also establishes the limitations of a member’s capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member’s firm.

KEY POINTS Each member is responsible for assessing his or her own competence--

of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed.

346



0.300.060 Due Care (continued)

.05 Members should be diligent in discharging responsibilities to clients, employers, and the public.

.06 Due care requires a member to plan and supervise adequately any professional activity for which he or she is responsible.

[Prior reference: ET section 56]


KEY POINTS Diligence imposes the responsibility to render services promptly and carefully,

to be thorough, and to observe applicable technical and ethical standards.

347



0.300.070 Scope and Nature of Services

.01 Scope and nature of services principle. 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.

.02 The public interest aspect of members’ services requires that such services be consistent with acceptable professional behavior for members.

Objectivity and independence require that members be free from conflicts of interest in discharging professional responsibilities.


KEY POINT Due care requires that services be provided with competence and diligence.

KEY POINT Integrity requires that service and the public trust not be

subordinated to personal gain and advantage.

348



KEY POINTS No hard-and-fast rules can be developed to help members reach these judgments,

but they must be satisfied that they are meeting the spirit of the Principles in this regard.

Preface: Applicable to All Members 0.300.070 Scope and Nature of Services .03 Each of these Principles should be considered by members in determining whether or not to provide specific services in individual circumstances. In some instances, they may represent an overall constraint on the non-audit services that might be offered to a specific client.

349



Preface: Applicable to All Members 0.300.070 Scope and Nature of Services (continued) .04 In order to accomplish this, members should

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

b. 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.

c. Assess, in their individual judgments, whether an activity is consistent with their role as professionals. [Prior reference: ET section 57]

350


V. AICPA Code of Professional Conduct

Ethical Judgment Never make a mistake alone.

Always talk and think it through with someone.

351


1.300.010 Competence .01 Competence, in this context, means that the member or member’s staff possess the appropriate technical qualifications to perform professional services and that the member, as required, supervises and evaluates the quality of work performed.


KEY POINT Competence encompasses knowledge of the profession’s standards,

the techniques and technical subject matter involved, and the ability to exercise sound judgment

in applying such knowledge in the performance of professional services.

352


1.300.010 Competence .02 A member’s agreement to perform professional services implies that the member has the necessary competence to complete those services according to professional standards and to apply the member’s knowledge and skill with reasonable care and diligence. .03 The member may have the knowledge required to complete the services in accordance with professional standards prior to performance.


KEY POINT A normal part of providing professional services involves performing additional

research or consulting with others to gain sufficient competence.

KEY POINT The member does not assume a responsibility for infallibility of knowledge or judgment.

353


Competence 1.300.030 Submission of Financial Statements .01 When a member prepares or submits financial statements as a stockholder, a partner, a director, an officer, or an employee of an entity using the firm’s letterhead or similar identification, the member should comply with the “Compliance With Standards Rule” [1.310.001], including any requirements to disclose a lack of independence in the member’s report. .02 Refer to the “Use of a CPA Credential” interpretation [2.400.100] of the “Acts Discreditable Rule” [2.400.001] and the “Submission of Financial Statements” interpretation [2.300.030] of the “General Standards Rule” [2.300.001] for additional guidance. [Prior reference: paragraphs .019–.020 of ET section 291]


354


Competence 1.300.040 Use of a Third-Party Service Provider .01 A member who uses a third-party service provider to assist the member in providing professional services such as bookkeeping, tax preparation, or consulting or attest services, including related clerical or data entry functions, is required to comply with the “General Standards Rule” [1.300.001] and the “Compliance With Standards Rule” [1.310.001]. To accomplish this,

a. before using a third-party service provider, the member should ensure that the third-party service provider has the required professional qualifications, technical skills, and other resources.


KEY POINT Factors that can be helpful in evaluating a prospective third-party service provider include business, financial, and personal references from banks, other CPAs, and other customers of the third-party service provider; the third-party service provider’s professional reputation and recognition in the community; published materials (articles and books that he or she has authored); and the member’s personal evaluation of the third-party service provider.

355


Competence 1.300.040 Use of a Third-Party Service Provider b. the member must adequately plan and supervise the third-party service provider’s professional services so that the member ensures that the services are performed with competence and due professional care. .02 The member’s responsibility for planning and supervising the third-party service provider’s work does not extend beyond the requirements of applicable professional standards, which may vary depending upon the nature of the member’s engagement.


KEY POINTS The member must also obtain sufficient relevant data to support the work product

and comply with all technical standards applicable to the professional services.

356


Competence 1.300.040 Use of a Third-Party Service Provider


Additional Resources • “Integrity and Objectivity Rule” [1.100.001], specifically “Use of a Third-

Party Service Provider” interpretation [1.150.040]

• “Confidential Client Information Rule” [1.700.001], specifically “Disclosing Information to a Third-Party Service Provider” interpretation [1.700.040]

[Prior references: paragraphs .015–.016 and .023–.024 of ET section 291]

357







13:29-3.4 Forecasts









13:29-3.16 Records 358



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.4 FORECASTS A licensee or the licensee's firm shall not in the performance of professional services permit the licensee's name to be used in conjunction with any forecast of future transactions in a manner which may reasonably lead to the belief that the licensee vouches for the achievability of the forecast.

359


Forecasts Are covered by the AICPA Code of Professional Conduct under 1.295.105 Advisory Services .01 Self-review or management participation threats to compliance with the “Independence Rule” [1.200.001] may exist when a member performs advisory services for an attest client. .02 If the member’s services are only advisory in nature and the member applies the “General Requirements for Performing Non-attest Services” interpretation [1.295.040] of the “Independence Rule” [1.200.001], threats would be at an acceptable level and independence would not be impaired.


360



EXAMPLE Without considering independence impaired, a member may:

a. provide advice, research materials, and recommendations to assist management in performing its functions and making decisions.

b. attend board meetings as a nonvoting advisor.

c. interpret financial statements, forecasts, or other analyses.

d. provide management with advice regarding its potential plans, strategies, or relationships.

361


Forecasts .03 However, threats to compliance with the “Independence Rule” [1.200.001] would not be at an acceptable level and could not be reduced to an acceptable level by the application of safeguards if a member assumes any management responsibilities, as described in the “Management responsibilities” interpretation [1.295.030]. Accordingly, independence is impaired. [Prior reference: paragraph .05 of ET section 101 and paragraphs .015–.016 of ET section 191]


KEY POINT Whenever a member assumes management responsibilities,

independence is impaired.

362







13:29-3.4 Forecasts









13:29-3.16 Records 363



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.5 AUDITING STANDARDS A licensee of the licensee's firm shall not permit the licensee's name to be associated with financial statements in such a manner as to imply that the licensee is acting as an independent public accountant with respect to such financial statements unless the licensee has complied with applicable generally accepted auditing standards (GAAS) and, if applicable, generally accepted governmental auditing standards (GAGAS). Statements on Auditing Standards (SAS) issued by the American Institute of Certified Public Accountants (AICPA), and the Public Company Accounting Oversight Board (PCAOB), and other pronouncements having similar generally recognized authority, are considered to be interpretations of generally accepted auditing standards, and departures therefrom shall be justified by those who do not follow them.

364


Auditing Standards 1.310 Compliance With Standards 1.310.001 Compliance With Standards Rule .01 A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council. .02 A compendium of such bodies is included as Appendix A of the Code “Council Resolution Designating Bodies to Promulgate Technical Standards.” [Prior reference: paragraph .01 of ET section 202]


365



• Federal Accounting Standards Advisory Board (FASAB)

• Financial Accounting Standards Board (FASB)

• Governmental Accounting Standards Board (GASB)

• Public Company Accounting Oversight Board (PCAOB)

• International Accounting Standards Board (IASB)

AICPA Committees & Boards • Accounting & Review Services

Committee • Auditing Standards Board • Management Consulting Services

Executive Committee • Tax Executive Committee • Forensic & Valuation Services

Executive Committee • Personal Financial Planning

Executive Committee

BODIES DESIGNATED TO PROMULGATE TECHNICAL STANDARDS

366


Auditing Standards 1.310 Compliance With Standards Interpretations Under the Compliance with Standards Rule 1.310.005 Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts .01 In the absence of an interpretation of the “Compliance With Standards Rule” [1.310.001] that addresses a particular relationship or circumstance, a member should apply the “Conceptual Framework for Members in Public Practice” [1.000.010].


367







13:29-3.4 Forecasts









13:29-3.16 Records 368



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.6 ACCOUNTING PRINCIPLES a) A licensee or the licensee's firm shall not express an opinion that financial statements are presented in conformity with generally accepted accounting principles (GAAP) if such financial statements contain any departure from such accounting principles which has a material effect on the financial statements taken as a whole, unless the licensee can demonstrate that by reason of unusual circumstances the financial statements would otherwise have been misleading. In such a case, the licensee's report must describe the departure, the approximate effects thereof, if practicable, and the reasons why compliance with the principle would result in a misleading statement. b) For purposes of this rule, generally accepted accounting principles (GAAP) are considered to be defined by pronouncements issued by the Financial Accounting Standards Board (FASB) and its predecessor and successor entities and similar pronouncements issued by other entities having similar general recognized authority.

369


1.320 Accounting Principles 1.320.001 Accounting Principles Rule .01 A member shall not (1) express an opinion or state affirmatively that the financial statements or

other financial data of any entity are 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 generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole


370


1.320 Accounting Principles 1.320.001 Accounting Principles Rule


KEY POINT If, however, the statements or data contain such a departure and the

member can demonstrate that due to unusual circumstances the financial statements or data would otherwise have been misleading, the

member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with

the principle would result in a misleading statement.

371


2.300.010 Competence .01 Competence, in this context, means that the member or member’s staff possesses the appropriate technical qualifications to perform professional services and, as required, supervises and evaluates the quality of work performed. .02 A member’s agreement to perform professional services implies that the member has the necessary competence to complete those services according to professional standards and to apply the member’s knowledge and skill with reasonable care and diligence. However, the member does not assume a responsibility for infallibility of knowledge or judgment.


KEY POINT Competence encompasses knowledge of the profession’s standards, the techniques

and technical subject matter involved, and the ability to exercise sound judgment in applying such knowledge in the performance of professional services.

372



KEY POINT Additionally, to assist members in complying with the standards,

Included within the Codification is the following conceptual framework: 2.320.005 Application of the Conceptual Framework for

Members in Business and Ethical Conflicts.

2.300.010 Competence Under the heading of Competence, Members in Business have similar responsibilities as Members in Public Practice. Accordingly, guidance parallel to what we covered regarding members in public practice is included in Part 2 for Members in Business:

2.300.030 Submission of Financial Statements 2.310 Compliance With Standards 2.310.001 Compliance With Standards Rule 2.320 Accounting Principles 2.320.001 Accounting Principles Rule

373










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

374




Conduct

New Jersey Regs


Members in Public

Practice



Integrity 13:29-3.2 1.100 2.100 n/a

Objectivity 13:29-3.2 1.100 2.100 n/a

Competence 13:29-3.3 1.300 2.300 n/a

Forecasts 13:29-3.4 1.295 2.295 n/a



375



Preface: Applicable to All Members 0.300.030 The Public Interest

.04 Those who rely on members expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public.

.05 All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek to continually demonstrate their dedication to professional excellence. [Prior reference: ET section 53]

KEY POINTS Members are expected to provide quality services, enter into fee arrangements,

and offer a range of services—all in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct.

376



KEY POINTS Integrity can accommodate the inadvertent error and honest difference of opinion;

it cannot accommodate deceit or subordination of principle.

Preface: Applicable to All Members 0.100 Overview of the Code of Professional Conduct 0.300.040 Integrity

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

.02 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 member must ultimately test all decisions.

.03 Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage.

377


Preface: Applicable to All Members 0.100 Overview of the Code of Professional Conduct 0.300.040 Integrity

.04 Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or guidance or in the face of conflicting opinions, a member should test decisions and deeds by asking: “Am I doing what a person of integrity would do? Have I retained my integrity?”

.05 Integrity also requires a member to observe the principles of objectivity and independence and of due care. [Prior reference: ET section 54]


KEY POINTS 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.

378



KEY POINTS

Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice. [Prior reference: ET section 55]



.04 For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conflicts of interest.

.05 Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services.

379




13:29-3.2 INTEGRITY AND OBJECTIVITY

A licensee or the licensee's firm shall not knowingly misrepresent facts,

and when engaged in the practice of public accounting, including the

rendering of tax and management advisory services, shall not

subordinate the licensee's judgment to others.

In tax practice, a licensee or the licensee's firm may resolve doubt in

favor of the licensee's client as long as there is reasonable support for

the licensee's position.

380



KEY POINT Within the new AICPA Codification:

1.100 provides guidance specific to members in public practice; and

2.100 provides guidance specific to members in business

Integrity and objectivity Integrity and objectivity are rooted in the principles of professional conduct; and as such are included in the preface of the Codified AICPA Code of Professional Conduct (COPC).

Accordingly, all CPAs are expected to perform their assigned duties, regardless of where they work with integrity and objectivity.

381



Integrity and objectivity 1.100.001 Integrity and Objectivity Rule .01 In the performance of any professional service, a member 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. [Prior reference: paragraph .01 of ET section 102] Interpretations Under the Integrity and Objectivity Rule 1.100.005 Application .01 In the absence of an interpretation of the “Integrity and Objectivity Rule” [1.100.001] that addresses a particular relationship or circumstance, a member should apply the “Conceptual Framework for Members in Public Practice” [1.000.010].

KEY POINT Being contained in Part 1 of the codification, this guidance is

focused on and written for members in public practice.

382



Integrity and objectivity 1.100.005 Application of the Conceptual Framework for Members in Public Practice and Ethical Conflicts (continued) .02 A member would be considered in violation of the “Integrity and Objectivity Rule” [1.100.001] if the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level.

.03 A member should consider the guidance in “Ethical Conflicts” [1.000.020] when addressing ethical conflicts that may arise when the member encounters obstacles to following an appropriate course of action.

KEY POINT Such obstacles may be due to internal or external pressures or

to conflicts in applying relevant professional or legal standards, or both. [No prior reference: new content]

383










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

384





New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

385



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.7 CONFIDENTIAL CLIENT INFORMATION a) A licensee or the licensee's firm shall not without the consent of the

licensee's client disclose any confidential information pertaining to the licensee's client obtained in the course of performing professional services.

c) Members of the Board and professional practice reviewers shall not

disclose any confidential client information which comes to their attention from licensees or their firms in disciplinary proceedings or otherwise in carrying out their responsibilities, except that they may furnish such information to an investigative or disciplinary body of the kind referred to above.

386



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.7 CONFIDENTIAL CLIENT INFORMATION b) This rule shall not:

1) Relieve a licensee of any obligations under N.J.A.C.13:29-3.5 and N.J.A.C.13:29-3.6; or

2) Subpoena or summons: Affect in any way a licensee's obligation to comply with a validly issued subpoena or summons enforceable by order of a court; or

3) Quality review: Prohibit disclosures in the course of a quality review of a licensee's professional services; or

4) Official investigation: Preclude a licensee from responding to any inquiry made by the Board or any investigative or disciplinary body established by law or formally recognized by the Board.

5) CPA Defense Team: Use of information to defend yourself from a lawsuit by the client

387


1.700 Confidential Information 1.700.001 Confidential Client Information Rule .01 A member in public practice shall not disclose any confidential client information without the specific consent of the client. .02 This rule shall not be construed (1) to relieve a member of his or her professional obligations of the “Compliance

With Standards Rule” [1.310.001] or the “Accounting Principles Rule” [1.320.001],

(2) to affect in any way the member’s obligation to comply with a validly issued and enforceable subpoena or summons, or to prohibit a member’s compliance with applicable laws and government regulations,

(3) to prohibit review of a member’s professional practice under AICPA or state CPA society or Board of Accountancy authorization, or

(4) to preclude a member from initiating a complaint with, or responding to any inquiry made by, the professional ethics division or trial board of the Institute or a duly constituted investigative or disciplinary body of a state CPA society or Board of Accountancy.


388


1.700 Confidential Information 1.700.001 Confidential Client Information Rule .02 Members of any of the bodies identified in (4) above and members involved with professional practice reviews identified in (3) above shall not use to their own advantage or disclose any member’s confidential client information that comes to their attention in carrying out those activities. This prohibition shall not restrict members’ exchange of information in connection with the investigative or disciplinary proceedings described in (4) above or the professional practice reviews described in (3) above. [Prior reference: paragraph .01 of ET section 301]


389










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

390





New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

391



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.16 RECORDS a) A licensee or the licensee's firm shall furnish to the licensee's client or

former client, upon request made within a reasonable time after original issuance of the document in question:

1) A copy of a tax return of the client;

2) A copy of any report, or other document, issued by the licensee to or for such client;

3) Any accounting or other records belonging to, or obtained from or on behalf of, the client which the licensee removed from the client's premises or received for the client's account, but the licensee or the licensee's firm may make and retain copies of such documents when they form the basis for work done by the licensee; and

392



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.16 RECORDS (continued)

4) A copy of the licensee's or his or her firm'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.

b) A licensee or the licensee's firm shall not withhold client records for the non-payment of fees for services performed.

393


1.400.200 Records Requests Terminology .01 The following terms are defined here solely for use with this interpretation:

a. A client includes current and former clients. b. A member means the member or the member’s firm. c. Client-provided records are accounting or other records, including

hardcopy and electronic reproductions of such records, belonging to the client that were provided to the member by, or on behalf of, the client.


394



d. Member-prepared records are accounting or other records that the member was not specifically engaged to prepare and that are not in the client’s books and records or are otherwise not available to the client, thus rendering the client’s financial information incomplete.


KEY POINT Examples include adjusting, closing, combining, or consolidating journal entries (including computations supporting such entries) and supporting

schedules and documents that the member proposed or prepared as part of an engagement (for example, an audit).

395



e. Member’s work products are deliverables set forth in the terms of the engagement, such as tax returns.

f. Working papers are all other items prepared solely for purposes of the engagement and include items prepared by the

i. i. member, such as audit programs, analytical review schedules, and statistical sampling results and analyses.

ii. ii. client at the request of the member and reflecting testing or other work done by the member.


396


Records Interpretation .02 Members must comply with the rules and regulations of authoritative regulatory bodies, such as the member’s state board(s) of accountancy, when the member performs services for a client and is subject to the rules and regulations of such regulatory body.


EXAMPLE A member’s state board(s) of accountancy may not permit a member to withhold certain records, even though fees are due to the member for the work performed.

Failure to comply with the more restrictive provisions of the applicable regulatory

body’s rules and regulations concerning the return of certain records would constitute a violation of this interpretation.

397


Records Interpretation .03 The member should return client-provided records in the member’s custody or control to the client at the client’s request. .04 Unless a member and the client have agreed to the contrary, when a client makes a request for member prepared records or a member’s work products that are in the member’s custody or control and that have not previously been provided to the client, the member should respond to the client’s request as follows: a. The member should provide member-prepared records relating to a

completed and issued work product to the client, except that


KEY POINT Such records may be withheld if fees are due to the member for

that specific work product.

398


Records Interpretation b. Member’s work products should be provided to the client, except that

such work products may be withheld i. if fees are due to the member for the specific work product; ii. if the work product is incomplete; iii. if for purposes of complying with professional standards (for

example, withholding an audit report due to outstanding audit issues); or

iv. if threatened or outstanding litigation exists concerning the engagement or member’s work.


399










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

400





New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

401



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.12 COMMISSIONS, PERFORMANCE FEES AND REFERRAL FEES

a) A performance fee is compensation to a licensee on the basis of a share of the capital gains upon, or the capital appreciation of, the funds or any portion of the funds of a client.

b) A licensee in public practice shall not receive a commission or performance fee for recommending or referring to a client any product or service, or receive a commission or performance fee for recommending or referring any product or service to be supplied by a client, or receive a commission or performance fee, when the licensee or the licensee's firm also performs for that client the following:

1) An audit or review of a financial statement;

2) A compilation of a financial statement accompanied by a report; or

3) An examination of prospective financial information.

402



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.12 COMMISSIONS, PERFORMANCE FEES AND REFERRAL FEES (cont.) c) The prohibition set forth in (b) above applies during the period in which

the licensee is engaged to perform any of the listed services, and the period covered by any historical financial statements involving those services.

d) A licensee in public practice who is not prohibited by this section from performing services for or receiving a commission or performance fee and who is paid or expects to be paid a commission or performance fee shall disclose that fact to any person or entity to whom the licensee recommends or refers a product or service to which the commission or performance fee relates.

e) Any licensee in public practice who accepts a referral fee for recommending or referring any service of a licensee to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client.

403



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.12 COMMISSIONS, PERFORMANCE FEES AND REFERRAL FEES (cont.) f) All disclosures in (d) and (e) above shall:

1) Be made in writing contemporaneously with or prior to the referral or recommendation; and

2) Shall be signed and dated by the person or entity to whom the licensee makes the referral or recommendation and by the person or entity who was referred by the licensee.

404


Commissions, performance & referral fees 1.520 Commissions and Referral Fees 1.520.001 Commissions and Referral Fees Rule .01 Prohibited commissions. A member in public practice shall not for a commission recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, when the member or member’s firm also performs for that client:

a. an audit or review of a financial statement; or b. a compilation of a financial statement when the member expects, or

reasonably might expect, that a third party will use the financial statement and the member’s compilation report does not disclose a lack of independence; or

c. an examination of prospective financial information.


405


Commissions, performance & referral fees 1.520 Commissions and Referral Fees .02 This prohibition applies during the period in which the member is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in such listed services. .03 Disclosure of permitted commissions. A member in public practice who is not prohibited by this rule from performing services for or receiving a commission and who is paid or expects to be paid a commission shall disclose that fact to any person or entity to whom the member recommends or refers a product or service to which the commission relates. .04 Referral fees. Any member who accepts a referral fee for recommending or referring any service of a CPA to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client. [Prior reference: paragraph .01 of ET section 503]


406



EXAMPLE OF NOTIFICATION OF RECEIPT OF COMMISSION

(Name of person or entity to whom the CPA refers a product or service to which commission, performance fee, or referral fee relates)

Dear_________: As required by New Jersey State Board of Accountancy regulations, this is to inform you that (I/we) (will/expect to) receive a (commission/performance fee/referral fee) from (name of payer) for referring you to (name of entity paying the commission or referral fee). As acknowledgment of this notice, please sign and date a copy and return to (me/us) in enclosed envelope. Sincerely, (Name), CPA Acknowledged by: ___________________ _______________ Name Date

407










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

408





New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

409



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.8 CONTINGENT FEES a) A contingent fee is a fee established for the performance of any service

pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service.

b) For the purposes of this section, a fee is not contingent if:

1) It is fixed by a court or other public authority; or

2) In tax matters, it is determined based on the results of a judicial proceeding or the findings of a governmental agency.

410



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.8 CONTINGENT FEES (continued) c) A licensee in public practice shall not receive a contingent fee for

performing any professional services from a client for whom the licensee or the licensee's firm performs:

1) An audit or review of a financial statement; 2) A compilation of a financial statement accompanied by a report;

or 3) An examination of prospective financial information.

d) The prohibition set forth in (c) above applies during the period in which the licensee or the licensee's firm is engaged to perform any of the services listed, and the period covered by any historical financial statements involved in the listed services.

411



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.8 CONTINGENT FEES (continued) e) A licensee in public practice shall not receive a contingent fee for

preparing an original or amended tax return or claim for a tax refund for any client.

f) Any licensee who receives a contingent fee pursuant to this section shall

comply with all applicable Federal and State securities laws, rules promulgated thereunder, and registration requirements, including, but not limited to, the Investment Advisers Act of 1940 (15 U.S.C. §§ 80b-1 et seq.), the Uniform Securities Law(1997) (N.J.S.A.49:3-47 et seq.), the Securities Act of 1933 (15 U.S.C. §§ 77a et seq.), and the Securities Exchange Act of 1934 (15 U.S.C. §§ 78a et seq.).

412


1.510 Contingent Fees 1.510.001 Contingent Fees Rule .01 A member in public practice shall not a. Perform for a contingent fee any professional services for, or receive such

a fee from a client for whom the member or the member’s firm performs, i. an audit or review of a financial statement; or ii. a compilation of a financial statement when the member expects, or


iii. an examination of prospective financial information; or b. Prepare an original or amended tax return or claim for a tax refund for a

contingent fee for any client.


413


1.510 Contingent Fees 1.510.001 Contingent Fees Rule .03 Except as stated in the next section, a contingent fee is a fee established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service. .04 A member’s fees may vary depending, for example, on the complexity of services rendered. [Prior reference: paragraph .01 of ET section 302]


KEY POINT Solely for purposes of this rule, fees are not regarded as being contingent if fixed by

courts or other public authorities, or, in tax matters, if determined based on the results of judicial proceedings or the findings of governmental agencies.

414


1.510 Contingent Fees 1.510.010 Tax Matters .01 This interpretation defines certain terms used in the “Contingent Fees Rule” [1.510.001] and provides examples of the application of the rule in tax matters. Contingent Fee Language .02 Preparation of an original or amended tax return or claim for tax refund includes giving advice on events that have occurred at the time that the advice is given if such advice is directly relevant to determining the existence, character, or amount of a schedule, an entry, or another portion of a return or claim for refund.


KEY POINT When practicing before the IRS or before other taxing authorities,

members should also comply with other applicable and more restrictive requirements.

415


1.510 Contingent Fees The following are examples of circumstances in which a contingent fee is permitted under the “Contingent Fees Rule” [1.510.001]:

a. Representing a client in connection with a revenue agent’s examination of the client’s federal or state income tax return

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

c. 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 Taxation or state taxing authority


416


1.510 Contingent Fees The following are examples of circumstances in which a contingent fee is permitted under the “Contingent Fees Rule” [1.510.001]: d. Requesting a refund of either overpayments of interest or penalties

charged to a client’s account or tax deposits that a federal or state taxing authority improperly accounted for in circumstances in which the taxing authority has established procedures for the substantive review of such refund requests

e. Requesting, by means of a protest or similar document, the state or local taxing authority’s consideration of a reduction in a property’s assessed value under an established taxing authority’s review process for hearing all taxpayer arguments relating to assessed value

f. Representing a client in connection with obtaining a private letter ruling or influencing the drafting of a regulation or statute


417


1.510 Contingent Fees Example of When a Contingent Fee Is Not Permitted .05 A contingent fee is not permitted if a member prepared a client’s amended federal or state income tax return claiming a refund of taxes because a valid deduction was inadvertently omitted from the originally filed return. [Prior reference: paragraph .02 of ET section 302] 1.510.020 Receipt of Contingent Fee .01 A contingent fee is considered to be received when the member has completed the related services and the fee is determined. [Prior reference: paragraphs .033–.034 of ET section 391]


418


1.510 Contingent Fees 1.510.030 Services Performed by a Member’s Spouse For a Contingent Fee .01 A member’s spouse may provide services for a contingent fee to a client for whom the member performs a service listed in paragraph .01a of the “Contingent Fees Rule” [1.510.001] without causing the member to be in violation of the “Contingent Fees Rule” if a. the activities of the member’s spouse are separate from the member’s

practice and b. the member is not significantly involved in the spouse’s activities.


KEY POINT In all such situations, the members should consider the “Conflicts of Interest”

interpretation [1.110.010] of the “Integrity and Objectivity Rule” [1.100.001] to determine the appropriate action.

[Prior reference: paragraphs .037–.038 of ET section 391]

419


1.510 Contingent Fees 1.510.050 Investment Advisory Services .01 A member or member’s firm may provide investment advisory services for a fee based on a percentage of the investment portfolio to a client for whom the member performs a service listed in paragraph .01a of the “Contingent Fees Rule” [1.510.001] without violating that rule if all of the following safeguards are met (next slide):


KEY POINT .02 When performing such services, the member should also consider the

“Independence Rule” [1.200.001], especially the interpretations of the “Non-attest Services” subtopic [1.295] under the “Independence Rule.”

420


1.510 Contingent Fees 1.510.050 Investment Advisory Services .01 All of the following safeguards must be met:

a. The fee is determined based on a specified percentage of the client’s investment portfolio.

b. The dollar amount of the portfolio on which the fee is based is determined at the beginning of each quarter (or longer period of time as may be agreed upon) and is adjusted only for the client’s additions or withdrawals during the period.

c. The fee arrangement is not renewed with the client more frequently than on a quarterly basis.

[Prior reference: paragraphs .047–.048 of ET section 391]


421










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

422





New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

423



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.12 COMMISSIONS, PERFORMANCE FEES AND REFERRAL FEES

a) A performance fee is compensation to a licensee on the basis of a share of the capital gains upon, or the capital appreciation of, the funds or any portion of the funds of a client.

b) A licensee in public practice shall not receive a commission or performance fee for recommending or referring to a client any product or service, or receive a commission or performance fee for recommending or referring any product or service to be supplied by a client, or receive a commission or performance fee, when the licensee or the licensee's firm also performs for that client the following:

1) An audit or review of a financial statement;

2) A compilation of a financial statement accompanied by a report; or

3) An examination of prospective financial information.

424



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.12 COMMISSIONS, PERFORMANCE FEES AND REFERRAL FEES (cont.) c) The prohibition set forth in (b) above applies during the period in which

the licensee is engaged to perform any of the listed services, and the period covered by any historical financial statements involving those services.

d) A licensee in public practice who is not prohibited by this section from performing services for or receiving a commission or performance fee and who is paid or expects to be paid a commission or performance fee shall disclose that fact to any person or entity to whom the licensee recommends or refers a product or service to which the commission or performance fee relates.

e) Any licensee in public practice who accepts a referral fee for recommending or referring any service of a licensee to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client.

425



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.12 COMMISSIONS, PERFORMANCE FEES AND REFERRAL FEES (cont.) f) All disclosures in (d) and (e) above shall:

1) Be made in writing contemporaneously with or prior to the referral or recommendation; and

2) Shall be signed and dated by the person or entity to whom the licensee makes the referral or recommendation and by the person or entity who was referred by the licensee.

426


Commissions, performance & referral fees 1.520 Commissions and Referral Fees 1.520.001 Commissions and Referral Fees Rule .01 Prohibited commissions. A member in public practice shall not for a commission recommend or refer to a client any product or service, or for a commission recommend or refer any product or service to be supplied by a client, or receive a commission, when the member or member’s firm also performs for that client:

a. an audit or review of a financial statement; or b. a compilation of a financial statement when the member expects, or


c. an examination of prospective financial information.


427


Commissions, performance & referral fees 1.520 Commissions and Referral Fees .02 This prohibition applies during the period in which the member is engaged to perform any of the services listed above and the period covered by any historical financial statements involved in such listed services. .03 Disclosure of permitted commissions. A member in public practice who is not prohibited by this rule from performing services for or receiving a commission and who is paid or expects to be paid a commission shall disclose that fact to any person or entity to whom the member recommends or refers a product or service to which the commission relates. .04 Referral fees. Any member who accepts a referral fee for recommending or referring any service of a CPA to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client. [Prior reference: paragraph .01 of ET section 503]


428



EXAMPLE OF NOTIFICATION OF RECEIPT OF COMMISSION

(Name of person or entity to whom the CPA refers a product or service to which commission, performance fee, or referral fee relates)

Dear_________: As required by New Jersey State Board of Accountancy regulations, this is to inform you that (I/we) (will/expect to) receive a (commission/performance fee/referral fee) from (name of payer) for referring you to (name of entity paying the commission or referral fee). As acknowledgment of this notice, please sign and date a copy and return to (me/us) in enclosed envelope. Sincerely, (Name), CPA Acknowledged by: ___________________ _______________ Name Date

429










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.



10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

430





New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

431



SUBCHAPTER 3 – RULES OF PROFESSIONAL CONDUCT 13:29-3.15 FIRM NAMES A licensee shall not practice public accountancy under a firm name which is misleading in any way, as to the legal form of the firm, or as to the persons who are partners, officers, or shareholders of the firm, or as to any matter with respect to which public communications are restricted by N.J.A.C.13:29-3.10, except that the names of one or more past partners or shareholders may be included in the firm name or its successor.

432


1.800 Form of Organization and Name 1.800.001 Form of Organization and Name Rule .01 A member may practice public accounting only in a form of organization permitted by law or regulation whose characteristics conform to resolutions of Council. .02 A member shall not practice public accounting under a firm name that is misleading. .03 Names of one or more past owners may be included in the firm name of a successor organization. .04 A firm may not designate itself as “Members of the American Institute of Certified Public Accountants” unless all its CPA owners are members of the AICPA.


433


1.800.001 Form of Organization and Name Rule


Jane is a CPA in practice as a sole proprietor.

A Google search for Jane’s firm brings you to her homepage where you see the following:

Jane & Company, CPAs

KEY POINT This picture on Jane’s homepage may suggest that her firm is larger than

a sole proprietorship and may be misleading or deceptive.

434


1.800 Form of Organization and Name 1.800.001 Form of Organization and Name Rule .05 See appendix B, “Council Resolution Concerning Form of Organization and Name.” [Prior reference: paragraph .01 of ET section 505]


KEY POINT In order to address the continued changes affecting the accounting profession including mergers and combinations, additional guidance regarding when a firm

is permitted to hold itself out as a firm firm of certified public accountants or uses the term “certified public accountant(s)” or the designation “CPA” in

connection with its name, the required criteria of such a firm or organization under the “Form of Organization and Name Rule” (AICPA, Professional

Standards, ET sec. 1.800.001) of the Code of Professional Conduct is contained in Appendix B of the new codification.

435


1.800 Form of Organization and Name 1.800.001 Form of Organization and Name Rule In order for a firm to hold itself out as a firm of certified public accountants or uses the term “certified public accountant(s)” or the designation “CPA” in connection with its name, the characteristics of such a firm or organization under the “Form of Organization and Name Rule” (AICPA, Professional Standards, ET sec. 1.800.001) of the Code of Professional Conduct are as set forth below: 1. A majority of the ownership of the member’s firm in terms of financial

interests and voting rights must belong to CPAs. Any non-CPA owner would have to be actively engaged as a member of the firm or its affiliates. Ownership by investors or commercial enterprises not actively engaged as members of the firm or its affiliates is against the public interest and continues to be prohibited.


436


1.800 Form of Organization and Name 1.800.001 Form of Organization and Name Rule 2. There must be a CPA who has ultimate responsibility for all the services

described in A above, compilation services and other engagements governed by Statements on Auditing Standards or Statements on Standards for Accounting and Review Services, and non-CPA owners could not assume ultimate responsibility for any such services or engagements.

3. Non-CPA owners would be permitted to use the title “principal,” “owner,” “officer,” “member” or “shareholder” or any other title permitted by state law, but not hold themselves out to be CPAs.


437


1.800 Form of Organization and Name 1.800.001 Form of Organization and Name Rule 4. A member shall not knowingly permit a person, whom the member has the authority or capacity to control, to carry out on his or her behalf, either with or without compensation, acts which, if carried out by the member, would place the member in violation of the rules. Further, a member may be held responsible for the acts of all persons associated with him or her in the public practice whom the member has the authority or capacity to control. 5. Owners shall at all times own their equity in their own right and shall be the beneficial owners of the equity capital ascribed to them. Provision would have to be made for the ownership to be transferred, within a reasonable period of time, to the firm or to other qualified owners if the owner ceases to be actively engaged in the firm or its affiliates.


438


1.800 Form of Organization and Name 1.800.001 Form of Organization and Name Rule 6. Non-CPA owners would not be eligible for regular membership in the AICPA, unless they meet the requirements in BL section 2.2.1.3


439










Conduct


5 min.

5 min.


5 min. 2 min.

2 min.


10 min. 5 min. 5 min. 2 min. 5 min. 2 min. 2 min. 5 min. 10 min.

Slides 68-72 73-77

78-80

81-87

88-92 93-102

103-141 142-146

147-150 151-177

178-182 183-216 217-265 266-281 282-334 335-339 340-373 374-383 384-389 390-399 400-407 408-421 422-429 430-439 440-465 466-468

I. Objectives and







Lecture Time 5 min.

20 min. 10 min.

10 min.


1 min. 1 min.

1 min.

1 min.

200 min.

Slides 2-21

22-43 44-55

56-67

68-468 469-470 471-482 483-493 494-497

498-500 501-504

505-506

Appendix

440




Conduct

New Jersey Regs


Members in Public

Practice



Integrity 13:29-3.2 1.100 2.100 n/a

Objectivity 13:29-3.2 1.100 2.100 n/a

Competence 13:29-3.3 1.300 2.300 n/a

Forecasts 13:29-3.4 1.295 2.295 n/a



441





New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

442



2.400 Acts Discreditable 2.400.001 Acts Discreditable Rule .01 A member shall not commit an act discreditable to the profession. [Prior reference: paragraph .01 of ET section 501] 2.400.010 Discrimination and Harassment in Employment Practices .01 A member would be presumed to have committed an act discreditable to the profession, in violation of the “Acts Discreditable Rule” [2.400.001] if a final determination, no longer subject to appeal, is made by a court or an administrative agency of competent jurisdiction that a member has violated any anti-discrimination laws of the United States, state, or municipality, including those related to sexual and other forms of harassment. [Prior reference: paragraph .03 of ET section 501]

443



2.400.020 Solicitation or Disclosure of CPA Examination Questions and Answers .01 A member who solicits or knowingly discloses the Uniform CPA Examination question(s) or answer(s), or both, without the AICPA’s written authorization shall be considered to have committed an act discreditable to the profession, in violation of the “Acts Discreditable Rule” [2.400.001]. [Prior reference: paragraph .07 of ET section 501]

444



2.400.030 Failure to File a Tax Return or Pay a Tax Liability .01 A member who fails to comply with applicable federal, state, or local laws or regulations regarding a) the timely filing of the member’s personal tax returns or tax returns for

the member’s employer that the member has the authority to timely file or

b) the timely remittance of all payroll and other taxes collected on behalf of others may be considered to have committed an act discreditable to the profession, in violation of the “Acts Discreditable Rule” [2.400.001].


445



2.400.040 Negligence in the Preparation of Financial Statements or Records .01 A member shall be considered in violation of the “Acts Discreditable Rule” [2.400.001] if the member, by virtue of his or her negligence, does any of the following:

a. Makes, or permits or directs another to make, materially false and misleading entries in the financial statements or records of an entity.

b. Fails to correct an entity’s financial statements that are materially false and misleading when the member has the authority to record an entry.

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


446



2.400.050 Governmental Bodies, Commissions, or Other Regulatory Agencies .01 Many governmental bodies, commissions, or other regulatory agencies have established requirements, such as standards, guides, rules, and regulations, that members are required to follow in the preparation of financial statements or related information. For example, the SEC, the Federal Communications Commission, state insurance commissions, and other regulatory agencies have established such requirements. .02 If a member prepares financial statements or related information (for example, management’s discussion and analysis) for purposes of reporting to such bodies, commissions, or regulatory agencies, the member should follow the requirements of such organizations in addition to the applicable financial reporting framework.

447



2.400.050 Governmental Bodies, Commissions, or Other Regulatory Agencies .03 A member’s material departure from such requirements would be considered a violation of the “Acts Discreditable Rule” [2.400.001] unless the member discloses in the financial statements or related information that such requirements were not followed and the applicable reasons. [Prior reference: paragraph .06 of ET section 501]

448


2.400.070 Confidential Information Obtained From Employment or Volunteer Activities .01 A member should maintain the confidentiality of his or her employer’s confidential information and should not use or disclose any confidential employer information obtained as a result of an employment relationship, such as discussions with the employer’s vendors, customers, or lenders (for example, any confidential information pertaining to a current or previous employer, subsidiary, affiliate, or parent thereof, as well as any entities for which the member is working in a volunteer capacity). .02 For purposes of this interpretation, confidential employer information is any proprietary information pertaining to the employer or any organization for whom the member may work in a volunteer capacity that is not known to be available to the public and is obtained as a result of such relationships.


449



.05 A member would be considered in violation of the “Acts Discreditable Rule” [2.400.001] if the member discloses or uses any confidential employer information acquired as a result of employment or volunteer relationships without the proper authority or specific consent of the employer or organization for whom the member may work in a volunteer capacity, unless there is a legal or professional responsibility to use or disclose such information.

450



.06 The following are examples of situations in which members are permitted or may be required to disclose confidential employer information or when such disclosure may be appropriate: a. Disclosure is permitted by law and authorized by the employer. b. Disclosure is required by law, for example, to

i. comply with a validly issued and enforceable subpoena or summons or

ii. inform the appropriate public authorities of violations of law that have been discovered.

451


.06 c. There is a professional responsibility or right to disclose information,

when not prohibited by law, to i. initiate a complaint with, or respond to any inquiry made by, the

Professional Ethics Division or trial board of the AICPA or a duly constituted investigative or disciplinary body of a state CPA society, board of accountancy, or other regulatory body;

ii. protect the member’s professional interests in legal proceedings; iii. comply with professional standards and other ethics requirements;

or iv. report potential concerns regarding questionable accounting,

auditing, or other matters to the employer’s confidential complaint hotline or those charged with governance.


452



d. Disclosure is permitted on behalf of the employer to i. obtain financing with lenders; ii. communicate with vendors, clients, and customers; or iii. communicate with the employer’s external accountant, attorneys,

regulators, and other business professionals.

2.400.090 False, Misleading, or Deceptive Acts in Promoting or Marketing Professional Services .01 A member would be in violation of the “Acts Discreditable Rule” [2.400.001] if the member promotes or markets the member’s abilities to provide professional services or makes claims about the member’s experience or qualifications in a manner that is false, misleading, or deceptive.

453



KEY POINT A member who fails to follow the accountancy laws, rules, and regulations on use

of the CPA credential in any of the jurisdictions in which the CPA practices would be considered to have used the CPA credential in a manner that is false, misleading, or deceptive and in violation of the “Acts Discreditable Rule”

[2.400.001].

2.400.100 Use of the CPA Credential .01 A member should refer to applicable state accountancy laws and board of accountancy rules and regulations for guidance regarding the use of the CPA credential. [Prior reference: paragraph .12 of ET section 501].

454



455



Topic CPAs in Public Practice

CPAs in Business CPAs not in Public Practice or Business



Competence 1.300.010 2.300.010 n/a





1.400.010 2.400.010 3.400.010


456


Other Members 3.000 Introduction .01 Part 3 of the Code of Professional Conduct (the code) applies to members who are not in public practice and are not members in business. Accordingly, when the term member is used in Part 3 of the code, the requirements apply only to such members. [No prior reference: new content] 3.000.030 Applicability .01 Part 3 of the code applies to members who are neither members in public practice nor members in business, for example members who are retired or not currently employed. These members are subject to the "Acts Discreditable Rule" [3.400.001]. [No prior reference: new content]

V. NJ LAW & ETHICS TOPICS AICPA Code of Professional Conduct Part 3- Other Members

KEY POINT Other Members include retirees and/or members not currently employed.

457


3.400 Acts Discreditable 3.400.001 Acts Discreditable Rule .01 A member shall not commit an act discreditable to the profession. [Prior reference: paragraph .01 of ET section 501] Interpretations Under the Acts Discreditable Rule 3.400.010 Discrimination and Harassment in Employment Practices .01 A member would be presumed to have committed an act discreditable to the profession, in violation of the “Acts Discreditable Rule” [3.400.001] if a final determination, no longer subject to appeal, is made by a court or an administrative agency of competent jurisdiction that a member has violated any antidiscrimination laws of the United States, state, or municipality, including those related to sexual and other forms of harassment. [Prior reference: paragraph .03 of ET section 501]


458


3.400.020 Solicitation or Disclosure of CPA Examination Questions and Answers .01 A member who solicits or knowingly discloses the Uniform CPA Examination question(s) or answer(s), or both, without the AICPA’s written authorization shall be considered to have committed an act discreditable to the profession, in violation of the "Acts Discreditable Rule" [3.400.001]. [Prior reference: paragraph .07 of ET section 501]


459


3.400.030 Failure to File a Tax Return or Pay a Tax Liability .01 A member who fails to comply with applicable federal, state, or local laws or regulations regarding: (a) the timely filing of the member’s personal tax returns or (b) the timely remittance of all payroll and other taxes collected on behalf of

others may be considered to have committed an act discreditable to the profession, in violation of the "Acts Discreditable Rule" [3.400.001].



460


3.400.070 Confidential Information Obtained From Former Employment or Previous Volunteer Activities .01 A member should maintain the confidentiality of his or her former employer’s confidential information and should not use or disclose any confidential employer information obtained as a result of an employment relationship, such as discussions with the employer’s vendors, customers, or lenders.


KEY POINT For example, any confidential information pertaining to a previous employer, subsidiary, affiliate, or parent thereof, as well as any entities for which the member worked in a volunteer capacity).

461


.05 A member would be considered in violation of the "Acts Discreditable Rule" [3.400.001] if the member discloses or uses any confidential employer information acquired as a result of former employment or volunteer relationships without the proper authority or specific consent of the former employer or organization for whom the member may work in a volunteer capacity, unless there is a legal or professional responsibility to use or disclose such information.


KEY POINT .08 In certain situations, a member may wish to consult with his or her legal counsel prior to disclosing, or determining whether to disclose, confidential employer information. [Prior reference: paragraph .10 of ET section 501]

462


3.400.090 False, Misleading, or Deceptive Acts in Promoting or Marketing Services .01 A member would be in violation of the "Acts Discreditable Rule" [3.400.001] if the member promotes or markets the member’s abilities to provide services or makes claims about the member’s experience or qualifications in a manner that is false, misleading, or deceptive. .02 Promotional efforts would be false, misleading, or deceptive if they contain any claim or representation that would likely cause a reasonable person to be misled or deceived. [No prior reference: new content]


KEY POINT This includes any representation about CPA licensure or any other

professional certification or accreditation that is not in compliance with the requirements of the relevant licensing authority or designating body.

463


3.400.100 Use of the CPA Credential .01 A member should refer to applicable state accountancy laws and board of accountancy rules and regulations for guidance regarding the use of the CPA credential. [Prior reference: paragraph .12 of ET section 501]


KEY POINT A member who fails to follow the accountancy laws, rules, and regulations on use of the CPA credential in any of the jurisdictions in which the CPA practices would be considered to have used the CPA credential in a manner that is false, misleading, or deceptive and in violation of the "Acts Discreditable Rule" [3.400.001].

464



SUBCHAPTER 4 – PRACTICE PRIVILEGE INDIVIDUALS AND FIRMS WITHOUT A NEW JERSEY OFFICE 13:29-4.1 INDIVIDUALS LICENSED IN OTHER STATES; PRACTICE WITHOUT A NEW JERSEY LICENSE 45:2B-50.1 Standards for individual with principal place of business out-of-State.

a. An individual whose principal place of business is not in this State shall be presumed to have qualifications substantially equivalent to this State's requirements for certified public accountants and shall have all the privileges of licensed certified public accountants of this State without the need to obtain a license under P.L.1997, c.259 (C.45:2B-42 et seq.) or to notify the board or pay any fee if that individual:

KEY POINTS With the continuing globalization of business, CPA mobility is increasingly relevant.

Through these statutes, the Board allows licensees of other states to do business in New Jersey, but in doing so, they wish to protect the New Jersey clients being served.

Accordingly, the rules and regulations that apply to resident CPAs are applicable to any CPA conducting business in New Jersey, regardless of where they are licensed.

465










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466


V. NJ LAW & ETHICS TOPICS Contrast & compare: NJ Regs and AICPA Code of Conduct

NEW JERSEY REGULATIONS

New Jersey’s Accountancy Act of 1997 deals with registration, examination and revocation of license of accountants.

Requires triennial renewal of license and payment of license fee .

The board may revoke any license or registration, suspend any license or registration or refuse to renew any license or registration; reprimand,

censure, or limit the scope of practice of any licensee; impose an administrative fine; or place any licensee on probation.

The board may impose disciplinary sanctions or civil penalties.

467



AICPA CODE OF CONDUCT

The AICPA Code of Professional Conduct is a collection of codified statements that outline a CPA’s ethical and professional responsibilities.

The purpose of the AICPA code of Professional Conduct is for the accounting profession to uphold values and standards of behavior in the community . • The code establishes standards for auditor independence, integrity

and objectivity, responsibilities to clients and colleagues and acts discreditable to the accounting profession.

• AICPA Code of Professional Conduct can be considered the foundation of ethical reasoning in accounting.

The code presents rules and principles to help accountants complete their jobs with integrity and ethical decisions. The code also protects the interest of a company and the interest of the public.

468



NEW JERSEY REGULATIONS

Subchapter 3 -- Rules of Professional Conduct Includes new paragraph: 13:29-3.19 Code of Professional Conduct

All licensees shall comply with the Code of Professional Conduct of the AICPA, incorporated herein by reference, effective December 15, 2014 as amended and supplemented. The Board’s rules of professional conduct shall prevail whenever any conflict exists between this chapter and the AICPA Code of Professional Conduct.

468a

Included with Sept 2015 Amendments

KEY POINTS Paragraph specifically indicates requirement to comply with AICPA COPC Also clearly delineates the hierarchy of guidance in event of conflicts


I. Objectives and







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469


PROGRAM TITLE: _______________________________________________________________________

DATE:______________________________________ LOCATION:__________________________

SPONSOR ORGANIZATION:_________________________ Circle one: CPA CMA CIA N/A

NAME (Optional):__________________________________

Directions: Please use the following scale to indicate the extent to which you agree with the statements below.

1 2 3 4 5 N/A Not at all A little Somewhat For the most part Very much so Not applicable

1 Course description accurately described the program. 1 2 3 4 5 N/A 2 The designated course prerequisites were necessary or

desirable for achieving the stated learning objectives. 1 2 3 4 5 N/A

3 The stated learning objectives were met. 1 2 3 4 5 N/A 4 The advanced preparation materials were satisfactory. 1 2 3 4 5 N/A 5 The program content and materials were current. 1 2 3 4 5 N/A 6 The program materials were accurate. 1 2 3 4 5 N/A 7 The program materials were relevant and contributed to

the achievement of the learning objectives. 1 2 3 4 5 N/A

8 The level of detail in this program was appropriate. 1 2 3 4 5 N/A 9 Time allotted to the learning activity was appropriate 1 2 3 4 5 N/A

10 The instructor was knowledgeable of the program content. 1 2 3 4 5 NA

11 The instructor made effective use of examples and/or illustrations. 1 2 3 4 5 N/A

12 The instructor responded effectively to participant questions. 1 2 3 4 5 N/A

13 Overall, the instructor was effective. 14 The facilities were conducive to effective learning and

were satisfactory. 1 2 3 4 5 N/A

15 Comments:

17 Hanover Road, Suite 120 • Florham Park, New Jersey 07932 • (973) 822-2220

470










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Appendix

471


New Jersey Law & Ethics

Final Exam

472


VII. NJ Ethics Final Exam Question #1

According to the ethical standards of the profession, which of the following acts is generally prohibited?

A.Purchasing a product from a third party and reselling it to a client.

B.Writing a financial management newsletter promoted and sold by a publishing company.

C.Accepting a commission for recommending a product to an audit client.

D.Accepting engagements obtained through the efforts of third parties.

473



The New Jersey State Board institutes a disciplinary investigation of Seymour Wrong, CPA, in connection with Wrong’s audit of Pay Rite, Inc. Rob Alot, a CPA who is an employee in Seymour Wrong’s practice and was the manager on the Pay Rite audit, is directed by the Board to provide it with confidential details about the financial affairs of Pay Rite. Rob Alot should provide the confidential information to the Board: A. Only if he is subpoenaed. B. Even if he is not subpoenaed. C. Only with the consent of Wrong and Pay Rite, Inc. D. Never.

474



In order to renew your triennial license, New Jersey CPAs are required to complete a minimum of how many CPE credit hours each year? A. 10 hours B. 20 hours C. 30 hours D. There is no requirement for completing a minimum number of CPE

credit hours in each year of the triennial license period.

475



The profession's ethical standards most likely would be considered to have been violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the:

A. Actual fee would be substantially higher. B. Actual fee would be substantially lower than the fees charged by

other CPAs for comparable services. C. CPA would not be independent. D. Fee was a competitive bid.

476



Which of the following statements best describes the ethical standard of the profession pertaining to advertising and solicitation?

A. All forms of advertising and solicitation are prohibited. B. There are no prohibitions regarding the manner in which CPAs

may solicit new business. C. A CPA may advertise in any manner that is not false, misleading,

or deceptive. D. A CPA may only solicit new clients through mass mailings.

477



Must a CPA in public practice be independent in fact and appearance when providing the following services?

Compilation Compilation of personal Preparation of a financial of a financial statements tax return forecast

A. Yes No No B. No Yes No C. No No Yes D. No No No

478



Which of the following statements best explains why the CPA profession has found it essential to promulgate ethical standards and to establish 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 stress primary responsibility to clients and colleagues. C. Ethical standards that emphasize excellence in performance

over material rewards establish a reputation for competence and character.

D. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.

479


VI. NJ Ethics Final Exam Question #8

Which of the following actions by a CPA most likely violates the profession's ethical standards?

A. Arranging with a financial institution to collect notes issued by a

client in payment of fees due. B. Compiling the financial statements of a client that employed the

CPA's spouse as a bookkeeper. C.Retaining client records after the client has demanded their

return. D.Purchasing a segment of an insurance company's business that

performs actuarial services for employee benefit plans.

480



A CPA who is not in public practice is obligated to follow which of the following rules of conduct?

A. Independence. B. Integrity and objectivity. C. Contingent fees. D. Commissions.

481



Which of the following statements is correct regarding a CPA’s working papers? The working papers must be: A. Transferred to another accountant purchasing the CPA’s practice

even if the client hasn’t given permission. B. Transferred permanently to the client if demanded. C.Turned over to any government agency that requests them. D.Turned over pursuant to a valid federal court subpoena.

482










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VIII. NJ Ethics Final Exam: Answer to Final Exam Question #1

Correct Answer: C. A CPA may not accept a commission for recommending a product to a client if the CPA audits or reviews that client's financial statements.

484



Correct Answer: B • A CPA is required to comply with a request for information in conjunction with

an investigation conducted by the State Board. A subpoena is not necessary in this instance.

485



The correct answer is B. • A minimum of 20 CPE credit hours must be earned each year of the triennial

license period.

486



• Correct Answer: A. Advertising or other forms of solicitation that are false, misleading, or deceptive are not in the public interest and are prohibited. Intentionally understating a fee estimate is a deceptive act.

487



• Correct Answer: C. Under Rule 502 of the Code of Professional Conduct, advertising that is not false, misleading or deceptive is permitted by the CPA.

488



• Correct Answer: D. Independence is required for attestation engagements (i.e., audits and reviews). Compilations and tax return preparation are not attestation engagements.

489



• Correct Answer: A. A distinguishing mark of a profession is its acceptance of responsibility to the public.

490



• Correct Answer: C. Rule 501 provides that a member may not commit a discreditable act, and retaining a client's records after a demand has been made for their return has been ruled to be a discreditable act.

491



• Correct Answer: B. A CPA must maintain objectivity and integrity in the performance of any professional service.

492



• Correct Answer: D. Client working papers must be turned over pursuant to a valid federal court subpoena because generally there is no federal privilege in client working papers.

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494


Online Environment of the New Code

2. Launching the New Online Code a. The URL pub.aicpa.org/codeofconduct brings users to

home screen of the new online Code.

495


NJ LAW & ETHICS TOPICS Linkage between NJ Regs and AICPA Code of Conduct


Conduct

New Jersey Regs


Members in Public

Practice



Integrity 13:29-3.2 1.100 2.100 n/a

Objectivity 13:29-3.2 1.100 2.100 n/a

Competence 13:29-3.3 1.300 2.300 n/a

Forecasts 13:29-3.4 1.295 2.295 n/a



496


NJ LAW & ETHICS TOPICS Linkage between NJ Regs and AICPA Code of Conduct



New Jersey Regs


Members in Public

Practice




Advertising 13:29-3.10 1.600 2.400.100 3.400.100

Solicitation 13:29-3.11 1.600 2.400.100 3.400.100


Firm names 13:29-3.15 1.800 n/a n/a

Records 13:29-3.16 1.400 2.400 3.400

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498


X. NJ LAW & ETHICS TOPICS IRS Circular 230

CPAs who practice before the IRS are governed by Circular 230 and are required to be familiar with it and its requirements. Practice before the IRS “comprehends all matters connected with a presentation to the [IRS] . . . relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the [IRS].

Presentations include, but are not limited to:

1. preparing documents;

2. filing documents;

3. corresponding and communicating with the [IRS];

4. rendering written advice with respect to any entity, transaction, or plan; and representing a client at conferences, hearings, and meetings.

KEY POINT Circular 230 regulations were revised by the

Internal Revenue Service on June 9, 2014 and are now in effect. To Access:

www.irs.gov/pub/irs-pdf/pcir230.pdf 499


X. NJ LAW & ETHICS TOPICS IRS Circular 230

Among the most significant changes to Circular 230 are the following: The “covered opinion” rules in section 10.35 have been eliminated and

replaced by more practical, flexible, reason-based requirements for written advice in section 10.37. Among the consequences of the changes is that the Circular 230 disclaimer that now appears at the bottom of many emails and on memos can and should be eliminated.

Additional requirements are imposed on those who have principal authority and responsibility for overseeing a firm’s tax practice (“firm managers”) to ensure that the firm maintains adequate compliance procedures to ensure that members, associates, and employees are complying with Circular 230’s requirements, including those that relate to personal tax filing and payment obligations.

KEY POINT Many tax practitioners still aren't aware of these new changes and continue to

include the Circular 230 Disclaimer as part of their emails; so the IRS has stated they will send out notices to those who continue to use the disclaimer.

500









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501


502


503


504


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506


THANK YOU! – ANY QUESTIONS?

– ANY COMMENTS?

– WHERE IS MY CERTIFICATE!!

507


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508