Presented by:William F. Murphy, CPA/PFS, ABV, CFF, CGMA, CVA

Mallor Grodner LLP101 West Ohio Street , #1540Indianapolis, Indiana 46204

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What Do I need to Know ...??

September 21, 2012

Goals:

Analyze the ethical rules that apply to tax, accounting and financial advisors practicing before the IRS and the general public as an AICPA member.

Identify the organizations that set and enforce the ethics rules affecting accounting and tax professionals .

Describe the standards of competence and due professional care that are required to be followed by a professional CPA.

To understand how the Professional Ethics Executive Committee (PEEC) functions in promulgating new ethics interpretations and rulings, and for monitoring those standards and making revisions as needed. 2

American Institute of CPAs (AICPA) Private member organization of

approximately 350,000 members. AICPA and predecessors have served the

accounting profession since 1887.Internal Revenue Service (IRS or the

Service) Bureau of the Treasury Department.Led by the Commissioner of Internal

Revenue.Other Regulators

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IRS Circular 230 , Best practicesIRC Income Tax Preparer PenaltiesIRS Tax Position Standards AICPA Professional Ethics Executive

Committee (PEEC)AICPA- Code of Professional Conduct Records Retention Rules – AICPA and

IRSAICPA Statements on Standards of

Tax Service s ( SSTS)AICPA Non-Attest Services Rule

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Ethics Update….

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The Professional Ethics Executive Committee (PEEC) is responsible for promulgating new ethics interpretations and rulings, and for monitoring those standards and making revisions as needed. The PEEC utilizes a process that includes deliberation in meetings open to the public, public exposure of proposed standards, and a formal vote.

Exposure Drafts are issued by the AICPA to invite public comment before a final pronouncement is issued. The public exposure time varies depending on the complexity of the issue and the circumstances surrounding the need for a new standard. Once adopted, the standard becomes effective the last day of the month in which the standard is published in the Journal of Accountancy, unless stated otherwise.

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August 13, 2012 Omnibus Exposure Draft - Proposed Reestablishment of Ethics Rulings and Interpretation

June 29, 2012 Omnibus Exposure Draft - Proposed Revisions to Interpretation 101-3, Proposed New Interpretations 501-11 and 502-6 and Proposed Deletion of Ethics Rulings

November 30, 2011 Omnibus Exposure Draft -Proposed new Interpretation No. 505-4, Proposed new Interpretation No. 505-5, and Proposed deletion of ethics ruling number 134 under Rule 505.

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February 28, 2011 Omnibus Exposure Draft - Proposed New Interpretations under Rule 101,

Proposed New Definition of Confidential Client Information,

Proposed Revision to Applicability, Proposed Revision to Conceptual Framework for AICPA Independence Standards

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February 28, 2011 Omnibus Exposure Draft - Proposed New Interpretations under Rule 101,

Proposed New Definition of Confidential Client Information,

Proposed Revision to Applicability, Proposed Revision to Conceptual Framework for AICPA Independence Standards

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Proposed Revision to Interpretations under Rule 101,

Proposed Revision to an Ethics Ruling under Rule 301,

Proposed Revision to an Ethics Ruling under Rule 101,

Proposed Deletions of Ethic Rulings under Rules 101, 203, 501, 502 and 505.

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September 23, 2011 Omnibus Exposure Draft - Proposed New and Revised Interpretations and Proposed Deletion of Ethics Rulings.

April 4, 2011 Omnibus Exposure Draft -Proposed new Interpretation No. 501-9, Proposed new Interpretation No. 501-10, Proposed new Interpretation 501-11 and Proposed new Definition

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The proposed standard would dictate that CPAs who prepare financial statements would perform a compilation only if they are engaged by their client to do so. The compilation would be a “read and report” service separate from the preparation.

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Once engaged to perform a compilation service, the CPA would read the financial statements to see if there are obvious mistakes or flaws, and then issue an accountant’s compilation report on the financial statements.

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This change is contained in a proposed Statement on Standards for Accounting and Review Services (SSARS) exposed for public comment by the AICPA Accounting and Review Services Committee (ARSC).

ARSC has also exposed for public comment a

proposed standard that addresses the accountant’s association with financial statements that the accountant has not compiled, reviewed, or audited.

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The proposal that would make preparing financial statements and performing certain bookkeeping services …nonattest services is contained in an exposure draft issued June 29 by the AICPA Professional Ethics Executive Committee (PEEC), the technical committee charged with interpreting and enforcing the AICPA Code of Professional Conduct.

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The nonattest services would be subject to the provisions of an AICPA professional standard on independence.

The standard is Interpretation No. 101-3, “Performance of Nonattest Services,” under Rule 101, Independence (AICPA, Professional Standards, ET sec. 101 par. 05).

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This proposed change would harmonize the ethical standards with the views of some practitioners who already consider the financial statement preparation to be a nonattest bookkeeping service.

The proposal also would conform the standards to the revised independence standard issued in August 2011 by the U.S. Government Accountability Office (GAO), which indicates that financial statement preparation is not part of the audit service.

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Specifically, the GAO’s revised standard includes a provision stating that nonattest services, such as preparation of financial statements, cash-to-accrual conversions, and reconciliations, would be considered nonattest services, not routine services related to the performance of an audit.

This standard is inconsistent with a nonauthoritative frequently asked question (FAQ) published by the Professional Ethics Division.

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In this FAQ, the division took the position that preparing financial statements as part of an attest engagement would not be considered a nonattest service, provided the client’s records are substantially complete and current in order to conduct the attest engagement on those books and records.

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The FAQ further stated that if the member performed a service to bring those books and records current or complete, the service would be considered outside the scope of the normal attest engagement and, therefore, a bookkeeping service subject to the requirements of Interpretation No. 101-3.

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At its meeting in May, PEEC approved two sets of revisions to 101-3. One set of revisions was previously exposed for comment and will take effect on Aug. 31, 2012.

The second set of revisions appears in an omnibus ED from the Professional Ethics Division dated June 29, 2012.

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The revisions that are effective Aug. 31 include clarification that independence would be impaired if members accept responsibility for designing, implementing, or maintaining controls for a client but would not impair independence if members perform certain nonattest services, including bookkeeping services such as preparation of financial statements or preparing account reconciliations, provided certain safeguards are in place.

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The proposed association standard would be effective for unaudited financial statements with which the accountant is associated on or after Dec. 15, 2014. The proposed revisions to the compilation standard would be effective for compilations of financial statements for periods ending on or after Dec. 15, 2014.

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The proposed effective date of the revisions to Interpretation No. 101-3 would be two years from the date when the revision is published in the Journal of Accountancy.

Early implementation of the proposed revisions to 101-3 and the new SSARSs would be permitted so that accountants can implement the revised standards simultaneously.

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The Professional Ethics Executive Committee (PEEC) is exposing for comment two new interpretations under Rule 505, Form of Organization and Name (AICPA, Professional Standards, ET sec. 505 par. .01).

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Proposed Interpretation No. 505-4, ―Misleading Firm Names, and proposed Interpretation No. 505-5, ―

Use of a Common Brand Name in Firm Name, provide guidance on when firm names would be considered misleading.

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Rule 505 of the AICPA Code of Professional Conduct states, in part, that members may practice public accounting only in a form of organization permitted by law or regulation…and …shall not practice public accounting under a firm name that is misleading.

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The PEEC believes it would be helpful to provide guidance to members on what would be considered misleading firm names consistent with the guidance contained in the revised Uniform Accountancy Act (UAA) and Model Rules.

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On September 4, 2009, the PEEC issued an Exposure Draft that included,among other things, a proposed new definition of confidential client information.

The proposal concludes that the use or disclosure of clientinformation that is not known to be in the public domain or is not available the public would be considered a breach of client confidentiality (that is, violation of Rule 301, Confidential Client Information, [AICPA, Professional Standards, vol. 2, ET sec. 301]), unless the member received the client's consent to disclose or use such information.

Re-exposed on February 28, 2011

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At the November 2010 PEEC meeting, the PEEC agreed to some clarifying edits to the proposal such as replacing the term "distribution" with disclosure" and requested the Task Force develop a more appropriate term or classifying certain information that would be considered attributed to the member and therefore, not require client consent prior to disclosure.

This Task Force final recommendations to the

PEEC was approved August 2011.

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New Interpretation No. 501-9, "Confidential Information Obtained From Employment,“ Under Rule 501 , Acts Discreditable –Effective 8/2011

New Interpretation No. 501-10, "Financial Interests," Under Rule 501, Act Discreditable - Effective 8/2011

New Interpretation No. 501-11, "False, Misleading, or Deceptive Acts in Promoting or Marketing Professional Services," Under Rule 501, Acts Discreditable -Effective 8/2011 -

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New Definition, "Member in Business and Industry," Under ET Section 92, Definitions

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New Interpretation No. 501-9, "Confidential Information Obtained From Employment,“ Under Rule 501 , Acts Discreditable

Effective 8/2011

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The Professional Ethics Executive Committee (PEEC) is exposing for comment the proposed Interpretation No. 501-9, "Confidential information obtained from employment," under Rule 501,Acts Discreditable (AICPA, Professional Standards), of the AICPA Code of Professional Conduct(AICPA Code).

Effective 8/2011

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The proposed interpretation addresses confidential information that a member may obtain concerning his or her employer, guidance which is not currently addressed in the AICPA Code.

This would include any confidential information pertaining to a current or previous employer as well as any entities for which the member is working in a volunteer capacity.

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The interpretation states that a member would be considered to have committed an act discreditable if the member uses any confidential information acquired as a result of employment relationships without the proper authority or specific consent of the employer unless a legal or professional responsibility exists to use or disclose such information.

For the purposes of the interpretation, "confidential employer information is any proprietary information pertaining to the employer that is not known to be in the public domain or available to the public and is obtained as are result of an employment relationship."

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A member should maintain confidentiality of his or her employer's or firm(s ("employer")confidential information and should not use or disclose any confidential employer information obtained as a result of an employment relationship (for example, discussions with the employer's vendors, customers, or lenders).

This includes but is not limited to any confidential information pertaining to a current or previous employer, subsidiary, affiliate, or parent there of as well as any entities for which the member is working in a volunteer capacity

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For purposes of this interpretation, confidential employer information is any proprietary information pertaining to the employer that is not known to be in the public domain or available to the public and is obtained as a result unemployment relationship.

A member should be alert to the possibility of inadvertent disclosure, particularly to a close business associate or a close or immediate family member. The member should also take reasonable steps to ensure that staff under his or her control, or others within the employing organization, and persons from whom advice and assistance is obtained are aware of the requirement of confidentiality.

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When a member changes employment, the member is entitled to use prior experience. However, the requirement to maintain confidentiality of an employer's information continues even after the end of the relationship between a member and the employer.

This IS not intended to prohibit a member from using expertise gained through prior employment relationships. However, the member should be alert to his or her responsibility to continue to maintain the confidentiality of employer information he or she may have gained through those relationships.

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A member would be considered to have committed an act discreditable to the profession if the member discloses or uses any confidential employer information acquired as a result of employment relationships without the proper authority or the specific consent of the employer' unless there is a legal or professional responsibility to use or disclose such information.

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The following are examples when members are permitted or may be required to disclose confidential employer information or when such disclosure may appropriate.

Disclosure is permitted by law and is authorized by the employer.

Disclosure is required by law, for example, to comply with a validly issued and enforceable subpoena or summons

There may be a professional responsibility to disclose information, which is not prohibited by law

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In deciding whether to disclose employer confidential information, relevant factors to consider include but are not limited to :

Whether all the relevant information is known

and substantiated, to the extent it is practicable (when the situation involves unsubstantiated facts, incomplete information or unsubstantiated conclusions,)

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The type of communication that is expected and to whom it is addressed; and

Whether the parties to whom the

communication is addressed are appropriate recipients

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New Interpretation No. 501-10, "Financial Interests," Under Rule 501, Act Discreditable

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The PEEC has approved the Interpretation No. 501-10, "Financial interests," under Rule 501 of the AICPA Code.

The interpretation addresses threats to integrity and objectivity that a member in business and industry may face due to the member or his or her family member's financial interest in or other relationship with the employer,

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Examples of circumstances that may create self-interest threats include situations when the member in business and industry or an immediate family member or close relative holds a direct financial interest in the employing organization

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Holds an indirect financial interest in the employing organization and the value of that financial interest.

Is eligible for a profit or other performance-related bonus.

Holds, directly or indirectly, share options in the employing organization,

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The new interpretation is intended to point out threats to objectivity and integrity that a member in business and industry may encounter when the member or the member's immediate family or close relative holds a direct or indirect financial interest in the members employer and the decisions of the member could affect the value of that financial interest.

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It also addresses financial relationships with the employer such as holding or being eligible for performance related bonuses and share options.

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The approved interpretation is not intended to create new requirements or bar members in business and industry from having financial interests in an employer, but rather, to provide guidance to members in business and industry on evaluating potential threats to their integrity and objectivity and apply appropriate safeguards, when necessary.

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A member in business and industry should evaluate potential threats to his or her integrity and objectivity and, when appropriate and reasonable, apply safeguards to eliminate such threats or reduce them to an acceptable level.

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Examples of such safeguards include the following:

Consultation, when appropriate, with relevant professional bodies.

Up-to-date education on ethical issues and legal restrictions.

Policies and procedures for a committee independent of the member in business and industry to determine the level or form of remuneration

Consultation, when appropriate, with superiors within the employing organization

Consultation, when appropriate, with those charged with governance of the employing organization 54

Disclosure of all relevant interests and any plans to trade in relevant shares to those charged with governance of the employing organization, in accordance with any internal policies

Internal and external audit procedures

Current knowledge of regulations such as insider trading and fraud

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New Interpretation No. 501-11, "False,

Misleading, or Deceptive Acts in Promoting or Marketing Professional Services," Under Rule 501, Acts Discreditable

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The approved interpretation addresses false, misleading, or deceptive claims that a member in business and industry may make about the member's qualifications.

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This would include 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.

The new interpretation would be applicable to members in business and industry only.

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The new interpretation states that a member in business and industry would be considered to have committed an act discreditable if the member promotes or markets his or her abilities to provide professional services…

Or makes claims about his or her experience or qualifications in a manner that is false, misleading, or deceptive.

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The new definition is intended to capture members that are not in the practice of public accounting while being descriptive by providing examples of members who are considered to be in business and industry.

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The new definition includes members employed or engaged on a contractual basis or volunteer basis in an executive, staff, or administrative capacity in such areas as industry, the public sector, education, the not-for-profit sector, and regulatory or professional bodies.

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The definition also allows for the fact that a member in the practice of public accounting may simultaneously also be a member in business and industry if that member, for example, serves as a volunteer on a board of directors.

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However, under such circumstances, the rules applicable to members in business and industry would only apply while serving in the capacity as a board member.

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It should also be noted that if a member in business and industry is practicing public accounting (for example, preparing tax returns for clients), the member must also follow the rules applicable to members in the practice of public accounting when providing such services.

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Member in business and industry. A member employed or engaged on a contractual basis or volunteer basis in an executive, staff, or administrative capacity in such areas as industry, the public sector, education, the not-for-profit sector, regulatory bodies, or professional bodies. This does not include members while engaged in the practice of public accounting.

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AICPA rules are found in the Code of Professional Conduct, which is part of the AICPA Professional Standards.

Many rules found in the Code of Professional Conduct apply to tax practice, including (among other things):Due professional careCompetenceContingent feesConfidential client informationIndependenceRecords retentionOther rules 67

AICPA CouncilDesignates bodies to promulgate technical

standards under the rules, and the bylaws require adherence to those rules and standards.

The Tax Executive CommitteePromulgates the Statements on Standards for

Tax Services (or “SSTSs”)Enforceable under rules:

201 (General Standards), and 202 (Compliance with Standards) of the

AICPA Code. The SSTSs

Apply to all tax services provided by all AICPA members, including members in public practice and industry.

These standards apply to tax services rendered under any jurisdiction. 68

AICPA members are subject to disciplinary proceedings if they are alleged to have engaged in certain acts deemed to violate the AICPA rules of conduct or bylaws.

Investigations of a member’s conduct are designed to provide due process to the member and consideration of all relevant facts and circumstances.

Possible results of an investigation include: A letter of required corrective action, An admonishment, or Suspension or termination of AICPA membership.

Terminations, suspensions, and admonishments are subject to publication.

To enhance efficiencies, the AICPA engages in a joint ethics enforcement program with many of the state CPA societies.

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The Internal Revenue Code (IRC) was passed in 1939.

Section 7805(a) of the IRC authorizes the Secretary of the Treasury to promulgate rules and regulations necessary to enforce the U.S. tax laws.

Treasury Department Circular No. 230 governs federal tax practice before the IRS by CPAs, enrolled agents, attorneys, and actuaries.

Preparer and taxpayer penalty provisions appear in the IRC.

The IRS Office of Professional Responsibility (OPR) may censure or suspend or disbar a practitioner from practicing before the IRS if the practitioner is shown, among other things, to be incompetent or disreputable.

Disciplinary actions are subject to publication.The AICPA may also apply the automatic disciplinary

provisions in their bylaws (7.3.2) by subjecting a member to a similar penalty.

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CPAs in tax practice may be subject to the rules and regulations of other bodies, including:State accountancy board or CPA society. Securities and Exchange Commission (SEC). Public Company Accounting Oversight Board

(PCAOB).Department of Labor (DOL).Government Accountability Office (GAO).Others.

Many state accountancy (CPA licensing) boards incorporate the AICPA SSTSs into their regulations.

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Competence means: Complying with professional standards. Applying knowledge and skill with reasonable care

and diligence. Having both the technical qualifications and the

ability to supervise and evaluate the work of others. Knowing the profession's standards, the techniques,

and the technical subject matter involved, and making sound judgment in applying such knowledge.

In some cases, even a competent person should perform additional research or consult with others when performing professional services.

If a member is unable to gain sufficient competence through these means, the member should suggest, in fairness to the client and the public, the engagement of someone competent to perform the needed professional service, either independently or as an associate.

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A conflict of interest exists if: The representation of one client will be directly adverse

to another client; or The representation of one or more clients will be

materially limited by the practitioner’s responsibilities to another client, a former client or a third person or by a personal interest of the practitioner.

The practitioner may represent a client if: The practitioner reasonably believes that the practitioner

will be able to provide competent and diligent representation to each affected client;

The representation is not prohibited by law; Each affected client gives informed consent, confirmed

in writing.

Copies of the written consents must be retained by the practitioner for at least 36 months… must be provided to any officer or employee of the Internal Revenue Service on request. 73

AICPA Rule 301, Confidential Client Information.   A member in public practice shall not disclose any

confidential client information without the specific consent of the client.

This rule shall not be construed: (1) To relieve a member of his or her professional

obligations under rules 202 and 203, (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. 74

IRS Rule: Procedures to ensure best practices for tax advisor.

Tax advisors with responsibility for overseeing a firm’s practice of providing advice concerning federal tax issues or of preparing or assisting in the preparation of submissions to the IRS should take reasonable steps to ensure that the firm’s procedures for all members, associates, and employees are consistent with the best practices set forth in Circular No. 230.

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Communicating clearly with the client regarding the terms of the engagement, for example, determine the client’s expected purpose for and use of your advice and having a clear understanding with the client regarding the form and scope of the service.

Evaluating the reasonableness of any assumptions or representations, relating applicable law to relevant facts, and arriving at conclusions supported by the law and the facts.

Advising the client regarding the import of the conclusions reached.

Acting fairly and with integrity in your practice before the IRS.

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Enhanced engagement letters, specifically the degree of detail included about the scope of services and the client’s purpose in engaging you.

Additional training to teach tax research skills and beef up the tax library.

Creating better and more comprehensive documentation of the advice provided to clients.

Spending more time educating clients about their tax choices.

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Answers to questions on returns (SSTS 2) – AICPA.Certain procedural aspects of return preparation (SSTS

3) – AICPA.Departure from position previously concluded (SSTS 5)

– AICPA.Proposed standard on quality control (SSTS 9) – AICPA.Commissions – AICPA Rule 503.Responsibility to file tax returns – AICPA Rule 501-7.Advertising and Solicitation, including dual practice of

law and accounting – AICPA Rule 502, Ethics Ruling No. 78, and IRS Circular No. 230 §10.30.

Information to be furnished to the IRS – IRS Circular No. 230 §10.20.

Fees – IRS Circular No. 230 §10.27.Negotiating taxpayer checks – IRS Circular No. 230

§10.31.

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Independence shall be considered to be impaired if, for example…the covered licensee:

“Receives a commission or had a commitment to receive a commission from the client or a third party with respect to services or products procured for the client, including any related pension or profit-sharing trust…

Or receives a contingent fee or had a commitment to receive a contingent fee from the client or a third party with respect to professional services performed for the client, including any related pension or profit-sharing trust…”

Section 1701.A. Independence Rules of Professional Conduct.

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These rules apply more broadly than the AICPA rules because they apply to all attest clients and any pension or profit-sharing trusts sponsored by the client.

These rules apply to fee arrangements made between the firm, including its owners and professional employees and the client (or a related pension plan).

A licensee who had such an arrangement during the period of the professional engagement, the period covered by the financial statements, or at the time the report was issued impairs independence.

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Questions/ Comments

Contact the AICPA Professional Ethics Division, either by phone 1(888) 777-7077 or by e-mail at ethics@aicpa.org.

Access the AICPA’s Professional Ethics Division web site: http://

www.aicpa.org/Professional+Resources/Professional+Ethics+Code+of+Professional+Conduct/Professional+Ethics

Presented by:

William F. Murphy, CPA/PFS, ABV, CFF, CGMA, CVAMallor Grodner LLP

101 E. New York Street, #1540Indianapolis, Indiana 46204

wmurphy@lawmg.net82

The authors of this course greatly appreciate and acknowledge the following publications used as background material and theoretical foundation. We urge the course participants to add these publications to their professional library.

Federal Taxes Weekly Alert 2011/2012 Thomson Tax & Accounting; RIA*PPC*WG&L*, MicroMash CPE Brands; Thomson RIA Newsstand

Code of Federal Regulations; Internal Revenue Service, United States Department of the Treasury; and the Office of Professional Responsibility and Circular #230, U.S. Government Printing Office Publications and Pronouncements; IRS.gov. Continued …83

• The American Institute of Certified Public Accountants- Professional Ethics Division, AICPA, 1211 Avenue of the Americas, New York, NY 10036.

• AICPA Professional Standards: Code of Professional Conduct and Bylaws, Copyright @ 2011, American Institute of Certified Public Accounts, Inc., New York, NY 10036

• Joint Ethics Enforcement Program (JEEP) Manual of Procedures, 2011 Continued …84

Journal Of Accountancy, August 2012. “Proposed Revisions clarify responsibilities for preparers”, by Mr. Mike Glynn CPA and Ms.Ellen Goria, CPA.

AICPA Ethics web site for Tax Professionals: Circular 230 and SSTSs; AICPA Code of Conduct; State Board of CPAs of Louisiana, PEEC Exposure Drafts, September 2012IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the United States Treasury, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of 1.) avoiding tax-related penalties or 2.) promoting, marketing or recommending to another party any tax-related matters addressed in this communication.

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Together with the related lecture this program is designed to provide accurate and authoritative information about complex areas of estate and business planning. The information contained in this manual may change as a result of new tax legislation, Treasury Department regulations, Internal Revenue Service interpretations, or judicial interpretations of existing tax law. This manual is not intended to provide legal, accounting, or other professional services and is provided with the understanding that its author is not engaged in rendering legal, accounting, or ethical opinions or other professional services.

This manual and related lecture should not be used as a substitute for professional advice. If legal advice or other expert assistance is required, the services of a competent tax advisor should be sought. 86