Tag: CPA

Continuing Profession Education

Posted on by dsp64

It’s a Long Road That Never Turns

Continuing Professional Education (CPE) for Certified Public Accountants (CPAs) is crucial to maintaining professional competence and staying current and compliant in the rapidly evolving accounting field.

CPE is not just a requirement but a vital tool for professional growth and development. It can give you a deeper understanding. It can give you a broader perspective. It can also give you a much-needed break from actual (but paying) number crunching. However, the system can also be somewhat complex due to the various rules and requirements of the many reporting jurisdictions. And because of this array of rules and reporting jurisdictions, it can be found to be a non-compliance trap.

After we briefly examine CPE’s importance, shortcomings, and criticisms, we will explore the rules and boobytraps the CPA faces every reporting period.

Importance of CPE

CPE is critical in ensuring that CPAs provide high-quality services, comply with ethical standards, and adapt to the ever-changing financial landscape. It helps CPAs:

  1. Obtain, maintain, and improve professional competence
  2. Stay informed about industry changes
  3. Obtain ethical training and reminders
  4. Become comfortable with specialization
  5. Become more flexible in learning methods
  6. Become more open to new technologies
  7. With career advancement.
  8. Fulfill regulatory requirements

Shortcomings and Criticisms

Despite its importance, the current CPE program faces several criticisms:

  1. Relevance: Some CPAs argue that many CPE courses are not directly applicable to their specific practice areas.
  2. Quality: The quality of CPE programs can vary significantly, with some offering little practical value.
  3. Flexibility: Many CPAs find balancing work commitments with CPE requirements challenging.
  4. Cost: High-quality CPE programs, particularly for independent practitioners or small firms, can be expensive.

How did this happen?

What is the genesis of the accounting profession having such a heavy CPE load compared to other professions? For example, in Tennessee, CPAs must obtain 80 hours of CPE each two-year reporting cycle, with those 80 hours being stratified into many compliance categories. On the other hand, the Tennessee Supreme Court requires its lawyers to obtain 15 CLE hours per year, with only two compliance categories (general and ethics.) What’s up with that?

Many of the accounting profession’s CPE woes can probably be traced to the Savings & Loan (S&L)crises during the 1980s and early 1990s. The S&L crisis was a massive financial disaster that caused the failure of 1,000-plus savings and loan associations in the United States. This widespread collapse highlighted the need for improved financial oversight and accounting practices in the minds of some in the U.S. Congress. To prevent congressional action, I believe, in part, the profession’s response was the promise of increased self-regulation manifested by stringent CPE requirements.

Additionally, pressure came to bear on the profession due to financial scandals in the early 2000s following major accounting disasters such as Enron and WorldCom. These events precipitated a general loss of confidence in the accounting profession and financial reporting.

Other events and matters came to bear, pushing the profession toward a robust education structure. These events and matters, and the complexity that followed were:

  1. Sarbanes-Oxley Act of 2002
  2. Technological advancements
  3. Globalization of business
  4. Increased complexity of accounting standards, partially because of the items listed above.

That is a lot to learn. However, in my opinion, the primary current behind the emphasis on heavy CPE requirements for the accounting profession was the desire to thwart U.S. legislative control of accounting principles and auditing standards. This effort was, at best, only partially successful.

Now, with that being said, below are the CPE requirements mandated by the following:

  1. Tennessee State Board of Accountancy
  2. AICPA – General Membership Requirements
  3. AICPA – Accreditation in Business Valuations credentials
  4. AICPA – Certified in Financial Forensics credentials

Tennessee State Board of Accountancy Requirements

General requirements:

  1. 80 credit hours of CPE every two years, based on a fixed two-year period (not a rolling two-year period.)
  2. Minimum of 20 hours each year
  3. Reporting period based on calendar year (January 1 to December 31)
  4. Even-numbered licenses report during even-numbered years, odd-numbered licenses during odd-numbered years.

Subject requirements:

  1. At least 40 hours must be in technical fields, which include accounting (including governmental accounting), auditing (including governmental auditing), business law, economics, finance, information technology, management services, regulatory ethics, specialized knowledge, statistics, and taxes.
  2. 20 hours of the 40 technical hours must be in accounting and auditing if performing attestation services (including compilations)
  3. If the CPA provides expert witness testimony, then at least 20 hours must be in the general area in which the court deems the accountant an expert, such as tax, auditing, etc.
  4. Ethics. The CPA must obtain two hours of Board-approved ethics for every two-year licensing period.

Carryover hours:

  1. Hours in excess of the requirement of 80 hours in a regular two-year fixed reporting period may be applied, up to 24 hours, to the subsequent reporting period. Such carryover hours come over as non-technical hours and do not help meet the requirements for yearly minimums, technical CPE, or other benchmarks.

See the Tennessee State Board of Accountancy website for further information.

AICPA Requirements

General Membership: CPAs who are members of the AICPA must comply with the following general membership CPE requirements:

  1. Earn 120 CPE credits every three years (A fixed three-year period, not a rolling three-year period) with no ethics requirement.
  2. The three-year reporting period begins on January 1 of the year following admission to the AICPA.
  3. A grace period is available for the two months immediately following the reporting period. Hours credited toward a prior year deficiency may not be counted toward the reporting period that the courses are taken. (No double-dipping.)

Accredited in Business Valuation (ABV) Credential: CPAs who have the ABV credential must comply with the following:

  1. Sixty hours of CPE within the credential body of knowledge every three years, with at least ten hours earned annually.

    • NOTE. The AICPA’s ABV Credential Handbook is silent as to whether the three-year period is a fixed or a rolling three-year period. However, my conversations with the AICPA’s ABV division confirmed that the ABV three-year period is a fixed three-year period, consistent with the general membership fixed three-year requirement.

  2. Four hours of professional ethics education every three years (in addition to the 60-hour requirement.)

    • HEADS-UP – Tennessee CPAs with the AICPA’s ABV credentials must be careful of the ethics trap. Tennessee only requires two ethics hours every two years. The ABV credentials require four ethics hours every three years. The strategy to always obtain the Tennessee ethics the first year (or second year) of each two-year cycle will leave you short, at some point, as to the AICPA requirement of four hours of ethics over a three-year cycle.

Certified in Financial Forensics (CFF) Credential: CPAs who have the CFF credential must comply with the following:

  1. Complete 20 hours of CPE within the credential body of knowledge annually.
  2. There is no ethics requirement.

Enforcement and Ramifications

Tennessee State Board of Accountancy

The Tennessee State Board of Accountancy conducts annual CPE audits:

  1. Ten percent of renewing licenses are randomly selected each year
  2. The Board typically sends audit notifications in early May
  3. Selected CPAs must submit documentation of CPE credits earned in the previous two-year reporting period
  4. All audit responses must be submitted through the core.tn.gov website
  5. Board members are audited each renewal cycle
  6. Failure to comply may result in license suspension or revocation
  7. Monetary penalties may be imposed
  8. Damage to professional reputation.

AICPA

The AICPA also conducts periodic audits of its members’ CPE compliance:

  1. Non-compliance may lead to membership suspension or termination
  2. Credential revocation for specialized certifications
  3. Reinstatement requirements must be met to regain membership or credentials.

Conclusion

In conclusion, while CPE may be a long road that never turns, it remains essential to maintaining professional competence for CPAs. Yes, there is room for improvement in the current system. Addressing the challenges of relevance, quality, flexibility, and cost could enhance the effectiveness of CPE programs and better serve the needs of accounting professionals. As the field evolves, CPAs must stay informed about their specific CPE requirements and ensure compliance to maintain their licenses, memberships, and credentials.

5 Things You Should Expect From Your CPA

Posted on by dsp64

And There Are More

What should you expect from your CPA? What in-grained traits do you want them to have? You expect them to be honest, of course. That’s critically important. But what else? Do you want your accountant to be an air traffic controller watching and safeguarding your business assets and transactions? Many company controllers take that role. In this article, we drill down to the core to see what makes a good accountant tick. And from that, we identified the following five traits your CPA should possess.

Organization and Concise Clarity. Organization is the defining attribute of an accountant. It’s the cornerstone. Without organization, there is chaos. You should expect your accountant to be able to take an overwhelming amount of disjointed and seeming unrelated information and sift it down to concise clarity. He or she should be able to explain to you what it means. That’s what a business needs. Too much information is, well, just that – too much information. Management cannot reach meaningful decisions without concise clarity. And clarity cannot be achieved without organization. What does this pile of numbers mean? That’s the question your CPA should be able to answer.

I recall an anecdotal story about President Reagan. A member of his staff presented him with a behemoth report. In his non-threatening manner, the President requested the aide to summarize it to about one or two pages. One or two pages, sir, the aide asked? To which Reagan replied… you’re right, make it one page.

Even the most complicated areas of physics, when properly understood, can be expressed in a very concise way. Albert Einstein synthesized his special theory of relativity’s complexities to the now-famous equation of E = mc 2. And James Maxwell described the non-intuitive interrelation of electric and magnetic fields with only four equations. It’s called organization and concise clarity.

Communication. Communication doesn’t have to dazzle. But to be authentic, communication must be understood.

CPAs, as a group, are not exactly known for their communication skills. Think Louis Tully (played by Rick Moranis) in Ghostbusters. Or the accountant joke, What do you call an accountant that speaks to one person a day? Popular.”

I recall a time several decades ago when, as a young CPA, I attended a local country club’s annual membership meeting. Of course, a fine meal was included. My firm performed the yearly audit. That evening, my job was to hand-deliver the audit report to the club’s treasurer (a partner for a then Big-Eight accounting firm) and brief him in private before he made the presentation to the membership group. As it turned out, when the treasurer stood before the large group to deliver the report, he mentioned that I was there and turned the presentation over to me. That fine steak I was enjoying suddenly turned sour in my stomach. The presentation did not go well. However, I think the membership group had a very good time. One thing for sure, though, it did impress upon me the importance of communication.

Communication is an essential skill for a CPA. And your CPA should have the ability to communicate with clarity. When there is a need to renegotiate the company’s bank line of credit, the CPA will be involved. If it’s discussions with the company’s surety regarding a problematic project, the accountant will be front and center. Conversations with project managers regarding project evaluations will need input from the company’s CPA. And, discussions of quarterly financial results with the ownership group or the company’s board of directors require a combination of the communicative and diplomatic skills of the CPA. It’s called communication.

Analytical. Being analytical for an accountant is somewhat akin to critical thinking. It’s objectively reasoning through a complicated situation to come to a (hopefully correct) judgment.

My observation is that many, if not most, students attracted to the accounting profession are drawn to it because they are analytical by nature. They enjoy and are successful at working through puzzles. They find that this attribute is helpful in many of the accounting courses they take in college.

Solutions to accounting issues are not always apparent. Accordingly, your company’s CPA should be well-versed in the use of research tools. Research is critical in tax planning. Research is essential to financial reporting. The answer to most difficult questions is “maybe yes and maybe no, it ain’t necessarily so.” Analytically reasoned judgment is required.

Most of accounting is not black and white. For example, the area of accounting estimates is problematic. They can make a significant difference in the company’s financial statements and taxable income. Areas affected by accounting estimates include the determination of contract gross profit, depreciation, and warranty reserves. An analytical approach is beneficial in arriving at an appropriate range of values for estimates.

Your accountant should be analytical. An analytical mind can unravel a thorny problem and come to reasonable conclusions. But beware. It can also drive you up a wall. What may seem clear to you may not strike your CPA the same way. They want to explore a few more avenues. Turn over more stones. Be professionally skeptical. But, on the whole, you should expect your CPA to possess this characteristic. It’s called analytical.

Accurate. Your CPA should be accurate. Precise information is necessary when drafting your company’s ongoing business strategy, determining bonuses, and developing tax projections. Much of that information comes from your accountant. To be a trusted business advisor, your accountant should provide reliable data.

But just how precise should you expect your CPA to be? After all, accountants deal in numbers, and since numbers are pretty exact, there is only one correct answer, right? Well, not really. As described above, accounting estimates are just that — estimates. There may be a range of acceptable values. Any value within that range will be considered accurate, even if later, it’s found not to be very close.

Furthermore, for financial statement reporting, the concept of accuracy is intertwined with the concept of materiality. Misstatements are considered material if there is a substantial likelihood they would influence the judgment made by a reasonable user based on the financial statements.

If the financial statements are somewhat inaccurate, but those inaccuracies do not mislead a “reasonable user,” then the financial statements are not materially misstated. In other words, even though the financial statements are not precisely accurate, they are accurate enough if the end-user would otherwise come to the same conclusion.

So, yes. You should expect your accountant to be accurate. But you don’t want him or her chasing every penny. The particular accounting area and the task drive the degree of accuracy expected. For example, you should expect a much higher degree of accuracy in the area of cash than you do in the area of prepaid insurance. It’s a matter of professional judgment. It’s called accurate.

Business Savvy. You want an accountant that has an interest in your industry. A CPA that likes what you do. Someone fascinated with your work will naturally learn more and understand more about your business sector because they have that interest.

I know CPAs who practice in the construction industry. They are very good at what they do. They frequent heavy equipment auctions during their off-hours because they enjoy it. They like the smell of asphalt and are fascinated by the engineering that goes into highway construction. They know the names of your subcontractors. They understand the types of contracts you enter into. They follow the bid tabs. They are good at what they do because they know the business itself. They understand where profit leaks can develop. They know the soft areas susceptible to fraud. They have an antenna up for the business risks and are familiar with ways to minimize those risks.

You should expect this in your CPA. It’s called business savvy.

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