ETHICS

The evolution of ethics

BY CHIP KNIGHTON

“The Board shall establish by

regulation a requirement for continuing professional education in ethics for CPAs.”

With that phrase and a stroke of then-Gov. Mark Warner’s pen, the Virginia Ethics CPE requirement was born March 24, 2003. The VSCPA developed its first Ethics course, written by member Jim Brackens Jr., CPA, and Michael Mares, CPA, the following year.

The requirement, one of the first major projects of the nascent Virginia Board of Accountancy (VBOA), was implemented in large part as a response to the high-profile accounting scandals around the turn of the century, which brought down numerous major companies and had a role in turning the Big Eight auditing firms into the Big Four.

“It came about as a result of Enron and WorldCom, and my understanding is that the administration got involved and demanded that there be an Ethics course for CPAs in Virginia,” said VBOA Executive Director Wade Jewell. “The administration initially wanted 8 hours, and the Society and the Board were able to convince them that 2 hours were sufficient for what we needed.”

“There wasn’t much debate about it,” said VSCPA member Larry Samuel, CPA, a former VBOA member and two-time chair who sat on the board’s Ethics committee and helped craft many of the outlines for early versions of the course. “The governor said, ‘Thou shalt,’ and it was done. It was put in very quickly and implemented very quickly.”

Those 2 hours are perhaps the biggest, most important factor that hasn’t changed. Any Active CPA licensed in Virginia must fulfill that 2-hour requirement yearly, with the cutoff at Jan. 31 the following year. Ethics credit hours count toward the 120-hour CPE requirement per threeyear reporting cycle, meaning that 6 of those hours must come from Ethics. However, licensees holding the Active — CPE Exempt status are exempt from the Ethics requirement.

Furthermore, licensees who give up their licenses but want to resume their careers as CPAs must take the Ethics course as part of the 120 hours of CPE required to resume services. And the Virginia-specific Ethics course is “separate and distinct” from the one-time American Institute of CPAs (AICPA) ethics course required for initial licensure.

One issue with the requirement that was resolved quickly arose from CPAs who were licensed in multiple jurisdictions. This was before reciprocity and mobility were as widespread as they are today, and that meant some licensees had to hustle to fill the requirements of all their licenses.

“I had a partner who was licensed in lots of different states before reciprocity kicked in,” said Samuel, a partner at Deloitte’s Washington office at the time. ”He would have to take five different Ethics courses. He would say, ‘How ethical can I be?’”

Despite the name, there wasn’t much in the way of pure ethics instruction in early incarnations of the course. The initial course outline focused entirely on updates to the Virginia accounting regulations, with behavioral ethics coming into play in 2005, the second year of the requirement, in the form of a recommended 15-minute section on making ethical decisions.

“A lot of times, it didn’t end up in right or wrong. It was more about the ethical considerations and actions you could take,” Samuel said. “The struggle was, how much of that can you teach? If you’ve got the same requirement every year and essentially the same people taking it, how do you keep it fresh and how do you keep it going?”

That section remained the same (and even shrunk in recommended time allotment) until 2013, when the behavioral portion was expanded to focus on psychologist Lawrence Kohlberg’s stages of moral development.

“Early on, it was more of a focus on the Board’s statutes and regulations,” Jewell said. “While the course continues to highlight

ETHICS

the changes to statutes and regs, the course has evolved to also focus on CPE, CPE audit, and license renewal requirements. The Board recognizes that the annual Ethics Course is the one opportunity each year to have the full attention of its licensees.”

And the VBOA hit on a major element of the course very quickly — enforcement cases, which were introduced for the 2006 course. Each year since then, the board has selected several representative cases to include in the course as examples of how licensees often run afoul of regulations.

“If what we’re trying to do is prevent bad behavior by CPAs, we have to look at where the bad behavior is coming from,” Samuel said. “You look, naturally, at the enforcement areas. A big impetus was to show what cases are going through enforcement and showing bad behavior by CPAs.”

Recently, the VBOA’s changes have been more structural than contentrelated. As of 2015, the Ethics course must be instructor-led — although the VBOA recognizes several different course formats — and all sponsors of the course must be pre-approved by the VBOA and posted on its website. And all Ethics instructors must hold an active Virginia CPA license in good standing.

But in the end, the Ethics course evolved into showing CPAs what they had to do and what they couldn’t do. It makes sense for a course that was created as a response to CPAs behaving badly and developed into a roadmap that every licensee can follow to make sure they’re doing the right thing. And isn’t that what ethics is really all about? n

CHIP KNIGHTON is communications manager at the VSCPA, as well as contributing editor at Disclosures magazine. cknighton@vscpa.com connect.vscpa.com/ChipKnighton @ChipKnighton

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