Improving Professional Ethics
The Case of the Texas State Board of Public Accountancy

By Neal R. VanZante

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MAY 2005 - In the June 2004 CPA Journal, Jane B. Romal and Arlene M. Hibschweiler present insightful steps for implementing changes directed toward “Improving Professional Ethics.” This timely and thought-provoking article should be of interest to CPAs that desire greater emphasis on professional ethics. But one of the authors’ recommendations should be approached with great caution.

Romal and Hibschweiler recommend that “states should be encouraged to mandate ethics training as part of CPE requirements.” About 10 years ago, a similar recommendation was made to the Texas State Board of Public Accountancy (TSBPA). Reviewing the state’s experience with ethics education since that time may provide food for thought for professionals and regulators in other states when developing ethics education programs.

Developing Ethics Content

TSBPA rule 523.32 required all CPA licensees certified or registered prior to January 1, 1995, to report successful completion of a four-hour board-approved ethics course within three years of January 1, 1995. Licensees certified or registered on or after January 1, 1995, and prior to September 1, 1999, were required to report successful completion of a four-hour board-approved ethics course within three years of the end of their initial license period. Licensees certified or registered on or after September 1, 1999, were required to complete a two-hour board-approved ethics course within three years of the end of their initial license period. After reporting of the initial requirement, a minimum of two hours of board-approved ethics were required to be taken and reported by every third subsequent annual renewal notice. All ethics courses were required to be taken from a sponsor whose course had been approved by the board.

Because it was highly unusual for the TSBPA to require board approval of specific CPE content, the author attempted to determine the origins of the ethics requirements, but TSBPA officials, including the executive director, were unable to provide details except that the board had approved the requirement at a regular board meeting, for which no minutes were maintained. At the annual Texas Society of CPAs (TSCPA) educator conference in November 1995, approximately 100 accounting educators attended the four-hour required ethics course. When asked about the origins of the ethics requirement, one speaker announced that an accounting professor who was serving as chairperson of the TSCPA’s Ethics Committee had proposed the requirement to the TSBPA.

Interestingly, this same professor’s course, marketed through the TSCPA, was the only TSBPA-approved course for about one year. By 2004, approximately a dozen ethics courses were board-approved. Because these rules affect about 50,000 CPAs, some CPE providers, the majority of whom are professors or former professors, have found this to be a desirable market niche.

In December 1998, this author attended the second required ethics course—this time, a two-hour program. After approximately 80 minutes of telling amusing stories loosely related to ethics, the presenter began discussing the Uniform Accountancy Act (UAA). At that time, the TSBPA was strongly encouraging adaptation of the UAA and had approved this presentation of the merits of the UAA as a substantial part of the course content. Although the UAA had nothing to do with ethics training, participants were required to remain during the presentation in order to receive their certifications of attendance.

Following the collapse of Houston-based Enron, and later of Andersen LLP, the TSBPA decided that two hours of board-approved ethics CPE each three years was not enough. Beginning January 1, 2005, every licensee must take a four-hour ethics course on the board’s Rules of Professional Conduct every two years. Details of the course content are shown in Exhibit 1.

In addition to approving specific course content, the TSBPA must also approve ethics instructors. Exhibit 2 highlights the criteria that individuals must meet to be eligible for the board’s approval. For example, instructors must have obtained education in ethics substantially equivalent to a minimum of six hours of credit from an accredited university, college, or community college, of which three hours must be in organizational ethics; must have experience that is substantially equivalent to two or more full-time semesters of teaching experience at an accredited university, college, or community college; and must have spent at least 10 years performing accountancy-related activities as a licensed CPA.

These specific requirements may serve to strictly limit entry into the market niche of providing TSBPA-approved ethics courses, at least in the short run. Those offering board-approved courses before the requirement took effect were “grandfathered” into the requirements by the TSBPA. As of February 2005, five courses had been grandfathered, including one by a member of the task force that developed the new rules and one by the former TSCPA chairperson who had requested that the board consider relaxing the new criteria for board-certified ethics instructors.

The four-hour course may be lengthened in the future. According to the TSBPA’s April 2004 “Texas State Board Report”: “The four-hour course is a starting point. The new course may prove to be too short, but the board wants to try to meet its objectives in a four-hour course before imposing a longer course.” The board has also stated its position that “ethical principles and ethical reasoning need to be regularly enforced to prevent stagnation.”

In addition to board-approved ethics courses for CPE purposes, the TSBPA also revised the educational requirements for CPA certification. Beginning July 1, 2005, the TSBPA requires that three passing semester hours be earned by taking a board-approved upper-division course in ethics. The course must be taken at a recognized educational institution and should include ethical reasoning, integrity, objectivity, independence, and other core values.

Most upper-division courses have lower-division prerequisites. Thus, a stand-alone ethics course at the upper division either effectively requires a six-hour sequence or a watering down of the upper-division course. Even if students are required to take only three hours, universities are forced to either require an additional three hours for those students pursuing CPA certification, eliminate another course from its accounting curriculum requirements, or require students to use the ethics course as one of their few electives.

Coincidentally, the February 2004 Issues in Accounting Education was devoted to incorporating ethics into university accounting programs. At a time when the professional community should be encouraging discussion about how best to do this, and experimenting with a variety of methods, the TSBPA’s requirement for stand-alone courses may have the unintended consequence of encouraging accounting professors to cease incorporating ethical considerations into non-ethics courses.

Too Much Specificity?

Perhaps following the next ethics crisis, the TSBPA will determine that ethics education must be further strengthened. Future CPA candidates might easily be required to complete a minimum of six hours of board-approved university or college ethics courses. At least one of these courses might be required to incorporate specific board-approved course materials taught by board-approved professors.

Food for Discussion

While many may judge that the TSBPA has taken beneficial steps to promote professional ethics through its increased educational requirements, others maintain that the TSBPA has gone too far in dictating specific ethics educational requirements. The author neither supports nor challenges the TSBPA’s approach, but desires to provide food for discussion for professionals and regulators in other states where the discussion of how best to “improve professional ethics” is still under way.

Neal R. VanZante, PhD, CMA, CFM, CPA, is a professor of accounting at Texas A&M University–Kingsville. He is a licensed CPA in Oklahoma, Colorado, and Texas.




















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