MINUTES Texas State Board of Public Accountancy November 9, 2000 The Texas State Board of Public Accountancy met from 10:00 a.m. until 12:30 p.m. on November 9, 2000 at 333 Guadalupe, Tower III, Suite 900, Austin, TX 78701-3900. A notice of this meeting containing all items on the agenda was filed in the office of the Secretary of State at 10:15 a.m. on October 26, 2000. (TDR #2000010352) (ATTACHMENT 1) Board Members Present Billy M. Atkinson, CPA K. Michael Conaway, CPA, Presiding Officer Jerry A. Davis, CPA, Treasurer Kimberly Dryden April L. Eyeington, CPA Gwen B. Gilbert, CPA Rebecca B. Junker, CPA Jimmie L. Mason, CPA, Assistant Presiding Officer Robert C. Mann, CPA Reagan S. McCoy, Esq.

Staff Present Lou Miller Janet F. Parnell Edward L. Summers, Ph.D., CPA Barbara J. Thomas, CPA, Secretary, Others Present Robert R. Arms, CPA Richard M. Forrest, Esq., CPA Gary D. McIntosh, CPA Robert R. Owen, CPA

Amanda Birrell, Esq. Andrea Carter, Esq. Ismael Castillo Karen Davis Erin Ediger Paul Gavia, Esq. Alan Hermanson, CPA Donna Hiller Jean Keith Eric Marin, Esq. Brett Norbraten, Esq. William Treacy

Board Members Absent Edwardo B. Franco, excused

I.

Mr. Conaway, presiding officer, called the meeting to order at 10:00 a.m. Mr. Mason moved that the Board excuse the absence of Mr. Franco. Mr. Atkinson seconded the motion, and it passed unanimously.

II.

Mr. Mason moved to approve the minutes of the September 13, 2000 Board meeting. seconded the motion, and it passed unanimously.

III.

Mr. Conaway, presiding officer, reported that the Executive Committee did not meet.

IV.

Mr. Mason, Regulatory Compliance Committee chair, reported on the November 8, 2000 committee meeting.

Ms. Thomas

Members Present

Staff Present

Other Present

Billy M. Atkinson, CPA K. Michael Conaway, CPA Jerry A. Davis, CPA Jimmie L. Mason, CPA April L. Eyeington, CPA

Karen Davis Alan Hermanson, CPA William Treacy

Monday N. Rufus, CPA

A.

Mr. Davis moved to approve the Board’s Annual Financial Report for the year ending August 31, 2000. Dr. Summers seconded the motion, and it passed unanimously.

B.

Mr. Treacy discussed correspondence dated September 27, 2000 to the Honorable Carole Keeton Rylander, Comptroller of Public Accounts, and Mr. Lawrence F. Alwin, CPA, State Auditor, concerning reporting provisions of SB 1438. Also, Mr. Davis discussed the Comptroller’s and the State Auditor’s responses dated October 19, 2000 and received October 24, 2000 and an excerpt from the Legislative Budget Board publication entitled Legislative Size-Up 2000-2001.

C.

Mr. Mason reported that the FY 2000 internal audit has been completed by Mr. Monday N. Rufus, CPA, and that the agency was in full compliance with the Internal Audit Act. He also discussed the quality assurance review of TSBPA’s internal audit function conducted by Mr. Anthony O. Tegbe, CPA, CFE. Mr. Mason reported that Mr. Monday N. Rufus, CPA, will perform the Board’s FY 2001 internal audit.

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D.

E.

V.

Mr. Mason reported on the following correspondence: 1.

The status of the agency’s waiver request dated September 25, 2000 relating to Article IX, Sec.6.23, General Appropriations Act, regarding the West Texas Disaster Recovery and Operations Data Center.

2.

Board correspondence to the Honorable Jim Pitts, chairman of the House Appropriation Subcommittee on Regulatory Agencies, dated September 27, 2000.

The Board adjourned into executive session at 10:24 a.m. to discuss the performance evaluation of the executive director. The Board reconvened in open session at 10:38 a.m. Mr. Mason moved to approve the executive director’s overall evaluation as exceptional performance, with a recommendation to the Legislature for the maximum increase in salary allowed under Group 2, Scheduled Exempt Position Salary Rates. Ms. Eyeington seconded the motion, and it passed unanimously.

Mr. Davis, Rules Committee chair, reported on the September 12, 2000 committee meeting. Members Present

Others Present

Staff Present

Robert R. Arms, CPA Jerry A. Davis, CPA Gwen B. Gilbert, CPA Wanda Lorenz, CPA Robert C. Mann, CPA Gary D. McIntosh, CPA

Billy M. Atkinson, CPA K. Michael Conaway, CPA Robert R. Owen, CPA

Amanda Birrell, Esq. Brett Norbraten, Esq.

A.

Mr. Davis commented on the SEC proposed independence rule whose comment period ended on September 25, 2000. He also reported the SEC announced that it would hold a public meeting on the adoption of the final rule on November 15, 2000.

B.

Mr. Davis moved to take proposed action on Section 501.70 of the Board’s Rules as presented. Ms. Gilbert seconded the motion, and it passed unanimously. (ATTACHMENT 2)

C.

Mr. Davis moved to take proposed action on Sections 501.83, 501.84, 513.100 and 513.101 as presented. Dr. Summers seconded the motion, and it passed unanimously. (ATTACHMENT 3)

D.

Mr. Davis moved to take proposed action on Sections 501.49, 501.54 and 501.85 as presented. Ms. Thomas seconded the motion, and it passed with Ms. Junker dissenting on the basis that she believed Section 501.85 would be ineffective. (ATTACHMENT 4)

E.

Mr. Davis reported on the review of other rules on the Board’s agenda.

VI.

Dr. Summers, Qualifications Committee chair, and other Board members who attended the November 2000 exam reported on any unusual incidents that occurred. The executive director reported on a recent NASBA Computerized Implementation Committee meeting.

VII.

Ms. Gilbert, Licensing Committee chair, reviewed plans for the November 11 and 18, 2000 swearing-in ceremonies.

VIII.

Mr. Mason, Quality Review Committee chair, reported on the November 7, 2000 committee meeting. Members Present

Members Absent

Staff Present

Mason Andres, CPA, Chairman of QROB via telephone Jerrel Cross, CPA Dan Hanke, CPA Rebecca B. Junker, CPA, via telephone Jimmie Mason, CPA Robert C. Mann, CPA

David Start, CPA Edwardo Franco, excused

Jean Keith Brett Norbraten, Esq. Barbara Wright

Others Present David Jentho, CPA, Chair Peer Review TSCPA

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IX.

A.

Mr. Mason reported that the committee considered revisions to the AICPA’s Standard for Performing and Reporting Peer Reviews for firms. Mr. Mason moved that the Board accept System Reviews and Engagement reviews as defined in the AICPA’s Standards and that the Board not accept Report Reviews. (Refer to Section 527.4 of the Rules.)

B.

Mr. Mason moved that the Board increase the fee paid to members of the Quality Review Oversight Board to $150.00 per hour for time spent reviewing sponsoring organizations’ work product. Mr. Miller seconded the motion, and it passed unanimously.

C.

Mr. Mason reported that the committee reviewed a list of firms who have had one or more adverse reviews and concluded that the firms were either dissolved or had improved; therefore, no further action was required.

D.

Mr. Mason reported that the committee had reviewed work papers from Mr. Mike Skidmore and determined his firm qualified for an exemption from peer review. The committee is requesting that Mr. Johnny E. Hewitt submit a sample financial statement to determine if he qualifies for a peer review exemption.

E.

Mr. Mason reported that the committee reviewed statistical information from a Quick Poll that was sent to all state boards of accountancy on October 13, 2000. To date the Board has received 22 responses. No further action was required from the Board.

F.

Mr. Mason moved to adopt proposed Section 527.4 as presented with two changes. seconded the motion, and it passed unanimously. (ATTACHMENT 5)

Ms. Junker

Ms. Thomas, Behavioral Enforcement Committee chair, reported on the following matters considered by the committee. Meeting of June 27, 2000 Members Present

Members Absent

Staff Present

Billy Atkinson, CPA John Braden, CPA Kimberly Dryden April Eyeington, CPA Wanda Lorenz, CPA Virginia Snider, CPA

Gary D. McIntosh, CPA Lou Miller Barbara J. Thomas, CPA, excused

Amanda Birrell, Esq. Eric Marin, Esq. Brett Norbraten, Esq.

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Ms. Thomas moved to dismiss Investigation No. 99-11-03L due to insufficient evidence of a violation of 1 the Act or the Rules. Mr. Miller seconded the motion, and it passed unanimously.

Meeting of September 27, 2000 Members Present

Members Absent

Staff Present

Billy Atkinson, CPA April L. Eyeington, CPA Wanda R. Lorenz, CPA Virginia L. Snider, CPA Barbara J. Thomas, CPA

John A. Braden, CPA Kimberly Dryden Gary D. McIntosh, CPA Lou Miller

Amanda Birrell, Esq. Andrea Carter, Esq. Eric Marin, Esq. Brett Norbraten, Esq.

A.

Ms. Thomas moved to dismiss Investigation No. 00-05-05L due to insufficient evidence of a violation of the Act or the Rules. Mr. Davis seconded the motion, and it passed unanimously.2

B.

Ms. Thomas moved to dismiss Investigation Nos. 00-03-20L and 00-03-27L due to insufficient evidence 2 of a violation of the Act or the Rules. Mr. Miller seconded the motion, and it passed unanimously.

C.

Ms. Thomas moved to dismiss Investigation Nos. 00-06-21L and 00-04-04L based on voluntary 2 compliance. Mr. Miller seconded the motion, and it passed unanimously.

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X.

D.

Ms. Thomas moved to dismiss Investigation No. 00-05-13L due to lack of jurisdiction over the allegations. Mr. Miller seconded the motion, and it passed unanimously.2

E.

Ms. Thomas moved to dismiss Investigation No. 00-05-32L due to insufficient evidence of a violation of the Act or the Rules. Mr. Miller seconded the motion, and it passed unanimously.2

F.

Ms. Thomas moved to dismiss Investigation Nos. 00-06-22L and 00-07-28L due to insufficient evidence of a violation of the Act or the Rules. Mr. Miller seconded the motion, and it passed unanimously.2

Mr. Mann, Major Case Enforcement Committee chair, reported on the committee meeting of November 8, 2000. Members Present

Member Absent

Staff Present

Jerry A. Davis, CPA James (Ike) Guest, CPA Kimberly Dryden Wanda Lorenz, CPA Robert C. Mann, CPA Janet F. Parnell Barbara Thomas, CPA

David Start, CPA, excused

Amanda Birrell, Esq. Paul Gavia, Esq.

Others Present Mark Holland, Esq. Charles McDonald, Esq.

A.

Mr. Mann reported that at the start of meeting, the committee had 28 open investigations pending on 16 unrelated matters. The committee has abated its investigation of 12 cases.

B.

Mr. Mann reviewed the Major Case pending report and the status on the following major cases: 1.

Investigation Nos. 95-10-03L and 95-10-04L. (Ms. Lorenz recused herself from participating in these matters at the committee meeting.)

2.

Investigation Nos. 98-01-64L and 00-02-03L. (Mr. Mann recused himself from participating in these matters at the committee meeting.)

3.

Investigation No. 98-03-31L. 3

C.

Mr. Mann reported that Investigation No. 99-08-08L was opened because a future transaction might impair a CPA firm’s independent professional judgment. The CPA firm transferred its consulting business to a newly created entity that will not perform any auditing, accounting or similar services. The CPA firm will continue to be independent. Mr. Mann moved that this case be dismissed due to lack of evidence of a violation of the Act or the Rules. Mr. Miller seconded the motion, and it passed unanimously.

D.

Mr. Mann reported that the committee rescheduled consideration of the following for the January 11, 2001 meeting: 1.

Investigation No. 99-07-03L (Mr. Guest recused himself from participating in this matter).

2.

Investigation No. 00-10-08L (Mr. Mann recused himself from participating in this matter).

E.

The committee approved the staff’s recommended action on Investigation No. 00-06-17L.

F.

The committee authorized the chair and vice-chair to enter into abatement agreements in the following cases: 1.

Investigation No. 00-09-21L (Mr. Mann recused himself from participating in this matter.)

2.

Investigation No. 00-09-09L.

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XI.

Mr. Atkinson, Technical Standards Review Committee chair, reported on the meeting of September 26, 2000. Members Present

Members Absent

Staff Present

Billy M. Atkinson, CPA April L. Eyeington, CPA Edward H. Guerra, CPA Arthur Greenspan, CPA William J. Ihlanfeldt, CPA Wanda R. Lorenz, CPA Michael O’Brien, CPA Janet F. Parnell Lester Sprouse, CPA

Jerry A. Davis, CPA, excused

Amanda Birrell, Esq. Paul Gavia, Esq. Eric Marin, Esq.

A.

Mr. Atkinson reported that at the start of the meeting, the committee had 34 open investigations pending on 24 unrelated matters.

B.

Mr. Atkinson moved that the Board excuse the absence of Mr. Davis from the committee meeting. Mr. Miller seconded the motion, and it passed unanimously.

C.

Mr. Atkinson moved to dismiss Investigation Nos. 00-08-03L, 00-08-04L, 00-05-12L, 00-07-04L, 00-0705L, 00-08-05L, 00-04-28L, 00-03-23L and 00-03-24L due to either insufficient evidence of a violation of the Act or the Rules or due to voluntary compliance. Mr. Miller seconded the motion, and it passed 4 unanimously.

D.

The committee received a report from its attorney on pending cases.

E.

Mr. Atkinson moved that the Board enter into a standard contract with Mr. Ken Skrabanek to continue as a the committee consultant for the period of September 1, 2000 through August 31, 2001. Mr. Davis seconded the motion, and it passed unanimously.

XII.

Ms. Carter reported on the status of investigations of violations of Subchapter J of the Public Accountancy Act (Unauthorized Practice of Public Accountancy).

XIII.

Mr. Norbratten reported on the status of the Enforcement Division’s Probation Monitoring System.

XIV.

The Board took the following actions on agreed consent orders and proposals for decision: A.

Agreed consent orders.

Mr. Miller moved to approve the following agreed consent orders. Mr. Davis seconded the motion, and it passed unanimously. 1.

Investigation Nos. 99-12-21L and 00-02-24L (Donald W. Jones) – The respondent entered into an agreed consent order in which he was prohibited from performing audits, reviews, compilations or other attestation work until he receives written permission from the Board to re-enter this part of his practice. The respondent was placed on two years probated suspension and is required to meet regularly with representatives of the TSCPA Concerned CPA Network Program and must submit quarterly reports to the Board. In the first complaint, the respondent practiced public accountancy without a practice unit and with a personal license that was delinquent/expired. In the second complaint, the respondent issued an audit report for a volunteer fire department that contained significant technical defects. The respondent’s conduct violated Sections 501.4, 501.22, 501.23 and 501.40 of the Rules and Sections 901.502(6) and 901.502(11) of the Act.

2.

Investigation Nos. 00-04-19L, 00-05-01L, 00-05-06L, 00-06-29L, 00-07-06L and 00-08-22L (Stephen L. Tottenham) – The respondent entered into an agreed consent order in which his certificate was revoked in lieu of further disciplinary action. In the six complaints redressed by this order, the respondent failed to complete engagements to complete 1999 personal income tax returns, failed to respond to client inquiries, and failed to return client records upon request. The respondent’s conduct

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violated Sections 501.21, 501.32, 501.41(12) and 501.48 of the Rules and Sections 901.502 (6) and 901.502 (11) of the Act. Mr. Miller moved to approve the following agreed consent order. Mr. Mason seconded the motion, and it passed unanimously. 3.

Investigation No. 00-07-24L (James Ralph Gilger, Jr.) – The respondent entered into an agreed consent order with the Board. He is required to complete 16 additional hours of continuing professional education consisting of 8 hours on internal auditor standards offered through the Institute of Internal Auditors and 8 hours covering Generally Accepted Auditing Standards by July 31, 2001. The respondent incorrectly used language approved for independent auditor’s reports in an internal audit report prepared for an independent school district. The respondent violated Section 501.61 of the Rules and Section 901.502 of the Act.

Mr. Miller moved to approve the following agreed consent orders. Mr. Davis seconded the motion and it passed unanimously.

B.

4.

Investigation No. 00-05-07L (Scott Thomas Kingsbury) – The respondent entered into an agreed consent order with the Board in which he was reprimanded. The respondent was found to have violated a cease and desist order issued by the Tennessee Board of Public Accountancy. The respondent violated Section 501.41 of the Rules and Section 901.502 of the Act.

5.

Investigation No. 00-07-11L (Leslie R. Bottke) – The respondent entered into an agreed consent order with the Board in which he was placed on probated suspension for one year with the requirement that he successfully complete his criminal probation. The respondent accepted deferred adjudication for two misdemeanor assaults. As a result, he was placed on community supervision for one year. The respondent violated Section 901.502 of the Act.

6.

Investigation No. 99-10-16L (Frederick Aschbacher) – The respondent entered into an agreed consent order with the Board in which his certificate was voluntarily revoked in lieu of further disciplinary action. The respondent was convicted of First Degree Murder in Bexar County in 1999. The respondent violated Section 501.41 of the Rules and Section 910.502 of the Act.

Proposals for decision Mr. Miller moved to approve the following proposals for decision as presented. Ms. Thomas seconded the motion, and it passed unanimously. 1.

Investigation Nos. 00-07-10001 through 00-07-10058 (Docket No. 457-00-1969.A) – The certificate of each respondent listed was revoked without prejudice. Each respondent may regain his or her certificate by paying all required license fees and penalties and by otherwise coming into compliance with the Act. The respondents, although properly notified, failed to appear at the administrative hearing and were not represented at the hearing. The respondents failed to pay the license fees and penalties required under Section 901.401 of the Act for three consecutive years. The respondents are in violation of Section 901.501(2) of the Act . (ATTACHMENT 6)

2.

Investigation Nos. 00-07-10090 through 00-07-10393 (Docket No. 457-00-1969.B) – The license of each respondent not in compliance with the Board’s continuing professional education requirements was suspended for a period of up to three years or until the respondent complies with the licensing requirements of the Act, whichever is sooner. A $100.00 penalty was imposed for each year a respondent has been in non-compliance. The respondents, although properly notified, failed to appear at the administrative hearing and were not represented at the hearing. The respondents failed to report sufficient continuing professional education credits under Section 901.401 of the Act. The respondents are in violation of Sections 501.25 and 523.62 of the Rules and Section 901.411 of the Act. (ATTACHMENT 7)

3.

Investigation Nos. 00-07-10059 through 00-07-10089 (Docket No. 457-00-1969.C) – The certificate of each respondent listed was revoked without prejudice. The respondent may regain his or her certificate by paying all required license fees and penalties and by otherwise coming into compliance with the Act. The respondents failed to renew their licenses as required under Section 901.401 of the Act. The respondents are in violation of Section 901.502 of the Act. (ATTACHMENT 8)

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The Board took the following action on these Board Rules:

XV.

A.

Mr. Mason moved to adopt the following rule as presented on second reading. Ms. Junker seconded the motion, and it passed unanimously. •

B.

Mr. Mason moved to adopt the following as presented on second reading. Mr. Davis seconded the motion, and it passed unanimously. •

C.

Section 527.4 (Quality Review Program) was adopted in the Quality Review Committee report to the Board. (See Agenda Item VIII-F)

Section 501.53 (Applicability of Rules of Professional Conduct) (ATTACHMENT 9)

Mr. Miller moved to adopt the following as presented on second reading. Mr. Davis seconded the motion, and it passed unanimously. •

Section 527.6 (Reporting to the Board) (ATTACHMENT 10)

XVI.

Ms. Junker, Peer Assistance Committee chair, reported to the Board on a peer assistance conference that she attended that was hosted by the TSCPA.

XVII.

Mr. Conaway reviewed the schedule of future Board meetings.

XVI.

Mr. Conaway adjourned the meeting at 12:30 p.m.

ATTEST:

_____________________________________ K. Michael Conaway, CPA, Presiding Officer 1 2 3 4

___________________________________ Barbara J. Thomas, CPA, Secretary

Mr. Atkinson, Ms. Dryden and Ms. Eyeington recused themselves from participating on this matter. Mr. Atkinson, Ms. Eyeington and Ms. Thomas recused themselves from participating on this matter. Mr. Davis, Ms. Dryden, Mr. Mann, Ms. Parnell and Ms. Thomas recused themselves from participating on this matter. Mr. Atkinson, Ms. Eyeington, and Ms. Parnell recused themselves from participating on this matter.

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