Differences in Ethics Courses (#358)

What are the differences in ethics course requirements among the state boards of accountancy? Most people are only certified with one state board of accountancy, so they have no idea that there might be a difference. But there is. Quite a lot, actually.

Why is There an Ethics Requirement?

But first, why is there an ethics requirement at all? After all, most states require you to pass an ethics test every time your license renews. There are a couple of reasons. First, the boards of accountancy have to deal - all the time - with CPAs who break the rules. Not all of the Boards publish this information, but if you look at some of their websites, there can be quite a list of offenders for all sorts of reasons – and some of them involve jail time. The Boards have to go through an investigation process for every one of them, which soaks up their time. So, in short, reminding people about the whole concept of ethics reduces the work of the Boards of Accountancy.

The second reason is that a public screw-up by a CPA gives the whole profession a bad name, which doesn’t help any of us. And the third reason is that a lot of CPAs aren’t too familiar with the regulations of the specific Board of Accountancy that certified them. For example, they might not remember the rules for how to name their CPA practice, or how to deal with client workpapers, or – and this is a really common one – the precise rules for how much continuing professional education they’re supposed to get, and which types of training they’re allowed to get.

The Continuum of Ethics Courses

With all that being said, what are the differences in ethics course requirements? Well, think of this as a continuum, where one state requires no ethics course at all – that’s South Dakota – while at the other extreme, New Jersey requires you to take it in person or through a webcast. If you’re from New Jersey, you have my sympathies, because there aren’t many webcast options available, so you have to keep taking the same ones, over and over again.

State-Level Ethics Training

But there’s a lot in between those two extremes. The majority of the Boards just say that you have to take four hours of ethics training, and that’s about it. However, a fair number of Boards are getting annoyed that their own CPAs don’t seem to have a very good idea about what their rules and regulations are, so they require one or two hours of training in their state-level regulations. I sympathize with these Boards, because they just want their people to read the blasted rules.

But there’s a problem, because some of the course authors out there don’t put a whole lot of state-level regulations into their courses. And there’s a reason why they do this, because it’s a massive pain for the authors to review the regulations for all of the Boards of Accountancy every year, and make sure that they have the latest regulations in their courses. So, these authors put in maybe a half-dozen pages of state-specific regulations, and then fill the rest of their courses with generic ethics topics. Which doesn’t really address the intent of the boards of accountancy. An example of this case is Colorado, which publishes a list of what it wants in a state-specific ethics course, but the Board doesn’t have the money to certify any course providers – so it doesn’t.

Which brings us to the next level of Board involvement. The only way that a board of accountancy can make sure that there’s enough state-level regulations in a course is to review it themselves. Which is a pain, and it’s expensive. There are a couple of ways for them to do this. For example, Florida charges a few hundred dollars review fee to approve a Florida ethics course. Most course providers don’t care, because there are a lot of CPAs in Florida. So, everyone writes a course for Florida. That’s not the case in Wyoming, which charges the same amount of money, but there aren’t many CPAs. The result is very few ethics courses for Wyoming CPAs, because it’s not cost-effective to write a course for that state. In my case, I pretty much hand over all of my profits to the Wyoming Board every two years to pay for the next review fee.

Texas Ethics Regulations

Here's another example. Texas always markets itself as being the most free-market state in the country, and yet it’s actually the least free-market when it comes to ethics courses. Somewhere along the line, somebody managed to insert into their regulations that, in order to write a Texas ethics course, you have to be a current Texas CPA, and have taken college-level ethics courses, and taught ethics courses in person. No other board has these requirements. So, this means that a lot of course authors can’t write an ethics course for Texas. As a result, Texas CPAs have very few choices for who they can use. As a personal example, I’ve written 53 ethics courses, and yet I’m not qualified to write one for Texas. Go figure.

Other State Ethics Issues

Here's another example – the State of Washington. Their goal is to have the best CPA certification in the country, so they’re constantly changing their rules, which have to be reflected in their state-specific ethics course. They do not charge a review fee, but they’re very, very picky about the ethics courses that get submitted to them. I get rejected at least once every year, when it’s time for a new course update. It’s annoying for the authors, but that’s what they want.

And then we have Louisiana. Their board wants to refresh the ethics courses for their CPAs, so they encourage course providers to write them a proposal for a new course every few years. If you’re accepted, then you’re one of the few approved course providers for the next three years. The problem is that if you’re rejected – which is quite common – then you’re out. The result is that a lot of course providers – including me – don’t bother to submit new course proposals to the Louisiana Board.

And then we have what I think is perhaps the best approach. The Board of Accountancy for Virginia decided to create its own video that covers the essential points of its regulations. It’s pretty stylish. They then approve pretty much anyone who includes that video in their course materials, subject to a few restrictions. It’s not a bad approach. The Virginia Board is guaranteed to have the right content presented to Virginia CPAs, while also pushing the testing work onto the outside education providers. The only downside for the Board is that it has to pay for a new video production every year, which must be fairly expensive – it’s a nice video. Still, I’d say that’s the most effective approach I’ve seen for getting the really essential ethics information into the hands of CPAs, year in and year out.