AICPA of Professional Conduct: Highlights and Brief Overview A privilege that professional accountants have is the opportunity to become certified public accountants and then to become a voluntary member of the American Institute of Certified Public Accountants (AICPA). By taking the step of being an AICPA member, the accountant is upheld to higher standards than those who opt not to join the AICPA. This paper will briefly examine seven key areas of the AICPA code of conduct including: (1) public responsibility; (2) objectivity; (3) independence; (4) due care; (5) competence; (6) diligence; and (7) Rules 202 and 203 of the AICPA Code of Conduct.
Being responsible to the public is an overriding concern of all the objectives. In brief, the AICPA states that AICPA members have responsibilities or obligations to all who use their services (aicpa. org, ET section 52). Other duties in this area are obligations to cooperate in the accounting community; keeping public trust; and to carry on trustworthy self-regulation. In order to keep the trust of society, the profession relies on AICPA practicing members to do their part in successfully meeting the Code of conduct regulations (aicpa. org, ET section 52).
Further on the topic of responsibility is how members must be honest and candid in any professional service to the public which includes having integrity, objectivity, and using professional care (aicpa. org, ET section 53). Objectivity is a second area of concern. According to the AICPA, objectivity is a mindset which allows the individual to be fundamentally honest and free of conflicts of interest (aicpa. org, ET section 55.01).
Interestingly, even though AICPA members not working in public practice may not be required to maintain independence, they are still required to be objective or free of conflicts of interest whether they are performing any professional work ranging from tax services to working with financial statements to consulting work (aicpa. org, ET section 55.04). A third area examined is with independence. Independence is defined by the AICPA as both being conflict free in mind as well as appearance from a third party’s observation (aicpa. org, ET section 100.01).
In other words, independence can be impaired if a reasonably informed third party could perceive an impairment or a conflict of interest. There are many ways independence is impaired. There are seven general ways to evaluate whether or not independence is an issue. These would include: (1) self-evaluation threats; (2) advocacy threats; (3) opposing interest conflicts; (4) family member conflicts; (5) attempts to influence threats; (6) monetary self-concern threats; and (7) performing management function threats (aicpa. org, section 100.13-section 100.19).
In certain cases, some acts are deemed inappropriate for independence even if risk is at a very low level. The AICPA uses a risk-based method regarding independence, and if an act could cause a conflict of interest either in perception or in reality then the CPA should try to either minimize the risk to acceptable levels or eliminate the risk. Under the risk-based method, the problem areas are located and then examined both separately and then as a whole to see if independence is impaired (aicpa. org, ET sections 100.01 and 100.05).
Certain acts as outlined by the AICPA cause an independence issue automatically. For example, a covered member cannot have any financial interest in an attest client regardless of how minor the dollar amount (aicpa. org, ET section 100.02). CPAs must remember to have the client make all management type decisions along with having the client accept responsibility for final outcomes of nonattest services (aicpa. org, ET section 101.05 101-3). Examples of items that would cause an independence problem for CPAs hired for an attest engagement would be: (1) approving or completing transactions for a client; (2) preparing source documents for a client; (3) maintaining control over a client’s assets; (4) attempting to supervise an attest client’s employees; (5) trying to influence management type decision making; (6) having any type of control over or implementing a company’s internal controls; (7) going before the Board of Directors in representation of management (aicpa. org, ET section 101-. 05 101-3) The AICPA Code of Conduct further elaborates on which type of functions are acceptable to perform in nonattest activities along with what type of functions are considered unacceptable.
For example, a CPA can provide bookkeeping services where the member is simply posting transactions that are pre-coded. However, CPAs cannot determine coding or general ledger routing for themselves. CPAs can also complete financial statements assuming that the information is taken directly from a trial balance that the client has already completed. They can also suggest any type of journal entries, but the CPA cannot approve or authorize a journal entry to be made (aicpa. org, section 101.05 101-3).
Similar principles exist in other services including the use of technology. CPAs can do basic non-management functions of installing a pre-packaged software package or assist in setting up a generic chart of accounts, but cannot design an Accounting Information System for the client or make any significant changes to the source code in a technology system (aicpa. org, ET section 101.05 101-3). According to the AICPA, due care is constantly seeking the highest standards possible.
It would encompass both diligence and competence while stressing the importance of a CPA’s professional responsibility to both the general public and the profession (aicpa. org ET section 56.01). Part of due care is competence and the AICPA states that competence is acquired from both training and time spent in the accounting work environment. The beginning of meeting competence requirements would be obtaining licensing as a certified public accountant. Beyond the CPA licensing, there is a need for ongoing education along with dedication to staying abreast of the latest knowledge of the profession (aicpa. org, ET section 56.02).
A final note is being aware of the need to seek outside help from others in the profession if the CPA feels he or she is not qualified in a particular area (aicpa. org, ET section 56.02). Competence would encompass skills of the CPA and a good grasp of the accounting principles involved with being able to apply the principles in the proper way.
A member does not claim to ever make mistakes, yet should have a good background in any area before working for a client in the given area. Only accepting assignments for which the CPA feels qualified for is important (aicpa. org, ET section 201.02) Diligence as mentioned by the AICPA would involve acting completely and in a responsible manner. Being careful to use the correct professional standards whether in an ethical or technical sense is key function (aicpa. org, ET section 56.04).
Rules 202 and 203 of the Code state that CPAs must adhere to the official guidelines of the profession as expressed through GAAP. This includes both auditing and other professional services (aicpa. org, ET section 202.01). Rule 203 states that by applying GAAP correctly, it should almost always lead to a fair and non-misleading opinion. Yet, Rule 203 also realizes that there may be occasions arise where an actual application of GAAP could lead the financial statements to be misleading. This would usually occur in cases where new laws are enacted or a new way of conducting business is performed.
In these cases, the CPA must use professional judgment to ensure the financial statements are fair and not misleading (aicpa. org, ET Section 203.01 – Section 203.02). References Aicpa. org (2010) “AICPA Code of Professional Conduct---Current and Historical Versions” Retrieved from: http: //www. aicpa. org/Research/Standards/CodeofConduct/Pages/default. aspx