AICPA Code of
Professional Conduct
Professional Responsibilities
• CPAs have responsibilities to:
• The public—relies on CPAs to monitor and enforce standards of
fairness and reliability of financial reporting
• Clients—rely on CPAs to provide accurate, fair and useful advice,
while maintaining confidentiality of client information
• Colleagues—CPAs have responsibility to cooperate with one another
to improve the art of accounting, maintain the public’s confidence,
and carry out the profession’s special responsibilities for self-governance
The Public Interest
• CPAs have special responsibilities to protect the collective well-being of the
community of people and institutions served by the profession:
• Clients
• Creditors
• Governments
• Employers
• Investors
• Business and Financial community
• Others
Overriding Responsibility
• “Unswerving commitment to honorable behavior,
even at the sacrifice of personal advantage.”
Principles
• Integrity
→ How does the requirement of client confidentiality potentially restrict a
CPA’s actions with regard to integrity?
• Objectivity & Independence
→ How does independence affect objectivity?
→ Difference between actual and apparent independence?
• Due Care
→ How does one assure competence?
Be Aware of “Threats”
• CPAs must recognize potential threats and consider appropriate safeguards.
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Adverse interest threat
Advocacy threat
Familiarity threat
Management participation threat
Self-interest threat
Self-review threat
Undue influence threat
“Safeguards”
• Three types of safeguards
• External Safeguards—created by profession, legislation or regulation
• Client-created safeguards (not useful to protect against threats unless operating
in combination with other safeguards
• Self-imposed safeguards
RRC In-class assignment
• You are a partner in RRC LLP, a global public accounting firm with offices in
40 states in the U.S. and in 10 countries outside the U.S. Your firm audits two
clients in the same industry, one significantly larger than the other.
• The larger of these two clients is preparing a takeover bid to purchase the
smaller one. It has engaged a team in your firm’s tax practice to advise it on
valuation and acquisition structure issues.
→ Identify the threat(s) inherent in this situation.
→ What safeguards would you recommend to eliminate the threat or reduce
it
to an acceptable level?
What is the Threat to Objectivity and
Independence of the Following?
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Director Positions
Offering/Accepting Gifts or Entertainment
Misrepresentations in Preparation of Financial Statements or Records
Client Advocacy
Subordination of Judgment
Use of a Third-party Service Provider
RRC In-class assignment 2
• You are a partner in RRC LLP, a global public accounting firm with offices in 40
states in the U.S. and in 10 countries outside the U.S. You have primary
responsibility for 4 clients.
• Your largest client, M-Ron, is responsible for 75% of the audit revenues generated
by your individual client base, and takes up approximately the same amount of your
billable hours. The other three clients are of roughly equal size.
→ Identify the threat(s) inherent in this situation.
→ What safeguards would you recommend to eliminate the threat or reduce it to an
acceptable level?
Non-attest Services
• Performance of non-attest services for an attest client inevitably lead to threats to the CPA’s
objectivity and independence.
• Such threats may be reduced to an acceptable level if appropriate safeguards are undertaken.
→ The client and its management must assume all management responsibilities, including
assigning a competent person to oversee the service, evaluation of the adequacy and
results of such services, and accepting responsibility for the results of the services;
→ The CPA establishes in writing an understanding with the client regarding:
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Objectives of the engagement;
Services to be performed;
Client’s acceptance of its responsibilities (per above);
CPA’s responsibilities; and very importantly
Any limitations of the engagement.
Which of the following would not, in most
circumstances, create an unacceptable
threat
toforindependence?
Valuation services provided
solely
tax purposes (i.e., valuation of goodwill for tax
A
purposes)
B Provision of expert witness services for an attest client engaged in a
competitor.
C Design of an attest client’s financial information system (services
consulting practice of the audit firm).
D Representation of an attest client in the Tax Court.
legal dispute with a
provided by the