Objective 1.02 Understand the AICPA Code of Professional Conduct.
NOTES
I.
The AICPA Code of Professional Conduct
A. Principles – provide ideal standards of professional conduct; not enforceable
against AICPA members
B. Ethical Principles
1. Responsibilities – exercise sensitive and professional moral judgments
2. Public Interest – serve the public interest, honor public trust, and
demonstrate commitment to the profession
3. Integrity – perform professional responsibilities with the highest sense of
integrity
4. Objectivity and Independence – be independent in fact and appearance in
providing auditing or other attestation services
5. Due Care – observe technical and ethical standards, improve competence,
and perform to the best of your ability
6. Scope and Nature of Services – follow Code of Professional Conduct in
determining scope and nature of services
C. Rules – represent minimum standards of ethical conduct; enforceable against
AICPA members
D. Interpretations of Rules of Conduct
1. Published by AICPA’s Division of Professional Ethics
2. Used when practitioners have frequent questions
3. May be used by a practitioner to justify a departure
E. Ethical Rulings
1. Published explanations and answers to questions about rules of conduct
2. Submitted to the AICPA by practitioners and others interested in ethical
requirements
II.
Specific Rules of Conduct
A. Independence – a member in public practice shall be independent in the
performance of professional services as required by the standards
1. Financial interest in client
2. Immediate family
3. Former practitioners
4. Normal lending procedures
5. Joint relationship with client investor
6. Joint relationship with client investee
7. Director, officer, manager, or employee
8. Litigation between CPA firm and client
9. Bookkeeping services
10. Consulting and other nonaudit services
11. Unpaid fees
B. Integrity and Objectivity – member shall be free of conflicts of interest, shall not
knowingly misrepresent facts or subordinate his or her judgment to others
6312 Accounting II
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Page 40
C. General Standards – member shall comply with the following standards:
1. Professional competence – undertake only those professional services that
can be completed with professional competence
2. Due professional care – exercise due professional care in the performance
of professional services
3. Planning and supervision – adequately plan and supervise the
performance of professional services
4. Sufficient relevant data – obtain sufficient, relevant data to provide a
reasonable basis for conclusions and recommendations
D. Compliance with Standards – must comply with the following standards:
1. Auditing Standards and PCAOB Standards
2. Statements on Accounting and Review Services
3. Statements on Standards for Attestation Engagements
4. Management Consulting Services Standards
E. Accounting Principles
1. GAAP is considered to be any statement proclaimed by an authoritative
body designated by the AICPA
2. CPAs must justify any departure from GAAP
3. Departure from GAAP is permitted IF following GAAP would make
statements misleading
F. Confidential Client Information – may not disclose any confidential client
information without the specific consent of the client. Exceptions are:
1. Subpoenas or summons enforceable by a court order
2. Review of papers related to an ethics division inquiry
3. Review of papers related to a peer review
4. Obligations related to technical standards
G. Contingent Fees
1. Fees to be determined upon a particular result
2. CPAs are forbidden to accept contingent fees for attestation services and
tax return preparation
H. Acts Discreditable
1. Retaining client records after they have been requested
2. Discrimination or harassment in employment practices
3. Noncompliance with standards
4. Negligence in the preparation of financial statements or reports
5. Solicitation or disclosure of CPA exam questions and answers
6. Failure to file a tax return or pay tax liability
I. Advertising and other forms of solicitation – false, misleading, or deceptive
advertising is prohibited. Examples of unacceptable advertising are:
1. Creates false or unjustified expectation of favorable results
2. Implies the ability to influence any court or similar body or official
3. Client is unaware that there is a likely chance that a stated fee will be
substantially increased
4. Other representations that are likely to cause a reasonable person to
misunderstand or be deceived.
J. Commissions and Referral Fees – compensation paid for recommending a
third party’s product or service to a client or recommending a client’s product
or service to a third party. Prohibited if the firm also performs:
1. Audit or review of financial statement for the client
2. Compilation of financials in which lack of independence is not disclosed
and the financials may be used by a third party
3. Examination of prospective financial information
K. Form of Organization and Name
1. Member may practice public accounting only in a form of organization
permitted by state law
2. CPA shall not practice public accounting under a firm name that is
misleading
3. Ownership of CPA firms by non-CPAs is allowed under certain conditions
4. Firm may not designate itself as a member of the AICPA unless all CPA
owners are members of the AICPA
III. Enforcement of Policies – principally involves the following groups:
A. State Boards of Accountancy – can revoke CPA certificate of license to
practice
B. AICPA Joint Trial Board – can suspend or expel members from the AICPA;
less serious and unintentional violations will normally require only corrective
and remedial action
CONTENT
I.
Ethical Principles in the AICPA Code of Professional Conduct
A. Responsibilities
B. Public Interest
C. Integrity
D. Objectivity and Independence
E. Due Care
F. Scope and Nature of Services
II.
Specific Rules of Conduct
A. Independence
B. Integrity and Objectivity
C. General Standards
D. Compliance with Standards
E. Accounting Principles
F. Confidential Client Information
G. Contingent Fees
H. Acts Discreditable
I.
Advertising and Other Forms of Solicitation
J. Commissions and Referral Fees
K. Form of Organization and Name
Ethical Principles Notes
– exercise sensitive and professional
1.
moral judgments
– serve the public interest,
honor public trust, and demonstrate commitment to the
profession
3.
– perform professional
responsibilities with the highest sense of integrity
4.
and
– be
independent in fact and appearance in providing auditing or
other attestation services
5.
– observe technical and
ethical standards, improve competence, and perform to the
best of your ability
6.
and
– follow
Code of Professional Conduct in determining scope and
nature of services
2.
Specific Rules of Conduct Notes
– A member in public practice shall be
independent in the performance of professional services as required by the standards
– Member shall be free of conflicts of
interest, shall not knowingly misrepresent facts or subordinate his or her judgment to
others
General Standards – member shall comply with the following standards:




Compliance with Standards – must comply with the following standards:
 Auditing Standards and PCAOB Standards
 Statements on Accounting and Review Services
 Statements on Standards for Attestation Engagements
 Management Consulting Services Standards
GAAP is considered to be any
statement proclaimed by an authoritative body designated by the AICPA; CPAs must
justify any departure from GAAP; departure from GAAP is permitted IF following GAAP
would make statements misleading
Confidential Client Information – may not disclose any confidential client information
without the specific consent of the client. Exceptions are:




– Fees to be determined upon a
particular result; CPAs are forbidden to accept contingent fees for attestation services
and tax return preparation
Specific Rules of Conduct Notes
and other forms of solicitation – false, misleading or
deceptive advertising are prohibited. Examples of unacceptable advertising are:
 Creates
or unjustified expectation of favorable results
 Implies the ability to
any court, or similar body or official
 Client is
that there is a likely chance that a
stated fee will be substantially increased
 Other representations that are likely to cause a reasonable person to
misunderstand or be
.
Acts





– Examples of discreditable acts are:

and
Fees – compensation
paid for recommending a third party’s product or service to a client or recommending a
client’s product or service to a third party. Prohibited if firm also performs:

or review of financial statement for the client
 Compilation of financial statements in which lack of independence is not
disclosed and the financials may be used by a third party
 Examination of prospective financial information
Form of Organization and Name
 Member may practice public accounting only in a form of organization permitted
by state law
 CPA shall not practice public accounting under a
that is
misleading

of CPA firms by non-CPAs is allowed under
certain conditions
 Firm may not designate itself as a member of the AICPA unless all
are members of the AICPA
Ethical Principles Graphic Organizer
Specific Rules of Conduct Graphic Organizer
Member in public practice shall
be independent in the
performance of professional
services as required by the
standards
Member shall be free of
conflicts of interest, shall not
knowingly misrepresent facts or
subordinate his or her judgment
to others
_____________________
______________________
Member shall comply with the
following standards:




Professional
Due professional
Planning and
Sufficient relevant
__________________________
Must comply with the following
standards:
 Auditing Standards and
PCAOB Standards
 Statements on Accounting
and Review Services
 Statements on Standards for
Attestation Engagements
 Management Consulting
Services Standards
_________________________
Specific Rules of Conduct Graphic Organizer
 GAAP is considered to be any
statement proclaimed by an
authoritative body designated
by the AICPA
 CPAs must justify any
departure from GAAP
 Departure from GAAP is
permitted IF following GAAP
would make statements
misleading
__________________________
May not disclose any confidential
client information without the
specific consent of the client.
Exceptions are:
 Subpoenas or summons
enforceable by a court
order
 Review of papers related to
an ethics division inquiry
 Review of papers related to
a peer review
 Obligations related to
technical standards
_________________________
 Fees to be determined upon a
particular result
 CPAs are forbidden to accept
contingent fees for attestation
services and tax return
preparation
_________________________
 Retaining client records after they have
been requested
 Discrimination or harassment in
employment practices
 Noncompliance with standards
 Negligence in the preparation of financial
statements or reports
 Solicitation or disclosure of CPA exam
questions and answers
 Failure to file a tax return or pay tax liability
__________________________________
Specific Rules of Conduct Graphic Organizer
False, misleading or deceptive
advertising are prohibited.
______________________
Compensation paid for
recommending a third party’s
product or service to a client or
recommending a client’s product
or service to a third party.
_____________________
 Member may practice public accounting only in a form of
organization permitted by state law
 CPA shall not practice public accounting under a firm name that is
misleading
 Ownership of CPA firms by non-CPAs is allowed under certain
conditions
 Firm may not designate itself as a member of the AICPA unless
all CPA owners are members of the AICPA
_________________________________
Review Activity
Using PowerPoint, create a scenario showing ethical behavior and a
scenario showing unethical behavior for each of the specific rules of
conduct. Use appropriate clip art to enhance slides where possible.
Specific Rules of Conduct
Independence
Integrity and Objectivity
General Standards
Compliance with Standards
Accounting Principles
Confidential Client Information
Contingent Fees
Acts Discreditable
Advertising and Other Forms of Solicitation
Commissions and Referral Fees
Form of Organization and Name
Sample Test Questions
1. Jones CPA Firm received a request from AAA Credit for copies of Amy Johnson’s
federal tax return. Jones CPA Firm sent a copy of the tax return to AAA Credit
without asking Ms. Johnson. Which specific rule of conduct is Jones CPA Firm
violating?
A.
B.
C.
D.
Acts discreditable
Confidential client information
Contingent fees
Independence
2. Nancy Smith, CPA has only prepared financial reports in her business. She has
been asked to prepare a federal tax return for Michael Brown. Smith refuses to
accept the engagement based on her experiences. Which general standard is being
followed?
A.
B.
C.
D.
3.
Betty’s Bookkeeping Service posted a sign that stated “Members of the AICPA”.
The owner, Betty Wilson, has studied to take the CPA exam but has not yet taken it.
Which specific rule of conduct did Betty’s Bookkeeping violate?
A.
B.
C.
D.
4.
Advertising and other forms of solicitation
Commissions and referral fees
Contingent fees
Form of organization and name
Samuel is a CPA whose sister, Janet, is a Sales Representative for EZ Accounting
Software. Samuel recommends EZ Accounting Software to all his audit clients.
Janet pays Samuel 5% of the sale every time one of the clients purchases the
software. Which specific rule of conduct is being violated?
A.
B.
C.
D.
5.
Due professional care
Planning and supervision
Professional competence
Sufficient relevant data
Advertising and other forms of solicitation
Commission and referral fees
Confidential client information
Independence
Jonathan Smith, Inc., a CPA firm, prepares the audit for Mom’s Diner. Mom’s Diner
is owned by Jonathan’s aunt. Which specific rule of conduct is Jonathan Smith, Inc.
violating?
A.
B.
C.
D.
Confidential client information
Contingent fees
Independence
Integrity and objectivity
6.
Mary Baker, CPA, is preparing financial statements for The Brookline Company.
Mary determines that certain GAAP requirements would be too costly for The
Brookline Company. Mary prepares the statements but does not tell the client about
not following the GAAP requirements. Which specific rule of conduct did Mary
violate?
A.
B.
C.
D.
Accounting principles
Advertising and other forms of solicitation
Confidential client information
Contingent fees