AccountantsCode of Professional Ethics by American Institute of Certified Public AccountantsIntroduction”A code of professional ethics is a voluntary assumption of self disciplineabove and beyond the requirements of the law.
The Code of Ethical Conduct servesthe highly practical purpose to notify the public that the profession willprotect the public interest” (Carey, Doherty: p 3). When people need a doctor, alawyer or a certified public accountant, they seek someone whom they can trustto do a good job, not for himself but for them. People assume that the hiredprofessional is qualified since they cannot appraise him. They must take it onfaith that he is competent. That is why professionals are distinguished frombusinesses and why there is a need for ethical regulations.
The Code of Professional EthicsThe Code of Professional Ethics for public accountants was developed by theAmerican Institute of Public Accountant and includes four different categories. The first, Concepts of Professional Ethics, establishes major requirements forCPAs in different areas of their day-to-day professional activities. The mainparts of the Code are: Independence, Integrity and Objectivity in the practiceof public accounting, Competence and technical standards, Responsibilities toclients, Responsibilities to colleagues and Other responsibilities andPractices. Independence has always been the fundamental concept to theaccounting profession. In fact it is the most essential to the practice of allprofessions. The financial reports produced by CPAs would be of little value tothe public unless CPAs maintain their independence.
Independence has always beenassociated with integrity and objectivity. Since faults on financialstatements may be the result of either a honest mistake or a lack of integrityit is imperative to associate the notion of independence with the objectivityand integrity. As part of the requirements by the Code of ethics, CPA shouldavoid any relationships that may result in the CPA’s becoming dependent on theparticular client. Such relationships include financial interests and clientmanagement. It is very important that the opinion of the CPA reflects theresults of operating decisions taken by the client and not any underlying ideaswhich may be the case if a CPA takes part in the decision making process of thecompany. Another important issue discussed in the Code of ethics is competence andresponsibility of CPAs.
It establishes a basic ethical obligation that a CPAshall not render any services which he is not competent to render. Within thistopic, the code mentions continuing improvement of the competence of CPAs in allareas in which they engage. In fact, the requirements of competence areestablished by law. If a man renders a service he is not familiar with, hecommits a fraud on the public (However, CPAs are supposed in a reasonable mannerto carry this principle beyond). The code of ethics assumes that in situationswhere CPAs face a problem he/she is not familiar with, they may ask otherpractitioners for help. A CPA may drop the case only when his/her efforts proveto be futile.
From the other standpoint, there are always unknowns in everyprofession. Thus, to assume that every practitioner is completely knowledgeablewould be inaccurate. Responsibilities to Clients include CPAs’ maintaining their independence,integrity and objectivity regardless of any personal interest that previouslyexists. CPAs should hold in confidence, all the information about their clientswhich they acquire during engagements. However the Code states that CPAs shouldinsist on disclosing in financial reports, all information necessary for thefair presentation of the clients’ affairs. The accountancy laws in some states of the USA contain provisions which do notrequire disclosing information obtained during engagement by accountant in anycourt.
These clauses directly interfere with federal jurisdiction. Federalcourts have held that a “state statute conferring privileged status oncommunications to accountants does not apply to a Federal administrativeproceedings” (Carey and Doherty: p. 133) and may require disclosure of theinformation by CPA. With reference to the Responsibilities to Colleagues, good relations within aprofession are very important because they aid in the exchange information andopinions. “The public confidence in professional accounting is gained mainly bycumulative accomplishments of all CPAs” (AICPA, Section 55, article 01).
Successful professionals in accounting do not hide secrets from what they havelearned from their experience. They share their ideas with other practitionerswho address them directly or publish articles in professional publications,through speeches and professional meetings. The code prescribes assisting colleagues in complying with the code of ethicsand disclosing cases of its enforcement. Basically, the principles of responsibilities to fellow practitioners describedin the Code do not establish the limits of professional conduct. They define thearea and basic foundations of the professional courtesy. Finally the code defines general principles of ethical conduct for professionalaccountants.
These responsibilities are not discussed in other parts of the Codebut they underlie all ethical principles mentioned in the text of the Code. Theyestablish basic regulations of rivalry inside the profession and also establishthe ethical obligation of CPAs to clients in determining fair fees for theirservices, and other principles. The foundation of public accounting is the client confidence and those peoplewho are using financial statements produced by CPAs. To keep the confidence ofclients, CPAs shall maintain their independence and objectivity.
The standardsof independence require that the CPA does not subordinate his judgement on tothat of the client keeping in mind that there are other CPAs who are knocking athis client’s door. One of the other principles mentioned in the Code is therenunciation of promotional methods of the commercial world which increase thepressure on CPAs and will lead to conformity with the letter of the code evadingits spirit. CPA shall not be involved with business activities that are incompatible withthe practice of public accounting. These activities include selling securitiesbecause this may include promotional activities for a public accounting practiceand consequently negatively influence the independence of CPAs.
The next category of the Codes of professional ethics include Rules of Conductwhich establish more detailed regulations of the principles described in thefirst part of the Code. These rules become effective only after approval of themembership. A member who is found guilty in enforcing Rules of conduct may beexpelled or suspended by the Trial Board. The Rules of conduct have four majorparts as mentioned in the first part of the Code under the Concepts ofProfessional ethics. Each section of the Rules of Conduct has a subset ofparticular cases given under Ethics Rulings.
In addition to the standards described above, state CPA institutions and othergovernment establish their own ethical standards. ConclusionProfessional ethics is concerned with human behaviour and human relations. Ashuman society becomes more complicated, so do the codes of professional conduct. The purpose of the rules is to attract and increase public confidence anddiscourage behaviour inconsistent with the image of profession. Publicconfidence may even be more important to the public accountant than to any otherprofessional because CPAs are concerned not only about their clients but alsoabout those who rely on their reports.
The code of ethical conduct providesmembers of the profession with the rules that were worked out on the historicalbasis to attract the confidence of the public. Therefore, the rules of ethicsare the foundation of public confidence. Works CitedJohn L. Carey and William O.
Doherty. Ethical Standards of the AccountingProfession. New York: American Institute of Certified Public Accountants, 1966American Institute of Certified Public Accountants. Code of Professional Ethics.New York: AICPA, 1977
