Question

First, review the terms and definitions identified in the “Principles of Professional Conduct” section of the preamble to the AICPA Professional Code of Conduct. Select one of the principles (e.g., responsibilities, public interest, integrity, objectivity and independence, due care, or scope and nature of services) and research a current event that demonstrates that principle being threatened or otherwise not adhered to. (This does not need to be a case strictly about accounting—it could be any relevant business scenario. If you have trouble finding a current event, you can create a hypothetical scenario related to your final project business.)

Answer 1

The Principles of the Code of Professional Conduct of the American Institute of Certified Public Accountants express the profession’s recognition of its responsibilities to the public, to clients, and to colleagues. They guide members in the performance of their professional responsibilities and express the basic tenets of ethical and professional conduct. The Principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage.

Some of the principles of professional conduct are as follows:

Responsibilities:

In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities. As professionals, members perform an essential role in society. Consistent with that role, members of the American Institute of Certified Public Accountants have responsibilities to all those who use their professional services. Members also have a continuing responsibility to cooperate with each other to improve the art of accounting, maintain the public’s confidence, and carry out the profession’s special responsibilities for self-governance. The collective efforts of all members are required to maintain and enhance the traditions of the profession.

Public interest:

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism.A distinguishing mark of a profession is acceptance of its responsibility to the public. The accounting profession’s public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of members to maintain the orderly functioning of commerce. This reliance imposes a public interest responsibility on members. The public interest is defined as the collective well-being of the community of people and institutions that the profession serves.

Integrity:

To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity. It is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions and requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and honest difference of opinion; it cannot accommodate deceit or subordination of principle.

Objectivity and independence:

A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services. Objectivity is a state of mind, a quality that lends value to a member’s services. It is a distinguishing feature of the profession. The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member’s objectivity in rendering attestation services.

Due care:

A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability. The quest for excellence is the essence of due care. Due care requires a member to discharge professional responsibilities with competence and diligence. It imposes the obligation to perform professional services to the best of a member’s ability, with concern for the best interest of those for whom the services are performed, and consistent with the profession’s responsibility to the public.

Scope and nature of services: A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided. The public interest aspect of members’ services requires that such services be consistent with acceptable professional behavior for members. Integrity requires that service and the public trust not be subordinated to personal gain and advantage. Objectivity and independence require that members be free from conflicts of interest in discharging professional responsibilities. Due care requires that services be provided with competence and diligence.

To demonstrate the threats to any principles of Code of Conduct of AICPA, I have selected the principle of Independence.

The general threats to the principle of independence is as follows:

1.Familiarity Threat: CPAs having a close or longstanding relationship with a client may cause the CPAs to lose their independency while discharging their duties.

2.Adverse Interest Threat: When there is no good relation between the CPAs and client may result in acting in opposition to clients.

3.Undue Influence Threat: Attempts to coerce or otherwise influence the CPA member (e.g., significant gifts or threats to replace the auditor over an accounting principles disagreement).

4.Self-Review Threat: When the work done by a CPA or CPA firm will be reviewd by themselves may result in finding the mistakes further, if any.

5.Financial Self-Interest Threat: When CPAs are having a financial relationship with a client may result the CPAs in improper discharge of their duties.

6.Management Participation Threat: When CPAs themselves are taking part a role in client management or otherwise performing management functions may result in losing their independency.

All the threats mentioned above may result the CPAs in improper dischargification of their duties.

Therefore adequate analysis is to be done whether any act that which may affect the indepency of the CPAs.

In order to analyze those independency issues. the following risk based approch can be followed.

1. Does your situation violate any independence rules?

2. Identify and evaluate threats to independence.

3. Determine whether safeguards eliminate or sufficiently mitigate the identified threats.

4. Determining whether independence is impaired

Therefore in all the business scenarios, the steps mentioned above is to be checked.