Question

Evaluation of the AICPA Code of Professional Conduct Provisions

Write a 750-word essay on a principle from the AICPA principles section of the Code of Professional Conduct Provisions. Include the following in your essay:

1) Identify 1 of the 6 principles from the AICPA principles section of the Code of Professional Conduct Provisions.

2) Identify several rules from the rules section and show how they relate to the selected principle.

3) Evaluate the selected principle based on a deontological ethics perspective and a Christian world

Answer 1

The Code of Professional Conduct of the American Institute of Certified Public Accountants consists of two sections--(1) the Principles and (2) the Rules. The Principles provide the framework for the Rules, which govern the performance of professional services by members. The Council of the American Institute of Certified Public Accountants is authorized to designate bodies to promulgate technical standards under the Rules, and the bylaws require adherence to those Rules and standards.

The Code of Professional Conduct was adopted by the membership to provide guidance and rules to all members--those in public practice, in industry, in government, and in education--in the performance of their professional responsibilities.

Compliance with the Code of Professional Conduct, as with all standards in an open society, depends primarily on members' understanding and voluntary actions, secondarily on reinforcement by peers and public opinion, and ultimately on disciplinary proceedings, when necessary, against members who fail to comply with the Rules.

Principles of Professional Conduct are as follows:

1. Preamble
2. Responsibilities
3. Public interest
4. Integrity.
5. Objectivity and independence
6. Due Care

The detailed description of the same are as follows

1.Preamble .

Membership in the American Institute of Certified Public Accountants is voluntary. By accepting membership, a member assumes an obligation of self-discipline above and beyond the requirements of laws and regulations. These 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.

2.Responsibilities

Responsibilities principle - 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.

3. The Public Interest

The public interest principle- 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. In discharging their professional responsibilities, members may encounter conflicting pressures from each of those groups. In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients’ and employers’ interests are best served.

All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek to continually demonstrate their dedication to professional excellence.

4. Integrity

Integrity principle- To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity. Integrity 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. Integrity 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. Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or guidance or in the face of conflicting opinions, a member should test decisions and deeds by asking: “Am I doing what a person of integrity would do? Have I retained my integrity?” Integrity requires a member to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment. Integrity also requires a member to observe the principles of objectivity and independence and of due care Objectivity and Independence .

5.Objectivity and independence principle.

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. Members often serve multiple interests in many different capacities and must demonstrate their objectivity in varying circumstances. Members in public practice render attest, tax, and management advisory services. Other members prepare financial statements in the employment of others, perform internal auditing services, and serve in financial and management capacities in industry, education, and government. They also educate and train those who aspire to admission into the profession. Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment. For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility. Such a member who provides auditing and other attestation services should be independent in fact and appearance. In providing all other services, a member should maintain objectivity and avoid conflicts of interest. Although members not in public practice cannot maintain the appearance of independence, they nevertheless have the responsibility to maintain objectivity in rendering professional services. Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice and must be scrupulous in their application of generally accepted accounting principles and candid in all their dealings with members in public practice

1. 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. Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member’s professional life. It is a member’s individual responsibility. In all engagements and in all responsibilities, each member should undertake to achieve a level of competence that will assure that the quality of the member’s services meets the high level of professionalism required by these Principles. Competence represents the attainment and maintenance of a level of understanding and knowledge that enables a member to render services with facility and acumen. It also establishes the limitations of a member’s capabilities by dictating that consultation or referral may be required when a professional engagement exceeds the personal competence of a member or a member’s firm. Each member is responsible for assessing his or her own competence of evaluating whether education, experience, and judgment are adequate for the responsibility to be assumed. Members should be diligent in discharging responsibilities to clients, employers, and the public. Diligence imposes the responsibility to render services promptly and carefully, to be thorough, and to observe applicable technical and ethical standards. Due care requires a member to plan and supervise adequately any professional activity for which he or she is responsible.

Apart from the principles of professional conduct, AICPA has laid various rules for professional ethics and standards which includes:

1. Rule 101 Independence
2. Rule 102 Integrity and objectivity.
3. Rule 301 Confidential Client Information
4. Rule 302 Contingent fees etc

We can discuss in detail one of the six principles – Objectivity and Independence in detail in relation to these rules of AICPA

New AICPA Independence Rules

Individuals working in firms that provide attest services for clients may have a wide variety of financial, business, and family relationships with their firm’s attest clients. For example, an individual may have a checking account at a bank that is audited by that individual’s firm, or an attest client may employ an individual’s spouse. For many years, the accounting profession’s independence rules have prohibited firms, various individuals in those firms, close relatives of those individuals, and entities controlled by those individuals from having certain financial or business relationships with any of the firm’s attest clients.

Those old rules generally applied broadly to a group of individuals and entities called members:

•           Firms engaged in public accounting practice

•           All of a firm’s partners (or, if applicable, its stockholders or proprietors)

•           All individuals in a firm who either participate in an attest engagement or have managerial positions in offices that participate in a significant portion of an engagement

•           All entities controlled by a firm or by members acting individually or together

Under those rules, for example, every partner in a firm was proscribed from having specified financial, employment, and certain other business relationships with every one of the firm’s attest clients. The rules required this even if the partner had no contact with an attest client or with individuals associated with the attest client or the attest engagement. The rules also proscribed certain relationships between attest clients and members’ spouses, dependents, and other close relatives. For example, a member’s spouse was prohibited from having a financial interest in an attest client if the member was a partner of the firm. This was so even if the partner was located in an office hundreds of miles from the office performing that client’s engagement and he or she had no involvement in, or influence over, the engagement at all.

To determine the individuals and entities to whom the new independence rules should apply, the Committee evaluated the significance of threats to independence posed by those relationships. Its initial conclusion was that the old rules prohibiting relationships between every member and every attest client of the member’s firm were too broad because the significance of the threats for different types of individuals and entities that met the rules’ definition of member varied greatly. The Committee decided to analyze those threats and develop new rules proscribing those relationships posing an unacceptable risk of impairing independence. In doing so, the Committee considered both independence of mind (that is, an individual’s ability to make objective decisions) and independence in appearance (that is, whether a reasonable person aware of all the relevant facts would conclude that independence of mind is not impaired). Initially, the Committee considered the work of the ISB, which originated the engagement team concept; later, the Committee also monitored the SEC’s rulemaking activities, which carried forward this concept.

. The new rules refer to an individual or entity in any of the following categories as a covered member with respect to a specific attest engagement:

• “An individual on the attest engagement team.” The Committee concluded that the most significant threats to independence are posed by relationships between attest clients and individuals in a firm who are closest to the engagement—those who perform attest services for those clients.

• “An individual in a position to influence the attest engagement.” Although these individuals are not on the engagement team, they may be able to influence decisions made during the engagement, the performance of the engagement team members, and therefore, its outcome. For example, a firm’s managing partner—the individual who typically oversees all professional services rendered by the firm—makes decisions that directly affect engagement team members and possibly the outcomes of attest engagements. Likewise, a firm’s regional audit and attest partner or partners make decisions that may affect attest engagements in their particular region. Individuals who evaluate performance or approve compensation of audit or attest partners and individuals who perform or oversee quality control engagements (for example, as part of a firm’s internal monitoring procedures) may also be able to influence those engagements.

• A partner or manager who provides 10 or more hours of nonattest services to the attest client.[1] Individuals in this category may have significant interaction with engagement team members and attest clients. For example, a partner who provides 40 hours of tax services to an attest client may discuss areas of shared concern with individuals on the engagement team[2] and, therefore, may be in a position to affect decisions made on that engagement.

• “A partner in the office in which the lead attest engagement partner primarily practices in connection with the attest engagement.” These individuals may appear to affect attest engagements because of their physical proximity to lead engagement partners, which gives them a greater opportunity to have regular professional interaction with those partners.

• “A firm, including the firm’s employee benefit plans.” The Committee concluded that a firm as an entity, as well as a firm’s employee benefit plans, should be subject to the same independence rules as individual owners of the firm. A firm’s name (not an individual owner’s name) appears on attest reports, and the public relies on that name to add credibility to clients’ financial information. Because a firm’s employee benefit plan is typically created by the firm and operates for the benefit of the firm’s owners and employees, the Committee concluded that those plans should adhere to the same independence rules that apply to firms.

• “An entity whose operating, financial, or accounting policies can be controlled…by any of the individuals or entities described above or by two or more of those covered members acting together. ” Being controlled by a covered member (or members), the Committee decided that these entities should be subject to the same rules as any other covered member.[3]

Evaluating based on deontological ethics perspective and Christian world

Professional Conduct is about integrity and independence. One of the rules about integrity and independence says, “Integrity requires a memberto be, among other things, honest and candid within the constraints of clientconfidentiality. 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”. (AICPA, 2016) The Bible speaks about Integrity in Proverbs 11:3 which says, “The integrity of the upright guides them, but the unfaithful are destroyed by their duplicity”. This verse reminds us.

God is always watching and we always need to live by his rules set before us or we will be “destroyed” for being “unfaithful”. Integrity is very important in any profession and everyday life. Another one is public interest principle which says “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