Code of Professional Ethics and Conduct
The American Institute of Certified Public Accountants (AICPA) is a professional organization charged with the responsibility of setting ethical standards for professionals in the accounting professional. It also set auditing standard for private firms, non-profit making companies, federal state and local authorities. AICPA has developed a professional code of conduct, which is enforced by the professional ethics executive committee.
The AICPA requires all members to comply with its code of professional conduct. The code of conduct regulates the actions of CPAs and disciplines those who violate it. This paper will highlight examples of real cases of CPAs who violated different codes and the disciplinary actions taken against them. I will also express my view with reasons, on the disciplinary actions and how the IACPA can prevent such actions in the future (Jeffrey, 2011).
Rule 102 of this code of conduct deals with integrity and objectivity. This rule states that in the performance of professional duty. Moreover, a member should maintain objectivity and integrity. Members of the accounting profession should avoid conflicts of interest and intentional misrepresentation of information to subordinates his or other people. An example of a case that demonstrates this rule and how it was violated is the Fischman Myrna – New York, NY. In this case, Ms. Fischman failed to disclose her conflict of interest with regard to submission of an unsubstantiated request for reimbursement to an organization in which she volunteered while as an Executive Member of the same organization. Specifically, she approved and participated in the submission of an unsubstantiated request to the organization for payment of the organization’s use of facilities at a university where she was the accounting department chair. This shows clearly that there was a conflict of interest as Ms. Fischman was actively involved with both parties. This was a violation of rule 102 on integrity and objectivity (Duska and Duska, 2011).
Ms. Fischman was found to have violated rule 102 and entered into a settlement agreement with the ethics charging authority where the following was agreed upon. Her membership in the AICPA was suspended for two years, provided she agreed to comply with the relevant professional standards applicable to the professional services (McPhail, 2013).
The decision taken against Ms. Fischman was appropriate as she ready to comply with the code of ethics and serve a two year suspension. The AICPA can increase the punishment for violation of this rule to prevent further professionals from violating it. In addition, it can also carry out regular audit on members to establish if the conflict of interest rule is violated.
Rule 201 deals with matters of professional competence. This rule states that a member who agrees to carry out professional services for a client must have the competence to complete the services according to professional standards.
In the case of Allegretti Anthony T. – North Providence, RI, Mr. Allegretti was accused of violating the professional competence rule. He was providing audit services by auditing financial statement of an employee benefit plan for the year ending 31st march 2007. An investigation revealed several errors in the work performed by Mr. Allegretti. The errors proved that Mr. Allegretti the auditor in this case lacked the professional capability to deliver on his role as an engagement partner.
The disciplinary action taken by the ethics authority against Mr. Allegri for violation of this rule was ordering him to take a forty- nine hour Continuing Professional Education (CPE) program for one year. This was to ensure he complied with the professional competence rule.
In my view the disciplinary action taken was legitimate for the violation as after doing as instructed, Mr.Allegretti would be competent enough to carry out his duties as required. I also think a severe punishment would prevent further violations by other professionals. The AICPA should inform clients to confirm that the professionals they hire are certified by professional bodies to prevent such violations.
Rule 202 deals with compliance with standards. This rule states that a member who performs professional services such as inspection, review, assemblage, managing, consulting tax or other professional services shall comply with standards set by bodies designated by the council.
A case example of violation of rule 202 was the case of Settles Thomas E. – Monteagle. In this case, Mr. Settles was accused of violating the compliance with standards rule with regard to preparation of his returns and his performance of professional tax returns. The ethics charging authority established that Mr. Settles failed to comply with statements on standards for tax services when filling his returns for years 2000 and 2001 federal income tax returns (Duska and Duska, 2011).
The disciplinary action taken by the ethics charging authority against Mr. Settles was a requirement for him to comply immediately with professional standards applicable to professional services and his AICPA membership was terminated in light of these findings.
I agree with the termination of his AICPA membership, but the disciplinary action of asking him to comply with professional standards was not practical as there was no way to regulate his actions. This is because his membership had already been terminated. The punishment would have served to temporarily stop him from practicing, so as to instill some professional discipline in him.
To counter violation of this code of conduct in the future, the AICPA should provide a detailed description of the standards expected of a profession in writing. AICPA should also outline the penalties of failing to comply with the codes of conduct.
Rule 501 of the AICPA deals with acts discreditable. This code states that a member shall not commit an act discreditable to the profession. The interpretation of this rule is that members must comply with the rules and regulation of authoritative regulatory bodies such as member’s state board of accountancy. CPAs are required to maintain confidentiality of information obtained from employers. Additionally, CPAs are prohibited from disclosing information to people who are not subject to the professional’s ethics code (Jeffrey, 2011).
A case example of how this rule was violated and the disciplinary action taken was in the case of Szabo, Craig A. – Calabasas. In this case, Mr. Szabo performance with respect to the provision of professional services to a client in the audit of employee benefit plan was questioned. Mr. Szabo was found to have violated rule 501 when communicating with his peer review as part of the audit process in 2008. Mr. Szabo was found to have misrepresented the composition of his practice. As a result, he failed to obtain an appropriate peer review (Allen and Ramos, 2008).
The disciplinary action taken against Mr. Szabo was that he was prohibited from carrying out any peer reviews in any capacity until he complied with several directives that were issued to him. These directives included completing thirty five hours of specified continuing professional education within twelve months from the day of delivery of his judgment. Moreover, he was required to submit evidence of certifying completing this course. Mr. Szabo was also suspended by the AICPA for a period of two years. He was also asked to comply immediately with professional standards applicable to the professional services and to supply evidence of compliance.
I agree with the disciplinary action against Mr.Szabo as I believe was severe enough to correct his mistakes. The severity of the disciplinary action would discourage other employees from committing similar mistakes in the future.
To prevent this type of breach of conduct by CPAs, the IACPA should take several measures. FirstIACPA should ensure that all CPAs are conversant with acts that are discreditable in the accounting profession.in addition to this the CPAs should be made aware of consequences of violating this code of conduct so that they avoid violating the code.
Accounting, like any other profession should be regulated with codes of professional conduct to protect the profession’s reputation from unreliable and careless people. The American Institute of Certified Public Accountants is one such body that regulates and accounts for work done by CPAs. The professional code of conduct that was developed and is enforced by AICPA is important in keeping CPAs in check. As shown above, the disciplinary actions taken by the body on those who violate the code of conduct make sure that violations are less rampant (McPhail, 2013).
Allen, C., and Ramos, M. (2008). Professional Ethics: the AICPA’s Comprehensive Course (Rev. Ed.). New York, NY: American Institute of Certified Public Accountants.
Duska, R., and Duska, B. (2011). Accounting Ethics. Malden, MA: Blackwell Pub.
Jeffrey, C. (2011). Research on Professional Responsibility and Ethics in Accounting. Bingley, England: Emerald Group Pub.
McPhail, K. (2013). Accounting Ethics. Los Angeles, Calif; London: SAGE.