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"Code of Professional Ethics by American Institute of Certified Public
Accountants."
Introduction
"A code of professional ethics is a voluntary assumption of self discipline above and
beyond the requirements of the law. The Code of Ethical Conduct serves the highly
practical purpose to notify the public that the profession will protect the public
interest" (Carey, Doherty: p 3). When people need a doctor, a lawyer or a certified
public accountant, they seek someone whom they can trust to do a good job, not for himself
but for them. People assume that the hired professional is qualified since they cannot
appraise him. They must take it on faith that he is competent. That is why professionals
are distinguished from businesses and why there is a need for ethical regulations.
The Code of Professional Ethics
The Code of Professional Ethics for public accountants was developed by the American
Institute of Public Accountant and includes four different categories. The first, Concepts
of Professional Ethics, establishes major requirements for CPAs in different areas of
their day-to-day professional activities. The main parts of the Code are: Independence,
Integrity and Objectivity in the practice of public accounting, Competence and technical
standards, Responsibilities to clients, Responsibilities to colleagues and Other
responsibilities and Practices.
Independence has always been the fundamental concept to the accounting profession. In fact
it is the most essential to the practice of all professions. The financial reports
produced by CPAs would be of little value to the public unless CPAs maintain their
independence. Independence has always been associated with integrity and objectivity.
Since faults on financial statements may be the result of either a honest mistake or a
lack of integrity it is imperative to associate the notion of independence with the
objectivity and integrity.
As part of the requirements by the Code of ethics, CPA should avoid any relationships that
may result in the CPA’s becoming dependent on the particular client. Such
relationships include financial interests and client management. It is very important that
the opinion of the CPA reflects the results of operating decisions taken by the client and
not any underlying ideas which may be the case if a CPA takes part in the decision making
process of the company.
Another important issue discussed in the Code of ethics is competence
and responsibility of CPAs. It establishes a basic ethical obligation that a CPA shall not
render any services which he is not competent to render. Within this topic, the code
mentions continuing improvement of the competence of CPAs in all areas in which they
engage. In fact, the requirements of competence are established by law. If a man renders a
service he is not familiar with, he commits a fraud on the public (However, CPAs are
supposed in a reasonable manner to carry this principle beyond). The code of ethics
assumes that in situations where CPAs face a problem he/she is not familiar with, they may
ask other practitioners for help. A CPA may drop the case only when his/her efforts prove
to be futile. From the other standpoint, there are always unknowns in every profession.
Thus, to assume that every practitioner is completely knowledgeable would be inaccurate.
Responsibilities to Clients include CPAs’ maintaining their
independence, integrity and objectivity regardless of any personal interest that
previously exists. CPAs should hold in confidence, all the information about their clients
which they acquire during engagements. However the Code states that CPAs should insist on
disclosing in financial reports, all information necessary for the fair presentation of
the clients’ affairs.
The accountancy laws in some states of the USA contain provisions which do not require
disclosing information obtained during engagement by accountant in any court. These
clauses directly interfere with federal jurisdiction. Federal courts have held that a
"state statute conferring privileged status on communications to accountants does not
apply to a Federal administrative proceedings" (Carey and Doherty: p. 133) and may
require disclosure of the information by CPA.
With reference to the Responsibilities to Colleagues, good relations within a profession
are very important because they aid in the exchange information and opinions. "The
public confidence in professional accounting is gained mainly by cumulative
accomplishments of all CPAs" (AICPA, Section 55, article 01). Successful
professionals in accounting do not hide secrets from what they have learned from their
experience. They share their ideas with other practitioners who 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 ethics and
disclosing cases of its enforcement.
Basically, the principles of responsibilities to fellow practitioners described in the
Code do not establish the limits of professional conduct. They define the area and basic
foundations of the professional courtesy.
Finally the code defines general principles of ethical conduct for professional
accountants. These responsibilities are not discussed in other parts of the Code but they
underlie all ethical principles mentioned in the text of the Code. They establish basic
regulations of rivalry inside the profession and also establish the ethical obligation of
CPAs to clients in determining fair fees for their services, and other principles.
The foundation of public accounting is the client confidence and those people who are
using financial statements produced by CPAs. To keep the confidence of clients, CPAs shall
maintain their independence and objectivity. The standards of independence require that
the CPA does not subordinate his judgement on to that of the client keeping in mind that
there are other CPAs who are knocking at his client’s door. One of the other
principles mentioned in the Code is the renunciation of promotional methods of the
commercial world which increase the pressure on CPAs and will lead to conformity with the
letter of the code evading its spirit.
CPA shall not be involved with business activities that are incompatible with the practice
of public accounting. These activities include selling securities because this may include
promotional activities for a public accounting practice and consequently negatively
influence the independence of CPAs.
The next category of the Codes of professional ethics include Rules of Conduct which
establish more detailed regulations of the principles described in the first part of the
Code. These rules become effective only after approval of the membership. A member who is
found guilty in enforcing Rules of conduct may be expelled or suspended by the Trial
Board. The Rules of conduct have four major parts as mentioned in the first part of the
Code under the Concepts of Professional ethics. Each section of the Rules of Conduct has a
subset of particular cases given under Ethics Rulings.
In addition to the standards described above, state CPA institutions and other government
establish their own ethical standards.
Conclusion
Professional ethics is concerned with human behaviour and human relations. As human
society becomes more complicated, so do the codes of professional conduct. The purpose of
the rules is to attract and increase public confidence and discourage behaviour
inconsistent with the image of profession. Public confidence may even be more important to
the public accountant than to any other professional because CPAs are concerned not only
about their clients but also about those who rely on their reports. The code of ethical
conduct provides members of the profession with the rules that were worked out on the
historical basis to attract the confidence of the public. Therefore, the rules of ethics
are the foundation of public confidence.
Works Cited
John L. Carey and William O. Doherty. Ethical Standards of the Accounting Profession.
New York: American Institute of Certified Public Accountants, 1966
American Institute of Certified Public Accountants. Code of Professional Ethics.
New York: AICPA, 1977
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