The nature of the work carried out by CPAs — including auditing, accounting, and tax services — requires a high level of ethics: current and potential shareholders, investors, lenders, regulatory agencies, and other users of an entity's financial statements rely heavily on those financial statements in order to make informed decisions about the entity.
From the 1980s to the present there have been numerous accounting scandals that were widely reported on by the media and resulted in fraud charges, bankruptcy protection requests, and the closure of companies and accounting firms. The insidious effect of unethical behavior by top management in major corporations has touched every American in some way, shape, or form. These stories remind us of how crucial it is that we strive for ethical decision-making and behavior in business overall, and specifically in the accounting profession.
CPAs, in particular, have significant ethical responsibilities they must meet in the day-to-day performance of their jobs. The AICPA, state boards of accountancy, state societies of CPAs, state statutes, and other regulatory agencies [such as the GAO, DOL, etc.] set forth ethical rules and regulations for their members or for CPAs who practice before them. As a result, all CPAs [not just members of the AICPA] are subject to such ethical requirements. The AICPA Code of Professional Conduct establishes the fundamental principles of professional ethics.
#1 Responsibilities:
Due to the important role they play in society, CPAs have a significant responsibility for the services they provide. This means working to cultivate the accounting profession, cooperating with peers in the industry, and maintaining public confidence in their ability to provide professional services.
#2 The Public Interest:
The AICPA defines the accounting profession's public as consisting of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of CPAs to maintain the orderly function of commerce. Every action taken by the CPA should work towards serving the public interest.
#3 Integrity:
Many times integrity is tested in the absence of clearly defined rules or expectations. The integrity of a CPA or any business person is measured by doing what is "right": it requires a CPA to observe both the form and the spirit of technical and ethical standards. In an effort to practice stringent integrity, it's important for a business person to live by the standard: do what is right, do what you think is right, do not do what you know is wrong.
#4 Objectivity and Independence:
Because the accounting profession provides the opportunity for financial gain stemming from client relationships, maintaining objectivity and independence is crucial. CPAs must be independent in both fact and appearance when providing auditing and other attestation services. This is achieved by applying the principles of integrity, responsibilities, and serving the public interest. But beyond this, accounting firms ensure the objectivity and independence of CPAs within their firms by requiring employees to review client lists for potential conflicts of interest and sign independence agreements, establishing quality control policies and procedures to deal with potential conflicts of interest and independence issues, and through a continual assessment of client relationships and public responsibility.
#5 Due Care:
CPAs are expected and obligated to practice accounting and provide professional services to the best of their abilities. This is achieved through continuing education, seeking consultation when needed, ensuring adequate planning and supervision, performing annual performance evaluations, and cultivating experience with inter-firm mentoring relationships.
Following the guidance of the law and the AICPA Code of Professional Conduct helps pave the path for ethical behavior not only in the accounting profession but throughout the business world. One of the most effective ways we'll see ethics permeate the business world is through respected leadership, of which we can strive to achieve by setting an ethical tone starting at the top.
At Delap, we're committed to the highest level of ethics and integrity. To learn more about how we can help your company, call 503-697-4118 or reach out to us through our website.
One of the key traits of a professional is adherence to a rigorous set of ethical guidelines. When someone veers too far from ethical standards, their trustworthiness and ju
Set Expectations
In the accounting profession, many organizations publish their own ethical guidelines. The codes of ethics and professional conduct from the Association of Certified Public Accountants [AICPA], the Chartered Institute of Management Accountants [CIMA] and the Institute of Internal Auditors [IIA] share several commonalities.
Some ethical codes, like the IIA’s, are succinct; others, such as the AICPA’s Code of Professional Conduct, are hundreds of pages long and require not only agreement for membership in the organization but also initial and periodic ethical examinations to maintain Certified Public Accountant [CPA] licensure.
Many states also enforce their own codes of professional ethics. State mandated ethics courses and examinations seek to ensure that CPA candidates and practitioners understand the state’s licensing requirements and other principles for recognition as a CPA in that state. For example, the study of ethics in accounting is part of Florida’s continuing professional education requirements for CPA license renewal under state statutes.
Purpose
Accountants deal with the intimate financial details of individuals and organizations. Some have the ability to execute million-dollar transactions, and others assist with safeguarding retirement funds of cab drivers and social workers.
Ethical codes are the fundamental principles that accounting professionals choose to abide by to enhance their profession, maintain public trust and demonstrate honesty and fairness. People who join organizations and secure the credentials to present themselves to the public as CPAs or Certified Internal Auditors [CIAs] strive to protect the reputation of the profession.
Sadly, not everyone who works in the accounting field is trustworthy. Daily violations of public and private trust occur, and resolving ethical dilemmas does not always end favorably. The following are five areas that deserve the attention of anyone considering working in the accounting profession.
- Independence and Objectivity
Ethics and independence go hand in hand in the accounting profession. A critical component of trust is making unbiased decisions and recommendations that benefit the client. Conflicts of interest, for example, demand exposure under independence guidelines. Benefiting from the sale of one financial product over another could lead to a bias that skews financial advice to a client.
To remain objective and independent, it is also necessary to ensure that recommendations are not subject to outside influence. An accountant’s professional judgment is compromised if they subordinate their judgment to someone else’s.
- Integrity
Demonstrating integrity means being straightforward and honest in all business and professional relationships. Upholding integrity requires that accountants do not associate themselves with information that they suspect is materially false or misleading — or that misleads by omission.
- Confidentiality
Disclosure of financial information or revealing the disposition of a potential merger by an accounting professional without express permission violates the trust that is the foundation of a professional relationship — unless there is a legal or professional reason to do so.
- Professional Competence
The field of accounting is regularly disrupted by various evolving factors, requiring that accountants develop new skills, competencies and agility in professional roles. As technology, information security considerations, legislation and best practices change, a professional accountant must remain up to date. To exercise sound judgment, an accountant must stay abreast of developments that could affect a decision’s outcome.
Practicing due care means recognizing your skill level and not suggesting that you have expertise in an area where you do not. Consulting with other professionals is a standard practice that helps to bond a network of individuals and generate respect.
Similar guidelines also apply to accounting professionals who have risen to leadership roles and supervise others. These accountants must ensure that the subordinates receive proper training and guidance as they carry out their responsibilities.
- Professional Behavior
Ethics require accounting professionals to comply with the laws and regulations that govern their jurisdictions and their bodies of work. Avoiding actions that could negatively affect the reputation of the profession is a reasonable commitment that business partners and others should expect.
Dilemmas and Case Studies
Most of the situations that people encounter every day result in clear outcomes that anyone following these five guidelines would expect. However, ethical decision-making is not always cut and dried.
- When a subpoena arrives requesting a client’s personal financial records, should you surrender them?
- The CEO tells your staff member to apply a credit from an overpayment on one account to a disputed account, should you allow it?
- If a sale at year-end occurs but is not executed before the cut-off date, should the revenue be recorded in the current or prior year? What if the goods were in transit? What if there was an oral agreement but not a signed contract?
- If your boss, another CPA, instructs you to record the transaction in the earlier year, what should you do?
Plus, financial considerations, government support, ongoing uncertainty and other factors surrounding the COVID-19 pandemic have compounded ethics pressures and dilemmas faced by accountants. There can be more questions than answers in these situations. Codified ethical principles help guide such challenging decisions — as does ongoing professional development and financial research.
Black and White
Blatant fraud, theft and corruption may make better movies and front-page news stories, but accountants’ daily work involves much more subtle ethical situations. Decision-making doesn’t always come down to “yes” or “no.” The fine line between the two is subject to interpretation and will make up the bulk of the encounters that accountants face during their careers.
Ethics in accounting includes both strict adherence to guidelines and careful assessment of unique situations where professional judgment is necessary. Understanding the ethical frameworks for independence, integrity, confidentiality and professional competence can guide decision-making and help preserve the reputation of the field.
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