1. The assurance of accurate and ethical
accountancy is essential in running a capital market system. The public (investors, lenders, insurers,
customers, etc.) must be able to rely on a company’s financial statements
in order make sound decisions for investment, lending and general commerce. Accountants/auditors must be able to produce objective,
reliable and accurate financial statements for the use of the public. Without the reliability of accurate financial
statements and the trust of the public, our capital markets could not exist in
any successful way.
2. The American Institute of Certified
Public Accountants (AICPA) developed the “AICPA Code of Professional Conduct”
and it consists of six main Principles that provide the framework for the Rules of Professional Conduct. These rules are the enforceable requirements under
the AICPA Code. The code also includes Interpretations
of those Rules, which provide guidelines for the applicability of the
rules. In addition, the Code also contains
a series of threats and safeguards that pertain to each rule that help guide
the professional through expected situations.
3. The Principles are general values and fundamental
beliefs to guide accountants in the way they conduct their business. Generally, they are considered the framework
for the Code and they illustrate the profession’s responsibilities to the
public. Rules of Professional Conduct are
a more structured and detailed guide to the implementation of the core
4. Independence, objectivity and integrity
are all crucial aspects of the Code of Professional Conduct. Independence requires the professional to be
independent in the performance of services, meaning there must not be any other
professional or familiar relationship with the client that may influence the
outcome of the accountancy work. The
professional must be independent in mind and in appearance. The rule of Objectivity and Integrity refer to
the members ability to maintain their professional judgment and not let others
influence or change their results. This
rule also states that the professional may not knowingly misrepresent information
pertaining their client or their to the work.
5. If investors did not perceive financial
statement auditors has having independence, objectivity and integrity and
therefore didn’t trust the information provided on financial statements, our
capital market system would deteriorate.
Accurate and dependable information is the basis of all commerce in our society.
The decisions investors, loan officers,
customers, oversite committees, competitors, etc. are all dependent on the
information provided in financial statements.
To be able to accurately compare financial statements with in industries
is also important in a capital market system.
6. The Financial Accounting Standards Board
(FASB) creates the Generally Accepted Accounting Principles (GAAP) used throughout
the accounting industry to create accurate and standardized financial statements. All publicly traded companies within the US
are required to use GAAP rules and standards.
Accountants apply GAAP through FASB pronouncements referred to as
Financial Accounting Standards (FAS). Many
other boards like The Financial Accounting Standards Advisory Councils (FASAC),
the Accounting Standards Committee (AICPA), the Accounting Principles Board (APB)
and the Committee on Accounting Procedure (CAP) have either helped to create
and/or influence FAS pronouncements.
7. The main difference between parts 1 and
2 of the AICPA Code of Professional Conduct is that the part 2 of the Code applies
to members of business (industry or government) and therefore the independence rules
do not apply. One cannot be independent in
this scenario because they are employees of a business.
8. If a CPA were required by a subpoena or
court order to produce confidential client documents, the CPA would not be in violation
of the Confidential Client Information Rule if reporting an illegal act that is
material to the financial statements and the board of directors have not taken appropriate
action to correct the violation.
9. If a CPA were to anticipate that their
work might be subjected to a subpoena, they might ask that a lawyer be present
for the work. Unlike accountants, that
have confidential communication with
their clients, lawyers have privileged
communications with their clients. These
privileged communications are protected
from subpoenas or court orders by law.
10. Yes, a CPA may charge a contingent fee base
on consulting services to help reduce a client’s energy usage as long as none
of the services in part 1 of the Contingent Fees Rules is performed.
11. No, I don’t believe that a CPA could
provide expert witness testimony on behalf of a plaintiff without violating the
Contingent Fees Rule. In order to do
this, the CPA would have a vested interest in the outcome of the ruling and therefore
would not be objective in the testimony.
12. Mr. Gable failed to enroll his firm in a
peer review program in the state of Missouri.
Mr. Gable’s AICPA membership was suspended for two years, his license is
place on probation for five years, directed to pay a $1,500 penalty, and
complete the AICPA’s ethics course entitled “Professional Ethics: The AICPA’s Comprehensive
Course” with a score of 90% or better.