Professional Responsibilities

AICPA Code of Professional Conduct has a set of specific mandatory rules describing minimum levels of conduct a member must maintain as a CPA Profession has a responsibility to the public. AICPA Code of Professional Conduct expects the CPA to honour public trust

Rules that are mandatory for all members are :

(a) Integrity and Objectivity

(b) General Standards

(c) Compliance with Standards

(d) Accounting Principles

(e) Acts Discreditable

(f) Forms of Organization and Names

Rules that are mandatory for members in Public Practice only are :

(a) Independence

(b) Confidential Client Information

(c) Contingent Fees

(d) Advertising and other form of fees

(e) Commission and Referral Fees 

[1] Independence

Member in Public practice must be independent as required by standards setting bodies (AICPA, SEC, PCAOB, GAO)

– Independence in Mind (Intellectually Honest)

– Independence in Appearance (Free from any obligation to or interest in the client, management or owners)

Independence is impaired if Covered member has certain interests or relationships

Covered Member

Below are considered to be covered members:

1. Individual on an attest engagement team or who can influence the engagement
2. A partner or manager who provides at least 10 hours of non attest services
3. A partner in the office where the lead engagement partner primarily practices in relation to the engagement
4. The accounting firm
5. An entity that can be controlled by foregoing parties

Impairment of Independence

A covered member MUST NOT

1. Have a direct financial interest in the client, even if immaterial
2. Have a material indirect financial interest in a client
3. Loans to or from an attest client or its officers, directors, or 10% (or greater) owners during the period of the engagement
4. Trustee of a Trust or Executor of an estate that has a direct or material indirect interest in a client
5. Have a material joint, closely held investment with a client
6. He / family member is associated with the client as an officer, diector, manager, employee, promoter or underwriter
7. His close relative holds key position with the client
8. Has financial interests in non clients having investor or investee relationships with the client

Materiality is determined by aggregating the interests of the covered member and his / her immediate family

Independence is not impaired by Grandfathered unsecured Loans that are not Material to the covered member’s net worth or secured loans provided that the loans were obtained from a financial institution under its normal lending procedures, terms and requirements

Permitted Loans

Loans obtained under the normal lending procedures, terms and requirements:

1. Automobile Loans
2. Loans fully collateralized by the cash surrender value of insurance / cash deposits
3. Credit Cards with aggregate outstanding balance of $5,000/- or less by the payment due date (SEC permits credit card balance upto $ 10,000)

 Firm’s Independence is impaired if :

1. Firm partner or professional employee owns more than 5% of a client
2. A former partner or professional employee of the firm is employed by or associated with attest client in key position
3. Non attest services are performed for an attest client

Firm’s Independence is NOT Impaired by providing the following services:

1. Consulting Services
2. Tax Preparation and Compliance services
3. Business risk advising service
4. Providing general advice based on audit findings

Independence is NOT Impaired for ATTEST engagements of NONISSUERS  by :

1. Providing book keeping service
2. Prepare client financial statements based on information in a Trial Balance
3. Payroll Processing
4. Record keeping functions

Independence is NOT impaired if :

• Member in Honarary Position is associated with FS of a not for profit organization that he allows to use his name in the letterhead. He cannot vote or participate in board or management decisions
• Independence is not impaired when the litigation is not related to the work product and is not material eg. dispute over billing
• If the CPA has been retained as the auditor of the credit union of which CPA is  member, his independence is not impaired
• Auditors checking account which is fully insured by the federal agency which is held at a clients financial institution – auditor is considered independent
• Being an advisor to the client’s Board of Trustees does not impair an auditors independence
• Independence is not impaired when a bank subsidiary in the consolidated group provides asset custody services in the ordinary course of business to an attest client of a new CPA Firm
• Designing of an information system that is unrelated to the accounting records does not impair auditor independence

Unpaid fees owed by attest client to a covered member for professional service may impair independence.

[2] Integrity and Objectivity

Member shall :
a) Maintain Objectivity and Integrity
b) Free of Conflicts of Intersts
c) Not knowingly misrepresent facts
d) Not subordinate his / her judgements to others

[3] Professional Standards

 A member shall :
a) Take Services which he can complete with Professional Competence
b) Exercise Due Professional Care
c) Adequately Plan and Supervise performance
d) Obtain Sufficient relevant date to provide reasonable basis for conclusion
* Compliance with standards
* Accounting Principles

[4] Other Responsibilities

 Acts Discreditable :
1) Failure to return records upon requests
2) Discrimination and Harassment
3) Failure to follow the requirements of governmental bodies
4) Failure to follow applicable audit standards

Response to Requests for Records :
Client provided records must be returned even if:
a) Fees have not been paid
b) The state in which the member practices grants a lien on certain records

Type of Record                   Right to Withhold
Client provided record             None
Working Papers                         Absolute
Member prepared Records     If fee due
Supporting records                   If fee due

Advertisement and Other Forms of Solicitation
Member shall not seek to obtain clients by advertising or other forms of solicitation done in false, misleading and deceptive manner

Contingent Fee
Receipt of contingent fee is prohibited when auditors report will be used by third parties and the report does not disclose CPA’s lack of independence

Member shall NOT prepare for a contingent fee:
a) Original Tax Return
b) Amended Tax Return
c) Claim for a Tax Refund

Fees are not considerd to be contingent if :
a) They are fixed by public authorities  (eg. courts)
b) In tax matters, they are based on the results of judicial proceedings or the findings of governmental agencies  

[5] Other Pronouncements on Professional Responsibilities

Sarbenes-Oxley, PCAOB and SEC :
[1] Preapproval of Services : 1) Audit Committee must preapprove the services performed by accountants.
[2] Disclosure of Fees : An issuer must disclose in its proxy statement or annual filing fees paid for the accountant segregated into 4 categories : 1) Audit ; 2) Audit related ; 3) Tax ; 4) All other
[3] Rotation of Partners : The lead and concurring (reviewing) partner must rotate every 5 years with a 5 year time out period
Other partners must rotate every 7 years with a 2 year time out period
Auditors to maintain their audit working papers for 7 years
[4] Communication with Audit Committee : 1) All critical accounting policies and practices to be used ; 2) All material alternative treatments of financial information within GAAP discussed with the management ; 3) Ramification of the use of alternative disclosures and treatments  ; 4) Treatment preferred by the accountant
[5] Material Departure from GAAP : is permitted when a) The financial statements or data would have been misleading without a departure from GAAP due to the unusual circumstances / new legislation or evaluation of a new form of business transaction exists
[6] Prohibited Non Audit Services : The firm is prohibited from certain non audit services to their attest clients, including 1) Management services ; 2) Booking ; 3) HR ; 4) Internal Audit ; 5) Appraisal or Valuation ; 6) Expert services ; 7) Broker-Dealer ; 8) Designing and Implementing financial information system ; 9) Investment banking or advisory ; 10) Hosting service ; 11) Expert witness
Conflict of Interest may be permitted in certain circumstances if DISCLOSURE is made to and CONSENT  is obtained from the appropriate parties
[7] Audit Committee : Each member of the audit committee MUST BE INDEPENDENT member of the BOD and directly responsible for appointing, compensating and overseeing the work of the auditor and must have one member designated as financial expert