Streamlining Ethics Enforcement

It’s time the profession sped up the ethics enforcement process and let the public see how it works.
BY LISA A. SNYDER

EXECUTIVE SUMMARY
THE AICPA’S ETHICS ENFORCEMENT PROCESS must be swift and open to outsiders’ scrutiny if the profession hopes to maintain public confidence.

IF A STATE BOARD OF ACCOUNTANCY suspends, revokes, withdraws or cancels a member’s certificate, permit or license to practice public accounting, the AICPA automatically suspends or terminates his or her membership, as in the current process. But if the state board instead metes out any other disciplinary or remedial sanction or penalty, the PEEC then investigates the member. On average, that takes roughly 18 months. The AICPA is proposing that, in such cases, it automatically discipline the member instead of conducting another investigation.

WHENEVER A GOVERNMENT AGENCY such as the SEC, or other organization authorized to regulate accountants, takes action to, for example, publicly restrict or prohibit a member from practice before it, the PEEC must conduct its own investigation of the member. A new proposal would have it automatically suspend or terminate that individual’s membership.

UNDER CURRENT RULES, members have the right to appeal the automatic provisions of the bylaws but the PEEC does not. The AICPA therefore is proposing that the PEEC be permitted to appeal to the joint trial board, asking that the automatic provisions not become operative and that instead the PEEC be given permission to investigate the matter.

COMPLAINANTS CURRENTLY ARE NOTIFIED of the end of an investigation but not its disposition. The AICPA is proposing that complainants be informed of the results of its investigation, including remedial or corrective action taken, if any.

WHEN REPORTS OF DISCIPLINARY MATTERS are published, they reveal only the member’s name, city and state of residence and a description of the charges and terms of the settlement agreement. The AICPA is proposing that the PEEC have the flexibility to disclose additional information about a matter investigated, subject to the council’s review and approval.

LISA A. SNYDER, CPA, is director of the AICPA professional ethics division. Her e-mail address is lsnyder@aicpa.org . Ms. Snyder is an employee of the AICPA and her views, as expressed in this article, do not necessarily reflect the views of the Institute. Official positions are determined through certain specific committee procedures, due process and deliberation.

n mid-2001, well before the media focused on Enron and its independent auditors, the Institute’s professional ethics executive committee (PEEC) had established a task force to evaluate the AICPA’s disciplinary process and develop recommendations to improve it. This article explains the latest developments in the PEEC’s latest developments in the PEEC’s efforts, what they mean to the profession and how individual practitioners can support them in an upcoming member referendum.

In May and October 2002, representatives of the PEEC presented the AICPA council with several proposals aimed at strengthening ethics enforcement to help restore public and regulator confidence in the profession. Based on the council’s response, the PEEC implemented a more transparent system, making it easier for observers to determine what sanctions, if any, the AICPA had imposed on a member. For example, to make it simpler for readers to trace an AICPA action to a publicly reported matter, the PEEC will add—to notices it publishes of disciplinary actions against members—information that already is a matter of public record, for example, the number of the SEC’s accounting and auditing enforcement release, where applicable. And from now on, all members whose names are published in The CPA Letter as a result of an AICPA disciplinary action also will be named in the national edition of The Wall Street Journal on a periodic basis.
The PEEC implemented a more transparent system of ethics enforcement, making it easier for observers to determine what sanctions, if any, the AICPA had imposed on a member.

ADMONISHMENT SANCTION
At the council’s spring 2003 meeting, the PEEC presented three more enforcement-related proposals. Following extensive deliberation, the council approved them. One proposal, which required approval by the council only, is effective already. It enables the PEEC to publicly admonish an AICPA member who has violated the Code of Professional Conduct when other sanctions—whether more restrictive (suspension of membership) or less so (issuance of a private letter of required corrective action)—are inappropriate. Adoption of this proposal aligns the Institute’s approach to discipline with that of other bodies, including the joint trial board and state and federal regulators. But the other two proposals, described below, need approval from the membership before they can be implemented. In late August or early September, therefore, members will receive information and ballots for use in a referendum on these issues.

AUTOMATIC SANCTION
This proposal would establish an ethics enforcement policy allowing the PEEC to automatically sanction without an investigation an AICPA member who has been disciplined by a government agency or other organization authorized to regulate accountants and approved and designated to do so by the AICPA board of directors. Examples are the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB). (Note that, as a result of certain criminal or income-tax-related violations or state board of accountancy actions, the AICPA bylaws already give the PEEC the ability to impose an automatic sanction against a member without an investigation or hearing.)

This proposal would protect the CPA hallmark and members in good standing by making the AICPA’s enforcement process more timely while ensuring that members under investigation have an opportunity to present a defense.

Clearly the AICPA needs a mechanism to discipline its members when warranted. But the PEEC should be able to rely on the disciplinary actions of state boards of accountancy and certain board-approved bodies without having to perform a full investigation. Conducting an investigation is a time-consuming process requiring significant resources, and some ask why the AICPA investigates matters already considered by entities whose disciplinary systems offer Institute members appropriate due process. Moreover, the current system often subjects members to multiple investigations (for example, by the SEC, state board of accountancy and the AICPA). These issues are examined in greater detail below.

What’s Up for Vote
Automatic sanction. State boards of accountancy, government agencies and other organizations routinely discipline AICPA members. Under current AICPA ethics enforcement procedures, if the state board suspends or revokes a member’s license to practice, the AICPA automatically suspends or expels the member. But if the state board takes any other disciplinary action or another regulator acts against the member, the PEEC then conducts an investigation that lasts, on average, 18 months. Following that investigation, the AICPA may take disciplinary action against the member, if warranted. Meanwhile, complainants wonder what’s taking so long. The proposal on automatic sanctioning would speed up the process by triggering immediate enforcement action corresponding to that of agencies and organizations authorized to regulate accountants. This would improve public confidence in the AICPA’s ability to swiftly and effectively enforce its Code of Professional Conduct.

Enhanced transparency. When an ethics enforcement procedure is finally completed, complainants are notified that the matter is settled but not told how. The proposal on transparency would better publicize and explain the process, strengthening the public perception the AICPA is ready and able to hold its members to the highest professional standards.

State boards of accountancy. Today, if a state board of accountancy suspends, revokes or cancels a member’s certificate or license to practice public accounting, the AICPA automatically suspends or terminates the member’s AICPA membership without an investigation. But if the state board metes out any other disciplinary or remedial sanction or penalty (for example, censure/admonishment, monetary penalty or cease and desist order), the PEEC must conduct its own investigation and determine appropriate sanctions. The proposal calls for automatically disciplining the member by means of a sanction that is commensurate with the state board action, thereby obviating any additional investigation. The proposal requires the PEEC to develop—and the AICPA board of directors to approve—specific sanctioning guidelines for this purpose.

Approved government agencies and other organizations. Currently, whenever a government agency, such as the SEC, publicly restricts or prohibits a member from practice before it or another government agency or from serving as an officer, director or trustee of any entity, the PEEC must conduct its own investigation. Under the proposal, if the government agency sanctioning the member has in place a disciplinary mechanism the PEEC and board of directors have approved, the member would not be subject to another investigation by the AICPA. Instead, it would automatically discipline him or her commensurately. For example, if the SEC suspended a member from practicing before it for two years, the AICPA would automatically suspend him or her for that same period. If the agency meted out any other disciplinary or remedial sanction or penalty, the AICPA (that is, the PEEC) would automatically discipline the member but would base its sanction on an evaluation of publicly available information and the specific guidelines the PEEC had developed and the board of directors approved.

Under the proposal, for automatic sanctions to apply, PEEC- and board-approved organizations other than government agencies would have to be authorized by law to regulate accountants, as the PCAOB is. But the PCAOB has not yet formally established its enforcement policies and procedures. So, when they are in place, the PEEC and the AICPA board will have to determine whether they constitute an acceptable disciplinary mechanism.

Member appeal process. As is the case with the existing automatic provisions of the bylaws, a member automatically sanctioned under the new process would have the right to appeal, as with all disciplinary actions taken by the PEEC, to the AICPA joint trial board, requesting that the automatic discipline provisions of the bylaws not become operative. If the trial board grants the member’s request, the automatic discipline against him or her would not take effect, and the matter would be referred to the PEEC for investigation. If the trial board denies the member’s request, the automatic discipline would take effect. Therefore members have suitable protection and recourse to appeal if they believe the action of the disciplinary body, the state board or the PEEC was unjust or unwarranted.
Recent PEEC Proposals to Council

Proposal Council vote
Admonishment sanction Approved; member vote not necessary.
Automatic sanction Approved for member vote.
Enhanced transparency Approved for member vote.

PEEC appeal process. AICPA members have always had the ability to appeal the application of automatic disciplinary actions; the PEEC, however, has not. Under the proposal, the PEEC also would have the ability to request that the joint trial board not impose an automatic sanction. For example, in a case where an approved government agency has suspended a member from practice before it, but the PEEC believes—based on its review of the publicly available information—either that the matter was egregious enough to warrant expulsion from the AICPA or alternatively that the agency’s sanction was too harsh, it may appeal. If the joint trial board grants the PEEC’s request, the automatic disciplinary action against the member would not become operative and the PEEC would conduct a full investigation of the matter. If the request is denied, the automatic disciplinary action would take effect.

Expected benefits. This proposal would significantly improve the effectiveness of the current ethics enforcement process in a number of ways. It would

Eliminate putting AICPA members through the investigative process a second—and sometimes third—time when the AICPA believes the state board or an approved disciplinary body has given the member due process.

Protect members’ rights by enabling them to appeal the matter in cases where the state board’s or approved disciplinary body’s action was unfair or excessive.

Permit the PEEC to sanction members in a more timely manner. The disciplinary body would take action and make it public immediately instead of waiting until the PEEC’s investigative process is complete—on average, 18 months later.

The proposal also would bolster AICPA members’ confidence that they belong to an organization that has the highest professional standards and takes decisive action against those not meeting them, and it would enable AICPA staff and ethics committee members to focus on other investigations and ethics projects.

AICPA Web Site Focuses on Proposals
A new “spotlight” area on the Institute’s Web site informs members about the proposed ethics enforcement enhancements members will be asked to vote on later this year ( www.aicpa.org/enforcement/ ). It includes an overview of the current AICPA ethics enforcement process, a detailed summary of the proposals, and specific questions and answers.

ENHANCED TRANSPARENCY
The second proposal would establish a policy that allows the PEEC—subject to the council’s review and approval—to provide the public with more relevant and useful disclosure about matters it has investigated. The proposal also would allow the PEEC to disclose the results of an investigation to an individual or body filing a complaint with the Institute. All sanctions currently imposed by the PEEC that result in admonishment, suspension or expulsion are published in The CPA Letter, on the AICPA Web site ( www.aicpa.org ) and—beginning fall 2003—periodically in The Wall Street Journal. Currently, remedial actions taken against AICPA members (for example, private letters of required corrective action) and matters that are closed with no finding or with a finding of no violation are not published or disclosed except to certain government agencies that had referred such matters to the professional ethics division. Individuals who filed complaints against AICPA members found this nondisclosure policy frustrating. While complainants were informed when an investigation had concluded, they were not advised as to how the matter was concluded. The proposal before the membership would allow the PEEC to disclose investigation results to people who filed formal complaints with the AICPA. Those who choose to file complaints should be able to find out the results of the investigation.

Providing the public with more relevant and useful information about ethics investigations and disclosure of the results of an investigation to a complainant are both in the public interest and will help to enhance the credibility of the enforcement process.

THE IMPORTANCE OF VOTING
Over the last year and a half the AICPA has made clear that it won’t tolerate violations of the rules of professional practice and that it wants to enhance the quality of services members provide. The Institute remains committed to these causes. Moreover, the public counts on the profession’s integrity, objectivity and competence, and it trusts that CPAs will do the right thing. So, it’s essential the disciplinary process promote professional conduct that fulfills those expectations and gives the public the confidence to rely on AICPA members. Because these proposals are an important part of enhancing ethics enforcement, it’s imperative that every member understand them. Members’ support and favorable vote will demonstrate their commitment to the profession’s core values.

Comparison of AICPA Current Enforcement Process to Proposed Enhanced Enforcement Process
Proposal: Enforcement policy concerning disciplinary actions of state boards of accountancy and approved governmental agencies and other organizations.

Current process Enhanced process Comments
State boards of accountancy.

Whenever a state board of accountancy suspends, revokes, withdraws or cancels a member’s certificate, permit or license to practice public accounting as a disciplinary measure, the AICPA automatically suspends or terminates his or her membership in accordance with current bylaws.

State boards of accountancy.

Whenever a state board of accountancy suspends, revokes, withdraws, or cancels a member’s certificate, permit or license to practice public accounting—or the member surrenders such license—as a disciplinary measure, the AICPA automatically suspends or terminates his or her AICPA membership in accordance with current bylaws. (same as current process).

 
If a state board instead metes out any other disciplinary or remedial sanction or penalty (for example, censure/admonishment, monetary penalty or cease and desist order), the PEEC conducts an investigation of the member. If a state board instead metes out any other disciplinary or remedial sanction or penalty (for example, censure/admonishment, monetary penalty or cease and desist order), the member would be automatically disciplined. Requires revision of AICPA bylaw 7.3.2 and conforming changes to bylaw 7.4.5. The sanction under the enhanced process would be determined by the professional ethics executive committee (PEEC) based on its evaluation of publicly available information and specific sanctioning guidelines developed by it and approved by the AICPA board of directors.
Governmental agencies and other organizations. Governmental agencies and other organizations.  
Whenever a governmental agency, such as the SEC, or other other organization that has the authority to regulate accountants publicly restricts or prohibits a member from practice before it or another governmental agency or from serving as an officer, director, or trustee of any entity, the PEEC conducts an investigation of the member. Where the governmental agency or other organization that has the authority to regulate accountants has been approved by the PEEC and the board of directors as having an acceptable disciplinary mechanism in place, the member would be automatically suspended or terminated from the AICPA. Requires revision of AICPA bylaw 7.3.2 and conforming changes to bylaw 7.4.5.
If the governmental agency or other organization that has the authority to regulate accountants instead metes out any other disciplinary or remedial sanction or penalty (for example, censure/admonishment, monetary penalty or cease and desist order), the PEEC conducts an investigation of the member. If the governmental agency or other organization that has the authority to regulate accountants instead metes out any other disciplinary or remedial sanction or penalty (for example, censure/admonishment, monetary penalty or cease and desist order), the member would be automatically disciplined. The sanction under the enhanced process would be determined by the professional ethics executive committee (PEEC) based on its evaluation of publicly available information and specific sanctioning guidelines developed by the PEEC and approved by the AICPA board of directors.
The AICPA member can appeal to the joint trial board, asking that the automatic disciplinary provisions of the bylaws not become operative and that the PEEC be allowed to conduct a full investigation of the matter. The AICPA member can appeal to the joint trial board, asking that the automatic disciplinary provisions of the bylaws not become operative and that the PEEC be allowed to conduct a full investigation of the matter (same as current process).  
The PEEC does not have the ability to appeal the automatic provisions of the bylaws. The PEEC would have the ability to appeal to the joint trial board, asking that the automatic disciplinary provisions of the bylaws not become operative and that the PEEC be allowed to conduct a full investigation of the matter. Would be used by the PEEC, for example, in cases where the disciplinary body suspends the member but the PEEC believes the nature of the misconduct was egregious and should possibly result in expulsion or in cases where the disciplinary body permanently restricts a member from practice but the PEEC believes the sanction was too severe. Requires revision of AICPA bylaw 7.3.2 and conforming changes to bylaw 7.4.5.
Proposal: Enhanced Transparency of Disciplinary Findings
Current process Enhanced process Comments
The complainant (where there is one) is notified that an investigation has been concluded but is not advised of the PEEC’s decision. If the investigation results in publishing of a sanction (for example, suspension or expulsion), the complainant may be referred to the published account of the matter on the AICPA Web site. All other PEEC decisions, including findings of no violation, remain confidential. The complainant would be notified that the investigation has been concluded and of the results of the investigation, including remedial action (such as required CPE) or no violation. Requires revision of AICPA bylaw 7.6.
The published account of a disciplinary matter includes the respondent’s name, his or her city and state of residency, description of the charges and terms of the settlement agreement. The PEEC would have the flexibility to disclose more information about a matter investigated, subject to the council’s review and approval. Requires revision of AICPA bylaw 7.6.

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