Ethics are a cornerstone of the CPA profession. Indeed, part of what makes a CPA special is the adherence to a code of professional ethics designed to safeguard clients and ensure integrity.
But even CPAs who are well-versed in the AICPA Code of Professional Conduct sometimes have questions about how it should be applied. Engagements aren’t paint-by-numbers affairs; sometimes the unexpected happens. At other times, situations arise that a CPA hasn’t had to deal with before. Or sometimes there are conflicting ethical issues involved in an engagement.
Consider these scenarios:
- A CPA prepares a tax return for a husband and wife. Later, the CPA discovers that the husband and wife have decided to divorce. The husband then asks the CPA not to give the wife copies of the tax returns. Subsequently, the wife asks for a copy of the tax returns. Both the husband and wife are clients—yet they have made conflicting requests. What should the CPA do?
- A CPA in public practice provides professional services for Client Company X. The CPA is later approached by Client Company Y, who wants the CPA to provide professional services for Client Company Y. But the CPA subsequently finds out that Client Company Y is a prospective buyer of some material assets of Client Company X. There may be a conflict of interest because work done for Client Y could affect Client X. Can the CPA do any work for Client Y? If so, what are the limits?
- A CPA firm audits the financial statement of an organization. The organization has asked the CPA firm to provide payroll services for the organization. What services may the CPA firm provide for the organization without impairing independence?
- A CPA performs attestation services for a company whose CEO is John Doe. The CPA, who sells life insurance to individuals as part of his CPA firm’s personal financial planning offerings, finds out that John Doe is interested in buying life insurance. How do rules regarding referral fees or commissions apply when there are two types of engagements for separate but related parties? Also, is there a conflict of interest if the CPA tries to sell John Doe insurance while continuing to perform the attest work?
Though simplified and fictional, these scenarios are inspired by actual ethics-related situations. So how do CPAs get answers to these types of questions?
The AICPA offers a number of resources, starting with the ethics hotline at 888-777-7077. (Questions also can be emailed to the hotline at firstname.lastname@example.org).The Institute receives about 3,000 inquiries a year. As the aforementioned scenarios illustrate, the most common questions revolve around independence, confidential client information, record retention, and conflicts of interest. The hotline is open to both AICPA members and nonmembers. However, most of the calls come from members in public practice.
People who call the hotline are automatically sent to a voicemail box where they are asked to leave their name and number. An AICPA technical manager will subsequently return the call.
The AICPA also offers many ethics-related resources on its website. One of the latest is a compilation of Frequently Asked Questions. It covers general topics such as blind trusts, campaign contributions, disclosure of commissions, and pro bono and below-cost fees. Here are examples of some of the questions answered in the FAQ, which was updated in August 2015:
May a member make a political contribution to the campaign of an individual that is associated with an attest client in a key position or holds a financial interest in the attest client that is material and/or enables the individual to exercise significant influence over the attest client without impairing independence or violating any other rule of conduct?
When is a member required to disclose to a client that a commission will be received under the “Commissions and Referral Fees Rule” (AICPA, Professional Standards, ET 1.520.001)?
Would independence be impaired under the under the “Independence Rule” if a member enters into a non-binding letter of intent to sell his or her practice to a purchaser that is not independent with respect to one or more of the member’s attest clients?
Answers to these, and several other popular questions, can be found in the FAQ document. The answers are based on guidance the AICPA Professional Ethics Division staff provided in response to members’ inquiries. The FAQs are not rules, regulations, or statements of the Professional Ethics Executive Committee and, therefore, are not authoritative guidance.
In addition to the hotline and the general topic FAQ, the ethics division also offers FAQs on other topics, white papers, and toolkits. Links to these resources can be found here, and PDF versions of the Code of Professional Conduct as well as the link to the online version are here.
Alex Granados is a freelance writer based in Raleigh, N.C.
Chris Baysden is the senior manager, newsletters, for the AICPA Magazines and Newsletters team.