AICPA Code Of Professional Conduct Research Articles

Afraid to Lose the Client: Client Advocacy Juxtaposed with the AICPA Code of Professional Conduct

ABSTRACT Stretching the bounds of the client advocacy role beyond what is sound, credible, and/or reasonable may threaten compliance with the AICPA Code of Professional Conduct (Code) (ET 1.140.010.03). Students evaluate real-life requests of a CPA to determine whether the client advocacy role was stretched and violated compliance with the Code. More specifically, students apply the Code’s principles, select rules of conduct, and threats to analyze and evaluate a CPA’s responses to her client’s requests that she provide bankers with financial and other information and reclassify income as debt. Student perceptions and knowledge pretests and post-tests indicate completion of the case increased students’ knowledge about the Code and required them to apply analytical and critical thinking skills. In addition, students believe the completion of the case was enjoyable and provided a valuable learning experience. Data Availability: Anonymous data are available upon request. JEL Classifications: M410; M420.

Risk and Control Considerations in Attestation Engagements: The Auditor’s Role in the Academy Awards

ABSTRACT This case introduces students to engagement planning, risk management, independence, and execution in the setting of attestation engagements by examining the auditor’s role in the Academy Awards (also “the Oscars”). Specifically, this case focuses on an error made by PwC during the 89th Academy Awards ceremony in 2017, which resulted in the announcement of the wrong “Best Picture” winner (“the error”). Students are required to research attestation engagements and the AICPA Code of Professional Conduct, analyze the benefits and risks associated with the Oscars engagement, evaluate the controls that were in place, and think critically about what additional control considerations may have prevented the error. Finally, students are asked to assess the potential consequences of this error for the engagement partners, the firm, and its clients. The visibility of this error is a unique opportunity to evaluate the roles and responsibilities of accountants in practice.

Ethical perspectives of certified public accountants and the cannabis industry

BackgroundCertified public accountants must follow very high standards of ethical conduct as set forth by the AICPA Code of Professional Conduct and individual state licensing requirements. A 2019 grounded theory qualitative study posed that CPAs remain largely hesitant to serve the cannabis industry primarily because they fear federal prosecution as long as cannabis remains on the DEA’s Schedule I Drug List. The purpose of this research was to determine the perceptions of CPAs regarding providing accounting services to the cannabis industry in states that have legalized cannabis usage. This study investigated whether CPAs would serve the industry, why they might decline to serve the industry, what risks they believe serving the industry posed, and whether they believe serving the cannabis industry would create a moral or ethical issue.MethodsThis follow-up quantitative study investigated a small convenience sample of approximately one hundred CPAs in Colorado and Washington to learn more about their perceptions of serving the cannabis industry. Data was analyzed using chi-square and Mann-Whitney U tests to determine if there were any differences in perceptions between groups such as states, gender, and age categories.ResultsOf the participants, 77% responded that neither they nor their firm provided services to a cannabis-related business client compared to 23% that did serve cannabis clients. More Colorado CPAs were willing to turn down CRB work than were expected and fewer Colorado CPAs would be willing to take on CRB clients than were expected. While in Washington, fewer CPAs would turn down RB clients than expected, and more are willing to accept CRB clients than were expected. The risk due to potential liability coverage issues due to serving the cannabis industry was rated the highest while the risk of losing the CPA license was rated lowest. Data indicated that there was not a statistically significant difference between Colorado and Washington participants related to whether they were morally or religiously opposed to working in the industry or if they viewed serving the industry as an ethical violation.ConclusionCPAs remain largely unwilling to serve the cannabis industry primarily because CPAs fear federal prosecution as long as cannabis remains on the DEA’s Schedule I Drug Listing. The results of this study indicate that while most CPAs are not morally or religiously opposed to serving the industry, about half still believe doing so may constitute an ethical violation for a CPA.

Book Reviews

Book Reviews

Statewide Adoption of the AICPA Code of Professional Conduct: A Review of Recent AICPA Disciplinary Actions

This study reviews the AICPA disciplinary process and examines a recent sample of disciplinary actions taken against practitioners for ethics violations. Trends related to enforcement and disclosure of actions are inspected and additional details are provided based on state codes of conduct. We consider the effects of uniform statewide adoption of the AICPA Code of Professional Conduct for CPAs, as recently encouraged by the AICPA and NASBA. We find 43% of state accounting boards have formally adopted the AICPA Code of Professional Conduct, 35% have not adopted the Code and 22% have partially adopted the Code. The three states with the highest number of disciplinary actions are New York, California and Texas, none of which have adopted the Code. Of the top ten states with the greatest number of enforcement actions, only two have formally adopted the Code. The most common type of investigation in the sample is an automatic disciplinary provision by the AICPA. Dispositions for violations appear to be getting more severe, with admonishments declining and settlements, terminations and suspensions taking its place.

The Professional Ethics Exam and Acts Discreditable: An Introductory Assignment

ABSTRACTThis practice-oriented assignment familiarizes accounting students with their states' professional ethics exam and illustrates the disciplinary proceedings process resulting from failed ethics. Part I of the assignment requires students to research their states' professional ethics exam requirements. Part II of the assignment asks students to select current disciplinary actions, review the affiliated disciplinary proceedings, apply relevant sections of the AICPA Code of Professional Conduct, and evaluate the appropriateness of the consequences. Survey responses from 322 accounting students suggest that prior to this assignment most students are unaware of an ethics requirement for initial CPA licensure. Students perceive that the assignment effectively exposes them to the AICPA Code of Professional Conduct and violations experienced by practicing CPAs. The majority of students surveyed believe the assignment is valuable, interesting, enjoyable, and improves their understanding of “ethics in practice.”

Taylor’s Dilemma

This instructional case explores ethical and leadership issues within the context of public accounting. The case examines one senior manager in a public accounting firm who failed to receive an anticipated promotion to partner and the resulting discussions and actions that follow. The primary objectives of the case are (1) to increase students’ awareness of select ethical issues commonly faced by auditors as they attempt to serve the public trust, their clients, and their firms, and (2) to consider their own value system in relation to the issues identified in this case. The secondary learning objectives are to (1) increase students’ knowledge of the AICPA Code of Professional Conduct / IESBA Code of Ethics, (2) encourage consideration of the impact of ethical and unethical behaviors by auditors on others within the profession, and (3) illustrate how leadership within an organization influences the behaviors of others.

What YouDoKnowCanHurt You: An Instructional Case Requiring Application of Professional Standards to an Ethical Dilemma Facing an Auditor and Tax Preparer

SUMMARYThis instructional case, based on a real-life experience, introduces students/professionals to an ethical dilemma faced by a CPA who serves as both an auditor and a tax preparer for related parties. The CPA becomes aware of a large amount of gambling activity undertaken by an individual income tax client who is employed as the executive director of the local branch of a national charitable organization. The local branch also happens to be an audit client of the CPA. Through the case, students/professionals gain an understanding of and appreciation for a realistic ethical dilemma faced by a CPA who also prepares personal income tax returns for related parties. To help the CPA resolve the issues in this case, students/professionals must understand and apply relevant professional standards, including the AICPA Code of Professional Conduct, AU-C Section 240 “Consideration of Fraud in a Financial Statement Audit,” and IRS Circular 230 “Regulations Governing Practice Before the Internal Revenue Service.” A survey questionnaire administered to students who completed the case during an upper-level accounting course suggests that students found the case to be an enjoyable and valuable learning experience that helped them to recognize personal and professional ethical issues facing auditors and tax professionals, as well as to access and apply professional standards to such ethical issues.

Ethical Exemplification and the AICPA Code of Professional Conduct: An Empirical Investigation of Auditor and Public Perceptions

This research applies the impression management theory of exemplification in an accounting study by identifying and measuring differences in both auditor and public perceptions of exemplary behaviors. The auditors were divided into two groups, one of which reported self-perceptions (A-S) while the other group reported their perceptions of a typical auditor (A-O). There were two separate public groups, which gave their perceptions of a typical auditor and were divided based on their levels of accounting sophistication. The more sophisticated public group was comprised of bank loan officers (LO) while the less sophisticated public group consisted of investment club members (IC). Comparisons were made on 30 behaviors contained in the AICPA Code of Professional Conduct, which served as the basis for the research instrument. Profile analysis, a special form of MANOVA technique, was used to analyze the results. A-S perceptions were the highest of the four treatment levels and were significantly higher (i.e., more exemplary) than the perceptions of both the A-O and LO groups. The more sophisticated user group (LO) provided the lowest perceptions of the four treatment levels. For at least four of the six measures, the LO treatment group perceived the typical auditor to be less exemplary than both the IC and A-O treatments. There were no differences in perceptions between the A-O group and IC. Additional analysis revealed that auditors overrated the degree to which the public relied on financial statements. However, both public groups reported a reasonably high level of reliance on financial statements when making decisions.

Ethical Principles vs. Ethical Rules: The Moderating Effect of Moral Development on Audit Independence Judgments

Abstract:Recent calls have been made to move professional standards to a more principles-based perspective, supposing that emphasizing broad principles would eliminate the legalistic focus that rules may encourage, and accountants’ behavior would be more ethical and uniformly so. However, this supposition has yet to be empirically tested. The AICPA Code of Professional Conduct (Code) provides guidance in both forms: principles and rules. This experiment examines how the form of the Code affects independence judgments in a client acceptance context. We also examine the potential for levels of moral development to influence the effectiveness of the Code. We find that subjects are more likely to consider their independence impaired, and are more likely to reject a questionable audit engagement, when rules-based (principles-based) reasoners are provided with Code rules (principles). Given the popularity of the view that rules-based standards are undesirable, these findings have significant implications for the profession as principles-based ethical standards are discussed.

Should Rule 501 (Acts Discreditable) of the AICPA Code of Professional Conduct be Repealed? A Philosophical Look at a Practical Ethical Question

Rule 501 (Acts Discreditable) of the AICPA's Code of Professional Conduct prohibits certain activities. Ostensibly aimed at protecting the public, Rule 501 is sometimes used to protect the public accounting profession, either at the expense of the general public or at the expense of some individual who might have done nothing to harm either another individual or the accounting profession. This article discusses Rule 501 from several economic and ethical perspectives and takes a look at the rent-seeking aspects of the rule.

Heroes as a Context for Teaching Ethics

Various external pressures from accrediting and regulatory bodies emphasize the importance of teaching ethics in business and accounting curricula. Traditional approaches to teaching ethics in accounting include philosophy-based approaches with case studies, critiques of unethical behavior, and study of the AICPA Code of Professional Conduct (1992). In the present study, a method that makes ethical behavior salient to the students is described. The study of ethics is introduced with an assignment that requires each student to identify his or her personal hero. The hero then serves as a personal model for ethical behavior in the formal study of professional ethics. Evidence suggests that heroes may be proxies for an individual's personal value system, externalizing a moral code that can be referred to time and again. Although presented here in an accounting context, the heroes approach is transferable to all business disciplines.

Truth or Consequences: A Study of Critical Issues and Decision Making in Accounting

This study applies a theoretical framework, the theory of reasoned action, to the examination of unethical decision making in job-related situations encountered by CPAs. A survey methodology was employed in which respondents were asked to use both self-reported and randomized response techniques for reporting unethical behavior. The results indicate that individuals are unwilling to accurately report either unethical behavior or intention, particularly in situations where there is no question as to the unacceptability of the action or the potential penalty as presented in the AICPA Code of Professional Conduct. Implications for the accounting profession and research are discussed.

Influencing Ethical Development: Exposing Students to the AICPA Code of Conduct

Although the AICPA Code of Professional Conduct emphasizes the importance of education in ethics, very little is known about how and when the Code and the topic of ethics can be presented to enhance the effectiveness of ethics-oriented education. The purpose of this research was to provide preliminary evidence about the ethical development of students prior to, and immediately following, such courses. We found that: (1) accounting students, after taking an auditing course which emphasized the AICPA Code, reasoned at higher levels than students who had not taken the course; (2) there were no differences in moral reasoning levels when accounting and non-accounting majors were compared prior to an auditing course; and (3) there was a significant relationship between the Seniors' levels of ethical development and the choice of an ethical versus unethical action. It was concluded that an auditing course emphasizing the 'spirit' of the Code can have a positive impact on the ethical behaviour of some of the future members of the accounting profession.

The Code of Professional Conduct: Instructional Impact on Accounting Students' Ethical Perceptions and Attitudes

Abstract A profession's code is important not only for assurances of technical competence but also for socialization into the profession. In this study, the ability of accounting students to evaluate ethical professional behavior after receiving instruction in the AICPA Code of Professional Conduct was investigated. Also, the socialization of accounting students into the profession was assessed by examining their judgments as to the ethical behavior of practicing CPAs. The findings indicate that even limited ethics instruction can alter student perceptions of behavior. Time after instruction appears to be an important element, perhaps indicating the necessity for students to internalize the learning experience as well as for the increased socialization taking place during the intervening period.