AICPA Code of Professional Conduct: Ethics for the CPA Exam
Master the AICPA Code of Professional Conduct for the CPA AUD exam. Covers independence, integrity, objectivity, due care, and the conceptual framework approach.
Structure of the AICPA Code of Professional Conduct
The AICPA Code of Professional Conduct establishes the ethical standards for all AICPA members and is one of the most heavily tested topics on the CPA AUD exam. The Code is organized into three parts: Part 1 applies to members in public practice, Part 2 applies to members in business, and Part 3 applies to other members. Each part contains principles, rules, and interpretations. The Code also employs a conceptual framework approach to help members identify, evaluate, and address threats to compliance with the rules.
The Principles
The principles provide the framework for the rules and guide members in the performance of their professional responsibilities. The six principles are: responsibilities (exercising sensitive professional and moral judgments), the public interest (acting in a way that serves the public interest), integrity (maintaining the highest sense of integrity), objectivity and independence (maintaining objectivity and being free of conflicts of interest), due care (observing technical and ethical standards), and scope and nature of services (determining whether the scope and nature of services are consistent with the principles).
Independence
Independence of Mind and Appearance
Independence is perhaps the most critical ethical requirement for auditors. Independence in mind means the state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgment. Independence in appearance means the avoidance of circumstances that would cause a reasonable and informed third party to conclude that the member's integrity, objectivity, or professional skepticism has been compromised.
Threats to Independence
The conceptual framework identifies seven categories of threats to independence: self-review threat (reviewing one's own work), advocacy threat (promoting a client's interests), adverse interest threat (opposing a client's interests), familiarity threat (being too sympathetic due to a close relationship), undue influence threat (being influenced or coerced by the client), financial self-interest threat (having a financial interest in the client), and management participation threat (assuming management responsibilities). Members must evaluate whether these threats are at an acceptable level and apply safeguards when necessary.
Specific Independence Rules
The Code contains detailed rules on financial interests, business relationships, family relationships, employment relationships, and non-attest services. Key provisions include prohibitions on direct financial interests in attest clients, restrictions on close relatives holding key positions at attest clients, prohibitions on assuming management responsibilities for attest clients, and requirements regarding the provision of non-attest services such as bookkeeping, tax, and consulting.
Integrity and Objectivity
Members must be free of conflicts of interest, must not knowingly misrepresent facts, and must not subordinate their judgment to others. These requirements apply to all members in all professional activities, not just attest services. A member who prepares financial statements must not knowingly misrepresent facts even when the member is not performing an attest engagement.
Due Care and Competence
Members must exercise due professional care in the performance of professional services, which includes the obligation to perform services competently. If a member does not have the competence to complete a particular engagement, the member may accept the engagement if the member takes steps to gain the necessary competence or associates with another professional who has the needed competence. Members must also maintain competence through continuing professional education.
Acts Discreditable and Other Provisions
The Code prohibits acts discreditable to the profession, including discrimination and harassment, failure to comply with governmental bodies' requirements, negligence in preparing financial statements or records, failure to file a tax return or pay a tax liability, solicitation or disclosure of CPA exam questions and answers, and failure to comply with applicable standards. Members must also maintain client confidentiality and may not disclose confidential information without the client's consent except in specific circumstances.
The Conceptual Framework Approach
When the Code does not specifically address a particular situation, members apply the conceptual framework to identify threats to compliance, evaluate whether those threats are at an acceptable level, and apply safeguards to reduce unacceptable threats. If adequate safeguards are not available, the member must decline or discontinue the professional service or decline the relationship.
CPA Exam Focus Areas
- Know the seven categories of threats to independence and be able to identify examples of each in exam scenarios.
- Understand that direct financial interests in attest clients are always prohibited, regardless of materiality.
- Independence is required for audits, reviews, and other attestation engagements but not for compilations (though lack of independence must be disclosed).
- The conceptual framework applies when the Code does not specifically address a situation. Be prepared to apply it to novel scenarios.
- Members must not assume management responsibilities for attest clients, including making decisions, directing employees, or establishing policies.
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