Code of Professional Ethics and Conduct - Essay Example

? OF PROFESSIONAL ETHICS AND CONDUCT Table of contents Introduction 2. Case for Section 102 – Integrity and Objectivity (James W. Kingery of Lubbock, Texas) 3. Case for Section 201- Professional Competence (Bruno A Fedele, Jenkintown, Pennsylvania) 4. Case for Section 202 – Compliance with Standards (David Beck of Lexington) 5. Case for Section 501 – Acts Discreditable (Stuart Becker of New York) 6. Conclusions 1. Introduction The Code of Professional Ethics and Conduct provides certain specific guidelines for accounting practitioners in their professional career. It is based on these guidelines they are supposed to fulfill obligations of their clients thereby keep up the standards of the Apex Body. Each and every member of AICPA should be aware of the Interpretations, disciplinary actions and code of conduct thereby providing framework to work and provide desired results without affecting the ethical codes. This paper discusses in detail specific rules related to CPA Code of Ethics and Conduct focusing on : Section 102 – Integrity and Objectivity Section 201- Professional Competence Section 202 – Compliance with Standards Section 501 – Acts Discreditable Each section dscusses a separate cases on the expectation of code and its violation, the disciplinary action involved, prospects for AICPA to prevent breach in the above codes and personal viewpoints on disciplinary actions taken. 2. Case for Section 102 – Integrity and Objectivity (James W. Kingery of Lubbock, Texas) The sectoin 102 includes the following sub sections namely, 102-1 Knowing misrepresentations in the preparation of financial statements or records. 102-2Conflicts of interest 102-3 Obligations of a member to his or her employer’s external accountant 102-4 Subordination of judgement by a member 102-5 Performing educational services 102-6 professional services involving client advocacy Violation of code (102-1) From the case study of James W. Kingery of Lubbock, Texas, it is seen that Mr. James W Kingery of Lubbock, Texas under AICPA by laws had intentionally misrepresented facts making misleading or deceitful statement to board staff (AICPA, 2011) Disciplinary action Mr. Kingery’s membership was terminated by the apex body (AICPA) for misrepresentation of facts. Discussion The decision taken by AICPA is apt according to the disciplinary procedures as upon misrepresentation of facts and figures of a company, it is the welfare of the end consumer. i.e. the Investor which is being questioned. The investors take their major investment decisions based on the financial statements and other details provided by the company, and this being misrepresented can lead to negative results for the investor thereby leading to huge losses or even closure of funds. Simultaneously, the same situation can arise for the company as it can lead to cooking up books and creating a bubble which can burst at any given point of time creating losses for end number of institutional and retail investors. Hence, a professional CPA appointed by the company has to comply with the standards and norms and it is his responsibility to educate the management about the consequences of misrepresentation of facts, which unfortunately Mr.Kingery failed to implement. Hence, the decision taken by AICPA stands to be apt for the unethical behavior of the member. Prospects for AICPA to prevent misrepresentation of facts Create database of companies who have hired CPA’s and perform second line audit activities on a regular basis to ascertain deviations by keeping the CPA framework . A post mortem review by Apex body would be advisable thereby limiting the liability of CPA and minimize the chances of fraudulent practices to arise in the organization. (Mortimer, 2003) 3. Case for Section 201- Professional Competence (Bruno A Fedele, Jenkintown, Pennsylvania) Professional Competence is the ability to perform professional services that is based on professional standards through application of knowledge and skill with proper diligence (Mele, 2005). A CPA member is not liable in case of errors in judgment. Professional competence involves sound technical knowledge on subject, member’s ability to supervise and evaluate the quality of work performed. In certain scenarios, additional research or consultation is required which does not mean his or her lack of competence but is considered as normal part of professional service. Meanwhile, if the member really lacks competence, he should be fair enough to inform the same to the client based on which alternate measures can be taken. Violation of code 201 according to institute’s by-laws Mr. Bruno A Fedele , Jenkintown, Pennsylvania was suspended due to professional incompetence (AICPA. 2011). He undertook to perform professional services but failed to complete the professional competence required in terms of the professional care and supervision required, planning of performance and data availability for recommendations. Disciplinary Action Mr. Fedele was suspended from AICPA membership for a period of 30 days. Discssion Mr.Fedele should have been suspended temporarily from membership of AICPA for a period of 90 Days. He should have clearly understood the professional service to be delivered before taking up the assignment. Second, he did not inform to his client that he was incompetent in the particular professional service to be provided. Prospects for AICPA The member should submit a preliminary report on the professional service to be rendered which has to be evaluated by the Apax body . once this is approved he or she can go ahead and start providing professional service. Meanwhile, the client should clearly define their needs and requirements before the professional service agreement takes place in order to avoid deviations in objectives. 4. Case for Section 202 – Compliance with Standards (David Beck of Lexington) A member who performs auditing, management consulting, tax and professional services should comply with standards set by the bodies designated by the council. The main bodies empanelled to the committee includes, Federal Accounting standards Advisory Board, Financial Accouting Standards Board, Governmental Accounting Standards Board, Public Company Accounting Oversight Board, International Accounting Standards Board, Auditing standards Board, Attestation Standards, Management Consulting Services ,Tax Executive Committee, Forensic and valuation services executive committee. Violation of code 202 Mr.David Beck of Lexington , KY , according to information obtained by Ethics Charging Committee a potential disciplinary matter arose against Mr. Beck in connection with audit of a particular entity (AICPA. 2011). Based on Code 202, the Auditor failed to adequately supervise the planning and conduct of the agreement / assignment as well as the documentation aspects. Settlement agreement As a matter of disciplinary action taken by the Apex Council, Mr. Beck entered into settlelement agreement on the following terms: To waive his rights of hearing according to AICPA by laws. Neither admit nor deny the specified charges. Comply immediately with professional standards and submit evidence of such compliance. Suspension for a period of 2 years. ECA shall publish his name, charges and terms of agreement. Complete 40 hours of GAAP related professional training within 12 months Complete AICPA’s 8 hours Comprehensive Ethics course. Provide attestation every 6 months for 3 years saying he is not performing attestation services. Induct an outside party to review his work for a period of 1 year. Prohibited from performing peer reviews till all directives are met. Discussion AICPA’s agreement is perfectly in sync with the action to be taken as it gives an opportunity for the member to work backwards and correct the mistakes meanwhile gets an opportunity to strengthen his academic perspective. Prospects for AICPA In case of third party services provided to clients, the member still will be responsible for review, checks and documentation. Periodic inspection of documents, and due diligence required to be performed by AICPA on member’s work where discrepancy occurs. 5. Case for Section 501 – Acts Discreditable (Stuart Becker of New York) This code involves the following sub sections namely: Response to requests by clients and former clients for records Discrimination and harassment in employment practices Failure to follow standards and/or procedures or other requirements in governmental audits Negligence in the preparation of financial statements or records Failure to follow requirements of governmental bodies, commissions, or other regulatory agencies Solicitation or disclosure of CPA examination questions and answers Failure to file tax return or pay tax liability Failure to Follow Requirements of Governmental Bodies, Commissions, or Other Regulatory Agencies on Indemnification and Limitation of Liability Provisions in Connection With Audit and Other Attest Services Violation of Code 501 Mr.Stuart Becker of New York failed to file tax return or pay tax liability. This happened due to lack of internal controls in place which led to untimely filing of payroll tax returns that were withheld from employees. Settlement agreement To waive his rights of hearing according to AICPA by-laws Neither admit nor deny the specified charges Comply immediately with professional standards and submit evidence of such compliance. Suspension for a period of 2 years. complete the 8 hour self-study course, Professional Ethics ECA shall publish his name, charges and terms of agreement ECA shall monitor compliance with the norms in agreement and in case of discrepancy shall initiate investigation. Discussion AICPA ‘s charges are more or less similar to the charges framed for Code 202, suspension of member can be reduced to a period of 1 year as 2 year horizon is not fair enough for violation in terms of failure in filing tax returns on time. Prospects for AICPA It would be advisable to reduce to suspension timeframe to 1 year, along with a reasonable fine which could sum upto 5-10% of the taxable amount. This ensures fast and speedy disposal of issues in similar domain. 6. Conclusions Above are few instances of certain Sections formed by the Apex Body which shows violations made by the members and few insights on the legal formalities and disciplinary actions involved. Each and every member before taking up assignments should have a look at the disciplinary actions ,its reasons and interpretations and then give commitments to clients. The CPA profession is highly considered as ethical and professional thereby strict actions will be taken in case of violations , primary reason being members are supposed to know the consequences of violations of ethical code of conduct. Over time, more stringent rules and regulations are supposed to be amended by the apex body to contain such ill ridden practices. REFERENCES AICPA. (2011). Section 102 – Integrity and Objectivity. Retrieved from: http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_102.aspx AICPA.(2011). Section 201- Professional Competence. Retrieved from: http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_200.aspx#et_201_interpretations AICPA. (2011). Section 202- Compliance with Standards. Retrieved from: http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_202.aspx AICPA. (2011). Section 501 – Acts Discreditable. Retrieved from: http://www.aicpa.org/Research/Standards/CodeofConduct/Pages/et_500.aspx#et_501 AICPA.(2011). Discplinary Action: James W. Kingery of Lubbock, Texas. Retrieved from http://www.aicpa.org/forthepublic/disciplinaryactions/pages/2011disciplinaryactions.aspx#kingeryj AICPA (2011). Discplinary Action: Bruno A Fedele, Jenkintown, Pennsylvania. Retrieved from http://www.aicpa.org/forthepublic/disciplinaryactions/pages/2011disciplinaryactions.aspx#kingeryj AICPA (2011). Discplinary Action: David Beck of Lexington. Retrieved from http://www.aicpa.org/forthepublic/disciplinaryactions/pages/2011disciplinaryactions.aspx#kingeryj AICPA (2011). Discplinary Action: Stuart Becker of New York. Retrieved from http://www.aicpa.org/forthepublic/disciplinaryactions/pages/2011disciplinaryactions.aspx#kingeryj Mele, D. (2005).Ethical Education in Accounting: Integrating Rules, Values and Virtues. Journal of Business Ethics, 57(1), 97-109 Read More