Discreditable Acts That Violate the Ethical and Professional Standard in CPA - Essay Example

In any profession, a certain set of rules are put in place to ensure there is a high integrity and professionalism in the code of conduct. Accounting and Finance being a profession that involves money handling, it necessitates for a governing body that offers a directive on how to conduct duties in a way that is credible, honest and ethical to avoid violation of the practice. The creation of the American Institute Certified Public Accountants (AICPA) was aimed at setting, regulating and implementing standards in the Code of conduct of its members who are both Certified Public Accountants (CPAs) and those who are private. The members are expected to have high levels of integrity, client confidentiality and competence in ways that do not infringe on the public interest while providing financial services (Lee). Despite having AICPA in place, there are several challenges that are still encountered in this profession ethically and professionally. Members are still involved in acts that are considered discreditable. I will tackle these challenges that generate discreditability in this profession by citing a situation that shows the responsibility of a CPA, and things that can lead to an irregular practise or an act that is not ethically acceptable. AICPA has implemented Acts that prohibit discreditable acts and has a rule that states: “A member shall not commit an act discreditable to the profession" (McGee1, p654). Several Interpretations of this Rule have also been made and the law is also known as Rule 501 of the AICPA Code of Professional Conduct. Case study situation Members who are providing personal financial services to the members of the public have specific responsibilities that abide by the AICPA Code of Conduct and what are the consequences of the failure to do as expected of them. A CPA in practice is supposed to be free of conflict of interest and should not misinterpret financial issues knowingly since this will be regarded as an impaired objective. If a member is engaged in a personal financial planning (PFP), the accountant who is the referred to as the member in this case of the AICPA, should not be involved in a financial situation that he or she has interest in. If this occurs, the member should disclose the conflict even if it is potential to the affected clients who will be required to give a consent. In such a situation, if certain standards are not followed, the following will be considered as discreditable acts that do not safeguard the interests of the public (Graham p39). Discreditable Acts that violate the Ethical and Professional Standard in CPA 1. Retaining Client Records When a customer places a request to see and evaluate a financial record of his or her account, a CPA should make it available. If the certified accountant fails to provide such records upon a demand made by a client, it is considered as a violation of rule 501 (ET section 501.01) making this act discreditable to this profession. Even if the statute allows the member to retain certain records, it is still unethical to remain in possession of the records if a demand for acquisition is made by the client involved (McGee1, p654). 2. Misconduct when conducting audits Standard operating procedures should be followed without contradiction when a CPA is conducting audits of any client, be it the government or an individual. It is considered unethical to use the knowledge gained in the field of accounting to manipulate the auditing process to favour some of the parties involved, instead of giving a comprehensive report that has the highest level of integrity. The CPA should not issue an official report on the audit knowing clearly it was done unethically, and the information will be misleading to the parties involved. 3. Sharing of confidential reports In accounting trust is regarded as a feeling, not a control and therefore a CPA should not share any confidential reports with anyone who is not a participant or the client intentionally or unintentionally not even with their immediate family (McGee1, p654). AICPA ethics suggests that the only time a CPA is allowed to share a confidential report he or she should be authorized by a specific authority. It is an ethical thing to do since the client has bestowed immense trust on the CPA, and in return, the CPA should not use his or her position to violate this. A law or statute of the governing body in an open and honest process should compel the disclosure. 4. Negligence in the preparation of Financial Statements If a member of AICPA makes or directs another member to make entries in financial statements that are termed as misleading or of false nature will be considered to have committed an act of discrediting his profession. The act of negligence was committed knowingly with an intention of corrupting the information (McGee1, p655). A member shall be seen as having indirectly done so to obtain a personal advantage, which is going against the ethics related to this profession. It is punishable by having the operating licences of the member or members involved to be revoked. 5. Failure to acknowledge principles and standards Members in any governing body should at all times cooperate with the standards and procedure in place to ensure there is order, integrity, competence, professional and ethical practices while in the line of duty. A member is expected to: (a) To perform auditing practices that are publicly accepted and not necessarily the ones stipulated with the association to avoid unnecessary friction with the ethical rules of the profession. (b) Reports of financial statements should be done within the standards unless there is a disclosure away from the stated principles. (c) A member is expected to take continuous educational courses and engage in development activities as entailed by the governing body. This is to ensure professional growth and competence so that members do not engage in acts that are misleading or false. Failure by a member to do as expected professionally by the Association is regarded as a discreditable act to the profession. 6. Harassment and discrimination in employment practice If a member violates an antidiscrimination law in the United States or having sexually harassed someone while on duty, or using his or her position to influence such a behaviour, will have committed a discreditable act in the profession of accounting. It is not morally acceptable, and the member will automatically lose his/her right to appeal after a hearing, and his presumed to have violated rule 501(ET section 501.01). 7. Known omissions and material discrepancy In case of any discrepancy or omissions in a financial statement, a member is expected to disclose the information with an immediate effect. Failure to do so makes the information misleading due to the omissions done before the provision of the financial report. This information should not be issued to the public, or the client involved whether written or oral since it is false and regardless of the disclaimer of responsibility that the said member has (Graham p38-45). 8. Failure to File a Tax Return or Pay a Tax Liability Federal states have laws and regulations that members are expected to comply with such as filling tax payments and returns on time and must have the permission from the relevant authority to do so. If a member fails to file taxes collected on behalf of others in terms of their payroll, the act will be termed as discreditable to the profession and violates the Acts Discreditable Rule (1.400.001). 9. Use of the CPA Credentials Accountancy Governing Boards formulate laws that regulate and give guidance to member accountants on how to use CPA credentials. If a member fails to follow these accountancy rules, or by not using the CPA credentials under the right jurisdiction, this is considered misleading, false then the member has violated the Acts Discreditable rule in the accountancy profession. (McGee1, p654- 659) Ethical Practice of the Profession Professional ethics entails proper business practices and policies that apply to all aspects of a business conduct. Regarding controversial issues such as bribery, and discrimination there are professionals guided by the law to provide a basic framework that is publicly acceptable. Members of the accountancy associations are expected to have high levels of moral regards when undertaking their duties in this profession fairly and openly in accordance with the laws and statutes that govern their profession (Wueste, p5). Such practices include: (i) Unfair ways of Competing While obtaining clients, members are expected to use correct and fair methods that do not infringe on what is publicly acceptable. Such unfair methods include conspiring while allocating customers and giving false quotations to customers. (ii) Services Provided on Referral When an accountant offers another, a referral shall not provide a different service to a client without the consent of the referring accountant. In the act of fairness, the referring accountant should not hold the consent with unreasonable excuses to the referred accountant. This promotes ethical behavior in conducting accountancy business. (iii) Referral Fees A member in the accountancy field should take precautions in the practice of public accounting especially when handling a referred fee from another accountant since acceptance of such fees may pose a risk in the objectivity and professional competence. Thus, they should disclose to the involved client on any payments and agreements made by the referring accountant. Conclusion With the above evidences, the AICPA Acts of Discreditable Rule 501 does not protect the public from the ethical violation as it purports, since its more self-serving making it lose a place in the Code of Ethics. It is more concerned with private and not public interests since when an accountant violates a client, it is unethical, but it is not a discreditable act to the professional. The accountancy bodies should separate ethics that are acceptable to the public and acts considered discreditable to the profession, to make it have a relevant impact on the code of conduct. CPAs should study the code of conduct effectively to avoid violating it knowingly or unknowingly. Accountants who encourage tax evasion should, for instance, not be allowed to practice. Section 501 in a way promotes injustices and abuse by some authorities since it does not address the ethical issues in this profession (McGee1, p 658) Works Cited Graham, Lynford. Accountants Handbook, Volume 1. New York: John Wiley & Sons. Copyright., 2012. Print. McGee1, Robert W. "ACTS DISCREDITABLE OF THE CODE OF PROFESSIONAL CONDUCT." Journal of Accounting, Ethics & Public Policy (1999). Print. Timothy R. Lee, L. Paul Hood. A Reviewers Handbook to Business Valuation: Practical Guidance to the Use and Abuse of a Business Appraisal. of John Wiley & Sons. Copyright., 2011. Print. Wueste, Daniel E. Professional Ethics and Social Responsibility. New York: Rowman & Littlefield. Copyright., 2013. Print. Read More